economic stimulus (8): be globally the most competitive

November 2, 2008 | Vetting explained

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What can the government do to make America the most competitive country on earth? There are not many options as competitiveness largely depends on private initiative. However, those options can make a major difference. They have mainly to do with cost of doing business in America and with the smarts of its workforce. As I have shown in my series of articles, we are facing an economic contraction in the magnitude of at least 27% and more from unemployment. This is caused by the $1000/month income/cost gap of the average American. Market mechanisms fail and widespread risks from derivative bets need to be contained. Governments need to sweep up the unemployed through infrastructure, education, and military programs in order to tighten the labour market. State and local governments have to keep their cost up and rely on the Federal government for massive deficit funding. The food and energy supply needs protecting in order to avoid disastrous consequences. In my last article I outlined where to invest for our future and for energy independence. America will face a massive shortfall on corporate income taxes by about 50%. The discussion about stimulating the economy with a few points less in corporate income taxes becomes almost irrelevant in this light. There are three main factors that I would like to discuss in this article, the cost of doing business in America, trade, and education. This topic is coming late in the discussion because it does not directly address the income/cost gab of the average American. However, its long-term impact is dramatic, and it takes care of negative economic effects from the unemployed. Cost of doing business Tax is one obvious factor in the cost of doing business. Labour and material costs are others. However, there are costs to running a business that are completely unnecessary and have an importance beyond running the actual business. People and businesses hire tax advisors, accountants, auditors, lawyers, and other scam artists in order to minimize tax impact on any corporation. Complex rules have to be followed in order to be taxed properly. Those rules are so difficult that only experts understand them, and they, the rules, are full of loopholes. Tax evasion, tax scams, tax schemes, you name it are rampant and they don't serve any business to be particularly successful compared to other competing nations. In other words, the income tax system is not transparent, it is corrupt, it is not easily understood by business people, and it is costly to administer on both sides, the business and the government. The worldwide most competitive tax system in America Replacing all corporate income taxes with a sales tax would put America into a unique competitive position and any company would be foolish to put its headquarters anywhere else. A Sales tax is a clean, fair, and transparent tax system, for everyone to see at the point of buying goods or services. Tweaking taxes a little here and there does not have a great impact on the economy. Changing the tax system altogether from income based (punishment) to expenditure based (saving and consumption based) brings forward many positives. It would make the tax system as a whole less complex and much less costly to administer. It would also put America into a unique competitive position to other nations. The cost of such a change would be about $800 billion loss in corporate income taxes that could easily be incorporated into a Federal Sales Tax portion. The collection of such taxes could be delegated to the states and the Federal Government could thus contribute to the already existing administrative cost of the states, thus rendering the overall administration smaller and cheaper for the taxpayer. The changeover would cost some money. However, that would contribute to the overall economic stimulus. The most competitive trade system There is another cost of doing business that is extremely high and is not visible directly. It is the tendency that jobs are exported to foreign countries only to import goods and services that are inferior, not in its quality, but in intrinsical value of labour and environmental protection. I don't expect level playing fields in the sense that they are equal. However, the playing field has grown into an unfair disequilibrium against American companies. In America, we take it for granted that companies have to submit to stringent environmental regulations that ask for investments and high cost. They have to meet costly labour standards for health and safety, which have to be factored into prices of American produced goods. Yet, our imported goods don't have to submit to any such standards. Then we ask ourselves how in heaven they can produce so cheaply. We import toxic toys with materials that have long been banned for American producers. Imported products are linked to toxic waste that is dumped at the backdoor of the producer in developing nations. Those products come from children and from workers that have not even heard the word "minimum wage", nor do they get any protection after working accidents. America and the developed world have an obligation to help to poor countries get on their feet. However, it can't be at the expense of all Americans loosing their blue-collar jobs. It was supposed to be a win-win situation. Trade has to be assessed from the ground up. Whoever wants to export to America will have to commit to labour, environmental, and societal standards that have to be implemented within a reasonable period of time. Whoever is unwilling to submit to that will have to stay out. This has nothing to do with protectionism. It has to do with actually making a difference to developing nations where labour exploitation, child labour, environmental abuse, and societal suppression is rampant. The worldwide most competitively educated workforce in America Throughout the world, the approach to education is on the wrong foot. The idea was to provide equal opportunity for all. However, what we are trying to provide is equal education for all (at the lower level) and that everybody has to go through school at all cost. What have we achieved with our so called "educated" society? Are we not supposed to be able to PROGRESS to a next level of elevated REASON? Where have we gotten with all these investments? We are at the brink of social collapse with an entertainment society that seems to have completely lost the instinct to protect our next generation. What a waste of public money and well meant effort. We seem to have forgotten that universal/compulsory education is a brand new experiment of about the last 120 years, under strong Marxist influence with, amongst other aims, the goal of universal conformation. The great idea may have successfully conformed our thinking but has failed us, so far, in achieving a smarter society that makes wise choices and that provides the knowledge workforce needed for the future. Today's system is geared toward the lowest common denominator. The top tier of the students are not challenged but instead bored. That's a real tragedy. I would like to see this trend reversed by dramatically raising the bar and sieving the unable or unwilling out and focussing on the top tier instead. That may sound elitist. It is not. It is very competitive, and that is very American. What I would like to see is that everyone has the same opportunity for schooling, even later in life. However there must be limits to those opportunities where one is unable or unwilling. Everybody needs to learn how to read, to calculate, to write, and to speak properly (this is not conclusive). Public schools are needed that are in competition with private schools and they need to be accessible for all in order to set the groundwork. That primary part might take an effort of maybe 5 years. However, why do we have to expand our failed approach into early childhood education, further estranging our families' responsibilities? More importantly, why has everybody to be pushed up the ladder after initiation? In order to bring forward the world's most competitive businesses, our society needs the most competitive workforce and needs to envision an "American" approach of competition to schooling, with access for all and highest quality standards. It's hard to digest but easy to imagine that after the first few years in primary/basic education, the only way that anyone could progress to the next level is by being in the top 2/3rd of the pack (that's just a number). Everybody else would be allowed to repeat a limited number of times, should they wish to do so. That would change the name of the game at home, at school, at businesses but also to cost for education. If one does not want to go through school or is not able, he/she might as well become useful in other ways where their talent might be needed. Except for the primary level education should not be "free". It should cost the student (not the taxpayer) whatever it does cost either in public or in private schools. However, the government could and should provide interest free loans for 100% of that cost to the student, possibly including a modest living allowance, as long as the student rises up the educational ladder. As soon as the student steps into the workforce, payback time would start and a few years later, interest would need to be paid on the remainder. Why on earth does the (poor) taxpayer have to pay for the education of the future Wall Street bosses, who, because they had a longer education, will make so much in one year that they could pay the education from their pocket change? There is a clear relation between education and future income and the current way of handling the issue is upside down. Students should be able to choose their schools, wherever they want, as long as admission is not corrupt. That needs a framework for public and private schools to operate in. One might ask what education has to do with a stimulus program. Here is the problem: unemployment is on the rise. My proposal is to sweep up the unemployed through the military, infrastructure programs and through schools. However, the unemployed can't pay for school and becomes thus a negative economic factor. If the unemployed can instead receive government financing for (re)education, then there is no negative factor. In contrary, it creates the future quality workforce within very few years. The cost is purely financing rather than spending. Of course, the rest of the students should have the same access to financing. This article is part of a series of articles focussing on what local, state and federal governments need to do now in order to address the upcoming economic Depression. economic stimulus (1): the disabled consumer at http://www.ireport.com/docs/DOC-132064 economic stimulus (2): focus on income and equity at http://www.ireport.com/docs/DOC-132067 economic stimulus (3): quarantine risk at http://www.ireport.com/docs/DOC-132200 economic stimulus (4): sweep up the unemployed at http://www.ireport.com/docs/DOC-132202 economic stimulus (5): bailout state governments at http://www.ireport.com/docs/DOC-132205 economic stimulus (6): protect food and energy supply at http://www.ireport.com/docs/DOC-132795 economic stimulus (7): invest into the future at http://www.ireport.com/docs/DOC-132856 economic stimulus (8): be globally the most competitive at http://www.ireport.com/docs/DOC-133022 economic stimulus (9): change politics at http://www.ireport.com/docs/DOC-133026 economic stimulus (10): prepare for budget cuts at http://www.ireport.com/docs/DOC-133113 Please comment. I will try to address questions, if I can. H.R. Tschudi, economist and entrepreneur, Vancouver

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