Ralph Gomory Testifies Before Congress

There was a Hearing today in the House Science Subcommittee, Investigations and Oversight.

American Decline or Renewal? – Globalizing Jobs and Technology

I will cover this hearing in multiple posts.
I did catch quite a raucous among the witnesses, particularly those company Presidents trying to desperately survive and assist in keeping US manufacturing strong. In particular they brazenly point out some economic truths of how they are at a 90% overall costs disadvantage trying to operate within the United States, while corporate lobbyists and even Congressman Brad Miller, the subcommittee chair, prattle on about retraining or immigrants, ignoring the incredible evidence that a worker shortage, all the way to the PhD level, is a pure lie. At least we heard some real truths on the myths of retraining when the reality is there are no future jobs to retrain for. I call retraining the ultimate blow off response to the enabling of the United States economic decline.

I want to go over some of Ralph Gomory's testimony first.

Ralph Gomory testified(pdf):

What is good for America’s global corporations is no longer necessarily good for the American economy

He speaks a glaring truth that actually Ralph Nader has been trying to bring to light:

A person must now be part of an organization that makes or distributes the complex goods and services that people buy today. Being part of an organization is what people must do to earn a living and support themselves and their families. The fundamental social role of corporations and other businesses is to enable people to participate in the production of the goods and services that are consumed in the modern world; the corporation enables them to earn a share of the value produced for themselves and their families.
My testimony bears on the question of how well America’s global corporations are fulfilling that fundamental purpose today. The whole thrust of my testimony is that in the last few decades the shift in corporate motivation toward emphasizing profits above everything else has had a deleterious effect on the way they are fulfilling that role. That deleterious effect is now being enormously accelerated through globalization

Economists will sometimes argue that this development of capabilities abroad is good for the U.S. economy as a whole. For one thing, we get cheaper goods. That is certainly true, but it is also true that if we lose our superior capabilities in many areas and are less competitive, we have less to trade for those goods, so that eventually the cheaper goods become expensive in real terms

If the gains in productivity had been reflected evenly in incomes, a typical worker would get 35% more today than in 1973

we are seeing today a concentration of wealth at the very top, unmatched since the days of the so-called “robber barons” at the close of the 19th century

American corporations have found that the easiest way to maximize shareholder wealth today is to take their technology, know-how and capital overseas to wherever labor is cheapest and subsidies are the greatest

Gomory goes further to show the fallacies of today's policy recommendations. He points out that all of the training and education in the world will not make up for a 100:1 or 10:1 wage/cost differential between nation-states. He also points out that while the United States can pump billions into R&D, the real economic engine is when those research and development results go into production, which still is ....going overseas. So, it doesn't matter how much the United States innovates when the resulting jobs and industry are now located in another country.

In the rather implored Q&A period, Gomory stated (paraphrase):

The idea that after the other guy has finished killing you (forced you out of business), you can rise from the dead is pure fiction

This is in response to the idea that magically once China has completely dominated and taken all of US manufacturing, China will magically raise their costs and wala, US manufacturing will return was implied in a query.

Dr. Scott, whose work is so dense, it will be covered in another post, when referring to crafting a true national trade, economic strategy and agenda, exclaimed:

We're teaching mercenaries in business school

in response to the the lack in depth national strategy, systemic trade and economic policy change the United States. He also pointed out that the United States business and economics schools no longer teach the history and patterns of economic lessons.

Now that one I believe is true and also downright frightening. We've also seen this in recent years where the spin is so heavy, even Academic papers try to rewrite the basic laws of supply and demand. So, the truth comes out about the current state of Academia. Hopefully further hearings will focus in on Academia in the United States itself, which gets little scrutiny these days, as to what sorts of agendas are universities advancing, are they promoting unanalyzed assumptions and possibly even multinational corporate agendas or are they teaching sound, ethical business practices that take the United States national interest into account?

Mr. Copland was talking about the trade war on the ground, trying desperately to keep his textile manufacturing business open and he was passionate. He said:

We're being out negotiated

That is no lie! Doggone it, we have a straight talker! Copeland also mentioned tariffs on goods imported is about 1.5% on average whereas tariffs of other countries to let in United States goods average 30%.

He further mentioned, when a country is categorized as an underdeveloped country they can charge whatever tariffs they want. China, believe it or not, is categorized as an underdeveloped nation even though they have one of the largest trade surplus/exports in the world.

One minor fact I had no idea about, which shows once again the lack of transparency in Congress, Charles Rangel put a free trade agreement with Haiti into the Farm bill.

Gomory recommends the Warren Buffet certificate program, a topic also to be expanded.

Mr. O'Shaughnessy was heavily focused on tax policy and he wants a VAT program. This too will receive a separate post. He suggests the focus exclusively on trade agreements is wrong. We must have a national trade policy redesigned, from the top, from a holistic view. Our focus is wrong by looking at trade agreements in isolation.

Everyone at least, including the corporate lobbyist agreed on this point.

I must note that no one mentioned (that I have found so far in my review) having a national policy to put US workers first and have a hiring policy that hires first US workers. This is a key element to stop global wage arbitrage through insourcing.

Ralph Gomory has another exceptional policy proposal, to restructure Corporate income tax rates by grading the value the company gives to the national interest. Reward corporations who add to the value of US GDP and to America.

the corporate tax rate could be scaled by the value added per full-time employee, by the workers of corporations operating in the United States. A company with high value-add per U.S. employee would get a low rate, a company with low value-add per U.S. employee would get a high rate. This tax could be made revenue neutral by having a high tax rate for unproductive companies and a low (or even negative) tax rate
for productive companies. Depending on the rates, it could be as strong or as weak an incentive as desired. This is quite doable, as value-add is measurable. It is measured today in Europe as the basis for the value-added tax

So this is quite a bit to digest, more to come, with detailed references to various change proposals, for at least some well thought out policy changes are being mentioned on the hill. Long overdue!



Now if only the congresscritters will listen

Somehow, I believe that what is said in the hearings means almost nothing, compared to what is said in the lobby (with campaign contributions attached).

Maximum jobs, not maximum profits.


which is why we need to cover these hearings and these people. They all had some great ideas to dramatically change policy so firstly getting any representative to introduce a bill to that effect is tough but then on top of it, there have been many, many great bills introduced and they go to committee...to die.

Unfortunately the senior, hand picked, party in control chairs those committees and they have to bring up bills for a vote...so if they don't bring up a bill for a vote out of committee, it stays there...to die.

Lovely isn't it? No wonder Congress has such low approval ratings.

It's also so telling that the only bills to get pushed are corporate lobbyists agenda for almost all of it and that just is so depressing since people voted in the Democrats to change that. Ha ha.

So, pushing public awareness to demand they pass bills in the national interest is pretty much the only way to really get anywhere.