In 2008, presidential candidates Hillary Clinton and Barack Obama applied Eisenhower’s trade-offs to the war in Iraq. “Instead of fighting this war …,” Obama told primary voters in Charleston, West Virginia, “we could be fighting to put the American Dream within reach for every American…. For what folks in this state have been spending on the Iraq war, we could be giving health care to nearly 450,000 of your neighbors, hiring nearly 30,000 new elementary school teachers, and making college more affordable for over 300,000 students.”
Clinton spelled out the benefits nationwide for average Americans if $1 trillion spent on Iraq went instead to domestic programs. “That is enough,” Clinton declared, “to provide health care for all 47 million uninsured Americans and quality pre-kindergarten for every American child, solve the housing crisis once and for all, make college affordable for every American student, and provide tax relief to tens of millions of middle-class families.”
Increasingly, members of Congress have been pressing Obama to apply this economic logic to Afghanistan. Tea Party Republicans in the House have joined liberal Democrats in calling for defense cuts and faster withdrawal from Afghanistan. Several national security experts have offered a foreign policy rationale: Reverse mission creep and go back to the original anti-terrorism mission in Afghanistan and forget about building Afghan democracy. With Osama bin Laden dead and buried at sea and with al-Qaeda operating from Pakistan and beyond, these experts say the United States can legitimately declare, “mission accomplished.”
“Afghanistan is no longer a war about vital American security interests,” asserted Leslie Gelb, a former State Department policy maker. “With Osama bin Laden now swimming with the fishes, the U.S. has but one sensible path: to draw down U.S. forces to 15,000–25,000 by the end of 2013, try cutting a deal with the Taliban, and refocus American power in the region on containment, deterrence and diplomacy.”
What Gelb and others are urging is not just a faster pullout from Afghanistan, but a more restrained strategy throughout the Arc of Danger. That approach would reduce the need for our “Empire of Bases,” including what the Obama Administration initially planned as a $6 billion-a-year, later cut to the $3.7 billion-a-year, U.S. embassy in Iraq with its sixteen thousand personnel, including five thousand U.S. military trainers and a force of civilian security contractors.
Political Washington’s recent focus on the national debt has accelerated the push for a less aggressive foreign policy and a smaller U.S. global footprint. As Congress and the White House clashed in 2011 over the national debt, the key question about the Afghan war changed from “Is the strategy working?” to “Can we afford it?”
“We should be working toward the smallest footprint necessary …,” asserted John Kerry, the Democratic chair of the Senate Foreign Relations Committee, and he had the backing of the committee’s ranking Republican, Dick Lugar of Indiana. “Make no mistake, it is fundamentally unsustainable to continue spending $10 billion a month on a massive military operation with no end in sight.”
While Kerry was talking about Afghanistan, his comments conveyed a broader, deeper impulse for the United States to reduce its global military overstretch and to trim its overseas commitments to fit its more modest economic means—a cutback that would provide resources for many programs badly needed by average Americans.
IN ARNOLD TOYNBEE’S ANALYSIS of the rise and fall of human civilizations, we Americans fall among those, like ancient Greece and Rome, whose most dangerous challenge comes from within—from the rifts and schisms that we have allowed to develop within our economy and our body politic in the decades since the peak of our power and prosperity from the 1940s to the 1970s.
The new global economy makes it tempting for Americans to blame China or India or the irresistible sweep of technology and globalization for causing the dangerous divide that imperils America today. But in fact, we Americans have done it to ourselves. We could have protected our country better and provided for our people better by pursuing different strategies and policies that minimized our economic erosion, our glaring financial inequalities, and the weakening of our industrial strength. But we decided to pursue a market strategy and to go our separate ways, and in doing so, we have stretched our social fabric close to the breaking point.
The challenge now is to find our way back to common ground, to rise above the economics of selfishness and the politics of partisan advantage and revenge, and to reknit the bonds of a people committed to building a strong common destiny.
A powerful response must come from all of us. At the commanding heights of business and government, we need to restore the economics of shared prosperity. At the pinnacle of wealth, we need a revived ethic of social responsibility. At the grass roots, we need a renaissance in the politics of citizen action to restore and reclaim the American Dream.
CHAPTER 21
RECLAIMING THE DREAM
A DOMESTIC MARSHALL PLAN: A TEN-STEP STRATEGY
A free people ought not only to be armed but disciplined … and their safety and interest require that they should promote such manufactories as tend to render them independent of others for essential, particularly military, supplies.
—PRESIDENT GEORGE WASHINGTON,
First Annual Message to Congress, January 8, 1790
Today, our most important task is to restart this virtuous cycle of invention and manufacturing…. We need to create at least 20 million jobs in the next decade to offset the effects of the recession and to address our $500 billion trade deficit in manufactured goods.
—SUSAN HOCKFIELD,
president, Massachusetts Institute of Technology
One key to Germany’s success: “The social contract, the willingness of business, labor, and political leaders to put aside some of their differences and make agreements in the national interest.”
—KLAUS KLEINFELD,
Alcoa CEO
FOR THREE DECADES, we have pursued the laissez-faire economics of lower taxes, less regulation, and trust in the market to lift all boats, and we have seen the dangerous schisms this has created. Just in the past two years, there has been a dramatic increase in people’s sense of a class division and a sharp class conflict in America.
To reverse that trend, to heal our schisms, to restore our sense of community, and to rejuvenate our competitive economic strength, we need a new direction and a new agenda—a new political and economic response, in Toynbee’s terms. Changing America’s direction will not be easy. It will happen only if there is a populist surge demanding it, a peaceful political revolution at the grass roots, like the mass movements of the 1960s and 1970s.
In the economy, we need to get the virtuous circle working once again to rebuild middle-class prosperity. That challenge requires a positive response from business—a change in the business mind-set: smart CEOs committed to rebuilding productive capacity at home in America and then sharing more of the fruits of higher productivity with average Americans through higher pay. Even if that means lower dividends for Wall Street and for wealthy shareholders in the short run, everyone will profit in the longer run from a vigorous economy where the spoils are shared more evenly.
And in the world at large, we need to step back from Imperial Overstretch that has exceeded our means and refocus our resources and our energies on regenerating America’s economic might and shared prosperity.
A Domestic Marshall Plan
Many good people from different walks of life sense the need for a new direction. Some top corporate executives have joined economists and political moderates and liberals in calling for a national economic strategy that will generate an American industrial renaissance and revive America’s global competitiveness. Advocating a comeback for manufacturing in America is one issue that Mitt Romney, Rick Santorum, Newt Gingrich, and other contenders for the Republican presidential nomination shared with President Obama.
One group of top corporate executives, the Horizon Project, advocates a domestic Marshall Plan, evoking the gene
rous American aid that put Western Europe back on its feet after World War II by financing reconstruction of its infrastructure and its war-ravaged industry. In other words, a massive collective effort—a public-private partnership sparked at the outset by government initiatives and investments.
“Job creation must be the number one objective of state economic policy,” declares former Intel CEO Andy Grove. “The government plays a strategic role in setting the priorities and arraying the forces and organization necessary to achieve this goal.”
It’s a mistake, says Grove, for America to count on individual companies, even big ones like Intel, to meet the job and growth needs of the nation without government policies that stimulate them to do so. “Each company, ruggedly individualistic, does its best to expand efficiently and improve its own profitability,” says Grove, who ran Intel from 1987 to 1998. “However, our pursuit of our individual businesses, which often involves transferring manufacturing and a great deal of engineering out of the country, has hindered our ability to bring innovations to scale at home. Without scaling [mass production], we don’t just lose jobs—we lose our hold on new technologies…. [We] damage our capacity to innovate.”
Business organizations, such as the Alliance for American Manufacturing and the U.S. Business and Industry Council, as well as organized labor, endorse Grove’s thinking. So do many economists.
New York University’s Michael Spence, a Nobel laureate in economics, explains their logic. Spence has documented how global competition has stunted the growth of the “tradable” sectors of the U.S. economy—the industries that make cars or cellphones or energy equipment and that are directly exposed to foreign competition. Their poor performance, Spence explains, has left nearly 98 percent of America’s job growth since 1980 to the lower-paid health care, service, and public sectors, the so-called nontradable sectors where work has to be done locally. These domestic-oriented sectors have generated 26.7 million of the 27.3 million new jobs in the United States from 1980 to 2008. But those sectors face dim prospects for future growth, Spence asserts, and so America needs “to devote public funding to developing infrastructure and the technological base of the U.S. economy with the specific goal of restoring competitiveness and expanding employment in the tradable sector.”
To the free market thinking that has dominated our politics and our economics for three decades, the Grove-Spence approach is anathema. Market advocates reject the very idea of a national economic strategy as heresy. Government involvement in the economy, they argue, amounts to Washington’s picking winners and losers. That, they contend, is un-American. It goes against the grain of American history.
But that’s not really true.
From George Washington to George W. Bush: A Government Industrial Policy to Spur America’s Growth
The Founding Fathers, and many other American presidents from both major political parties, have favored what other nations call an “industrial policy.”
Not only did George Washington make a point of wearing an American-made suit for his inauguration, when British tailors were reputedly the world’s best, but he advocated a government plan to promote domestic manufacturing against British imports.
In his first annual address to Congress on January 8, 1790, Washington emphasized in words that resonate today: “A free people ought not only to be armed but disciplined … and their safety and interest require that they should promote such manufactories as tend to render them independent of others for essential, particularly military, supplies.”
Washington’s Treasury secretary, Alexander Hamilton, promoted high tariffs and “buy American” policies, endorsed by Washington. Thomas Jefferson, the Virginia plantation owner who was originally an agrarian foe of merchants, switched to Hamilton’s view after the British sacking of the nation’s capital during the War of 1812. That war, Jefferson wrote to a friend, had showed “that manufactures are now as necessary to our independence as to our comfort.” He argued that American industry needed support, contending that “He, therefore, who is now against domestic manufacture, must be for reducing us either to dependence on that foreign nation, or to be clothed in skins, and to live like wild beasts in dens and caverns.” Presidents James Madison, James Monroe, John Adams, and John Quincy Adams, holding similar views, supported subsidies and tariffs to promote domestic industry.
In fact, American history is replete with examples, from the Erie Canal to the transcontinental railroad to the Apollo moon project to the Internet and the GPS, where the government has backed economic and industrial projects to build the nation’s transportation backbone or to create new technologies to enhance America’s competitiveness and then has handed them off to the private sector.
In 1842, Congress awarded Samuel F. B. Morse a $30,000 appropriation to test the feasibility of an experimental telegraph line, and another $10,000 in 1843 to lay a telegraph line from Washington to New York via Baltimore and Trenton, New Jersey. In 1862, Abraham Lincoln got Congress to pass the Pacific Railroad Act, which made huge land grants to railroads that became the springboard for America’s astonishing economic surge in the late nineteenth century. Nearly a century later, in response to the Soviet Sputnik space shot, Dwight Eisenhower got Congress to vote funds for a nationwide highway network that still serves us today. The nation’s space program, which Eisenhower launched and nine other presidents kept going, generated many of the technologies that led to America’s supremacy in aerospace and computers.
Reagan’s Economic Interventions
Even Ronald Reagan, despite his mocking remark that “government is not the solution; government is the problem,” used governmental power to bolster U.S. industry. When Japanese computer firms threatened American computer chip makers in the early 1980s, the Reagan administration put political pressure on the Japanese government to guarantee U.S. firms a 20 percent share of the Japanese market by initiating an unprecedented trade case against Japan. Reagan persuaded Congress to approve the government’s investment of $1 billion in Sematech, a new public-private partnership with a dozen computer companies, to create “precompetitive” technologies to keep America’s high-tech industry in the vanguard and to prevent the Pentagon from becoming dangerously dependent on foreign suppliers for components of military weapons systems.
Reagan also moved forcefully to protect America’s automakers. When Toyota and Honda made deep inroads into the U.S. car market, Reagan forced a 40 percent devaluation of the dollar, making Japanese imports much more expensive. Then Reagan pressed Tokyo to accept quotas on Japanese auto exports to America and pushed Japanese automakers to set up assembly plants in the United States to generate jobs for American workers.
So there was ample precedent for Barack Obama to extend an $80 billion rescue fund to General Motors and Chrysler during the economic collapse of 2008 with funds that George W. Bush had gotten from Congress to rescue Wall Street banks.
In short, contrary to modern right-wing political rhetoric, presidents of both parties have used government funds and authority to protect American industry and have poured hundreds of billions of dollars into the nation’s transportation, communications, and financial systems. They have fostered the development of new technologies since the dawning of our Republic, though Americans have often remained unaware of the government’s role in what are marketed as private sector innovations.
As CEO of Apple, Steve Jobs won a deserved reputation as the creative and entrepreneurial genius behind many groundbreaking products. But as former Reagan administration trade negotiator Clyde Prestowitz observed, “Virtually everything Jobs has developed—the mouse, Mac/Windows displays, operating systems, touch screens—began in or received support from a government office.”
That is hardly surprising since federal agencies such as NASA, the Departments of Defense, Energy, and Agriculture, the National Institutes of Health, and the National Science Foundation are so large and spend so many hundreds of billions of dollars a year in the economy that there is no such thing
as a free market without government influence. Without announcing it, the United States already has a de facto industrial policy—in effect, picking winners—by pouring life-blood into such huge contractors as Boeing, Lockheed Martin, United Technologies, IBM, Microsoft, Intel, Apple, and hundreds more.
Reconnecting America’s Genius at Innovation with Production and Job Growth
So the question now is not whether, but how—how should the existing influence of government be used most effectively to help the private sector revitalize our economy, to share the economic gains more widely, to create millions of jobs for average Americans, and to make our nation more globally competitive again?
Corporate CEOs such as Jeffrey Immelt of General Electric, Andrew Liveris of Dow Chemical, and former Intel CEO Andy Grove, as well Nobel Prize–winning economists such as Michael Spence, Joseph Stiglitz of Columbia, and Paul Krugman of Princeton declare that we must urgently restore the nation’s industrial strength.
“The United States became the world’s largest economy because we invented products and then made them with new processes …,” asserted MIT president Susan Hockfield. “Today, our most important task is to restart this virtuous cycle of invention and manufacturing…. We need to create at least 20 million jobs in the next decade to offset the effects of the recession and to address our $500 billion trade deficit in manufactured goods.”
The key, these corporate leaders and economists contend, is to reestablish vital connections in our economy in order to reinforce the crucial ways in which America’s genius at innovation translates into economic growth for the nation and job growth for the middle class through large-scale production, which then powers the next generation of innovation, production, and job growth.
Who Stole the American Dream? Page 39