Industry!

Jeff Immelt of General Electric, writing in the Financial Times:

Over the past few decades, many in business and government bet that the US could transform itself from an innovative, export-orientated ­powerhouse to an economy based on services and consumption – and that we could still expect to prosper. For a time, it looked like a can’t-miss bet.

Then we missed – badly. Trillions of dollars vanished, along with America’s competitive edge. An economic hurricane shook our financial system to its foundation, leaving our middle class hurt, bewildered and looking for cover. General Electric was not perfect through all of this but, throughout our 130-year history, we have adapted and remained competitive.

The challenge ahead is not impossible. The first step is recognizing that we cannot simply go back to the way things were. This downturn is not simply another turning of the wheel but a fundamental transformation. We are, essentially, resetting the US economy.

An American renewal must be built on technology. We must make a serious national commitment to improve our manufacturing infrastructure and increase exports. We need to dispel the myth that American consumer spending can lead our recovery. Instead, we need to draw on 230 years of ingenuity to renew the country’s dedication to innovation, new technologies and productivity...

America has to get back in the game. Renewing American competitiveness will not be accomplished through protectionism, but by rebuilding American technology, manufacturing and exports...

To do this, the US government can play a catalytic role. America has a long history of spending that prepares new industries to thrive for generations. Today, my country needs an industrial strategy built around helping companies to succeed with investment that will drive innovation and support high-technology manufacturing and exports. And it needs a robust trade policy that seeks to open ­markets abroad for US companies while being fair to international ­competition.

I agree. Although countries should not always be obsessively export-oriented (I'm looking at you, Japan and Germany), our massive trade deficit means that we need to focus more on exports in the near future. Since we are a rich country, this must be done mainly through innovation and productivity gains, rather than cost-cutting.

Note the important government role in this. Nationwide productivity gains are boosted when the government spend the nation's money on the things that complement private-sector investment and innovation - basic research, infrastructure, education, public health. Or to put it another way: world consumers tend to buy products made in countries where the government builds roads and trains, funds research, and provides quality public education, rather than products made in countries where the government sits on its butt and does nothing.