Free Trade Doesn’t Work: What Should Replace It and Why — Book Review

Fletcher, Ian. Free Trade Doesn’t Work: What Should Replace It and Why. (U.S Business & Industry Council: Washington, DC.) 2010.

The title of Mr. Fletcher’s recent book tells you all that you need to know about his views on fixing the United State’s economy. The book is a comprehensive review of how Free Trade got America to where it is, proposed solutions that do not work; and finally his idea of a “Strategic Tariff” that should. He believes that the move to expand free trade and free trade zones between the U.S. and other nations has contributed greatly to the current economic situation. One of the keys to fixing this economy in his opinion is to abandon the various agreements and reestablish control over the U.S. exports and imports.

In Mr. Fletcher’s ideal economy the U.S. will retain a robust manufacturing base. This to him is the only way to generate real growth. He also wants it in the right industries, or “good industries”. (p. 191). These are industries that are capable of absorbing capital and providing growth and return. Not just financial capital but also human, or “skill”. (p. 192). Agriculture while valuable is not a “good industry”. Even though it is possible to grow agriculture it is not possible for it to efficiently absorb technological innovations similar to what manufacturing does. This core of good, well paid manufacturing jobs is the key to a stable economy and political system in Fletcher’s view.

The first half of the book explains why free trade is not working. It is not only the United States but Fletcher demonstrates that large portions of the world are also having their economy fail due to the ideal of free trade. The countries that are prospering in many cases are not playing by the same rules the U.S. has committed to through entities like the World Trade Organization (WTO). He addresses the current theories that support free trade and discusses the reasons they are not accurate or effective. These include free trade opponents are just too stupid to realize the benefits. (pp. 28 – 29). The use of math that doesn’t add up to show that free trade is beneficial. (pp. 30). In Fletcher’s eyes as long as the U.S. runs a trade deficit “Free Trade” is helping to destroy the economy and especially the employment of the U.S. populace.

The middle reviews how in the past the semi-protected domestic economic markets dominated trade among nations and how that system actually worked. Not only in the 1600 – 1900 timeframe but he also explains how post-World War II Japan and China, for example, were able to use import controls to build up industries such as the automotive one that led to large exports now. The policies that those two countries followed have allowed them to become an export based economy. The U.S. abandoned this kind of economy several years earlier and Great Britain a hundred years prior. Mr. Fletcher uses these examples to show how the current state of affairs could have been protected.

He goes on further to describe that despite what would seem to be the history of the free market in the United States industrial policy has been practiced in the past. He uses the example of the transistor to show that innovation may come from large companies, here AT&T. The high technology industry in the U.S. also has benefitted greatly from the investment of the Department of Defense not only in basic research (see “The Internet”) but also through providing large markets for these products. Then those products were transferred to the civil market. To Fletcher this illustrates that industrial policy has had worked in the U.S. economy and certainly could again.

Mr. Fletcher recommends that the way to restore balance to the U.S. economic relations with other countries is the establishment of a “Natural Strategic Tariff”. This would best be executed as a flat tax on all imported goods and services (p. 233). The long term goal of this policy would be to convince manufacturing companies to move their plants back to the United States from their sites in China, Mexico and the other places they have slowly been relocated over time. The rate of the tariff should be high enough that it convinces manufacturers using skilled labor to be in the United States.

In Fletcher’s opinion the key to restarting the U.S. as a manufacturing based economy is the redevelopment of the “good industries”. This means that the United States must go back to building things like semi-conductors, and high tech products such as iPods and computers because they “have the scale economies that cause retainability, high returns, high wages, and all other effects of good industries.” (p. 233). In March of 2010 for example it was estimated that the gross margin of profit on the iPhone was close to sixty percent. That is the kind of product that is able to be made in the U.S.A. and generate sustainable corporate earnings and profit even if the margin was forty percent. This is what Fletcher wants made in the United States with the aid of the Tariff he proposes.

He believes politically that the tide is turning against Free Trade in the United States. The evolution of both the Democratic and Republican parties from 1992 onwards is to be against the use of the WTO and NAFTA. Barack Obama is a candidate who made some noises during the campaign of renegotiating NAFTA and modifying U.S. free trade somewhat. As President he has made no moves that contradict the historic position on free trade but Fletcher feels that with the future shocks coming to the American economy Obama will have the opportunity to move against the current free trade status quo. (p. 264). Senatorial candidate Rand Paul is a libertarian to a point and he has made clear that the United States would be better off if they were not members of bodies such as the U.N., WTO, IMF and the World Bank. If the economy continues to stagnate as it is then more-and-more candidates like Paul will enter elections.

Is their a possibility that the United States can change free trade supporting policies of the last four decades? It will be difficult as it would require the nation breaking treaties, ignoring established world organizations, and possibly becoming protectionist and isolationist. In the opinion of the author for the long term good of the U.S. economy and its people this has to happen.

The book is also available as an MP3 download from Amazon, and may be found here.

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Congressional Research Service Recommends Holding Down Military Pay

February 9, 2009 by · Comments Off
Filed under: Careers, Commentary, Congress, Department of Defense, Events, Federal Budget Process, Services 

The CRS did a review of the future budget plans for the Pentagon and came to the conclusion they were underfunded. The Federal Times writes that one aspect of this review was a recommendation to reduce future military pay raises. Personnel costs are a large part of the defense budget and the operations over the last seven years have only increased those. The military and Congress have also moved to increase pay and benefits due to the stress military personnel have been under. They recommend reducing future raises and targeting special pay and bonuses. To be honest any attempt that looks like the military were being short changed on pay and benefits would not fly with the Congress, or the American people for that matter.

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Defense contract requirements to be loosened

One of the issues that faces any company trying to do business with the US DoD is that the personnel requirements are usually pretty stiff. This is especially true for SETA type work. The military is usually looking to hire experienced people with clearances. This is why you find so many retired military and federal workers as contractors. Getting a clearance has become an issue as the Federal government has been bogged down for years trying to clear people. The easiest way to get one is to join the military; or work for the government. These requirements also make it harder when you are trying to hire someone. Now, the Army in Huntsville has recognized these factors and is making efforts to change them. They are trying to relax the experience and degree requirements to allow newer hires out of college; they are also making it easier to hire interns to get them clearances and experience before they graduate.

See the Huntsville Times for the story.

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The Guardian speaks the truth (and obvious)

A nice article in the UK’s The Guardian paper, here, discusses how the trend in the US defense industry is mergers & acquisitions and protests. This as the article points out is a product of fewer, bigger contracts. Much of the increased defense budgets of the last 8 years have gone to personnel, operations and maintenance, and the reset of existing equipment. Very few large procurements have been ordered, in fact, many of the large programs are winding down such as the C-17 and F-22. The Navy also is buying less ships as they get more and more expensive and the DDG-51 class transitions to the LCS and a new destroyer. In the Clinton years you saw the same process but that was due to the decrease in budgets from the Reagan years leading to less work requiring less companies. Protests were common as there was only so much work to go around. Now it is the same in that once a contract is awarded there is little hope for another one for several years. Whether these trends accelerate with a new administration or not we will have to wait and see until Feb, 2009. It may be like in 1992 there will be two budgets submitted to Congress. One on time by the outgoing President and then an update in the summer.

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Article on Boeing published at Seeking Alpha

Your humble correspondent had an article published at Seekingalpha.com on Boeing. The link is here.

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The Weekly Standard on US Army personnel issues

February 20, 2008 by · Comment
Filed under: Commentary 

This article in The Weekly Standard is an excellent discussion of the problems facing the Army with their officer corps. Due to the heavy rotations of tactical forces through Iraq and Afghanistan you now have company grade and field grade officers, those who lead small groups of troops, with a lot more combat experience then their senior officers. Read more

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Jesse Jackson editorilizes in favor of Boeing for KC-X

In another demonstration of why moving the headquarters of their company to Chicago was a good idea, Boeing gets Jesse Jackson to publish an editorial in The Washington Times in favor of them winning the KC-X contract. See the essay here. The Air Force is supposed to announce the winner by the end of the month. Read more

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Firepower, targeting and intelligence

February 18, 2008 by · Comment
Filed under: Commentary 

The US Military possesses great amounts of precision firepower. Just go on YouTube.com or LiveLeak.com and search for various weapon systems. The ability of the Army, Marines, Navy and Air Force to deliver accurately lethal force has increased in leaps-and-bounds since 1991. Compared to the last major action in Vietnam it has been exponential. This has been due to the availability of the Global Positioning System (GPS). The focus of US weapon developers the last thirty years has been to increase accuracy, to the point where the size of the payload has been decreasing. Unfortunately, if you don’t have good targeting information then accuracy doesn’t matter. Read more

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