Giuseppe H. Robalino

...With the U.S. facing a $14 trillion deficit threating its status as a superpower, we propose the continued sustenance of these multinational interests while promoting a new code of engagement through the creation of the International Business Council System. Nine points will be addressed regarding the structure of the system...

 

The Bretton-Woods for a New Era: Nine-Points & the IBC System

 

The implementation of this system will serve as a formal declaration to the world that the U.S. is prepared reflect on past shortcomings in economic and political policy while also upholding the welfare of the entire world market into consideration. It marks two historic shifts: the shift from strict militarism to fluid diplomacy and the shift from publicly funded intervention to the cooperative maximization of private capital. Whereas this policy will continue to advance U.S. economic control and maintain its superpower status, it will do so more subtly and efficiently through the IBC System.

 

THE NINE POINTS:

 

1. Increase U.S. GDP with more exports through capital investment aimed to expand U.S. comparative advantages without government-induced inflation, as jobs will naturally grow and living standards will increase;

2. Maintain GNP at stable levels by not forcefully expediting market liberalization as promoted by the IMF under the Clinton Administration pursuant to guidelines enumerated in points three and four;

3. As a general rule, incentivize key industries to: gradually increase outsourcing when there is a lack in comparative advantage for its product; stay domestic when there is a visible comparative advantage for that product by lowering corporate tax rate by five to ten percent; or diversify both at home and abroad as described in step four below;

4. Incentivize multinational firms to invest money back into domestic industry by reforming current flaws in the tax code by promoting the safeguarding of foreign profit in domestic banks and stock free of tax.

5. Establish the International Business Council composed of a Center Ring of major industry business leaders from G-20 nations and an Outer Ring of one or two government delegates per nation, where at least one is an economist;

6. Remain focused on nation-building, but without visible U.S. military presence and far more emphasis on doing so through private multinational effort;

7. Aim to achieve energy independence from OPEC nations through IBC synergistic efforts;

8. Employ the techniques of flexible integration or selective engagement (as discussed later in the full-text version)

9. Establish firm public-private partnerships to ensure that corporate capital rather than government funds drives our agenda for continued economic influence and international cooperation and development.

 

Points One through Four: Tax Reform and its Intermestic Implications

 

We alert the reader to the bilateral nature of the first four points. They serve mostly as the domestic wing of our foreign policy structure; yet also underpin the mechanism for how U.S. firms will interact in world commerce and in the IBC. It is a product of the realization of the rapid metamorphosis of the domestic into the intermestic.[1]   To encourage repatriation of foreign income, the 2004 American Jobs Creation Act granted a 5.25% tax break on all dividends sent back to the U.S. from incorporated subsidiaries.[2] Despite its passage, subsidiaries can still postpone repatriation and contribute only to foreign GDPs if regulatory and corporate tax conditions are favorable elsewhere.  Current debate as heard by testimonies of corporate representatives unto the 2011 Joint Committee Hearing on Tax Reform of the House Committee on Ways and Means propose that that tax laws should “…encourage…companies to reinvest their foreign profits in the [U.S.] without additional taxation,”[3] and be treated as domestic tax. Our proposal departs from both. We promote the principle of instantaneous safe-haven repatriation, where U.S. subsidiaries may repatriate a negotiable percentage of their foreign fiscal year income for job creation free from domestic or foreign taxation. Therefore, the U.S. government remains able to utilize manipulations of the current domestic corporate tax rate as leverage in incentivizing firms to go abroad as needed in the latter five points of the IBC System. On the other hand, the revenue obtained from expansion of GDP will help maintain the U.S. as the sole superpower. Though we favor a reduction in the corporate tax rate, such discussion is out of the scope of this paper.

 

Points Five through Nine: The U.S., the IBC, and the World Stage

 

The second wing of the Nine-Point plan focuses on remedying the dangerous rapid market liberalization of the 1990s and deficiencies in cross-market coordination. Its ultimate goal is to enhance world welfare and facilitate U.S. private investment in strategic markets. The U.S. shall obtain a degree of market power in certain industries and nations depending on its need of aid, natural resources, and political dynamics. In this section we will focus on market coordination; the next, on utilizing flexible integration or selective engagement to guide U.S. market power ambitions and improvements in world economic welfare.

           

In the 1990s, The IMF and the U.S. Treasury directed investors to the markets of East Asia. Focusing our attention on Thailand, these organizations allowed for the massive influx of multinational funds into the Thai bond market. The repercussions involved increased risk premiums and the creation of a market bubble.[4] In this particular case, IBC Outer-Ring members would have been instrumental in directing Center Ring members to Thailand’s actual need for improved infrastructure and education as part of nation-building efforts. Given the privatization of two public goods, Thailand could have potentially been able to reduce tax on its citizens and corporations. In addition, negotiations could have gradually yielded greater market control to the firms in exchange for investing in such sectors that economists often deem unprofitable for private firms. 

           

At one point it was also considered to rapidly open the South Korean market directly for U.S. firms; however, the NEC decided against it on the basis that no domestic jobs would be created and Korea had measured out its rate of liberalization far more conservatively.10 Whereas the government had to explicitly deny entrance into the market, and thus curtail free market mechanisms, the IBC would have carefully mediated both camps and reached increased, but moderate levels of investment.

 

This should illustrate that the IBC is designed to commit governments and firms with the most market power to fiscal prudency. Its members’ dynamics allow for the analysis of market conditions and risk assessments with higher degrees of accuracy. It also aims for eventual complete market liberalization as a greater amount of lesser-liberalized states seek to observe, learn, imitate, and reap from the gains of trade. The design of the IBC is not to regulate by force of law that could potentially distort market incentives; namely, it is a body of industry and state leaders whose aim is to allocate capital into the most profitable sectors for the benefit of firms and industrialized and developing societies through the binding force of negotiation.

 

Is the IBC the New IMF?

 

It is important to distinguish the role and composition of the IBC from the IMF. The IMF is an organization directed primarily by government delegates, such as finance minsters, to provide policy advice and economic intervention in the forms of training, stimuli, and loans to member countries.[5] Aside from managing exchange rates, its priority lies in government policy. The IBC however, is run mostly by industry leaders with government officials on the Outer Circle serving as a source for general oversight and reference. Unlike the IMF, the IBC does not provide its members with “special drawing rights,”[11] or access to bailout assistance until the nation or firm in need reforms its spending and revenue protocol into a more favorable business environment. Potential corporate abuse is curtailed by the presence of the Outer Circle. Outer Circle Representatives hold neutral ambassadorial positions, which are responsive to the policies of their governments inasmuch as they are to the pressure of private interest. Thus, further concerns over retaliatory policies and world conflict are consoled for it is not a body with lawmaking or political power. It may not make campaign contributions nor may it pool member money into a permanent fund. It is bureaucratic in nature.

 

On the Question of U.S. Economic Influence

 

In 2007, U.S. multinational firms’ foreign affiliate sales amounted to $4.7 trillion.[6] Through such subtleties in soft power the U.S. will be able to achieve more influence in the course the developing world takes towards westernization than the current active-duty military presence the U.S. holds in approximately 42 different nations[7] and territories to ensure open door markets and secure the region. It is here where the concepts of flexible integration and selective engagement are introduced to map how the IBC can aid the government in determining whether particular nations can undergo profitable economic-political integration or are a total loss to sectional strife...

 

Footnotes

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[1] Rosati and Scott 2011, 65

 

[2] HR.4520.ENR Sec. 422 `Sec. 965

 

[3] House Committee on Ways and Means Testimony of James T. Crines 2011, 3

 

[4] Stiglitz 2002, 98-101; 102-103

 

[5] Factsheet—The IMF at a Glance

 

[6] Slaughter 2010, 7

 

[7] Rosati and Scott 2011, 191

 

Works Cited

 

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"CIA Activities in Chile." Central Intelligence Agency. CIA, 18 Sept. 2000. Web. 24 July 2011. <https://www.cia.gov/library/reports/general-reports-1/chile/index.html#6e-cia/index.html>.

 

Desai, Mihir A., and James R. Hines. Working paper no. 920. Michigan Ross School of Business, Oct. 2004. Web. 3 July 2011.

 

"Factsheet -- The IMF at a Glance." IMF -- International Monetary Fund Home Page. N.p., n.d. Web. 31 July 2011. <http://www.imf.org/external/np/exr/facts/glance.htm>.

 

"NSC-68, U.S. Objectives and Programs for National Security, April 1950." Mount Holyoke College. Web. 24 July 2011. <http://www.mtholyoke.edu/acad/intrel/nsc-68/nsc68-1.htm>.

 

Olson, James Stuart. "Cuba." Historical Dictionary of the 1950s. Westport, CT: Greenwood, 2000. 67-68. Print.

 

Rezvani, David A. Flexible Integration: American National Security Policy and the Formation of Territorial Unions. Rep. N.p.: n.p., n.d. Print.

 

Rosati, Jerel A., and James M. Scott. The Politics of United States Foreign Policy. Boston, MA: Wadsworth, Cengage Learning, 2011. Print."What Is the G-20." G20. Web. 06 July 2011. <http://www.g20.org/about_what_is_g20.aspx>.

 

Slaughter, Matthew J. BusinessRoundtable.org. Publication. United States Council for International Business, Mar. 2010. Web. 31 July 2011. <http://businessroundtable.org/uploads/studiesreports/downloads/BRT_USCIB_White_Paper_Revised_Synopsis_3_23_10_FORMATTED_FINAL_v2_1.pdf>.

 

Stiglitz, Joseph E. Globalization and Its Discontents. New York: W.W. Norton, 2002. Print. United States. Cong. House. American Job Creation Act of 2004. 108th Cong., 2nd sess. H. Bill. N.p.: n.p., n.d. U.S. Government Printing Office. GPO.gov. Web. 30 July 2011. <http://www.gpo.gov/fdsys/pkg/BILLS-108hr4520enr/pdf/BILLS-108hr4520enr.pdf>.

 

"The Suez Crisis of 1956." Oracle ThinkQuest. Oracle ThinkQuest Education Foundation. Web. 24 July 2011. <http://library.thinkquest.org/20176/suez.htm>.

 

USA. Central Intelligence Agency. History Staff. "Zendebad, Shah!" The Central Intelligence Agency and the Fall of Iranian Prime Minister Mohammad Mossadeq, August 1953. By Scott A. Koch. Gwu.edu. George Washington University. Web. 24 July 2011. <http://www.gwu.edu/~nsarchiv/NSAEBB/NSAEBB126/iran980600.pdf>.

 

United States. House Committee on Ways and Means. Joint House Committee on Tax Reform. WaysandMeans.house.gov, 12 May 2011. Web. 30 July 2011. <http://waysandmeans.house.gov/UploadedFiles/Crines.pdf>.