COMMENTARY
This is an example of how a socio-economic system that is only driven by a profit metric ends up as a train wreck. When the goal is more and more profit, and there is no accounting for risk and no accounting for social impact, then the result will be high profit at the expsnes of society. Incentives work, but they are not in themselves going to deliver good outcomes, unless they are well designed ... and that is not true at all in the modern capitalist market economy.
Peter Burgess

Auction 2012: How Greedy Bastards Rig Our Trade Rules ... Auction 2012 is a week long series in partnership with The Huffington Post and United Republic.

Did you know that China controls our food supply? It sounds crazy, but it’s true. The food preservative “ascorbic acid”, which is used to preserve nearly all the food that is on store shelves, is manufactured in one factory in China. Ascorbic acid was discovered by American scientists and produced by Americans, right until China bought our industry. Now, our food supply is at risk, held in the hands of the Chinese. We are bearing the cost of this risk, even though we don’t see it. And the people who are benefitting are those who sold this vital technology to China. These kinds of risk transfers have become commonplace through the last twenty years, and it’s time we begin reversing them.

In doing research for my new book, Greedy Bastards, I realized that there’s one basic con played on the public across all industries. It is what I call The Very Bad Deal, in which you are offered something that looks quite appealing but are never told about the large hidden costs. These costs often take the form of shoving hidden risk onto the backs of the public, through a Bought Government. So it is with trade. Many people think about globalization as an inevitable result of lower trade barriers, technology, and capital flows. But for Greedy Bastards in banking and trade, globalization is a great slogan to use for selling off American technology and pocketing the profits, while an American government stays prostrate.

This cuts against a two hundred year American tradition of self-sufficiency. In 1791, US Secretary of the Treasury Alexander Hamilton presented his Report on Manufactures to the recently formed US Congress. Hamilton, as a recent high ranking officer in the American revolutionary army, saw how the British used their supply advantage to nearly defeat the Americans. His own army lacked for ammunition, boots, and even winter coats. His conclusion was simple – America needed to make its own supplies.

Until 1991, American leaders took as self-evidently important the security of supply lines of critical material. Starting with NAFTA, and then through the granting of China the trading privileges, we tossed that advantage away. Today, General Electric makes its lightbulbs in China. Since 2009, GM has opened 15 car factories in China, and shuttered 13 here at home, and it now sells more cars over there than over here. And tariffs on American goods entering China are 25%, versus 2.5% for Chinese goods entering America. Entire distribution networks from Walmart to Apple computer rely on Chinese manufacturing.

Congressman Duncan Hunter made the point more explicitly when he said that for all intents and purposes, American multinationals are now Chinese companies. “They like the fact that they are subsidized by their new government, which is China, and that they’re able to push American products that are made in the United States off the shelves.”

We offer American corporations a host of tax and trade advantages for locating their factories in China, and these people, who are after all businesspeople out to make money, use them. As a result, from 2000-2011, the number of Americans working in manufacturing dropped from 17.1 million to 11.7 million. Sure, we got cheaper goods, and a flood of products that we could afford. But the cost, which was hidden, was the offshoring and outsourcing of our jobs, the loss of funding for community infrastructure, and the destruction of the security of our supply lines.

American corporate profits have never been higher. And the Chinese are piling high their stack of American Treasury bonds, as well as shipping over our industrial base to their shores piece by piece and idea by idea. It seems like a good deal. But as with every Very Bad Deal, the costs could be enormous. But we won’t know that until China decides it won’t sell us any more ascorbic acid. By then it will be too late.