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Romney’s Theory about Why Companies and Countries Decline
Howard Richman, 12/6/2011

When Republican presidential candidate Gov. Mitt Romney was growing up, his father was rescuing American Motors Corporation by focusing upon a new type of car, the compact, putting his company’s resources into the Rambler. When his father took over, American Motors stock was selling for $5 per share. After the success of the Rambler, it rose to $95.

How did American Motors succeed when it was competing with General Motors, which had all the advantages that experience, size and wealth confer? In his 2010 book No Apologies, Romney writes:

When I was about ten, I asked my dad how he thought the company’s Rambler automobile could ever compete with General Motors; they were so far ahead that catching up appeared impossible. He said something that has since been widely attributed to him: “There is nothing as vulnerable as entrenched success.” (p. 34)

Romney is a student of why companies and countries go into decline.  After graduate school, he went to work for the Boston Consulting Group where his boss did a study of the advantages of leadership:

His analysis demonstrated that a company with twice as much experience as another should enjoy a 20% to 30% cost advantage. That’s why, he concluded at the time, IBM should be more profitable than Burroughs, GM more than Chrysler, Owens-Illinois more than Anchor Hocking. Sears more than JCPenney, Goodyear more than Firestone, and Xerox more than AB Dick. His predictions were borne out, at least for a time, But one by one, great leading companies, like leading nations, found that their potential for advantage was not a guarantee for success. (p. 36)

According to Romney, companies and businesses decline for the same reasons. They ignore challenges and threats. They squander their advantages.  Due to easy money, they stop doing the things which made them great in the first place. According to Romney, the following made America great and should be part of our revival:

[T]he foundations of America’s strength are the most robust of any nation in history. Our economy is based on a wide spectrum of industries. Our agricultural and natural resources are abundant. The American people are educated, inventive, creative, risk-taking, entrepreneurial, patriotic, family-oriented, willing to sacrifice, and committed to freedom. (p. 49-50)

America is currently losing to the challenge of Chinese industrial policy. In a few decades the Chinese economy will pass the United States. Although Chinese leaders claim that they harbor no global ambitions, Romney is skeptical. He thinks that they not only threaten democratic Taiwan, but also the rest of Asia and the Pacific. President Obama must be reading confirming intelligence about Chinese ambitions, else why would he suddenly decide to station U.S. Marines in Australia? And why else would China object?

Although the United States has a huge advantage in innovation, China is stealing our technology. Romney notes that the foreign corporations that have built their factories in China are not pleased with this technological theft:

Foreign companies that have invested in China have certainly smiled as their sales and profits have grown, but their smiles aren’t as wide as they once were, now that their Chinese “partners” are opening facilities of their own and appropriating foreign know-how and technology. All this has led to breathtaking growth for China’s economy, now predicted to be larger than ours within the next twenty years. (p. 15)

The good news is that Romney is aware that the United States is not meeting the threat of China’s industrial policy. He is aware that complacency is not the answer. He is a problem solver. As President he would work to reverse the American decline.

The bad news is that he has not yet figured out how to do so. His proposals, though better than what President Obama is currently doing, have been fairly lame. For example, here is his chief proposal at the October 11 debate on the economy in Hanover New Hampshire:

When people have pursued unfair trade practices, you have to have a president that will take action. And on day one, I have indicated, day one, I will issue an executive order identifying China as a currency manipulator. We'll bring an action against them in front of the WTO for manipulating their currency, and we will go after them. If you are not willing to stand up to China, you will get run over by China, and that's what's happened for 20 years.

The WTO is not likely to rule against China as a currency manipulator since there is no WTO rule against currency manipulation. There is an IMF rule against currency manipulation, but it is never enforced. Moreover, China is only the most flagrant of the currency manipulators. Almost all of the emerging market governments are currently manipulating currencies. That's why they are growing economically, while their victims (the United States and European economies) are stagnating.

There is only one kind of action that a President Romney could bring before the WTO that would work. He could invoke the WTO rule which lets trade deficit countries require balanced trade. This particular rule would let the United States impose a scaled tariff upon the goods of countries with whom the United States has a trade deficit. This tariff would be scaled to each country so as to take in half of our current trade deficit with that country as revenue. Thus it would force the trade deficit countries to take down their barriers to American products or lose market share in American markets. (For more on this topic, see our article The Scaled Tariff: A Mechanism for Combating Mercantilism and Producing Balanced Trade, published last month by the peer-reviewed Journal of International Law and Trade Policy.)

Comment by SMARRTEE, 12/7/2011:

A typical china basher who badly need a brain surgery in Chuna to see for himself what the real world is now.

Response to this comment by Jesse, 12/7/2011:
SMARRTEE, This is a forum for debate and reason, not unreasoned bashing.  All of the arguments put forward in this article are ones that have been made in more detail elsewhere on this blog.  Please explain your argument or issue. 

Comment by Susan, 12/7/2011:

Romney has thought of a lot of things that he hasn't shared yet.   Campaigns are not meant to have the nitty gritty.  I think Romney is going to be one amazing President.  He is picking his battles even as we speak with all the "anyone but Romney" crowd who are not concerned about America, but about their own agendas.  This is insane!