Use the Defense Production Act to Encourage American Manufacturing and Security
By George Landrith, Frontiers of Freedom
America has for decades been chasing its manufacturing base out of the country. Some have argued that these jobs left because American wages were higher. But the truth is American workers have typically been more productive and thus their higher wages aren’t the primary factor. Moreover, there are other significant costs associated with manufacturing things half-way around the world. The primary reason our manufacturing base has been leaving is because government purposefully drove it away.
Imagine someone inviting a friend over for dinner and then when the guest arrives, the host hurls insults at them, and then grabs a baseball bat and chases them from the house. Now imagine the insanity of the host wondering why his guest didn’t stay for dinner. That is what government has done to our manufacturing base.
This is why it is key that the Trump Administration has made it a priority to reverse this trend and make America a favorable place to do business.
There are many lessons to be learned from the COVID pandemic. One of the most important is that we should make it possible for manufacturing of key pharmaceutical ingredients and medical supplies and equipment to return to America’s shores. During the recent pandemic, 80 nations imposed some form of export restrictions on medicines and medical supplies. So, we should be prepared to provide for our own critically important needs during times of emergency. This is not merely an economic issue; it promotes our nation’s security in a time of widespread health crisis.
While it would be a serious mistake to mandate that all medications be made in America as that would create supply disruptions, shortages, and price spikes in needed medications, the policy of chasing American manufacturing overseas is completely insane and must stop. We must make America a great place to manufacture, create and innovate. Our tax policy must encourage and incentivize American firms to manufacture here. Our intellectual property rights enforcement must incentivize innovation and reward creativity. Our regulatory regime must stop unnecessarily hamstringing business and innovation. And we should provide incentives to bring American manufacturing back home and then let competition ensure that quality is driven up and prices are driven down.
To this end, the Administration has signaled an interest in issuing a loan to Eastman Kodak from the Development Finance Corporation as authorized by the Defense Production Act to allow for the launch of Kodak Pharmaceuticals, which would produce critical pharmaceutical components in the US. After having spent at least a generation chasing manufacturing away with a proverbial baseball bat, it makes sense to take clear and affirmative steps to reverse the perverse incentives of the past generation.
Kodak executives came under fire earlier this year because of some troubling transactions involving stock options issued, but earlier this week Kodak was completely exonerated by an independent internal review. Using their alleged transgressions was a poor excuse for continuing the policy of chasing away good manufacturing jobs in the United States; now it is completely irrational.
Incentivizing a resurgence of American manufacturing simply makes sense. The key to this is to harness the power of markets. Government mandates created this problem, so we don’t need more government mandates. We need more incentives, more freedom to innovate, less burdensome taxes, and less onerous regulations. If we do that, America can experience a manufacturing renaissance and obtain the accompanying high paying jobs.
Trade among nations of goodwill benefits all trading partners. But we need not chase our manufacturing jobs offshore to promote trade. Trade is about competition. A team that forfeits before the game even starts isn’t competing. We’ve been forfeiting too long.
Making America a compelling place to do business and also having robust trade relations with nations of goodwill is smart. But that will require a change of policy.
Encouraging Kodak and other capable American companies to bring manufacturing back to the United States is a smart plan. They can compete with firms located in other nations of goodwill. That competition will benefit us all. But we take ourselves out of the competition and essentially forfeit when we impose a tax and regulatory regime and other burdens to chase away entire industries. Competition only works when the players show up and compete. Forfeiting isn’t competition. We need companies like Kodak and many others to show up and compete.
George Landrith is the President of Frontiers of Freedom – a public policy think tank devoted to promoting a strong national defense, free markets, individual liberty, and constitutionally limited government.