The Deindustrialization of America

1. America's Deindustrialization: A Systematic Disinvestment of Productive Capacity

Underlying the high rates of unemployment, the sluggish growth in the domestic economy, and the failure to successfully compete in the international market is the deindustrialization of America.

A profound shift. America's economic woes, from high unemployment to lagging international competitiveness, stem from a widespread, systematic disinvestment in the nation's core productive capacity. Capital, rather than being channeled into upgrading basic industries, has been diverted into unproductive speculation, mergers, acquisitions, and foreign ventures. This trend leaves behind a landscape of shuttered factories, displaced workers, and emerging "ghost towns."

Beyond visible closures. The problem of deindustrialization is far more extensive than just the dramatic physical relocation of plants, often dubbed "runaway shops." While such moves do occur, they represent only the visible tip of a much larger iceberg. The true scale of disinvestment includes the redirection of profits from existing plants, the deliberate running down of facilities by failing to replace obsolete machinery, and the outsourcing of work, all of which lead to significant job destruction.

Massive job destruction. Between 1969 and 1976 alone, an estimated 32 to 38 million jobs were lost in the U.S. private sector due to various forms of private disinvestment. This phenomenon is not confined to the traditional "Frostbelt" states; almost half of these job losses occurred in the Sunbelt, with southern manufacturing plants facing slightly higher odds of shutting down. This widespread destruction of jobs challenges the notion that deindustrialization is a trivial problem or that the pace of "creative destruction" is insufficient.

2. The Staggering Human and Community Costs of Capital Flight

The costs of disinvestment go well beyond lost wages and foregone productivity.

Devastating personal impacts. Plant closings inflict severe and long-lasting damage on workers and their families. Studies consistently show that a large proportion of displaced workers face years of unemployment or underemployment, with many never recovering their lost earnings. For instance, auto workers often see a 43% drop in wages, and steelworkers a 46% drop, in the first two years post-displacement. This is not merely a personal loss; society suffers a real productivity decline when skilled workers are forced into low-productivity jobs.

Health and wealth erosion. Beyond income, workers and their families endure serious physical and mental health problems, including:

• Increased blood pressure, cholesterol, and blood-sugar levels, linked to heart disease.
• Higher rates of ulcers, respiratory diseases, and hyper-allergic reactions.
• Elevated rates of suicide, homicide, mental hospital admissions, and cirrhosis of the liver, correlated with sustained unemployment.
  Families also face the depletion of savings, mortgage foreclosures, and reliance on public welfare, losing not just income but accumulated assets.

Ripple effects on communities. The impact of disinvestment extends far beyond individual workers, creating profound ripple effects throughout entire communities. When major employers shut down:

• Supplier firms lose contracts, leading to their own layoffs.
• Retail sales plummet, affecting local businesses.
• Public revenues from corporate income and property taxes decline sharply.
• Demand for public assistance and social services surges, straining already depleted municipal budgets.
  This can push cities to the brink of bankruptcy, leading to layoffs among police, fire, school, and sanitation workers, further eroding the community's social fabric and quality of life.

3. Boomtowns and Reindustrialization: Growth with its Own Severe Downsides

The unrealized burden of boomtown expansion goes beyond that which is easily measured.

The allure of boomtowns. Cities like Houston exemplify the promise of reindustrialization, attracting billions in investment and hundreds of thousands of new residents. Fueled by industries like oil and chemicals, these areas boast impressive growth in population, employment, retail sales, and per capita income, often with low unemployment rates and a "pro-business" climate characterized by low taxes and weak union presence. This rapid expansion appears to be the "yellow brick road" in an otherwise gloomy economic landscape.

Hidden costs of rapid growth. However, this frenzied, unplanned development comes with significant downsides, mirroring many of the urban problems found in deindustrialized northern cities. Boomtowns often suffer from:

• Strained infrastructure: highway congestion, air pollution, water shortages, overcrowded schools.
• Housing crises and displacement of low-income families.
• High crime rates and stark income inequality, creating a "permanent underclass."
• Inadequate public services due to tax limitations and rapid population influx.
  These issues can overwhelm a city's absorptive capacity, leading to environmental calamities and social instability.

Limited local benefits. Research indicates that the net gains from boomtown development are often overstated. Only a small proportion of new jobs are filled by previously unemployed local residents; instead, they often go to commuters or inmigrants with better skills or "the right racial heritage." The local multiplier effect for job creation is often low, as new establishments tend to use existing suppliers of the parent company rather than local businesses. Consequently, while some individuals prosper, the overall social costs, including physical and emotional health consequences, can be substantial and are often borne by the long-term residents.

4. Corporate Strategy: How Managerialism and Mergers Fueled Disinvestment

For the managers of American industry, there appeared to be only two things to do to reverse this trend. They could identify new, more profitable uses for their capital. Or they could find ways to cut production costs in their existing activities...

The profit squeeze response. Faced with heightened international competition and a sharp decline in real profit rates during the 1970s, American corporate managers adopted a two-pronged strategy: seeking new, often "quick-fix" profitable opportunities, and radically restructuring production to cut costs. This led to a frenzied period of capital shift, with conglomerates buying and selling subsidiaries at a feverish rate, and traditional product-oriented companies diversifying into unrelated activities.

The "new managerialism." Influenced by consulting firms like the Boston Consulting Group, corporations codified policies like "hurdle rates of return," leading to the abandonment of profitable businesses that simply didn't meet arbitrary, high profit targets. The infamous case of Youngstown Sheet and Tube, acquired and then systematically disinvested by Lykes Corporation to finance other ventures, illustrates how viable enterprises were sacrificed for corporate-wide cash flow. This approach often destroyed social productivity embedded in skills and equipment.

Centralized control, local destruction. Centralized control by distant corporate headquarters often proved detrimental to acquired subsidiaries. New management layers, superfluous staff, and inappropriate corporate policies (e.g., applying automotive security protocols to a book-printing firm) imposed non-productive costs and alienated customers, turning once-profitable local businesses into losers. This trend of absentee control, where decisions are made far from the affected communities, significantly increased economic instability and job loss across the country.

5. Government's Role: Policies That Enabled Capital's Global Mobility and Power

In the years following World War II, a host of public policies promoted and facilitated the centralization and concentration of control over private capital.

Fueling corporate expansion. Post-World War II government policies, often justified as "job-creation" devices, inadvertently promoted the centralization and concentration of economic power, both domestically and internationally. The U.S. Tax Code, with provisions like accelerated depreciation, investment tax credits, and mineral depletion allowances, disproportionately benefited large, profitable corporations, effectively granting them interest-free loans and reducing their tax liabilities. This bias favored established firms and fueled their growth and acquisition strategies.

Subsidizing global reach. American military and foreign policy, alongside favorable tax and tariff regulations, actively supported the international expansion of U.S. capital. The Bretton Woods agreement, for instance, allowed American investors to acquire foreign assets by effectively forcing foreign central banks to buy excess dollars. Tax policies like the foreign tax credit and deferral of taxes on overseas profits, combined with tariff loopholes for "export platforms" (e.g., maquiladoras on the Mexican border), incentivized U.S. firms to shift production and jobs abroad, often to low-wage, non-union environments.

A permissive regulatory environment. Beyond direct subsidies, a lax regulatory environment, including weak antitrust enforcement and accounting rules that allowed "creative accounting" for mergers, further facilitated corporate centralization. This enabled giant corporations to grow through acquisitions rather than new construction, and to manipulate financial reporting to inflate stock values. These policies, while seemingly promoting business, ultimately contributed to the hypermobility of capital and the deindustrialization of domestic industries.

6. The Erosion of the Social Contract: Capital's Assault on Labor and Social Welfare

What the corporations were really offering to labor was sustained economic growth and, with it, the promise of both steadily rising real wages and an increase in the social autonomy of the working class.

A fragile peace. Following World War II, a "social contract" emerged between organized labor and big business: unions would ensure labor discipline and stability, and in return, corporations would offer steadily rising wages, fringe benefits, and a growing "social wage" (social safety net). This arrangement, however, implicitly granted management unquestioned control over "larger decisions" like plant location and shutdowns, setting the stage for future conflict when economic conditions changed.

Weakening labor's power. The Taft-Hartley Act of 1947, particularly its Section 14(b) allowing "right-to-work" laws, significantly weakened unions, especially in the South. This legislative environment, combined with anti-union corporate strategies, led to a decline in union membership and organizing success. Companies increasingly adopted sophisticated tactics like "parallel production" and "multiple sourcing" to create duplicate facilities in non-union areas, using the threat of shifting production as leverage in negotiations with unionized plants.

The "good business climate" offensive. As global competition intensified in the 1970s, corporations launched a concerted assault on the social wage, demanding a "good business climate" from state and local governments. This often meant:

• Lower taxes and increased business subsidies.
• Relaxation of environmental, health, and safety regulations.
• Reductions in social insurance, welfare, and minimum wage provisions.
  This "second war between the states" created intense competition among jurisdictions, forcing them to cut social programs and benefits to attract or retain capital, ultimately undermining the security of working people.

7. Conservative and Liberal Policies Fail to Address the Root Causes of Decline

The latest incarnation of supply-side theory (which turns out to have been around since the nineteenth century) does not provide much of a blueprint for running a modern economy.

Conservative "laissez-faire" shortcomings. The conservative strategy, epitomized by supply-side economics and Reaganomics, blames economic decline on the "welfare state" and advocates for tax cuts, deregulation, and slashing social safety nets to stimulate work and investment. However, this approach is flawed:

• Savings are not the problem: Corporate savings have remained high, and businesses often sit on cash rather than investing.
• Tax cuts don't guarantee investment/work: Evidence suggests minimal impact on work effort and investment, leading to massive deficits.
• Ignores market failures: Fails to address public goods, externalities (like pollution), and the inherent instability and uneven development of unregulated markets.
  Ultimately, this strategy breeds fear and protectionism, rather than sustainable growth.

Liberal strategy's limitations. The traditional liberal approach, relying on government intervention to temper market excesses through stabilization policies, regulation, and redistribution, also proved inadequate in the face of new economic realities. While successful in the 1960s in achieving growth and reducing poverty, the rise of international competition and capital hypermobility rendered these policies ineffective and unaffordable. Capital could simply evade regulations or shift to jurisdictions offering lower costs, leading to a "fiscal crisis of the state" where governments could no longer fund essential social programs and public goods.

The need for new thinking. Both conservative and liberal frameworks, despite their differences, largely share a fundamental belief in the unbridled mobility of private capital. This shared premise prevents them from addressing the core contradiction between capital's pursuit of profit and the need for social security and community stability. The historical record demonstrates that neither extreme deregulation nor traditional government tempering can effectively manage an economy characterized by hypermobile capital and intense global competition, necessitating a radical re-evaluation of economic policy.

8. The Flaws in "Japanization" and Small Business-Focused Development

The Japanese system is therefore a two-edged sword. It offers economic prosperity and material progress. But it exacts a price in terms of regimentation, autocracy, and institutionalized inequality.

Japanization's hidden costs. While Japan's post-WWII success, driven by industrial planning (MITI), "patient money," and "permanent employment," is admired, its direct transfer to the U.S. is problematic. The Japanese system, while efficient, comes at a significant political and social cost:

• Conformity and autocracy: Strong pressure for conformity, powerful big business, and a bureaucracy less accountable to popular will.
• Institutionalized inequality: "Permanent employment" covers at most one-third of the labor force (primarily men in major firms), with temporary workers and subcontractors bearing the brunt of economic fluctuations.
• Limited social safety net: Workers are heavily dependent on their companies for benefits, making dissent costly.
  This model sacrifices democratic values and equity for economic efficiency, a trade-off unsuitable for American society.

Small business strategy's limitations. The idea of targeting economic development to small businesses, based on research suggesting they create most new jobs, is also flawed. While small firms are numerous, they often:

• Offer low-quality jobs: Low wages, unstable or part-time work, and discriminatory hiring practices.
• Have high failure rates: Most small firms (1-20 employees) have only an 8.6% chance of surviving beyond 10 years, compared to 35.7% for firms over 500 employees.
• Are increasingly corporate-owned: Much of the "small plant" growth is actually larger corporations adopting smaller, more controllable facilities, not independent entrepreneurs.
  Subsidizing this sector without addressing job quality or stability risks creating a larger "secondary labor market" rather than broad-based prosperity.

Urban enterprise zones: a false promise. The concept of urban "enterprise zones"—areas with reduced taxes, lower labor costs, and relaxed regulations to stimulate inner-city business—is a localized version of these flawed strategies. Modeled on Third World free-trade zones, they are likely to:

• Create sweatshops: Attract employers offering low-wage, low-productivity jobs, unable to compete with foreign labor costs.
• Fail to generate new capital: Tax breaks are ineffective for start-ups that lack profits to shelter.
• Exacerbate fiscal crises: Require major public investments in infrastructure and services, which contradicts the goal of reduced government spending.
  These zones risk becoming havens for exploitation, failing to provide meaningful upward mobility or sustainable economic development for residents.

9. Reindustrialization with a Human Face: Prioritizing Social Security and Democratic Planning

To promote it requires more, not less, social security.

Security as a foundation for productivity. True reindustrialization requires a fundamental rejection of the notion that insecurity drives capital accumulation. Instead, productivity is a social relation that flourishes with greater social security. By alleviating the fear of poverty, disease, and joblessness, human energies can be fully unleashed for creative and productive endeavors. Therefore, rebuilding and expanding the social safety net is a precondition for any meaningful economic transformation.

Reforming public finance. A radical industrial policy must begin with progressive tax reform to generate the necessary public revenues. This includes:

• Eliminating corporate tax breaks and incentives, which primarily benefit large corporations without spurring new growth.
• Closing tax loopholes for capital gains and tax shelters on real estate, mineral rights, and foreign income.
• Potentially replacing the corporate income tax with more progressive personal taxation on investment income.
  These reforms are crucial to finance a robust social safety net and provide essential public goods, reversing the "war between the states" for corporate capital and the erosion of public services.

Extending worker protections. To counter capital hypermobility, plant-closing legislation is essential, requiring:

• Advance notification of major cutbacks or shutdowns, allowing time for workers and communities to plan.
• Severance payments and continuation of health insurance for displaced workers.
• Increased rights of transfer to other company facilities.
• Lump-sum payments to municipalities for economic redevelopment.
• Joint company-union-government committees to prepare economic impact statements.
  Such legislation, inspired by European models, aims to spread the costs of economic dislocation and empower communities to respond proactively, rather than being held hostage by corporate decisions.

10. Empowering Workers and Communities: A Path Towards Equitable Economic Control

The truly far-reaching structural change comes when serious thought is given to economic planning.

Democratic economic planning. A radical industrial policy must move beyond private profit as the sole criterion for economic decisions, aiming instead for:

• A rising and more equally shared standard of living.
• Adequate supply of useful goods and services, regardless of immediate profitability.
• More humane, interesting, less authoritarian, and safer work environments.
• Economic democracy: Active popular participation in running economic institutions at every level, from the factory floor to national government, ensuring social accountability.

Public-private partnerships with control. For "sunrise industries" (e.g., semiconductors, robotics) requiring government support, a new model of "public-private partnership" is needed. This would involve:

• Government equity positions in subsidized private firms to ensure public return on investment.
• Legally binding "planning agreements" covering pricing, location, sourcing, automation, affirmative action, health/safety, and workplace democracy.
  For essential "public goods" (e.g., mass transit, health care), local/municipal ownership, producer cooperatives, and selective nationalization (e.g., a public oil corporation) should be explored to ensure equitable access and social utility.

Transforming "sunset" industries. For declining industries, policy must focus on:

• Systematic monitoring of corporate investment decisions to distinguish genuine obsolescence from profit-driven abandonment.
• Conversion of old facilities to new, useful civilian products, with worker-initiated studies and public investment (e.g., the Lucas Aerospace plan).
• Worker and community buy-outs of viable plants, supported by structured public financial, marketing, and management assistance, with safeguards against managerial manipulation and the erosion of worker benefits.
  This approach ensures that the costs of economic transition are shared, and that productive capacity and human skills are repurposed rather than simply discarded.