Op-Ed: Aerospace Plea Raises Broader Economic Questions
(Source: Lexington Institute; issued Dec. 3, 2008)

(© Lexington Institute; reproduced by permission)
By Loren B. Thompson, Ph.D.

The aerospace industry has begun a campaign to convince the next administration that support of its programs will help bolster the ailing economy. The industry's trade association paid for a full-page advertisement in the December 2 Washington Post stating that two million middle-class jobs are generated by the aerospace sector, that it is the nation's leading exporter of manufactured goods, and that its products are essential to national security. Argued against the backdrop of a rapidly deteriorating economy, the pitch looks pretty persuasive. (see related item in Press Release section—Ed.)

However, aerospace is not like other industries. It gets a lot more money from taxpayers in a typical year than the auto industry is going to get from any federal bailout, and much of the aerospace sector would cease to exist in the absence of government support. There just isn't much demand in the private sector for stealth bombers and space stations. Even the commercial part of the business depends on federal assistance, for example by maintaining the domestic air-traffic control system.

So this is not a sector that fits comfortably with the conservative vision of an economy driven by the free interplay of market forces. It is largely an extension of the government, which is why a generation of Republicans from Dick Cheney to Donald Rumsfeld treated it with disdain even as they shoveled money into the sector to sustain the world's biggest military arsenal. But maybe what they should have noticed was that, partly as a result of all that government support, America's aerospace industry remained a global leader while other industries like steel-making and autos faltered in the face of foreign competition.

It's a safe bet that if the government had invested as much R&D money in consumer electronics as it has in aerospace, we'd still be buying televisions from Philco and Zenith. In fact, the parts of the electronics industry that are thriving today, like chips and networks, are precisely the parts that have received the most federal funding.

On the other hand, industrial sectors where Washington took a hands-off approach are largely declining. Consider commercial shipbuilding. In 1981, Ronald Reagan canceled construction subsidies for producers of commercial oceangoing vessels. By the end of his second term the industry had collapsed, and today virtually all U.S. trade moves on ships built by subsidized foreign shipbuilders.

Politicians may be loath to admit these trends, but American workers are voting with their feet. That's why most U.S. job growth in this decade has been in services, especially government-sponsored services like education and healthcare. It's not that foreigners are better at manufacturing than we are, they're just better at protecting their manufacturers.

Toyota started out as the Toyoda Automatic Loom Company -- a clothing company -- that built up its auto business behind half a century of government trade barriers that included kicking GM and Ford out of the Japanese market. Airbus was created by European governments to challenge America's dominance in airliners, which is why the U.S. today has only one producer rather than the three that existed the year Airbus was founded.

So the bottom line on the aerospace industry's campaign is this: the government can either keep supporting the sector, or watch another great American industry disappear. Incidentally, the nation's trade deficit in manufactured goods is currently running above $50 billion per month, or about 5% of GDP.

Now you know where foreigners got the money to purchase four-fifths of all newly issued Treasury bills over the last four years.

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