A Plan to Save American Manufacturing

TradeAlert.org ^ | Wednesday, December 31, 2003 | Kevin L. Kearns, Alan Tonelson, and William Hawkins

[Willie Green]

For education and discussion only. Not for commercial use.

Although warnings about the crisis engulfing American manufacturing have been intensifying for months, the sector´s woes continue to be significantly underestimated – certainly by official Washington and even by many manufacturers themselves.  In fact, despite the current boost in growth fueled by deficit spending, tax cuts, mortgage re-financings, and other one-time stimuli, the decline of American manufacturing is fast nearing the point of irreversibility – at least from the standpoint of restoring a critical mass of industries producing in the United States to world leadership.

The nation, in short, faces a manufacturing emergency. Unless drastic measures are taken quickly, this emergency will turn the United States into a second-class manufacturing power, greatly diminishing its own future economic prospects. Further, national security and flexibility in foreign affairs will be severely compromised.  Finally, the international imbalances being created by the manufacturing crisis will likely push the world into a major dollar crisis and could cause a protracted depression.

In part, the manufacturing crisis reflects the economy´s latest cyclical downturn and the deflating of the bubble of the 1990s.  Likewise, the manufacturing employment portion of the crisis stems in part from the increases in productivity in recent years.  But neither of these factors sufficiently explains the root cause of manufacturing´s current troubles, which are the worst by many measures since the end of World War II, and that is the cumulative and continuing effects of two decades of misguided, ill-advised, and weak-willed U.S. trade and globalization policies.

During this period, Washington has consistently failed to open foreign consumption markets adequately to U.S. producers – despite years of promises and the fanfare that greeted each new trade agreement.  In addition, the American government has failed miserably to combat predatory foreign trade practices aimed at undermining U.S. producers in their home market.  Perversely, Washington has responded to these failures by encouraging U.S. manufacturers to supply their home market from low-cost third world production platforms like Mexico and China. And most U.S. multinational corporations, and indeed some of their smaller suppliers, have responded with enthusiasm.

NO TIME TO LOSE

The most serious global macroeconomic dangers stemming from the continued flight of American manufacturing overseas have to date been avoided and may be postponed still further by continued financial policy legerdemain – though the faster America´s international debts keep rising, the more difficult the challenge of correcting the imbalances. But regardless of when the crunch actually comes, the weakening of domestic manufacturing is already undermining the material foundations of American national success.

The prolonged wage slump triggered by the overseas migration of America´s best-paying jobs on average has been rippling through the U.S. economy and American society for at least two decades.  The loss of these important jobs represents a shrinking of the employment base needed for a middle-class standard of living, stable families, and the local and state tax revenues necessary for a first-world level of responsibly financed public infrastructure and social services. Consequently, Americans find increasingly at risk their hard-won 20th century gains in access to quality education, health care, and retirement security (whether paid for by a solvent public sector or a sufficiently broad-based and profitable private sector).

In addition, the manufacturing crisis raises serious questions about the U.S. economy´s ability to maintain a high-tech, world-leading military without worrisome dependence on foreign products and technologies.  Although it is true that defense-related imports come overwhelmingly from long-time allies or traditionally friendly countries, it is just as true that they are growing rapidly at a time when major disagreements increasingly mark the relationships between the United States and these countries.

Further, the massive loss of tax revenue – both corporate and personal – directly attributable to a disappearing industrial base will undoubtedly constrain America´s ability to sustain military operations in both peacetime and wartime at levels that U.S. policymakers have come to take for granted.  Thus the country faces a future in which the ability to project power and thereby affect events and outcomes the world over will be much more limited than anytime in the last century and a quarter.

Most worrisome, the decline of American manufacturing is quickly feeding on itself and gaining unstoppable momentum. Washington´s continuing failure to secure equitable terms of trade forces more and more U.S. firms to compensate by outsourcing.  These moves create powerful pressure for growing numbers of the remaining hold-out companies to follow suit.

The migration of prime contractors overseas inexorably pulls much of their supply chains with them. The export of blue-collar production work leads to the export of white-collar manufacturing-related work, as companies seek the advantages of locating researchers and designers near the factories they service.  In fact, there is a continuous feed-back loop between R&D efforts and the factory floor, with the two functions, R&D and production, operating in tandem.  And as is well documented, R&D and other technology work often produce a clustering effect, which draws labs and similar facilities from other industries in search of new synergies. The notion that the United States will retain high-end design functions while letting production migrate overseas is wishful thinking.  Without major globalization policy changes, this vicious cycle of manufacturing flight cannot be turned into a virtuous cycle of manufacturing resurgence.

LESSONS OF THE RECENT PAST

The following action plan for saving and reviving U.S. industry incorporates recent policy lessons that Americans simply can no longer afford to ignore.

First, although America´s regulatory and tax systems have unnecessarily raised domestic business costs in many instances, the manufacturing crisis springs from far deeper roots. No regulatory, health care, or tax reform schemes that would produce acceptable economic, social, or political results can overcome the damage being done to American manufacturing by today´s globalization policy failures. Improved industrial competitiveness cannot and should not be based on gutting the basics of a just, humane, and inclusive society. Fundamentally new globalization policies are the sine qua non for saving and reviving American manufacturing.

Second, the United States will always have more control over its own actions than over the actions of other countries. Therefore, the keys to reversing American manufacturing´s decline lie neither in more market-opening trade agreements nor in efforts to micro-manage economic and social conditions overseas. Despite decades of so-called free trade agreements, too many foreign markets still remain too closed to U.S. exports. The main reason: Most of the world´s countries view trade as a zero sum game, with a piece of the American domestic market as the prize.  The handful of economies wealthy enough to consume American-made goods can erect new trade barriers faster than U.S. negotiators can even identify them. The U.S. government, moreover, has too much trouble enforcing its own laws and regulations here at home to imagine that enforcing foreign laws and regulations, even those imposed by future trade agreements, will be successful.

Instead, to achieve the necessary results, the United States must focus on managing its own behavior and controlling access to its own market, unilaterally conditioning that access ona strategic analysis of its own national needs and on acceptable practices by its trade partners. In addition, the United States must rely mainly on its own power and leverage to achieve satisfactory terms of trade.  As the record unmistakably shows, one-country-one-vote international organizations like the World Trade Organization too readily turn into mechanisms for undermining American sovereignty, diluting American power, and maintaining global economic free-riding.

Finally, Washington must recognize that simply promoting economic growth and higher incomes abroad will not alone cure U.S. manufacturing´s ills and rebalance America´s trade accounts. Most countries refuse to trust their economic fates to market forces or refuse to permit higher domestic growth to draw in proportionately higher volumes of imports. In short, too little commerce around the world is free enough to allow potential future growth to serve as a U.S. trade and manufacturing cure-all.

The following U.S. Business and Industry Council manufacturing blueprint emphasizes short-term emergency measures for reversing domestic manufacturing´s decline and laying the foundation for its revival. But it also includes longer-term proposals for ensuring that U.S. trade and globalization policies do not revert to the practices that have produced today´s crisis.

EMERGENCY MEASURES

1. The president must declare that the United States faces a manufacturing, R&D, and outsourcing emergency no less threatening to America´s long-term future than even the Great Depression. He must also make clear that the crisis stems mainly from the manipulation of world trading system by mercantilist countries and to the encouragement of offshoring by U.S. trade policy.

2. The president should create an Apollo Program-type task force in the federal government to oversee Washington´s response to the manufacturing crisis. Its mission should be to restore domestic U.S. manufacturing to global preeminence and to boost domestic manufacturing employment and wages.  The program should involve all agencies of U.S. government.

3. Federal R&D spending should be tripled and Washington should offer matching grants to industry.  Special emphasis should be placed on tasking the national labs with helping to develop commercially viable, high-tech products to be manufactured in the United States.

4. The U.S. trade deficit should be quickly and dramatically reduced by imposing a “variable trade equalization tariff” on imports from countries running a trade surplus ten percent or greater of total bilateral trade.  These tariffs should be increased each year until bilateral surpluses fall below the threshold level, at which time they would be removed. Tariffs should be imposed on U.S. trading partners as soon as surpluses reach the 10 percent threshold.

The United States should offer a partial exemption for the world´s poorest countries, but only if concrete, measurable trade breaks from the other OECD countries follow suit and only if the developing country seeking the exemption demonstrates a commitment to democracy and the economic advancement of all its people.  Exemptions are not intended to enrich corrupt, dictatorial elites.

In addition, exceptions would be made for energy imports and other commodities that are not found in the United States and for which no acceptable substitutes exist.

5. Companies manufacturing or assembling in the United States should be barred from treating service work performed overseas as a deductible business expense.  Private companies that outsource overseas the processing of sensitive records, such as medical and financial records, must ensure that their subcontractors meet U.S. privacy standards or face stiff fines.  

6.. Washington should declare a moratorium on all current and future free trade talks pending development of new national trade strategy. The United States government clearly has lost the ability to negotiate trade agreements that enrich the great majority of Americans and strengthen the domestic manufacturing base on net. U.S. leaders should not engage in trade negotiations until this ability is regained.

To develop a fundamentally new national trade strategy, the president and Congress should appoint a National Trade Strategy Commission that includes representatives of business plus civil society groups, such as labor unions and environmental groups. The business representatives on the Commission should be dominated by companies and industries that produce the great majority of their product and value in the United States. The Commission should also include representatives of the nation´s science and technology and national security communities.

7. Washington should declare a moratorium on U.S. compliance with WTO panel decisions pending dramatic reform of organization to reflect America´s position in world economy. The UN Security Council veto and the IMF/World Bank weighted voting systems are possible models of international organization structures appropriate to America´s geopolitical and economic superpower status. If appropriate reform is not completed by the end of 2005, the United States should declare its intention to withdraw from the organization as soon as legally permissible.

8. Washington should declare a moratorium on U.S. compliance with NAFTA panel decisions pending reform of NAFTA´s dispute-resolution process to reflect U.S. predominance in the North American economy. In addition, NAFTA´s rules of origin and external tariffs should be revised to offer meaningful trade preferences to goods with much higher levels of North American content.

9. The U.S. government should resolve the Foreign Sales Corporation tax dispute with the European Union and the World Trade Organization by replacing the current FSC tax incentive with a major tax break for any company, either American or foreign-owned, that performs genuine manufacturing activity in the United States.  Qualification for the tax break would require detailed certification that true manufacturing is occurring in the United States.

10. The United States should expedite procedures for anti-dumping and countervailing duty suits. Threshholds for standing, actionability, and remedies should all be eased. In addition, remedies should be extended to companies up and downstream from immediately affected industries to ensure protection for suppliers and consumers, and prevent foreign economic interests from using divide and conquer tactics against domestic industries.

11. The current steel tariffs should be expanded to cover industries using significant quantities of U.S.-made steel.  Further, the option of extending the tariffs beyond the original three-year deadline should be left open in order to determine conclusively that foreign steel subsidization and dumping have ceased.

12. A stiff tariff should be imposed on countries determined by the U.S. government to be manipulating their currencies for trade advantage. In light of the Treasury Department´s equivocation on the currency policies of Asian mercantilist nations, the definition of currency manipulation that now exists must be broadened.  A strong dollar remains in the long-term interests of the U.S. economy, but foreign governments must not be able to distort trade flows to the advantage of their companies by giving them artificial cost advantages.    

13. The defense industry must be treated by the federal government in a fundamentally different way from the commercial sector.  It exists solely to serve the national interest and national security, and must be structured and managed accordingly.  Therefore, a 65 percent U.S. content requirement should be imposed on all military procurement, rising to 80 percent in five years and 95 percent in ten years.  This requirement should immediately cover the procurement of all goods and services for domestic military facilities and operations, and to the fullest extent possible cover foreign bases as well.  Presidential waiver authority should be sharply limited, especially for countries that have records as problem traders or that demand offsets for purchases of American weapons systems.

14. Public money taken from the domestic economy by taxes or borrowing should be returned to the domestic economic economy by the procurement of American-produced goods and services.  Procuring government services domestically is also necessary to ensure the continued privacy and security of the financial and health records of all Americans.  Thus a 50 percent U.S.-content requirement should be imposed on all non-military federal procurement, rising to 80 percent in five years and 95 percent in ten years. Presidential waiver authority should be sharply limited. This requirement should immediately cover the procurement of all services for domestic facilities and programs.

15. The scheduled abolition of the Multi-Fiber Arrangement governing world trade in textile and apparel should be suspended indefinitely, pending a study of the effects of the MFA's abolition on domestic and third-world producers in these industries.

16. Stiff tariffs should be levied on countries that impose offset requirements on U.S. defense manufacturers.

17. The president should declare a moratorium on foreign acquisitions of U.S. defense-related companies pending completion of comprehensive study of the status of the roughly 1,500 such companies acquired since 1988 under the current policy framework and government screening system.

18. Strict, detailed country-of-origin labeling should be required on all food and agricultural imports.

19. Legal immigration into the United States should be limited to 500,000 annually. Enforcement measures to halt illegal immigration should be dramatically increased, including significant and sustained increases in the budgets of those federal agencies responsible for enforcing immigration laws.  

Immigration at today´s levels – both legal and illegal – can only serve to depress wages for American workers by artificially inflating the supply of labor. Moreover, the most likely victims of such massive immigration flows are the recent arrivals themselves, who are forced to compete directly for jobs with the unending flow of newcomers arriving right after them.

The H-1B visa program for technology workers should be abolished.  A new federal commission comprised both of U.S. technology worker interests and tech industry interests should conduct a study to determine labor needs in technology industries and how they should be met.

LONGER-TERM MEASURES

1. Washington must insist that any future trade agreements be strictly reciprocal and strongly enforceable by the U.S. government, unilaterally if necessary.

2. Any future U.S. trade agreements must include provisions penalizing signatories for currency manipulation.  IN fact, currency manipulation can be used to defeat or offset the effects of reducing or eliminating trade barriers.  

3. The president should launch a major diplomatic campaign to press other OECD countries to increase third world imports, enforceable unilaterally by tariffs on the products of any non-cooperating OECD countries. Under-importing of third-world products by the European Union and Japan in particular has greatly increased the pressure on the U.S. market to absorb third-world production. Greater burden sharing in this vital sphere is urgently needed.

Because the overriding interest of U.S. trade policy is to advance the economic interests of the great majority on the American people and the long-term security and prosperity of the United States, Americans should feel no special obligation to import goods or services from third-world, or indeed any other, countries.  Such imports are especially unacceptable if they sacrifice the interests of American workers and domestic companies.  But a campaign to get Europe and Japan to do more is needed for three reasons:

1. to counter perceptions that U.S. protectionism is the greatest current barrier to third world economic development;
2. to highlight America´s record in promoting this development; and
3. to call attention to the poor importing records of the other main OECD countries.

4. The United States should focus any new trade agreements on high-income countries capable of serving as final consumers of U.S. exports. Washington´s recent focus on third world countries capable of serving only as re-export platforms has been a substantial contributor to today´s current trade deficits.  In particular, the United States should seek a free trade agreement with Europe that excludes agriculture.  Washington should also take stronger measures to open Japanese and Korean markets, including unilateral tariffs if necessary.

5. The president should remove responsibility for monitoring and enforcing trade agreements from the office of the U.S. Trade Representative and place it in the Department of Commerce. As the lead agency for negotiating new trade agreements, the USTR´s office has every incentive to soft-pedal the deficiencies in both the structure and functioning of these agreements. Dividing these responsibilities would eliminate a major policy-making conflict of interest.  

6. Congress should enact strict foreign lobbying reform covering all federal officials, including lifetime bans on working for foreign interests for former senior Executive and Legislative branch officials.

7. The Commerce and Defense Departments should be designated as co-chairs of the inter-agency Committee on Foreign Investment in the United States, which reviews all proposed foreign acquisitions of U.S. defense-related companies. Exon-Florio filings  must be made mandatory, and the threshold for investigation lowered.  With the Treasury Department chairing this panel for its decade-and-a-half of existence, national security concerns have not been adequately addressed in CFIUS´s decisions, which generally reflect only Treasury´s desire to see surplus dollars in foreign hands repatriated effortlessly.

8. The president should commission immediate reports – written by special Commercial Action Teams composed mainly of industry representatives and some government officials – on foreign subsidies existing outside the steel industry and implement tariffs to offset them. Washington should first offer to negotiate the abolition of such subsidies, but it must insist on results that are achieved quickly, as well as completely verifiable and enforceable by the U.S. government.

9. The federal government must publish more complete and timely foreign trade and investment data. This data should include detailed information on the importing, sourcing, and employment trends of all multinational companies and in fact all companies that do business in the United States.  The provision of the data to the appropriate government agencies must be made mandatory.

10. The president should launch a comprehensive review of all U.S. defense alliances to determine which remain relevant to 21st century U.S. interests.  The president should explicitly state that foreign policy and defense considerations will no longer automatically trump the economic interests of the United States and the American people.

STRONG – BUT ESSENTIAL – MEDICINE

No one should assume that implementing this manufacturing revival plan will be pain-free. All economic adjustments and transitions exact costs as well as create benefits.  Those necessary to improve the long-run fundamentals of American manufacturing and strengthen the foundations of the U.S. and world economies as a whole will be that much more difficult because of the national and global economic excesses that were fostered since the completion of the “Tokyo Round” of international trade talks, but especially during the 1990s.

Specifically, some temporary slowdown in U.S. and global growth rates seems unavoidable. And thanks to the power of recklessly expanded international trade and investment, pushed unceasingly by economic ideologues and short-sighted multinational companies, achieving this slowdown will require serious restrictions on trade and investment flows.

Yet the only alternatives proposed to date are policies that are already proven failures, or that are surrenders to wishful thinking. Moreover, these responses can only postpone the day of reckoning, not prevent it. And just as permitting a disease to fester usually ensures that the needed treatment will be that much stronger, more painful, and less certain to work, permitting the manufacturing crisis to fester and inflating the global economic bubble further will only increase, not decrease the economic dangers facing America and the world.

The implementation of restorative measurers cannot be left to the good sense of Washington policymakers and elected officials.  As a group, they have demonstrated convincingly time and again that they do not grasp the magnitude of the problems they have created and that they are bereft of comprehensive solutions.  Instead, they prefer cosmetic changes, designed to relieve political pressure and ensure reelection.

If the necessary policy reorientation is to be accomplished, the impetus must come from the remaining domestic manufacturers, their employees, their communities, and local and state governments, which are experiencing first-hand the budget crises caused in large part by globalization policies – whether the movement of plants overseas, company bankruptcies due to unfair foreign practices, high-tech and other services outsourcing, uncontrolled immigration with the resulting disproportionate consumption of social services, etc.  In short, grass roots efforts must reach critical mass to force Washington to change two generations of misguided policies.

If any political leaders or economic experts know how to solve the manufacturing and trade crises without the significant trade restrictions featured in our action plan, the U.S. Business and Industry Council would welcome their ideas with open arms. But we would also be wondering what they´ve been waiting for.  The time for comprehensive action to save American manufacturing has long since passed. Very soon there will be little left to save.

[gooleyman]

Ah--about 2 million jobs were lost from the domestic manufacturing sector in the last 4-5 years.

-----
Ah--I though we were talking about Engineering jobs. I knew that statistic. That's been bandied about for months.

NO MATTER, My solution still stands and I quote my last comment:

"If indeed these jobs have been exported, lower taxes and regulations drastically and they too will come back.

A lot of ills can be cured by those two actions. I have to add that expenditures MUST also be cut drastically so we can payoff the MONSTER National Debt that is looming large. None of our current politicians wants to even acknowledge it but it's going to bite us eventually.

[blueriver]

This I simply don't believe that statement.

Just read the news and the EE Times once in awile.

[Paul Ross]

I have to add that expenditures MUST also be cut drastically so we can payoff the MONSTER National Debt that is looming large. None of our current politicians wants to even acknowledge it but it's going to bite us eventually.

The budget deficit is a legitimate problem. But not in the issue of manufactures. This position of yours prompted me to remember someone else's post who also pointed out something contrary to such assumptions--even though the U.S. national budgetary deficit was reduced and went into the surplus column during Clinton's presidencey...this same problem of manufacturing decline and the trade deficit ballooning was unabated during his terms. Based on your position, the trade deficit should have abated during the latter Clinton years. It did not. Instead it continued to grow.

[IronJack]

One hundred years ago a couple of bicycle makers from Dayton stood on a beach on North Carolina and and changed the world. ... they had developed a skill set from their experience in manufacturing for technical problems.

I see fewer and fewer independent "tinkers" and inventors in coming decades. Today, most advancement is being financed (and retained) by huge corporations who have both the financial resources to develop the increasingly complex technology, and a pure capitalistic incentive to do so. It is easier to believe that the Wright Brothers developed their airplane for the sheer sense of accomplishment than it is to believe that Pfizer developed Viagra for altruistic reasons.

I see the miracle often of something moving from a concept in a human mind to a useful product.

I think that sense of innovation is still here in this country, but all rights to it are owned by some monolith. The field has become markedly sloped in favor of corporate R&D, to the detriment of the individual.

Case in point: I am trained as a chemist (among other things) and I used to have a lab in my basement where I did experiments on fuel additives (specifically ETBE and MTBE, but also ethanol). These days, I would probably be busted for running a meth lab or building bombs if I tried anything of that nature. Just possessing the lab equipment constitutes probable cause ...

But nobody is kicking in Eli Lily's door and grilling their organic chemists while they're working on new recipes for Ritalin or Thorazine.

[Last Dakotan]

Eau De Martensite?

Metallurgical humor is a rare thing indeed.

[RinaseaofDs]

We now buy all of the rare earth magnets for our cruise missiles from plants in Russia.

A Russian company bought the remaining two plants in the US, and now the manufacturing of those magnets is done in a non-allied, non-NATO country.

How was this allowed to happen? These aren't buggy whips.

[gooleyman]

The budget deficit is a legitimate problem. But not in the issue of manufacture(r)s.

I simply added that spending reduction statement because as soon as I mentioned cutting taxes, I figured some Bush Basher would come in and say "AHHA, your boy Bush is spending like a liberal!!" My point was NOT to link the budget deficit to the loss of manufacturing jobs. Although, if spending keeps going up, it gives the Liberals the argument FOR raising taxes which will then have a negative effect on stateside manufacturing jobs. So my point could be validated that way. I was trying to cut the Bush bashers off at the pass...Forgetting that someone could come to your conclusion. Damned if I do & Damned if I don't...Oh well.

----
Based on your position, the trade deficit should have abated during the latter Clinton years. It did not. Instead it continued to grow.

Now that's something I did NOT say. My theory is that if you reduce taxes and regulations, the trade deficit will go down by default because companies will move manufacturing back where there really want it anyway...the US of A. There simply would not be an incentive to move a process to another country. And there would be strong incentive to come home.

Neither taxes nor regulations were reduced during the Clintoon years. The exact opposite happened. Clintoon proudly points to his raising of taxes in '93. The truth is that Federal taxes just didn't go up as much as Clintoon would have caused had he not had a Republican Congress to stop him in his tracks. I shudder to think what would have happened to our manufacturing base if Hellary had gotten her way with Health Care. Don't forget that Clintoon added regulations he knew he couldn't get through Congress by way of the Executive Order. Bush has reversed many of his EO's over the past 3 years.

[RobFromGa]

For a different spin from the anti-Chicken Little crowd, read this from Dec 21, 2003 AJC. FR thread here.

Factories prosper as jobs vanish
Rising productivity the key factor

By MARILYN GEEWAX
The Atlanta Journal-Constitution

WASHINGTON -- With so many textile mills closing and blast furnaces falling cold, Americans could be forgiven for thinking U.S. manufacturing is in broad decline.

Indeed, both Democrats and Republicans have been promising to help shore up manufacturing, which has seen its ranks thin by about 2.8 million jobs over 40 straight months.

But U.S. factories are not dying. Indeed, they have more than doubled their output in the past 30 years, and after three rough years, most are starting to hum again.

Last week the Federal Reserve said industrial production rose at the lively pace of 0.9 percent in November, the biggest monthly jump in four years.

"We're still the No. 1 manufacturer in the world and the largest exporter," said Joseph Carson, an economist for Alliance Capital Management LP, the New York-based investment firm that recently conducted a major study of manufacturing employment trends.

With the economy perking up, "the outlook for manufacturing is quite good," Carson said. "But will we recover the jobs lost? No."

Economists say both sides of this split-screen picture are illustrating the same phenomenon: rising productivity.

During the 1990s, manufacturing productivity growth averaged 3.8 percent annually, nearly double the pace of the overall economy, according to the National Association of Manufacturers, a trade group. It shot up even faster, more than 5 percent, in both 2002 and 2003.

In other words, with the help of better equipment and more efficient manufacturing techniques, U.S. factories are coming back. But factory jobs aren't.

That adds up to a heartache for unemployed workers, and a headache for political candidates eager to assure voters they will save manufacturing jobs. During a Labor Day trip to northeast Ohio, President Bush promised "to make sure our manufacturing job base is strong and vibrant."

The eagerness to save blue-collar jobs is understandable: Such positions are visible and high-paying. The average annual wage for full-time manufacturing workers was $45,580 in 2001, compared with $38,837 for the rest of the work force, according to NAM.

At the same time, given tough global competition, Americans cannot afford to fall behind in the ability to produce goods quickly and cheaply.

Economists argue that rising productivity will result in stronger profits and lower inflation, twin benefits that give rise to other types of jobs. If, for example, a plant in Michigan could boost its productivity enough to drop the cost of a car from $25,000 to $23,000, then the customer would be able to afford to drive it to Florida for a $2,000 vacation.

But while rising factory productivity may spread benefits throughout the economy, it does nothing in the short term to help someone holding a pink slip.

Economists compare today's labor force turmoil to the transformation that took place when tractors started boosting farm output. In 1910, one out of every three U.S. workers was a farmer. By 2000, it was fewer than one in 33.

Now, a similar process is transforming the factory floor. At the end of World War II, nearly four in 10 workers were employed in manufacturing. Today, NAM puts the number at just over one in 10.

The steel industry provides a vivid example of what happens when manufacturing technology improves.

Between 1997 and 2002, U.S. steel mills slashed jobs from 163,000 to 124,000, a plunge of 24 percent. But during the same period, steel production slipped just 6.3 percent, from 108.6 million to 101.7 million net tons, according to the American Iron and Steel Institute.

While foreign workers often get blamed for wiping out U.S. jobs, statistics suggest low-paid workers in other countries are losing their jobs to machines as well.

Alliance Capital's study of 20 large economies found that from 1995 to 2002, their production jumped more than 30 percent but employment declined 11 percent, for a loss of 22 million factory jobs. Among the worst-hit countries were China, where factory employment fell 15 percent, and Brazil, where it dropped nearly 20 percent.

Wages play minor role

Many entrepreneurs agree that wages are not particularly important in the overall decision of where to locate factories. When they move plants overseas, business owners typically are seeking a lower cost structure that results from a weak currency, low taxes, reduced litigation, cheap land, easier access to growing markets, lax environmental laws and inexpensive energy.

At a House hearing in October, Larry Galbraith, chief executive of Denim North America LLC, a fabric maker in Columbus, noted that Georgia had lost 25,000 textile jobs over the past five years. But China's labor force had little to do with the job losses, he said, because "wages are only 12 percent of total cost."

Labor will play an even smaller role in decisions about where to locate plants as companies increasingly move toward a new operating model known as "lights-out" manufacturing.

In factories throughout the world, owners are installing computer-controlled machines that can work on their own, typically at night when energy costs may be lower.

The "lights-out" systems are catching on quickly. For example, Air Products and Chemicals Inc., a maker of industrial gases based in Allentown, Pa., makes extensive use of new equipment that allows some plants to virtually run themselves. The machines can send a signal to alert employees at remote locations when a part or machine fails, and automatic safety systems shut down operations if the problem poses a danger.

"We have seen double-digit productivity gains thanks to these advanced controlled technologies," said Howard Kuritzky, electronics specialty materials manufacturing manager for Air Products. "We still have people on-site to monitor, but what the technology does is squeeze more efficiency from the process."

No job boom in sight

With new technologies replacing workers, candidates face difficult political calculus: How do they praise rising productivity while promising more factory jobs?

In general, Republican candidates say that tax cuts will boost manufacturing jobs by lowering costs enough to help employers do more hiring. In contrast, many Democrats have been calling for protectionism, supporting steel tariffs and textile "safeguards" to reduce imports.

But both liberal and conservative economists say that any promises to significantly increase factory employment could never be fulfilled.

No matter whether a Democrat or a Republican has been in the White House, "you still have not been able to hold back inexorable technological change," said Claude Barfield, an economist with the American Enterprise Institute, a conservative research group.

Barry Bosworth, an economist with the Brookings Institution, a left-leaning research group, agreed.

"Trying to stop the clock isn't going to work," he said. "Manufacturing jobs have been declining for 100 years, and it's going to keep happening."

 

[ninenot]

Among the worst-hit countries were China, where factory employment fell 15 percent

The PRC closed its old, highly labor-intensive factories (still has a lot to go...)

When they move plants overseas, business owners typically are seeking a lower cost structure that results from a weak currency, low taxes, reduced litigation, cheap land, easier access to growing markets, lax environmental laws and inexpensive energy.

Duhhhhh

In factories throughout the world, owners are installing computer-controlled machines that can work on their own, typically at night when energy costs may be lower.

That works ONLY in process plants, and in NO process plant where the FDA has an influence.

But China's labor force had little to do with the job losses, he said, because "wages are only 12 percent of total cost."

Really? He's not cascading labor costs, or the number would be much higher--i.e., the wages paid to make the electricity, to build the plant, to maintain the plant, to provide the raw materials, to transport the raw materials, to make the product, to transport the finished goods, etc., etc.

As has been demonstrated above, the wages ARE significant.

Finally, the left-hand chart is kinda cute. NAM, a wholly-owned subsidiary of the Fortune 100 (the job-exporters) conveniently omitted manufacturing's 2001 % of GDP, which was 14.1% according to BEA/DOL.

THey are PRAYING that it recovers to 16+% in 2002. It's possible, of course, as the dotcoms are now all quite dead.

[XBob]

182 - "Second, national security may be jeopardized in the short-run, however, we could build manufacturing plants in a few months to churn out what we need for any war effort (in face of a boycott). Do you remember WW2?????"

It is very apparent you have never built a plant and know nothing about building, or where the equipment comes from, or where the machine tools are made.

This lie of yours is just wishful thinking BS.

[XBob]

186 - "Steel manufacturing in the US is ancient compared to newer, smaller steel manufacturers overseas."

The old steel processing facilities closed years ago - where do you think the term rust belt came from.

Since you say you know so much about the steel industry, how about giving us some plant names/locations/examples and their technologies and dates of those technologies. The EPA drove most 'ancient' steel manufacturers out of business, years ago.

I am personally familiar with one old plant we shipped to Poland, back in the early 80's.

[foreverfree]

bump

[WilliamofCarmichael]

On manufacturing remaining a constant part of GDP

Gordon R. Richards, National Association of Manufacturers told the Subcommittee on the Census Committee on Government Reform U.S. House of Representatives (The quality of GDP data, and the Bureau of Economic Analysis)

"The redefinition of computer output was a crucial factor in driving the manufacturing revival of the late 1990s. The manufacturing share of GDP grew during the late 1990s, and the main reason was the measured real increase in output of computers and peripherals. For instance, in 1989, the peak of the previous business cycle expansion, manufacturing accounted for 16.8 percent of GDP. In 1999, the peak of the current expansion, this share had risen to 17.2 percent. Without the quality imputations to the real value of computers, this increase in the manufacturing share would not have been measured."

I will defer to the experts but it does not take much googling to find that GDP and its components' computation changed throughout the 1990s

http://www.bea.doc.gov/bea/about/test-grr.pdf

Limbaugh, Tom Sullivan, et al. pointed to manufacturing being a decades old constant part of GDP and suggested all this declining jobs "sky is falling" stuff is BS. They were basing it upon an article written by some Cato guy, I think. Can't remember his name.

On increased production taking jobs. Without doubt computers have had their effect. Very good! However, Stephen Roach writes about "imported productivity." Googling will fetch his writings.

I am sickened by the politics of it all. It is encouraging though that after more than two years (the recovery began in Nov., 2001) the movers and shakers are timidly honest enough to talk about structural changes in the economy and abandon the lie of the classic recovery model.

Millions of Americans are paying the cost of changes brought on by "globalization," etc. For two years the Limbaughs and Tom Sullivans pushed the lie of the classic recovery and blamed the unemployed for unemployment.

Dem rats blast the President -- hoping and hoping the situation gets worse, both for the American workers and the American soldiers in the war to defend against radical Islam.

The Republicans say, "Jobs is jobs. Go sweep floors, Mr. Big Shot engineer. Your're making us look bad."

I loathe both parties. Time for a new party.

[raybbr]

It takes more and better engineers to design the automated equipment. It takes better maintenance workers to maintain the equipment. It takes service jobs to support the engineers and maintenance workers. Do you understand how a cascading economy works?

Are you being facetious? I am the only electrical maintenance worker on my shift. There are over 75 production workers on the floor. There is only one mechanic at the same time. How does that figure into your equation?

Take Harris graphics, a press manufacturer. They probably have 50 engineers designing presses. Yet they manufacture about 500 a year. How can you possibly say there are more service worker than production workers?

By cascading, do you mean up?

[XBob]

188 - "Until 1990, I was in the Steel foundry and machining business. The japs destroyed us by innovations that I cannot even begin to list."

You are/were correct - our steel industry died, deservedly, in the 80's. I know, I was buying hundreds of thousands of tons in the 80's.

However, you probably got out, due to a lack of a job, due to the new much smaller, more efficient US plants being built, using new and better technology in the 90's.

Visit Pennsyvania, and you will see that the sky is now blue (instead of dull grey) and the ancient, hulking giants along the rivers of western pennsylvania are lying dead and dormant.

[XBob]

193 - "Its not a matter of manufacturers who can't compete. These manufacturers run highly productive plants. Once the process gets tightened down, the CEO justs lifts the plant up and moves it to China in order to get the gov't provided cheap labor ON TOP of the modern manufacturing process."

why is it so few see this?

Except, in the long run, our companies are going to have their 'products/technology' stolen by the low labor providers, and as they cut out the 'middle man', they too (the thieves who stole our innovations/knowledge/jobs and sent them overseas) will be out of luck too.

[XBob]

194 - bttt

"Henry Ford would kill this poor kid, if he got his hands on him."

[Cold Heat]

It is true that we were old tech and pretty dirty.

EPA would have downed the plant eventually, but the competition that got us was the Japanese.

We made stainless, bronze and brass castings and had modernized with some vacuum molding tech etc.

We even made bombs occasionally but most of the work was for Avondale Shipyard military contracts.

They found that the Japs made it cheaper and better. And the fact that they owned us lock stock and barrel did not help. The costs for gas and electricity were just too high. Plus the EPA mandated dust filter upgrades were smokin the bottom line.

My retirement fund has change hands a few times, but is now owned by Northrup.

BTW, I am still spitting up sand and crud and I left there in 1990.

[XBob]

195 - free traders hate these questions:

"The question is: How do we lower the standard of living in our country (everything from job saftey to building codes and zoning laws) enough to make us again competitive with the third world? Or, perhaps, do we want to?"

They think they are exempt.

[Cold Heat]

Well, It is a dilemma, as they say.

All this cheap stuff has helped to keep inflation at bay, yet wages have remained somewhat stagnant until recently.

It is good for the poor south that is getting some plant relocations for the lower cost of living and wage scale.($6 per hour here)

The end game is that we own Mexico in 30 years or so. They will keep the name, but the oil and assets will be at our disposal. (That is what NAFTA is, if it works?)

It will be interesting, but we will remain on top if we can get our education system and regulatory system under control. The liberals want to teach arts and crafts and regulate chewing gum.

Ya might want to learn a bit of spanish though...........:-)Habla-espanole?