Economic Outlook n° 1187 | Special Report | The Reindustrialization of the United States
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But the federal government could do more to sti- mulate increased R&D spending. First, the corpo- rate tax code should be reformed. At the moment, U.S. corporations are holding large amounts of accu- mulated earnings overseas which would be taxed if they were repatriated. This tax structure obviously impedes the flow of capital back into domestic ope- rations, constraining investment. If that money could be repatriated untaxed, there would most likely be a flood of new capital coming in to stimulate invest- ment and create the new jobs which the U.S. despe- rately needs. The government could also spur investment by crea- ting a less uncertain business environment. Specifi- cally, Congress should resolve the fiscal cliff as quickly as possible. The details of the resolution are less important than actually doing it. Continued deadlock in Congress, or some sort of temporary fix will only extend the uncertainty, impeding investment and job growth. Surprisingly though, the U.S. does have one advan- tage in this regard compared to the European Mone- tary Union (EMU); it has one federal government, not 17. This structure has allowed for a rapid and concer- ted U.S. crisis response before. For example, during the meltdown of the housing market, the financial crisis, and the resulting recession, the Presidency, the Congress, and the Federal Reserve all took extraor- dinary measures to mitigate the damage. But in Europe, there has been little real progress in creating a coherent plan to deal with the sovereign debt cri- sis which is approaching its fourth year. And the lar- gest E.U. impediment is that there are 17 countries, the International Monetary Fund, and the European Central Bank (the troika) all involved. While overco- ming deadlock in Washington may be very difficult, it is not nearly as challenging as trying to mount a sin- gular effort in Europe. And when Washington has acted in concert, there were positive results. For example, the American Recovery and Reinvestment Act (ARRA) allocated almost $70 billion to the construction industry, which significantly slowed the rate of job loss. Similar tar- geted stimulus in the manufacturing industry could help spur new R&D spending, more investment, and more employment. One logical target would be the industry with the highest value-added but one which is exposed to increasing global competitive pressures - the computer and electronic products manufactu- ring. California is the center of this industry.▣
Focus on… California, the innovation incubator
conditions are ripe for improvement. California is by far the largest state in terms of nominal GDP at $1.96 trillion in 2011, which is 13% of the entire U.S. eco- nomy. California alone is the world’s ninth largest economy, and is larger than Russian, India, Canada, Spain, and Australia. As shown in Figure 31, California’s GDP growth rate has usually outperfor- med the U.S. as a whole and was ranked 10th among all states in 2011.
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▶ California is also the largest employer in the U.S. with 16.4 million jobs at the end of 2011, or 12% of all 132 million U.S. jobs. California has recently led the nation in job creation. Perhaps more importantly, job growth in California is expected to outpace the rest of the U.S. over the next two years. According to a University of California at Los Angeles (UCLA) Ander- son Business School forecast, jobs in California are expected to grow in 2013 by 1.9% vs. 1.5% for all of the U.S., and in 2014 the numbers are 2.5% vs. 1.6% respectively. In addition, while the unemployment rate is among the highest in the nation, it appears that it may be due to an increasing labor force, sug- gesting that relatively fewer workers are becoming discouraged and leaving the labor force.
hile California has suffered significant job losses in manufacturing over the past decade,