How can we compete with China?

We consider ourselves a “free” society (I’ll leave it at that), but our economic situation in the US is such that it is far cheaper to outsource our labor and manufacturing to developing nations. But the labor in China is relatively cheap due to their system of government, a system that we find unacceptable for ourselves. This system gives them a strong comparative advantage in manufacturing. How many “successful” businesses do we create in the US that can compete without using Chinese labor and resources? Solyndra died despite lots of funding due to the fact that they just couldn’t produce the solar panels as cheaply as China.

How can we compete with such a system without decreasing our treatment of US workers?