You did it, friend. You helped discover the cure for cancer. Pretty big deal, that. Just imagine: Within 20 years, leukemia and lymphoma could end up being nothing more than trendy baby names - alongside yours.

Understandably, your first impulse might be to share your discovery. Tell the world! But not so fast, professor. Your holier-than-thou plan for sainthood has one big flaw: that fancy little cure of yours is worth a pretty little penny. And divulging that cure before someone can patent it is likely to land you in a prison cell for crimes against economic disparity. Quarterly profits are people too, you know. And the reality is whether you want to be a saint or not, the economic considerations that govern academic research in the United States almost give one no choice but to be a scoundrel.

It doesn’t matter if you start out working for a university. Scientists are given two choices for getting their research funded, academia or not: go to work for the Pentagon or start making something you can patent. And the government and its corporations want it that way.

Of the $140bn in research and development funding requested by President Barack Obama for 2013, according to the Congressional Research Service, more than half goes through the Department of Defense; less than $30bn through the National Institutes of Health (NIH). That invariably leads to a shift in resources, with scientists going to where the money is: instead of finding ways to cure, finding high-tech ways to kill or otherwise aid the war effort. Researchers at the University of Arizona, for instance, received a $1.5m grant to “adapt their breast cancer imaging research for detection of embedded explosives”, which speaks rather well to the US government’s priorities and the toll it takes on research that has the general public in mind. [READ]

The factors that have destroyed well-paying industrial jobs were conscious policy, not abstract global trends. The United States has trade policies that were explicitly designed to put our manufacturing workers in direct competition with low-paid workers in places like Mexico, China, and Vietnam. This had the predictable effect of driving down their wages. We could have put in place a trade policy that made it as easy as possible for smart kids in the developing world to train to U.S. standards and work as doctors, lawyers, dentists and other highly paid professionals in the United States.This would have driven down the pay of these professionals and made items like health care much cheaper in the United States. This was a policy decision, not a global economic trend. There is also a policy to run a high unemployment budget. Congress has decided to run budgets that leave millions of people out of work rather than spending enough money to bring the economy close to full employment.

“When you’re manufacturing anything, even if the work is done by robots and machines, there’s an incredible value chain involved,” Susan Hockfield, the president of M.I.T., says. “Manufacturing is simply this huge engine of job creation.” For batteries, that value chain would include scientists researching improved materials to companies mining ores for metals; contractors building machines for factory work; and designers, engineers and machine operators doing the actual plant work. By some estimates, manufacturing employs about 65 percent of America’s scientists and engineers.

Hockfield recently assembled a commission at M.I.T. to investigate the state of American manufacturing and to offer a plan for its future. “It has been estimated that we need to create 17 to 20 million jobs in the coming decade to recover from the current downturn and meet upcoming job needs,” she said at a conference this past March. “It’s very hard to imagine where those jobs are going to come from unless we seriously get busy reinventing manufacturing.” This logic has been endorsed by Jeffrey Immelt, General Electric’s C.E.O.; Andy Grove, the former chairman of Intel; and Andrew Liveris, Dow Chemical’s C.E.O. A widely circulated 2009 Harvard Business Review article — “Restoring American Competitiveness,” by two Harvard professors, Gary Pisano and Willy Shih — has become one of the touchstones of the manufacturing debate. In the article, Pisano and Shih maintain that U.S. corporations, by offshoring so much manufacturing work over the past few decades, have eroded our ability to raise living standards and curtailed the development of new high-technology industries.

When I spoke with Pisano, he noted that industries like semiconductor chips — the heart of computers and consumer electronics — require the establishment of “an industrial commons,” the skills shared by a large, interlocking group of workers at universities and corporations and in government. The commons loses its vitality if crucial parts of it, like factories or materials suppliers, move abroad, as they mostly have in the case of semiconductors. At first the factories leave; the researchers and development engineers soon follow.

The most punishing effect, however, may be the one that can’t be measured — the technologies and jobs that aren’t created because the industrial ecosystem is degraded. The semiconductor industry, for example, led to the LED-lighting and solar-panel industries, both of which are mostly based in Asia now. “The battery is another fascinating example,” Pisano told me. “The center of gravity is Asia. But why?” If you go back to the 1960s, he says, the American consumer-electronics companies decided they were better off in Japan, and then Korea, where costs were lower. “And then you have to ask: Who had the incentives to make batteries smaller or more powerful or last longer? Not the car industry. The consumer-electronics industry did.” This explains why the U.S. is now playing catch-up with lithium-ion batteries. It also underscores the vulnerability of an economy with a shrinking manufacturing sector. “When one industry moves,” Pisano says, “there can be other industries in the future that follow it that you couldn’t even anticipate.”


Jon Gertner, Does America Need Manufacturing?

The short answer is yes and the longer answer is that when you outsource manufacturing, pretty soon you outsource everything upstream of that: research, design, and product management.

It isn’t possible to cut out one element of a supply chain, and export it 10,000 miles away, and not break the ecosystem needed for innovation and competitiveness. This turns out to be one of the largest externalities that is forgotten when considering manufacturing as a mere transaction, instead of as a network of relationships between all the people involved.

This piece by Gertner is a call for protectionism: we need to bring back the manufacturing to the US if we have any hope for competitiveness in the 21st century.

When I started studying public opinion, the question I kept asking myself was ‘How can government policy be so bad? How is this possible? There are so many policies that seem so stupid and so awful and yet they exist.’
After I studied public opinion I asked myself a very different question. The question was ‘Why isn’t policy much worse?’
—  Bryan Caplan
Domestic tax policies can favor foreign goods

 [Foreign discrimination of US products] is reinforced by the US tax system, which imposes no appreciable tax burden on foreign goods and services sold in the US but imposes a heavy tax burden on US producers of goods and services regardless of whether they are sold within the US or exported to other countries.

~ Paul Craig Roberts

Reverse protectionism is most clearly seen to those countries (such as the US) that do not participate in the Value Added Tax (VAT) system, which generates revenues from taxation on the sale of goods and services, whether foreign or domestic.

  • Non-VAT to VAT country: Non-VAT taxes + VAT 
  • VAT to Non-VAT country: Only Non-VAT taxes 
    (assuming VAT does not apply to exported products)

This is a good article.  It reviews the increasingly tough stance of the U.S. vs. China and the signs of potential protectionism if China doesn’t play ball.  

Obama is becoming more assertive with China in order to demonstrate a record of toughness with the communist country and counter Romney’s tough talk come election time.  That’s me reading betweens the lines.  

It seems that action is accompanying rhetoric this time around and marks an escalation of the issue.     

Protectionist policies
  • Tariffs: Tariffs (or taxes) imposed on imported goods
    (what happens to collected tax?)
  • Import quotas: Sometimes auctioned to the highest bidder
  • Administrative barriers: administrate rules (e.g. regarding food safety, environmental standards, electrical safety, etc.) 
  • Anti-dumping legislation:
  • Direct subsidies: Government subsidies (lump-sum payments or cheap loans)
  • Export subsidies: Government pays exporters a percentage of the value of their exports (used to increase exports)
  • Exchange rate manipulation:
  • International patent systems:
Watch on

When linked with this article, it seems that we are seeing a flair up in protectionist sentiment.  Are the US and China starting to lose their patience?

It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy. The tailor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a tailor. The farmer attempts to make neither the one nor the other, but employs those different artificers. All of them find it for their interest to employ their whole industry in a way in which they have some advantage over their neighbours, and to purchase with a part of its produce, or what is the same thing, with the price of a part of it, whatever else they have occasion for.

What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry employed in a way in which we have some advantage.

—  Adam Smith, “The Wealth of Nations.”

The United States has a mixture of policies. It’s calling for liberalization and free trade in many areas. On the other hand, it’s also calling for enhanced protection in areas where the U.S. is strong. Take so-called services like banking. The U.S. is calling for a liberalization of services in the Third World, which would have the instantaneous effect of swamping and overwhelming all Third World banks and financial institutions by western ones, since they’re so much richer and more powerful. That would eliminate the possibility of any national industrial development programs within the Third World. That’s the kind of liberalization that the U.S. is in favor of. It means that Third World economies would be managed by western banks and those who run them and the governments that are tied to them.

On the other hand, the U.S. is calling for more protection in other areas, particularly intellectual property rights, which includes anything from pop music to cinema to software to patents. Right now the U.S. is racing ahead in patenting what may turn out to be parts of genes. The idea is to patent the genes of corn, or for that matter humans, so that future biotechnology, which will involve various kinds of genetic engineering, will be in the hands of mainly U.S. private firms. They will control that field, and they want to make sure it’s protected. So they want long patent rights and so on. That means that drugs, software, new technology, new agricultural forms, any form of biotechnology that may involve health will be in the hands of Merck Corporation and others like them who will make tens of billions of dollars in profits. It means that India which could duplicate a lot of this much cheaper, duplicate Merck drugs at a fraction of the cost, will not be permitted to do it. The U.S. also demands product rather than only process patents, to insure, say, that India’s pharmaceutical industry doesn’t invent a cheaper way to produce some drug — a barrier to efficiency and innovation, but a boon for profits. That’s understandable on the part of the rich. They want to control the future, naturally, and that means control technology.

 Keeping the rabble in line - Noam Chomsky