Clyde Prestowitz: It's Not Just the iPhone that America Doesn't Make
[Clyde Prestowitz is the president of the Economic Strategy Institute and writes on the global economy for FP.]
...Take two economies, say the United States and the E.U. Take a product, say airplanes and especially commercial airliners. During World War II, the Germans, Japanese, British, and Americans all made very good airplanes. Europe was competitive with the United States in its ability to make airplanes. After the war, both the Europeans and the Americans had all the technology, resources, and skills requisite for aircraft production. And, indeed, it was Britain that actually produced the first commercial jetliner. Yet, it was the American companies -- Boeing, Lockheed, and Douglas -- that emerged in the post war period as the globally dominant aircraft makers, especially of commercial jetliners. This was because, as part of the post-war occupation policies, Germany and Japan were forbidden to produce aircraft. While the French and British faced no such prohibition, their national markets for jetliners were relatively small compared to the U.S. market. Aircraft production is an industry with enormous economies of scale.
If you build only one plane, the cost for that one plane is prohibitive. But if you build a thousand of the same model, the cost per plane falls dramatically because high fixed costs can be amortized over a large number of planes produced. With a big home-market advantage, U.S. producers were able quickly to reduce their costs far below the level of the British and French. Once that happened, the British and French producers could not sell at a profit to anyone and could not survive without major subsidies from their governments.
Of course, the E.U. governments decided to engage in what economists call "picking winners and losers" by heavily subsidizing Airbus to make it a viable competitor with the U.S. producers. Their policy eventually paid off and today, Airbus is the world's leading commercial aircraft maker. But it took great policy determination over a long time and hundreds of billions of dollars of subsidies to achieve....
Read entire article at Foreign Policy
...Take two economies, say the United States and the E.U. Take a product, say airplanes and especially commercial airliners. During World War II, the Germans, Japanese, British, and Americans all made very good airplanes. Europe was competitive with the United States in its ability to make airplanes. After the war, both the Europeans and the Americans had all the technology, resources, and skills requisite for aircraft production. And, indeed, it was Britain that actually produced the first commercial jetliner. Yet, it was the American companies -- Boeing, Lockheed, and Douglas -- that emerged in the post war period as the globally dominant aircraft makers, especially of commercial jetliners. This was because, as part of the post-war occupation policies, Germany and Japan were forbidden to produce aircraft. While the French and British faced no such prohibition, their national markets for jetliners were relatively small compared to the U.S. market. Aircraft production is an industry with enormous economies of scale.
If you build only one plane, the cost for that one plane is prohibitive. But if you build a thousand of the same model, the cost per plane falls dramatically because high fixed costs can be amortized over a large number of planes produced. With a big home-market advantage, U.S. producers were able quickly to reduce their costs far below the level of the British and French. Once that happened, the British and French producers could not sell at a profit to anyone and could not survive without major subsidies from their governments.
Of course, the E.U. governments decided to engage in what economists call "picking winners and losers" by heavily subsidizing Airbus to make it a viable competitor with the U.S. producers. Their policy eventually paid off and today, Airbus is the world's leading commercial aircraft maker. But it took great policy determination over a long time and hundreds of billions of dollars of subsidies to achieve....