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Consumption is a poor foundation for an economy. America should make things again.
Published Feb. 22, 2008

In the 20th century, American production was the marvel of the world. In the 21st century, American consumption is the marvel of the world. As news goes, this is both big and bad.

It was American production, after all, that won World War II. It was the exports of American manufacturing and agriculture that revitalized postwar Europe and Asia - indeed, one of the Marshall Plan's goals was to ensure that Europe had enough funds to buy America's products.

In today's world economy, however, we have become the consumers of last - and first - resort. No nation with an advanced economy consumes at anywhere near our level. In 2006, our purchases constituted 70 percent of U.S. gross domestic product. Britain ranked second among nations in the Organization for Economic Cooperation and Development, at 61 percent, then came Italy, at 59 percent, with Japan, Germany, France and Canada all hovering around 55 percent.

If 19th-century England was a nation of shopkeepers, the United States today is a nation of shoppers, and our role in the world economy is to buy what other countries - or U.S.-based corporations with factories in other countries - make. It was not ever thus. In the four decades following World War II, our largest employer was General Motors; for the past decade, it's been Wal-Mart. GM followed in the footsteps of Henry Ford, who by 1913 had concluded that he needed to pay his workers enough that they could afford to buy a new Ford. Wal-Mart, by contrast, pays its workers so little that they are compelled to shop at Wal-Mart.

But even if Wal-Mart weren't a downward force on wages throughout much of the economy, consider the implications of a nation whose chief economic activity is personal consumption - more particularly, personal consumption at a time when incomes are stagnating. The only way such a nation can get along is to go into debt, which is precisely what Americans have done.

This transformation of America from manufacturer to shopper was anything but accidental. In the early 1980s, the rise of Japan and the decline of U.S. manufacturing spurred unions and liberals to advocate domestic content requirements for products, such as autos, sold in the United States. A few years later, unions and liberals were promoting industrial policy - that the U.S. government should make strategic investments in certain key industries to keep them stateside. In the late '90s, unions and liberals opposed permanently normalizing trade relations with China. But orthodox economists and even more orthodox editorialists heaped scorn on all these ideas, which died quiet deaths - even as the governments of nations that have supplanted us as the world's manufacturers (most notably, China) adhered to domestic content regulations and invested heavily in strategic industries, to the betterment of their citizens.

Today, 20 years after we decided not to have an industrial policy, we have an industrial base that employs an ever-smaller number of Americans. What has kept us afloat during the current decade hasn't been our productive capacity but the inflation of our assets - the rising value of our homes, against which we've borrowed to purchase the things we could not afford out of our stagnant paychecks.

So we've shopped. And now we've dropped.

One of the crucial differences between the two parties this year is that Hillary Clinton and Barack Obama have both revived the idea of a national industrial strategy - better late than never - while John McCain still acts as if banks and corporations, left to their own devices, would revive our economy through their investments. Problem is, we've left banks and corporations to their own devices for decades, and they've funded the rise of low-wage, high-profit East Asia.

Nonetheless, McCain calls for across-the-board corporate tax cuts, though that money may well be bound for Shanghai. Clinton and Obama, by contrast, propose a construction, transportation and manufacturing strategy to retrofit America and create millions of "green" jobs. Each advocates public health insurance when private employers decline to cover workers. Each wants to make it easier for workers to boost their incomes by joining unions.

The Democrats' incomes-and-industrial policy won't bring back, say, Big Steel, but it will raise wages and put more Americans to work actually making things. As a national economic strategy, that sure beats shopping.