The Multinational Monitor

MAY 1989 - VOLUME 10 - NUMBER 5


Rebuilding America

An Interview with Fred Branfman

Fred Branfman is director of Rebuild America, a public policy organization committed to developing initiatives to increase productive investment in the United States. In the past he has directed the Commission on U.S.-Central American Relations, the California Public Policy Center and Project Air War and the Indochina Resource center, two organizations devoted to ending U.S. involvement in Indochina. In this interview he speaks on his own behalf, not as a representative of Rebuild America.

MULTINATIONAL MONITOR: How did you get involved with Rebuild America?

FRED BRANFMAN: Activists tend to worry about corporate excesses and issues like redistribution, all of which are very important. But we really need to understand the other side of the equation which is how to generate economic growth. For example, how to develop key industries of the nineties.

I'm not an economist. And when I got started in this in a serious way in 1980, I knew nothing about the economy. Reagan got elected on the issue of economic growth. If you'll remember he did not say he was going to have a two trillion dollar military build-up; he did not say he was going to create the contras; he just simply talked about the economy. And I reached the conclusion that economics would be the key political issue of the rest of my lifetime.

MM: So what did you do?

BRANFMAN: At that time I had a good opportunity because I was Jerry Brown's research director and I began visiting Silicon Valley and trying to find out about key industries and technologies. It was a very healthy way to begin and I would suggest that your readers, when they think about the economy, don't get mystified. The economists have created a kind of a... what did Ralph Nader used to say about nuclear power experts? Sort of a priesthood. There's a kind of economic priesthood speaking about interest rates and exchange rates and so forth that most people feel they can't possibly understand. But I think one needs to begin by looking at strategic industries, strategic technologies, like computers, like semiconductor chips. And, when one does that you can begin to understand what the economy is all about, without getting confused by the economic jargon. The key economic issue of our time is, is the United States going to remain a world leader? We'll never be the world leader again. But will we remain a world leader in commercializing the new industries and strategic industries and technologies of the nineties? That's the key issue. If we do so, then we will have a good macro-economy and we can handle interest rates and budget deficits and exchange rates. If we don't do so, then all of those other macro-economic variables get out of control.

MM: What is the main message of Rebuild America?

BRANFMAN: Well, one of our main messages is that if we continue to allow our strategic industries to fail, we will face generations of economic and political and social decline. The average American does not even begin to understand how serious the economic crisis and therefore the political and social crisis that's going to await America in the next 20 years. So what Rebuild America is trying to do is develop a comprehensive four part initiative that if implemented by the political and business leaders would in fact revitalize America and restore the promise of growth to ourselves and our children.

MM: Is this a crucial turning point?

BRANFMAN: Well, it is for the foreseeable future.

And the reason is interesting. The transition of global power that occurred from Great Britain to the United States took something like 50 years. But right now, we are in the middle of what historians may regard as a far more rapid transition of power that, unless things are reversed, will have occurred between 1980 and the year 2000. There are two fundamental reasons for this. The first is the globalization of capital, so that you have a global monetary system that is seeing an unprecedented shift of financial power from the United States to Japan.

The second point is that the pace of technological change has sped up. Technological shifts that might have taken 20 or 30 years to occur are now happening in two and three years. For example, in semiconductor chips, we went from dominating the world memory chip market to a 5 percent share in a few years. In the next several years, they're going to go to 16 and 64 megabyte chips, and beyond and we've fallen off the escalator, as Robert Reich puts it. If we don't get back on the technology escalator, we'll remain off for the foreseeable future.

MM: Is that bad?

BRANFMAN: It could be. If the Japanese could manage their new found financial and industrial power and continue to lend the U.S. money indefinitely, and recycle their earnings into the Third World as well then we might be able to manage as we have for the last six years. But that is a risky strategy.

Let's remember the industrial revolution was accompanied by social chaos, the greatest mass migration in human history, of people from the rural areas to the cities, periodic economic depressions culminating in the great depression of the '30s and frequent military conflicts, culminating in two world wars killing 50 million people. Perhaps this global, knowledge revolution will not bring as much chaos, but it certainly threatens tremendous instability. Especially when you remember that it's occurring much more rapidly.

MM: Is organized labor in this country behind your suggestions?

BRANFMAN: I've been impressed at how labor is moving toward our four basic initiatives. First, overall investment economics to replace supply-side economics, and that involves making productive investment the key criteria for macroeconomic policy.

Two, we want industry-led strategy as opposed to either industrial policy or laissez faire to reorganize our industry and recapture the strategic industries of the '90s.

Three, we want investment in people which involves education, employment and training and workplace democracy. And fourth, and in many ways most important, we want global Keynesianism and co- development on an international level.

When you look at both labor and big business there is a surprising convergence of views.

MM: Could you explain that--

BRANFMAN: The idea of global Keynesianism and codevelopment is this--the fundamental world economic problem today is overproduction and underconsumption. Due to the mechanization of production, the globalization of production, we can make a lot of goods, but there's nobody to buy it. This is most obvious right now in the area of primary products [and] agricultural products. The reason prices are dropping is more supply, less demand-glut. What's not as widely understood is that the same thing is going to happen now in manufactured goods.

My view is that the late eighties are somewhat analogous to the late twenties in the developed world. Then you had a tremendous overconcentration of capital in America due to the great agricultural land and railroad fortunes of the 19th century. That's what the high stock market was all about; money chasing money. There weren't enough goods out there. So we had a depression and suddenly we're all Keynesians now, we've got to restart the engine by increasing demand, having a minimum wage, supporting unions and so forth. The idea was to raise worker wages in the developed world.

[L]ater on we decided we need global institutions, like Bretton Woods, IMF and so forth. I feel that Global Keynesianism is about the same thing now. Only instead of focusing on the developing world's economies, we need to look at the world economy as a whole and see that workers in the Third World are now the functional equivalent of the workers in the developed world in the thirties.

MM: To increase Third World mass purchases, won't it be necessary to promote exports from those countries, promote foreign investment into those countries and do other things which don't necessarily benefit American workers?

BRANFMAN: We need to increase Third World wages as well invest in the developed world. Suppose it was May 5, 1929 and we were prescient people and I said to you: Look, you know, the only way this system is going to work is [if] we have a minimum wage in this country, raise worker wages and support labor unions. And on the international front, we need the functional equivalent of a Bretton Woods, a GATT, an IMF. You might respond: Well, you know, that's a great idea, but it's pretty unrealistic. And, looking back now, we can see that it [would have been] right.

The only way the world will work in the future is if we have a demand-pull strategy that sees worker wages go up in the Third World, which will then attract investment, which will then serve as a market for our goods, creating general growth. It may sound unrealistic, but the path we are on now is a far worse alternative.

MM: How can Third World countries raise wages without having the money to pay them?

BRANFMAN: It would be phased in over time. The standard that Walter Russell Mead suggests is equal pay for equal productivity. So if Bangladesh is one-eighth as productive as the United States, the Bengali worker should get one-eighth the wages, which might triple his present wages.

MM: Does Bush have the political vision and leadership to move the Rebuild America agenda?

BRANFMAN: There's some forward movement from Bush. It all depends on your perspective. To be positive first, Secretary Mosbacher is doing the right thing, talking about relaxing antitrust restrictions, stressing the importance of HDTV. But if you look at the crisis facing America and the world in the coming decade, what's being done is very little. The best you car say is that if a journey of 1,000 miles begins with a single step, they've taken the first step. They're not going to get to the thousand miles we need to travel in the next four years at the rate they're going.

As Americans, we are losing control of strategic industries and technologies for the first time since Henry Ford invented the assembly line. We're talking about memory chips, consumer electronics robotics and opto-electronics--that's lasers--are three areas, key areas in which the Japanese now dominate, not to mention of course autos and steel. Supercomputers, biotechnology and eventually even computers, are all areas of concern. Things have gotten so bad that the Defense Department says our civilian economy is so eroded that it now threatens national security. From that perspective the Bush administration is doing almost nothing. [W]e face generations of decline because the country that was the world's greatest financial power, Japan, is becoming the world's greatest industrial power. We risk becoming a second rate industrial power. We're also the world's greatest debtor. That's an explosive combination. The fundamental issue is money. The Japanese have anteed up literally tens of billions of dollars in long term investments-- they expect to see no return for five, 10, 15 years, in all of the key strategic industries and technologies of the nineties.

MM: How do other industrial powers compare to the states in public/private investment?

BRANFMAN: Well, the Japanese and Europeans have each set up literally dozens of public/private partnerships, targeting all of the key strategic industries and technologies of the nineties. Industry here has begun to initiate public/private partnerships like Sematech, like the micro-electronics and computer technology corporation (MCC), started by Bobby Inman, like the National Center for Manufacturing Sciences. And one can safely predict that you're going to see American industry in the nineties form consortia, start to cooperate and seek capital from government. We've begun, but we have a long way to go before we catch up with Europe or Japan.

MM: How likely are these proposals to be implemented?

BRANFMAN: My personal view is that obviously one place to look for revenue is by taxing the wealthy. Now, given the political system we have today, where the wealthy fund the political campaigns, that's not realistic, at least in the short run. A realistic approach would go something like this. We need to generate literally tens of billions of dollars over the next 10 years to revitalize our education, our industrial base and so forth. But no one group of Americans can do that, not even the wealthy. So, what we have to do is shift from a consumption society to an investment society in which everybody pitches in. However, for that to happen, the rich are going to have to lead the way. Obviously, no one else is going to be prepared to pitch in unless they're assured that those at the top are paying their fair share.

MM: How will that happen?

BRANFMAN: Well, again, realistically, it probably will not happen without a serious economic slowdown. It's ironic that at a time of great concern about drugs the country is behaving like an economic drug addict. The drug is debt which has become an economic hallucinogen distorting our perception of economic reality. Our low unemployment rate and low inflation rate are short-term phenomena that have been created by an artificial intake of external resources. We're not internally generating that wealth or that level of economic strength and that's our problem today...

[T]here have been a collection of governors who had guts and vision. Republicans and Democrats. They are people like William Winter of Mississippi. Richard Riley of South Carolina, Bill Clinton of Arkansas, Blanchard of Michigan. On the Republican side, you have Lamar Alexander of Tennessee, Robert Orr. These governors said "Look, our states have problems. We're not going to play the Reagan game of catering to the lowest common denominator, because we can't borrow money." Reagan was irresponsible. You know, he just borrowed all this money and pandered to the lowest common denominator but it's very interesting that at the height of Reaganism, at the state level, these Governors initiated and passed tax increases for things like education. Now, the solution to America's problems is not raising taxes, but the solution America's problems is to shift our resources from consumption to investment.

Now, these governors at the state level campaigned for education and economic development and made it the centerpiece of their governorships. We found that while people do not want to pay higher taxes, there were four elements to a successful tax increase campaign. One, tell people the truth. Governor Winter didn't say it's morning in Mississippi. He said it's midnight in Mississippi. We have a problem. We're 47th in teacher salaries. Two, propose an effective way of dealing with it. Targeted tax increases. Can only go for education, not just reducing the budget deficit and maybe it will do some good somewhere. People knew that if they supported this tax increase the result would be higher teacher wages. Three, they proposed fair solutions. Make them equitable. Everybody pays. Not just the poor. Fourth, most importantly, each of these governors waged a campaign to pass their tax increase.

We have to invest in our schools. We have to shift money from consumption to investment in industry and people. The main reason I'm doing Rebuild America is that I'm absolutely convinced that Americans are not selfish, lazy and greedy, and the problem is not with the American people. It's with weak leadership.

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