Some industries in the US have become significantly less competitive, NOT because of globalization or China or the Chinese yuan or the immanent bubble policies but because of the enormous influence of her gargantuan militarized economy.
From Armscontrol.org
From Google Public data
A militarized economy has not only distorted pricing and resource distribution but also negatively affected the political economic structure of industries that depended on it.
A good example is the machine tool industries.
The following is an excerpt of the enlightening and excellent discourse by Thomas E. Woods Jr. on this. (published at the American Conservative) [bold highlights mine]
Measurements of “economic growth” can be misleading if they do not differentiate between productive growth and parasitic growth. Productive growth improves people’s standard of living and/or contributes to future production. Parasitic growth merely depletes manpower and existing stocks of goods without accomplishing either of these ends.
Military spending constitutes the classic example of parasitic growth. Melman believed that military spending, up to a point, could be not only legitimate but also economically valuable. But astronomical military budgets, surpassing the combined military spending of the rest of the world, and exceeding many times over the amount of destructive power needed to annihilate every enemy city, were clearly parasitic...
The American machine-tool industry can tell a sorry tale of its own. Once highly competitive and committed to cost-containment and innovation, the machine-tool industry suffered a sustained decline in the decades following World War II. During the wartime period, from 1939 to 1947, machine-tool prices increased by only 39 percent at a time when the average hourly earnings of American industrial workers rose by 95 percent. Since machine tools increase an economy’s productivity, making it possible to produce a greater quantity of output with a smaller input, the industry’s conscientious cost-cutting had a disproportionately positive effect on the American industrial system as a whole.
But between 1971 and 1978, machine-tool prices rose 85 percent while U.S. industrial workers’ average hourly earnings increased only 72 percent. The corresponding figures in Japan were 51 percent and 177 percent, respectively.
These problems can be accounted for in part by the American machine-tool industry’s relationship with the Defense Department. Once the Pentagon became the American machine-tool industry’s largest customer, the industry felt far less pressure to hold prices down than it had in the past. That decreased pressure undoubtedly contributed to the negligible investment by the machine-tool industry in modern production techniques of a kind used routinely in Europe. No longer under traditional market pressure to innovate and lower costs, the machine-tool industry saw a considerable drop in productivity.
In the short run, the American machine-tool industry’s woes affected U.S. productivity at large. Firms were now much more likely to maintain their existing stock of machines rather than to purchase additional equipment or upgrade what they already possessed. By 1968, nearly two-thirds of all metalworking machinery in American factories was at least ten years old. The aging stock of production equipment contributed to a decline in manufacturing productivity growth after 1965.
Why Americans couldn’t have switched to lower-cost imported machine tools as soon as prices began to rise involves the reluctance of machinery buyers to change their suppliers. Not only do they prefer to deal with established firms with good reputations, but they also want to avoid unnecessary and costly downtime, so they patronize suppliers who can perform repairs and supply spare parts on short notice. In the long run, American firms did indeed begin to shift into imported machine tools, and by 1967 the United States for the first time imported more machine tools than it exported.
The military-induced distortion of the American machine-tool industry, and the industry’s correspondingly decreased global competitiveness, is not confined to the perverse incentives created by the Pentagon’s cost-maximization approach to procurement. Another factor is at work as well: the more an industry caters to the Pentagon, the less it makes production decisions with the civilian economy in mind. Thus in the late 1950s the Air Force teamed up with the machine-tool industry to produce numerical-control machine-tool technology, a technique for the programmable automation of machine tools that yields fast, efficient, and accurate results. The resulting technology was so costly that private metalworking firms could not even consider using it. The machine-tool firms involved in this research thereby placed themselves in a situation in which their only real customer was the aerospace industry.
Some 20 years later, only 2 percent of all American machine tools belonged to the numerical-control line. It was Western European and Japanese firms, which operated without these incentives, that finally managed to produce numerical-control machine tools at affordable prices for smaller businesses.
The distortion of business decisions and strategy that contributed to the decreasing competitiveness of the machine-tool industry is at work in thousands of American firms in rough proportion to their reliance on Pentagon contracts.
Read the rest here.
There are other unintended consequences from the military economic-corporatist framework, such as corruption.
This seems very relevant today in Philippine politics, where an ongoing expose over a supposed payola has triggered a former top military officer to suicide.
According to Carlos Conde of the Asia Times Online [emphasis added]
To be sure, corruption in the military is nothing new. In fact, the slush fund had existed even before the time of Reyes, as Rabusa himself admitted. A questionable practice in the armed forces called "conversion" - funds or budgets allotted for a specific purpose being used on something else, thus making it vulnerable to manipulation and kickbacks - has for years practically been the norm.
The practice allows commanding officers to bypass the military's slow-moving bureaucracy and deal directly with the suppliers of urgently needed equipment and weaponry, according to a military official familiar with the practice. Military officials, in turn, often ask for the cash equivalent of the equipment and then allow the supplier to process the papers and deal with the bureaucracy. The supplier often pads the cost of the equipment and gets approval from the comptroller, who will only sign if a kickback is assured, according to the official.
At the end of the day, a nation’s lack of competitiveness has almost always been a result of the many forms or faces of government interventionism, and this includes the military aspects—whether it is the US, the Philippines or elsewhere.
Yet the public or the mainstream only goes for oversimplified and superficial explanations rather than examining the roots of the issues.
With public ignorance of the structural issues, hence the vicious cycle.
