Industrial Policy

by Richard the Engineer written from 2010 to today

The Current U.S. Industrial Policy

Those people saying we don’t have an industrial policy are too inside the forest to see any relationship between the forest and the world. Clearly exemplified by the “short-term managerial reward system” we have seen the transformation of American business from entrepreneurial capitalism to accounting centered capitalism. This industrial policy of allowing the financial people to play at business is obviously not suited for long-term prosperity.

Based on finance, not industry

As soon as possible the accountants take over from the original entrepreneurs

Industry becomes a front for the financial guys. It doesn’t matter what is produced.

Unless specifically planned, the ownership of a company will pass to a bunch of accountants who have no idea what the business does except create spreadsheets to make the management important while they drive the business into dust.

Entrepreneurs and accounts (and salespeople) look at problems completely differently. Only the entrepreneur’s view is a building solution.

Only occasionally does a government program help small business. No one helps small business. There is no industrial policy concerning small business.

As long as natural resources could be easily exploited to increase wealth, creating new industries as new technologies came on line. These technologies include the steel industry which created the railroad industry which increased commerce. As these industries matured they passes to accountants. Without broadly increasing industries, like railroads, eventually all of the economy is controlled by people without any idea of how to make their companies work and grow.

The entrepreneurs find it hard to understand why they need to control government. It was several years and a crisis or two for Bill Gates to understand the need to spend money influencing government. Accountants feel it’s one of the most important parts of their business.

One of the most important current policy parameter is the cost of a product is more important than the needs of society. It’s often made into a “religious” issue.

Globalization is not an industrial policy

If both production and consumption are in the same taxing district no trade imbalance would exist. That’s due to taxes being used to recalculate wealth geographically.

Are we at a time where the old capitalism no longer works and the new capitalism is one with the engineers and entrepreneurs in charge? They have morals which salespeople and accounts lack.

Europe had problems with cheap American products in the 1800’s and even 1900’s. Europe actually invested a great deal of money in America. Things like railroads, mines, and cattle ranches.

Free markets are never free, only a variation of trading. Buying is not trading.

Greater than a 5% trade deficit dooms an economy.

The easiest way to maintain the unbridled “capitalism” is to reject any universal alternatives, especially if the alternative capitalism would produce more wealth in the same period of time.

Industrial policy actually is important. Nevertheless only limited industrial policies have ever been placed in real affect. Canals, railroads, and the Interstate Highways are examples. So is WWII.

Industrial policy needs the flexibility to react to the real wealth available for investment changes. As wealth declines, less investment is available to anyone for any reason. “More steel, fewer cupcakes” means more infrastructure and lower consumption. In good times I’m just another bakery junky, in bad times it’s an unusual treat. If industrial policy is not ready with the proper scenario, all kinds of stuff hits the fan.

And once a “normal” solution is in effect for the wealth available (I have a whole paper on this shift in wealth stuff; it’s part of the underlying philosophy and has not been violated since I first wrote about it in 1982) what is the maintenance industrial policy?

Industrial policy must anticipate changes from over-consumption to under-consumption. Under-consumption to over-consumption doesn’t seem to be a problem.

Industrial policy may involve employment in two ways: 1. People need to work and 2. at what level can a middle-class life style (yes, industrial policy must decide this) be supported without having to borrow money.

Industrial policy will necessarily dictate products made within the taxing jurisdiction as anything outside would have indirect costs that finally will exceed the cost at the counter. So “true cost” needs defining; what is the true costs of products at Wal-Mart (to a great extent made in China or someplace not here – please note I’m very positively impressed with Wal-Mart and do shop there) if China buys Wal-Mart?

Our foreign policy is based on confrontation. So is trade: the people in charge do not take the needs of the economy but rather the ability to take advantage of market inequalities. And while some call this free trade and claim it is the ultimate trading policy, it is not an industrial policy. Which asks the question: what and who is an industrial policy supposed to help? Eventually, if the middle class votes, the industrial policy will tip toward jobs rather than profits. No one on an empty stomach will vote for profits for the wealthy.

Services create wealth through cash flow. Manufacturing creates wealth without any qualification. Services cannot exist without manufacturing, no matter what anyone says. But manufacturing can exist without services, yet the worker has seen this before and did not like it.

Modern manufacturing needs to learn much from the era of manufacturing before autos. 1. Commuting costs alone make our manufacturing more costly than foreign countries where people aren’t spending huge amounts on cars. 2. Community based manufacturing is essential.

The best industrial policy would be to prevent anyone coming up through accounting or sales not be allowed to be a CEO or COO.

A perfect example of a stupid accountant trick is discontinuing Pontiac. Anyone with an interest in cars cannot understand this decision. From a manufacturing standpoint it means the accountants have no idea how to make something successful. Bringing Pontiac back to dominance in the sporty car field is easy for a car person and completely confusing to an accountant.

If you are an accountant and want to be a manufacturing CEO – go out and get an engineering degree. When you graduate you will personally know why you had to get the engineering degree. Bye the way, as an engineer I don’t find accounting unfathomable, just explaining to the accountants what I want.

All executives need to spend 2-4 weeks each year on the production line or at work out of the facility. Accountants will be driven crazy; the engineer will consider it a privilege.

Therefore, it would seem, industrial policy should give lots of scholarships to students actively recruited. How many of these engineers do we need? An MBA student is taught how to get a group to create a spreadsheet – good or bad – when we really need people who know NC machinery and the design process or maybe packaging or maybe delivery methodology. Financial capitalism places a premium on spreadsheets (I’ll explain why in other place) which is the best way to run down a business. Engineers build things: that’s what we do. Hire an engineer if you want a business to grow.

Industrial policy must support the earnings come from cash flow, not capital gain, for small businesses, thus allowing the control of engineers beyond the original entrepreneur. Accountants won’t like this as they become less important and, worst of all, the profits will stay in the business rather than dispersed to people without any connection to the business.

On the other hand, stock brokers will have stock to sell capable of producing constant dividends over a long period of time – long enough to build up a retirement fund. In fact, our industrial policy of financial capitalism, took electric utilities that did produce constant dividends and destroyed them so someone could apply a spreadsheet and make a game out of electricity. Yes, that is an industrial policy without regard to what name is applied.

Industrial policy must be more careful of issuing patents. Patents from overseas will not be honored. We are a large entity and do not need others regulating our activities. Countries like India, Japan, and China do what they want until necessity strikes. We should follow their examples. At least do what the Europeans do, overcharge for UPS delivery. They think our patent laws are mostly children playing around. And, basically, industrial policy needs to follow theirs to level the playing field.

Industrial policy of the past depended heavily on untouched wealth being brought on-line by technology. Even WWII has a story now outdated. Manifest destiny ended in 1970’s, but the industrial policy didn’t.

Everybody can make the same mass produced products almost everywhere. Quality is no longer an issue. Everyone buys the same machines. The Chinese have a long history of manufacturing. Marco Polo wrote about every city he visited was a manufacturing city. The current trade deficit with China is the third one. The previous two are not good examples of what to do today. So whereas the Chinese are very good at manufacturing, they cannot, and will be restricted from, manufacturing enough to supply the whole world by themselves. Many of the Asian nations are being forced to reevaluate their industrial policies as the Chinese spread themselves very forcibly.

So if everything can be made everywhere – this is not true as regional differences still exist and should be actively nurtured so the world is not one big chain, which by itself is an industrial policy, then what is the cheapest cost? If we lose our industrial base the foreign products be increasingly expensive indirectly. We can make the best quality in the U.S. We should hire the Chinese who just received immense amount of wealth to build a new industrial society. They should be experts with all the money we threw at them. Let’s hire them. They surely owe that courtesy. That’s an industrial policy. Let the Chinese worry about themselves: they know how to take care of themselves and we will take care of ourselves. We will be friends on an equal basis. The old industrial policy of confrontation is now out of date; nor can the Chinese be allowed to be confrontational due to the fact we want to manufacture here with the same machinery and quality workforce.

Modern industry will be area based: factory cities that manufacture much of what is made locally. Actually a recreation of what towns looked like before autos.

Not everyone will be middle class. By definition half are below and half are above

Industrial policy should have a national health care program to take the cost away from corporations which look at health care as a tax. How can you bid internationally when most European and Asian companies bid without the health tax. Also, policy should state clearly 16% of people cannot make their living on the health care system. At least 6% need to get real jobs. Start by firing all the sales people and then the lawyers. We need them in manufacturing.

Please note: this paper is not a business plan, but rather the underpinning philosophy enabling this project to be completed without being forced off track.

What I want to do:

Bring back high quality manufacturing to the areas where consumers live. Up to 250 businesses may be in the same central services group yet enough to create a critical mass making the community successful.
Establish businesses linked together and supported by a central services company
Allow people to be very successful without needing the full panoply of entrepreneurial skills
Provide a very good income for the partners/owners without having to consider capital appreciation
Provide long-term employment and retirement for all employees
Communities provide the basis for success, a repeat of history
All parts of this project are capitalistic in nature and are expected to be profitable on a continuing basis
Examples of businesses: plastic molding, wood shops, metal casting, electronics, car parts, and other serious manufacturing
Eliminate the waste of time researching and maintaining supporting services take away from time better spent on the products
Constantly support all the member businesses to insure 95% success rate after 5 years, 90% after 10 years.
Putting together a central team to run the project and create the first communities. Time frame is hard to tell; slower at first, after a two year development period, expansion could be rapid.
Creating a computer division to develop software and hardware systems
Finding communities successful before WWII with centralized factories and housing which can survive today
Central services will provide structure and support for the local manufacturing companies. Computer systems will provide the means to stay easily within the provided structures and manage long-term successful small (fewer than 100 employees) companies. The businesses are not franchises as we do not specify what products are made and sold.
We need to train our own support services such as accounting, banking, insurance, telecommunications, computers, etc. Everyone who works with our member businesses must be trained and certified.
Funding for this project will be provided by the localities seeking manufacturing, the states, and the federal government. Funding for individual business is through the partners, investors directly investing, and investment from the central fund.
Finding the proper partners for each business And providing the proper LLC structure for each situation.
Each community may decide to specialize or be eclectic.
The first step currently in progress determining what structures to use and how central services should be structured.
Thousands of communities will host thousands of businesses providing many thousands of good jobs
Companies will not die with the original entrepreneurs departure
A form of capitalism more in line with Adam Smith’s ideas
Room for young people to move into corporate positions so they don’t feel left out by the previous genration
Ability of the public to have manufacturing companies for their investments
Communities feel ownership of the local businesses
Business and manufacturing processes which help Asian businesses manufacture successfully will be used here to be competitive globally
Lower cost of manufacturing, higher quality, consistent quality
Local school systems educate for the needs of the community’s manufacturing
Provide affordable housing
Ways to keep the below philosophy implemented

We will do this by:

Changing everyone attitude about what produces the highest quality life: a cooperative structure.

Result:

All people live a reasonably decent life and smoothing out of economic cycles.