Excerpts

On Manufacturing’s Decline:

“While social upheaval and foreign policy distractions in the 1960s augured change in the American condition, the early 1970s put a stop to the steady upward movement of the manufacturing sector. The stagflation economy (high inflation and low growth) took a bullet with the 1973 Arab oil embargo, and while our country certainly recovered, that decade would serve as the high-water mark for domestic manufacturing.  It would be downhill from there—we just did not know it at the time—and the process of coming to that realization would be painful for Americans. . . .  Since manufacturing’s peak employment of 20.6 million in 1979, the sector has lost over 9 million jobs. During the same period, the rest of the economy has added almost 43 million new workers, even after the large job losses in 2009.”

On Taxation:

“State and local governments, on the other hand, have chosen not to tax most services. . . . Services that apply mostly to out-of-state visitors, such as hotels and car rentals, are taxed almost everywhere.  Professional services, such as provided by doctors and lawyers, are taxed in only a few places. . . .  Only two states—Hawaii and New Mexico—have a broad-based sales tax system that taxes most services, and a few other states (in some cases via a gross receipts tax) tax a large number of services.  Mainly, however, there has been strong resistance to expanding the sales tax base to include most services. . . .  At the end of the day, then, we have established tax policies that favor services over products.  That is fine if you believe that supporting the service sector is a higher social good than supporting the manufacturing sector.  If you believe the opposite, as I do, then you would want to reverse the policy: tax every service, and exempt every product.”

On Health Care:

“We are not 5 percent more costly or 25 percent more costly or even 100 percent more costly than the rest of the civilized world.  For the ratio-challenged, the U.S. figure is roughly 2.7 times its peer group average.  Legions of studies exist to explore, analyze, criticize, defend, and explain this massive difference. . . .  Regardless of why health care costs are so high, it is enough for me to wipe away all the complexity and simply say as a businessman and proponent of the manufacturing sector:  this is way too much. . . .  Why, then, should this represent any more of a problem for the manufacturing sector?  The answer is twofold:  manufacturers are more likely to offer health care as a benefit than are service-sector employers, and when they do offer health insurance, more of their workers are actually covered by those plans than any other industry sector. . . . Regardless of how we got here, manufacturers will have the biggest stake of all industry sectors in whatever happens to health care going forward.”

On the Legal System:

“Another important factor in considering risks and accidents relating to products is the position of the consumer.  Absent a tort system, if a person is injured by an unsafe product the cost of that accident will remain on that person.  One problem with this formulation is that all products, to some extent, are potentially unsafe: it depends on how you use them. . . .  The person who uses a product frequently and in a manner pushing the limits of its design or intended use will surely have more accidents than one who uses it infrequently and more conservatively. . . .  Furthermore, the tort system in practice essentially ignores consumer negligence. . . .  By applying the law of strict product liability as we do in this country, we are telling consumers they do not have to be careful. They do not have to replace worn-out products, they do not have to read directions or heed warning labels, and they do not have to pay the consequences of their own mild-to-severe negligence. . . . The total figure for annual tort litigation wealth losses is nearly $1.3 trillion.”

On Workers’ Compensation:

“The specific challenges manufacturers face in the workers’ compensation system are playing out within the context of what can only be described as a disability epidemic in the United States.  The expectation is that as our economy has evolved and workplaces have become more attentive to ergonomics, working conditions, worker health, and environmental exposures, the incidence of worker disability should fall. . . .  The facts on the ground, however, have shattered this expectation. In 1960, when there were about half as many workers in the entire U.S. economy as there are today, we had over 145 able-bodied workers for every worker who was disabled.  Today, we have just 17 workers supporting each disabled worker. . . .  It could be that what we consider disability in our system, and the ease with which one qualifies to receive and retain disability payments, are the driving factors in this epidemic.”

On Government Regulations:

“The first edition of the Code of Federal Regulations (CFR), a by-product of the New Deal, came out in 1939 and compiled all the regulations in effect as of June 1, 1938. . . .  The total collection spanned about three feet on the bookshelf, and there were 16,682 pages in all.  Fast forward to 2008 at an average annual growth rate of around 3.3 percent. . . .  The regulations span about twenty-three feet of bookshelf and total 158,644 pages. . . .  Manufacturing in particular feels the weight of these regulations, from the new antiterrorism security regulations for chemical plants to labor and employment mandates, from OSHA plant guidelines to rules governing how you must pack your goods for shipment by rail or truck. . . .  Consider, however, what another seven decades of 3.3 percent annual growth would mean: a CFR totaling 1.5 million pages.”

On Unions:

“The historic presence of high union activity in the manufacturing sector makes the role of unions especially important in assessing the decline of manufacturing in the United States.  The economic and social conditions that led to union growth in manufacturing were aided, indeed driven, by the phenomenal success of American manufacturing enterprises during the first three decades of the postwar era.  The legacy of this union success, however, is that these same manufacturing enterprises are now saddled with excessive compensation levels, ungainly work rules, unaffordable benefits, and a hostile workforce that, understandably, is clinging to its relative good fortune as the workers see their comfortable middle-class lifestyles slip away in the tumult of global competition. Regardless of how we got here, the role of unions in the manufacturing sector must change.”

On the New Social Compact:

“This system would be styled as a New Social Compact between the citizens and their government.  In exchange for universal, absolute coverage for any and all forms of disability, regardless of cause, the citizens would accept that the productive sectors of the economy would be relieved of direct burdens associated with providing for that coverage.  Specifically, causes of action in tort for physical injuries including product liability would be eliminated, workers’ compensation programs would be dissolved, and health insurance would become an individual or family program disassociated from the workplace. . . .  The concept of using first-party insurance to compensate for injuries and accidents is not new.  It is the primary form of insurance today for health care, is well established in the disability arena, and has important historical antecedents. . . .  Nor is the elimination of the tort system a novel idea, either.   A cottage industry of commentators has proposed abandoning the tort system in favor of alternative accident compensation mechanisms, and the entire conception of tort law itself is a relatively recent invention.”

On Funding the New Social Compact:

“The economic benefits of moving to a consumption tax system like the X Tax from the current income tax system are potentially huge.  Estimates of the positive impact of adopting an X Tax regime on long-run output, for example, are in the range of 6 percent.  In a $15 trillion economy this amounts to $900 billion annually, or a capitalized value in excess of $33 trillion—enough to wipe out the national debt twice over.  This is what economists would call a free lunch.”

On the Need for Action:

“A nation as phenomenally wealthy as the United States could afford to have a highly litigious society with jackpot judgments, could afford the most expensive health care system in the world funded by its employers, could afford to give labor unions destructive power over the workplace, could afford to let government run wild with excessive regulations, could afford a complex and dysfunctional tax system, and could afford a featherbedded disability system for its workers.  It has turned out, however, that these are luxuries we can no longer afford.  Only the wealthiest nations can get away with programs like these, for a time, and as the rest of the world catches up to the West, and to the United States in particular, our ability to devote so much of our national wealth to these inefficiencies is no longer sustainable.  We are simply not rich enough to do this any longer.”

On Our Ability to Succeed:

“The human mind is powerful, complex, and capable of great insight. It is also systematically biased, influenced by emotion, and inclined to be lazy.  It is reasonable to consider, then, whether our citizens are up to the challenge that the New Social Compact would entail, for while it would provide for a comprehensive set of social benefits, it would also require an active and engaged citizenry making choices of consequence about their own lives.  Can people be trusted to make the right decisions about their own self-interest?”