Trade Policy needs to Consider Private and Public Intangible Capital

Foreign trade driven by offshoring has caused a large loss in manufacturing jobs. A change in trade policy can return many manufacturing jobs to the USA and stop many additional losses.

The right legal argument recognizes that trade policy and economics don’t account for THE THEFT OF PUBLIC INTANGIBLE CAPITAL (PIC) IN OFFSHORING where the PIC was financed with public investments. Failed trade policy is based on a paradigm of comparative advantage but doesn’t penalize offshoring that is advantaged by the theft of PIC. Economics currently ignores the theft of PIC by a company that does offshoring where the PIC is a product of public investments such as those in national defense, federal R&D, domestic security, healthcare, public (and non-profit) education and infrastructure.

Trade policy currently protects the theft of many types of private IC such as patents but ignores the theft of public IC (PIC). The theft of PIC occurs when business operations at a company with jobs and factories are first established in America with PIC created as a result of public investments in IC that get translated into business IC and then moved offshore as proven business capabilities (both tangible and intangible capital) consisting of knowledge, tools, technology and processes. Since 1992, IC has been a larger part of business investments as a part of GDP in America than tangible capital.

Theft of PIC in offshoring creates a negative externality in economics that is similar to pollution (and theft) of public resources penalized in environmental regulation. Trade imbalances don’t measure the flows of IC. Measuring the flows of IC created with public investments is a prerequisite for properly governing offshoring in globalization. The new international activity in Integrated Reporting is changing financial reporting in business to measure both tangible capital and IC.

The 21st Century hopefully will finally see the huge gap in economics filled so capitalism, financial accounting and government policy measures IC and defines laws and compensation protecting applications of IC including private and public IC. The stagnation in wages is a symptom of the failure to compensate workers for the applications of their IC.

Trade Policy should add regulations on offshoring that require repayment of the apportioned public investments that produced the PIC used to build manufacturing operations at a company with a tax of at least 20% on the value of traded goods sent back to America from offshored factories. But there should be no broad tax on imports.

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