'Make It In America': Book Excerpt

Reprinted with permission of the publisher, John Wiley & Sons, Inc., from Make It In America by Andrew N. Liveris. Copyright (c) 2011 John Wiley & Sons. All rights reserved.

By Andrew N. Liveris

This isn't just an uncertain world. It's a volatile one. For years, the United States has been in transition from a manufacturing-based economy to a service-based economy. For years, we entrusted our growth to borrowing and consumerism. For years, we fueled our growth with debt, and with the idea that everything would be just fine.

As we now know, it wasn't.

Too many of us in business and government didn't see it coming. Even if we had concerns -- as I did and sometimes shared -- none of us imagined just how far, and how fast, we wereabout to fall.

The financial crisis, the housing market collapse, the ensuing recession and credit crunch -- all these have caused no end of pain for individuals and businesses alike. But they aren't the fundamental problem. They're symptoms. The troubles of recent years have unmasked a reality that spent years lying dormant, hidden from public view: The United States no longer has an economic model that's sustainable.

How can this be? Are things really that serious? After all, we are still the largest economy in the world. We still have a larger gross domestic product (GDP) than any country, and higher productivity than any country. And yet, as we reflect on these first decades of globalization, on what they have meant for the United States, we are left with the uneasy notion that we are losing ground we can't gain back.

Our old sense of confidence, of certainty, is at low ebb. That's because we now understand that the free flow of capital in financial markets may create certain benefits, but also produces extraordinary volatility -- in raw materials, in final products -- requiring Americanbusinesses operating globally to contend with challenges on a scale unheard of before, and mostly unacknowledged in America's national conversation.

This volatility has driven entire industries to relocate to the opposite side of the world. It is preventing companies from investing in the United States right when our economy most needs that investment. Recent policy decisions have eased some of the pain, mitigated some of the damage, but it seems no one's talking about a fundamental fix.

Globalization has changed just about everything. In many places it has been a force for progress, but by its very nature, it is also a force of destabilization. It creates opportunities and, at the same time, considerable risk. It gives nations -- both developed countries and emerging economies -- the ability to prosper in ways we never could have imagined, but also creates new obstacles to growth. Here and elsewhere, globalization has upended old economicmodels, creating imbalance where order once reigned.

That isn't surprising. Globalization, left to its own devices, favors efficiency. Countries with the capacity for complex financial transactions -- like the United States and the United Kingdom -- will naturally see the expansion of their financial services sectors. Likewise, countries that manufacture goods cheaply and efficientlyare likely to see growth in that sector.

The corollary, which also holds true, is that less efficient sectors tend to erode. This, in turn, tends to exacerbate their inefficiency and hasten their erosion. When manufacturing can be done for less abroad, market forces send it abroad.

That leads to an imbalance within some economies that might seem, at first glance, either inevitable or even desirable. Countries could specialize, the argument might go, and could thereby increase the efficiency of the global economy as a whole. This idea has acertain logical appeal. But it overlooks something fundamentally important about the health of developed and developing economies alike: Not all sectors are created equal.

The manufacturing sector, for example, can create jobs and value and growth to a degree that the service sector cannot. As America's service sector expands, and its manufacturing sector contracts, the result isn't a new post-manufacturing economy in which everyone wins. The result, instead, is that certain people win, but the country as a whole experiences massive unemployment. The service sector is certainly capable of generating wealth -- as we haveseen -- but it cannot create the sheer volume of jobs the economy needs in order to sustain a workforce of more than 150 million people.

The places that have been able to succeed (for a time) with highly specialized economies have had, in almost every instance, tiny populations. Dubai, for example, was able to thrive as a service only economy -- at least until the financial collapse -- in part because it has a population of just more than 2 million, and therefore needs to create relatively few jobs. The United States does not have that option. There aren't enough high-end service industry jobs in the world to employ the American workforce.

The U.S. economy needs balance across sectors. The nation needs to strengthen its advantages in providing services and intellectual capital for the rest of the world; but we also need to grow things and build things. Only through balance will we findeconomic strength, stability, and growth over the long term.

Otherwise, if U.S policymakers allow the economy to drift further in the direction of imbalance, the nation will find itself with a highly specialized service sector that supports the few, and a weakened manufacturing sector that can no longer sustain the many. I don't mean to suggest that manufacturing can sustain an entire economy on its own. It can't. But no economy as large as America's -- no population as large as America's -- can sustain itselfwithout manufacturing. No society can thrive with persistently high unemployment.

There are some who insist that as long as the United States continues to generate the world's greatest innovations, the collapse of manufacturing doesn't matter. Yes, America has been -- and should be -- the world's greatest innovator. But that alone is not enough. Ihope Americans won't buy the notion that they've outgrown manufacturing. Accepting such a future would mean accepting a level of joblessness that would make recent years look like a warm-up.

Passivity is not a growth strategy. For too long, too many smart people have insisted that pure free market principles would help economies (at least the healthy ones) find the right balance. But as we've seen increasingly over the past decade, an economy will not simply balance itself. Doing so requires action; it requires intervention.

A look around the world reveals that the countries that are succeeding economically are not passive believers in free market fate. Instead, they take their future into their own hands and strive for better balance. Brazil, for example, isn't content to be a power in agriculture alone; it is strengthening other sectors as well. And China is working hard to ensure that it is more than the world's factory floor. These nations, like others around the world, are takingaction. They are working to fulfill the promise of globalization and to minimize its perils.

Around the world, countries are acting more and more like companies: competing aggressively against one another for business and progress and wealth. Governments are boosting business, creating a climate that attracts and rewards investment, spurs innovationand job creation, and appeals to companies that are less bound by national borders than ever before. Build here, they say, and we'll pay for the land you need. Build here, they say, and we'llcover your workers' salaries for a decade. Build here.

Meanwhile, in the United States, we operate as if little has changed. Our faith in the wisdom of markets may be shaken, but not at a fundamental level -- even after the markets have shown they're not always so wise. We assume that because of our greatness, companies will continue to invest here, just as they alwayshave.

We are wrong. Not about America's greatness, but what it entitles us to.

It is time to recognize that if we don't act soon, if we continue to let markets rule in every instance, we will become the global economy's biggest bystander, and potentially, its biggest drain. Our consumers will find themselves with more debt and less money to spend; our businesses will have fewer resources for research and development; our future generations will lack opportunities. It's time for us to recognize the cost of inaction--not just for theUnited States, but also for the entire global economy.

It's time for us to recognize, whether we like it or not, that for now, in certain key areas, we actually need more government, not less. As CEO of one of the most global U.S.-based corporations, I can tell you, without qualm or question, that I want government more involved. I need it more involved, for the sake of my employees and shareholders. Not as an overzealous regulator, but as a thoughtful partner to thoughtful business -- in a shared effort tostrengthen our economy.

Risk is inherent in business. I accept that. In fact, I embrace it. There's no upside without a downside.

But any smart company anywhere in the world will do what it can to reduce the uncertainties of doing business, just as individuals do what they can to reduce risk in their lives. Other nations, recognizing this, are working closely with companies to mitigate risks, to create predictability so that businesses can plan and invest for the long term. Together, the public and private sectors set goals, and create mechanisms to ensure those goals are reached.

These countries see what the United States, sooner or later, must realize: It's a false choice to say that you can be either pro-business or pro-government. The old ways of thinking don't apply to the new global economy. Indeed, today, more than ever before, being pro-government is a prerequisite for being pro-business. They must work in concert.

Now, I have no doubt that there will be cynics and skeptics who, upon reading this, will say that I am calling for nothing more than corporate welfare. After all, businesses that espouse free market principles are also known to lobby governments for policies that they believe will improve the environment for their investments. It's no secret that Dow Chemical ( DOW), too, has lobbyists, and we put our policy objectives on our Web site for all to see.

I don't suppose there's anything I can say to win over the skeptics. But I hope that fair-minded readers -- who share my strong belief that the best engine for economic growth is a healthy, strong private sector -- will see that the case I make in this book transcendsthe particular interests of Dow, the chemical industry, or even the manufacturing sector. I believe that everyone in America has a vital stake in whether businesses are willing to stay and grow within these borders.

At a time when U.S. companies -- run by patriotic people -- are moving offshore at the fastest rate in history, we should, at a minimum, recognize that the model we are relying on isn't working. When those companies leave, they take jobs and growth -- and allthe prosperity that follows from them -- offshore, too.

The United States must do more to reverse the tide.

By "the United States," I mean all of us -- the public and private sectors. We must build a new partnership for prosperity. We must draw on America's rich history of collaboration between business and government -- a relationship that, despite its obvious tensions, has brought immeasurable benefits to the people of this country and the world. In World War II, companies worked with government to create, as Franklin D. Roosevelt called it, "an arsenalfor democracy." Later, government investments in microprocessors, for example, made those innovations scalable, and affordable to the mass market.

Countless other innovations were the product of government-funded research and development. More recently, government action has helped turn the auto industry from bankruptcy to profitability in less than two years. Government intervention stabilizedthe financial markets and unfroze credit lines. Government, of course, often stumbles, oversteps, and makes terrible decisions. Every business person I know sometimes wantsgovernment to get out of the way. But that doesn't mean it should get out of the picture.

I am a businessman, and I am unabashed in my boosting of business. I believe deeply in entrepreneurship, in the power of capitalism to improve lives. But I do not agree with those in the business community who think that our future success depends ongovernment shriveling up and dying on the vine.

We cannot afford to get stuck in the tired old debate between pure free-market philosophy and state socialism -- as if those are the only two economic models from which to choose. We should not assume that the rules of the twentieth century economy apply tothe twenty-first century. Globalization has truly rewritten the rules. The new economic realities apply broadly -- not just to the United States. There isn't a major power in the world that can succeed over the next several generations without figuring out how to balanceor rebalance its economy.

And we need them to succeed. In this era of interdependence, we need more people in more nations to succeed. There are times, of course, in business, in global competition, where we're playing a zero-sum game. I want to win, and, let's be honest, I want you to lose. In a similar sense, nations want to maximize their global market share; they, too, want to win. But the calculus we apply has to be different than it is in business, because our economies aremore integrated today than ever before.

In an era where one country's economic troubles -- whether that country is as big as the United States or as small as Greece -- can set off a global chain reaction, we all have a stake in each other's strategic decisions. And that's not necessarily a bad thing. Indeed, I believe the enduring reality of globalization can be the rising tide -- one that truly lifts all boats.

As the world's largest economy, the United States therefore has an obligation not just to its own people, but to the people of the world, to get this right. To no longer accept the shuttering of factories and offshoring of jobs as inevitable. To reject once and for all the idea that manufacturing is somehow optional, or incidental to our future.

On the contrary: Manufacturing is America's future. Not just its past. Manufacturing is the foundation upon which our economic prosperity, our growth and wealth and jobs depend. At the center of our economic problems lies the hole that was left when manufacturingstarted to disappear. And at the center of our solution is a strategy to rebuild that once vibrant sector.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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