Oct 22, 2012, 03:24AM

The Private Sector is Too Timid to Lead an Economic Recovery

Sometimes, government has to lead.

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Blame the Japanese for America’s economic woes. They insisted on producing quality products instead of obsolescent junk that had a life expectancy of near zero. Most people like to assign the demise of manufacturing in America to outsourcing to China and other benighted third world outposts. But the disappearance of homeland manufacturing jobs actually began when the first Toyota rolled off a ship and the original Sony TV set flicked on. They’re probably still around and working.

During America’s boom of manufacturing, consumer products were built to self-destruct. There were no such assurances as warranties or extended warranties because the ink on the paper would outlast the product. A toaster was built to last maybe a year and automobiles, either by manufacture or design, had a working life of two years before they were ready to become used cars or scrap metal.

Car owners were encouraged to trade-in every two years to get maximum value out of their depreciated cars and move up to the latest two-tons of wrap-around chrome. Remember, a new automobile is not an investment. It’s a product that loses half its sticker value the moment it’s driven off the lot. The 1959 Cadillac “Eldorado,” with its fishtail rear-end, was, perhaps, the gaudiest vehicle ever designed in Detroit and a testament to American consumer excess. General Motors was the first American corporation to introduce installment, or time, buying through loans. Planned obsolescence, however, kept assembly lines humming, no matter what the product, three shifts, 24 hours a day, to fill the need and demand for the latest consumer gee-gaws.

There were no turbo-charged Saabs, Mercedes, BMWs, Toyotas, Hondas and all the other imports and hybrids zipping up and down I-95 on a spoonful of gas because of improved performance and quality. The average mile-per-gallon was seven, maybe 12, tops. And there were no such concepts as globalization, NAFTA and intra-mural trade agreements to beef up export business that is now threatened by the imminent collapse of foreign economies.

Labor unions were still a major part of America’s economic model. Unions helped to lift the standard of living for millions by demanding decent working conditions, such as the 40-hour week, and wages (and benefits) so that working men and women could afford to purchase the fruits of their labor. Henry Ford, who pioneered the assembly line, for example, was smart enough to pay his workers decent wages so they could buy the cars they built. Today, there is a direct correlation between the demise of labor unions and the decline of the middle class as income inequality has increased and purchasing power has decreased. All but one percent of Americans are getting poorer, not wealthier, and social mobility is yesteryear’s dream.

So blame it on the Japanese. They insisted on building stuff that lasts. And the mania has spread. Planned obsolescence is out, durability is in. The race is on to design the car with the most efficient gas mileage, the longest warranty, the safest passenger cabin, the least amount of costly maintenance, the most features and gizmos and the longest life span. 

Today’s engines will run at least 100,000 miles without major service except for regular oil and filter changes. Government had a hand in this, too, forcing recalls for defects and insisting on more efficient energy usage to decrease reliance on foreign oil. This, in turn, resulted in plastic replacing chrome to lighten the load to meet mileage standards. 

The Japanese, it was said, could copy any product and improve it in the process. Their insistence on quality control spread to other products, especially electronics. Sony and Panasonic became the standards for television sets and sound systems. The Asian obsession with quality spread to Korea and later to China, where efficiency is rewarded at a pay rate of about 90 cents an hour.

But it’s a two-way deal. Buick, which built a $2 billion plant in China, is the largest selling automobile in that populous nation, especially among China’s burgeoning middle class. Buick now sells more cars in China than in the U.S., proving once again that demand drives an economy and not tax cuts.

So saying, Republican presidential candidate Mitt Romney touts a five-point plan that he claims will create 12 million new jobs in America. To bolster his case, he invokes six independent studies that he says support his claim. All the studies have been discredited by fact-checkers as having failed the math test as well as for being of dubious authorship and reliability. Stripped of all of the fatuous campaign baloney, Romney’s plan still boils down to orthodox Republican trickle-down economics—cut taxes for the rich, do away with regulations and increase defense spending.

The theory is that cutting taxes for the rich would give them more money to invest and therefore create jobs. The theory does not work in actual practice. Businesses are sitting on $3 trillion in profits, the highest ever, and are not investing because demand is down if not non-existent, savings are up and consumers are not spending. As if more evidence were needed, the Bush tax cuts of 2001 and 2003 yielded the lowest economic growth rate of any eight-year period since World War ll.

President Obama argues that he wants the economy to grow from the middle class out and not from the top down, as Romney proposes. Obama wants to invest in new industries and technology and, for starters, create public sector employment through a jobs bill that he has proposed but Republicans in Congress have blocked. These jobs would include teachers, policemen, firefighters and other public service jobs that have been eliminated by severe financial cutbacks by state and local governments. Others would include public works jobs to rebuild the nation’s crumbling infrastructure. Obama would also penalize corporations that move jobs overseas by eliminating tax breaks.

Obama’s approach, a stimulus by another name, would create immediate purchasing power among the middle class as well as demand for products which would stimulate businesses to invest and create more private sector jobs.

There are those who argue that government should be the employer of last resort. But there are times when government must be the first risk-taker because the private sector is reluctant, timid or otherwise unwilling to take a chance. The auto-industry bailout is a recent example. In today’s business world, everybody wants a government subsidy or guarantee. America is the most socialistic nation on the planet but nobody wants to admit it. Just ask the nation’s five largest banks.

But products are so good right now that Americans have little need to replace anything except out of boredom with what they have. A refrigerator, no matter where it’s made, lasts about 20 years. A decent stove lasts even longer. Ditto a microwave. Toaster ovens, if kept de-greased, are forever. TV sets rarely blow. And the only reason to buy a new set is to upgrade to a bigger screen. The garment industry is kaput. Casual Fridays have morphed into permanent dress-down and no guy, except for a few dandies, even thinks of wearing a tie anymore in a culture where denim and khaki dominate. We’ve exhausted our need for stuff.

There’s way out of this economic mess, though, and that is a return to planned obsolescence as a way of stimulating a rebirth of manufacturing. The electronics gadget industry is the first to catch on. Each new iPhone, iPad, Kindle and computer essentially does nothing more than the last issue. They may be a little quicker, brighter, slimmer and slicker than their immediate predecessors but their innards and functions are the same. Their planned obsolescence arrives just in time for Christmas shoppers and lined-up gadgeteers who insist on having the latest models of electronic toys as soon as they arrive in the showcase. Build it to self-destruct and they will come. That’s the American way.


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