STUDY SHOWS MANUFACTURING IS KEY TO INNOVATION,PRODUCTIVITY, STRONG GROWTH AND GOOD JOBS

WASHINGTON, D.C., June 10, 2003 – While manufacturing has been the engine for healthy economic growth and good jobs, intense global competition and the rising cost of doing business in the U.S. threaten manufacturing’s capacity to maintain the nation’s economic strength and standard of living, according to a new study by economist Joel Popkin.

“Manufacturing spawns more additional economic activity and related jobs than does any other economic sector,” stated Popkin, president of Joel Popkin and Company. The study, “Securing America’s Future: The Case for a Strong Manufacturing Base,” commissioned by the Council of Manufacturing Associations (CMA), contends that manufacturing is “the heart of an innovative process that powers the U.S. economy to global leadership” and that “America’s unprecedented wealth and world economic leadership are made possible by a critical mass of manufacturing within the geographic confines of the American common market.”

“Popkin shows how the unique linkages of manufacturing to the rest of the economy create more innovation, productivity and good jobs than any other sector of the economy,” said Jerry Jasinowski, president of the National Association of Manufacturers. “Popkin attributes America’s high standard of living to the manufacturing innovation process. Research and development stimulates investment in capital equipment and in workers, leads to new processes and products, generates spillovers that benefit other economic sectors, and ultimately leads to higher living standards.

“Manufacturing has an amazing impact on our economy,” Jasinowski said. “Every dollar of specific manufacturing production creates an additional $0.67 in other manufactured products and $0.76 in products and services from non-manufacturing sectors. Manufacturing contributes more than 60 percent of U.S. investment in research and technology, and manufacturing workers make 20 percent more than the average wage.

“However, America’s industrial leadership is being squeezed between unprecedented foreign competition based upon predatory trade practices that make it impossible to raise prices, and rising costs due to rising health care costs, soaring runaway litigation, and excessive regulation. The result is a dramatic decline in manufacturing cash flow that forces firms to cut back on R&D and capital investment, and to reduce employment. The U.S. manufacturing base is receding – and with it the all-important innovation process that is the seedbed of our industrial strength and competitive edge.”

“The loss of 2.3 million manufacturing jobs poses a real and present threat to the American middle class, “said Thomas Dammrich, president of the National Marine Manufacturers Association, and chairman of the CMA. “These are among the best paying jobs in our country, and almost all of them offer a full range of benefits, including health insurance. Every lost manufacturing job is a tragedy for someone’s family.”

The greatest long-term impact of the erosion of U.S. manufacturing, according to the Popkin study, is on innovation. “U.S. manufacturing generates the greatest innovation process in the world by germinating and nurturing innovations from concepts through to full-fledged improvements in the products and processes that provide the basis for improved productivity, prosperity and a higher quality of life,” the study concludes. “But as U.S. manufacturers face serious challenges to their continuing existence, the critical mass necessary to maintain a dynamic innovation process is jeopardized.”

“If we want to maintain the R&D investment and innovation strength of the U.S. economy, we must require out competitors to compete on a level playing field, hold down the costs of doing business at home, and encourage R&D and investment,” said Jasinowski. “It is increasingly important that policy makers hike spending on R&D activities, that we enact a permanent R&D tax credit, and that the government provide incentives to increase the supply of scientists and engineers. The U.S. is facing a critical skills shortage in the near future as the current generation of manufacturing workers retires and few young people are coming into industry.”

“If the U.S. manufacturing base continues to shrink at the present rate and the critical mass is lost,” the Popkin study concluded, “the manufacturing innovation process will shift to other global centers. If this happens, a decline in U.S. living standards in the future is virtually assured.”

The CMA is an independently funded division of the National Association of Manufacturers with more than 200 manufacturing trade association members. The Popkin paper can be accessed at the NAM web site at www.nam.org/future.

The National Association of Manufacturers is the nation’s largest industrial trade association. The NAM represents 14,000 members (including 10,000 small and mid-sized companies) and 350 member associations serving manufacturers and employees in every industrial sector and all 50 states. Headquartered in Washington, D.C., the NAM has 10 additional offices across the country.

Be sure to visit our award-winning web site at www.nam.org for more information about legislative, policy and workplace developments affecting manufacturers, employees and the economy.

Part of the blame lies with US cities. The confiscatory level of property taxation first drove many companies out of cities, but there are NO or nominal property taxes in other countries. All you need do is cross a little ocean, which is not the obstacle it used to be.

Just think, you dream up some idea for a widget you want to manufacture. You look to locate your plant in, say, New Haven, Connecticut. The mil rate there is over 8 mils, that is, for every $1 million you invest in your factory, you have to pay the dunderheaded lazy thieves in city hall $80,000.00 per year. Say your factory costs a modest $5million. You will have to pay the thugs in city hall $400,000.00 per year just for the privelege of locating your plant in the midst of the squalor known as New Haven.

Do you know how hard it is to make an extra $400,000.00? One must stay up pretty late at night to earn such a sum. It doesn't come easy, and in fact, it's simply easier to leave town, or not show up in town in the first place. They wonder where the businesses have all gone. Where the jobs have all gone...

Then you have to worry about the lawyers.

Now, put your factory in sunny Mexico, or Guangdong, and you don't have any of those worries. No little old ladies will slip on your sidewalk, or if they do, no lawyers will come knocking. Oh, and property taxes? Guess again.

Why would anyone in their right mind put a manufacturing plant in an American city? Because they erected nice billboards to "attract business"? Right.

Low costs will attract business. Costs of litigation, a business friendly environment.

I'm really surprised at the nitwits that run our cities. They steal and tax and run violent filthy slums right into the ground, then they spend taxpayers' money on billboards as if someone is going to actually be fooled by such misguided blather... like this one:

Hey suckers! Put your factory here! We can tax you, sue you, inspect you, steal you right out of business!! Step right up...
When a city has to put up a billboard, it's time to get out of town!

a "study" commissioned by the group whose agenda would benefit from certain results that just happen to fit the conclusions is hardly without major methodological problems.

It is not just this group. A little common sense and basic economics is all you need to know this is reality. Unfortunately the unfair traders would rather give up this country for a $3 CD player.

U.S. Facing Challenge Amid Big Shift Of Jobs To Low-Wage Nations
Author: JED GRAHAM
Section: Business & The Economy
Date: 7/1/2003

With interest rates at their lowest level since the 1950s and another big tax cut going into effect, the U.S. economy should be surging.

Most economists do think the U.S. will take off in the second half. But right now it remains sluggish. Factories are still closing, businesses are curbing investment and the economy keeps losing jobs.

Trade accounts for more and more of total economic activity. That makes the U.S. more dependent on the rest of the world, which is stuck in low gear. And global competition means more jobs shift to lower-wage nations like China and India.

Pimco's Bill Gross, who oversees the world's largest bond fund, compares the economy to a wet log that won't stay lit despite Washington's stimulus efforts.

China and India make "the logs in the U.S. . even wetter by hollowing out our manufacturing and services industries," he wrote in his latest investment outlook. Globalization spurs firms to innovate and become more efficient. It helps developing nations develop. Consumers enjoy higher quality and lower prices on everything from stereos to cars to PCs Swelling Trade Deficit. But with Japan and Europe in a rut, the world is relying heavily on the American consumer.

The U.S. goods trade deficit surged from $96 billion in 1992 to $482 billion last year. And it's on pace to hit $548 billion in 2003. That's a big reason the economy has failed to take off despite decent demand, notes James Paulsen, chief investment strategist at Wells Capital Management.
"Nearly 20% of the total growth in U.S. nominal demand has leaked abroad" in the past six quarters, more than twice as much as in any recovery in the past half century, Paulsen wrote.

The deficit with China has overtaken all others, swelling to $103 billion last year. "Imports now account for almost one quarter of goods transactions in the U.S.," up from 14% in the late 1980s, wrote Edward Yardeni, chief investment strategist at Prudential Financial. At a time when global demand is weak and industry is swamped with global excess capacity, low-wage producers in China and elsewhere increasingly set U.S. prices.

That is likely to continue even after the economy picks up steam. Many U.S. companies have trouble competing with factories in China, where workers average about $1 an hour.

Increasingly, complex technology jobs are leaving the U.S. Solectron, which makes equipment for Hewlett-Packard and Cisco Systems, said in March it would cut 12,000 jobs in North America and Europe. That's on top of 40,000 layoffs since the start of 2001. It's part of an ongoing strategy to shift work to low-cost regions, particularly Asia.

U.S. factories have shed 2.4 million jobs since the start of 2001, paring their payrolls to 14.7 million, the lowest since 1958. Globalization is just one factor. Factory productivity gains have long outstripped output growth. With output sluggish amid weak demand and excess capacity, productivity gains lead to job losses.

The dollar, strong until recently, also has hurt U.S. exporters. Many economists think the greenback's recent decline could revive factories. Others are skeptical. The dollar "can't conceivably move far enough" to make U.S. factories competitive with low-wage producers, said Bob Gay, global head of fixed income research at Commerzbank Securities.

It's not just manufacturing. Due to communications advances, services jobs, largely insulated from trade up until now, also are exiting the U.S. Convergys, a provider of billing and customer-support services, cut 950 U.S. jobs in December. This year it said it would add 3,000 jobs in India and planned to hire 1,000 in the Philippines.

Forrester Research predicts 3.3 million U.S. services jobs and $136 billion in annual wages will move offshore by 2015.

The Federal Reserve, having won its long fight against inflation, is now focused on deflation. It cut its key interest rate to a 45-year low of 1% on June 25. Some see strong deflationary headwinds from China and elsewhere.

While Gay expects current stimulus to rekindle the economy, the rebound could be brief. Eventually growth may disappoint "because of the competition from low-wage countries," he said.
If good jobs continue to leave the U.S., the result could be inadequate income growth and further deflationary pressures, Gay says. The global economy means more Americans will compete with workers overseas. U.S. entrepreneurs, workers and educators face a challenge to adapt and create new opportunities.

It also means a much bigger pie for U.S. companies to go after. After years of waiting, China is finally developing a real consumer market. And it's opening key sectors to foreign competition.
U.S. factories may be finding their footing. Several reports have shown a modest pickup in manufacturing activity in June, including Monday's Chicago purchasers index.

But one or two months of growth isn't a sustained upturn. And factories keep shedding jobs at a fast clip.

I just noticed this. The article said we "shed" 2.4 million jobs in 2.5 years. In the previous 18 years, we had ADDED 25 MILLION jobs. Seems to me a little retrenchment was due anyway. Moreover, do you have stats on how many self-employed there are in the U.S.? I wonder how many of those 2.4 million are truly "out of work" and how many started their own businesses?

Critics who think "all our jobs are going over seas" (which has always been baloney) always ignore those who start their own companies. Yet "microbusinesses" (under five employees) are the fastest-growing sector of the U.S. economy. While I don't have a study on WHO starts these "microbusinesses," I'd be you a Dunkin Donut that more than half are started by people "laid off" who find it easier to be their own employers rather than to work for someone else and, more important, be regulated and (often) pay taxes.

Every day in my neighborhood, I see streams of landscaping, cleaning, repair and construction, drapes, and other vans coming in---every one of them locally owned, most of them run by the owner. Virtually no 'foreigners," no "illegals." Just Americans. I drive past dozens of small firms in south Dayton turning out "widgets."

I think manufacturing is important. But it's interesting that our whole discussion has been conducted via a system whose manufacturing component is a tiny fraction of its value: the actual manufacturing cost of your computer is infinitessimal. A $60 CD costs about $1 to manufacture. Everything else is what we call "service"---but it is precisely all that other stuff that adds the value: software design, marketing, invention, innovation, risk taking, and so on.

Right on.

I wanted to keep it simple... in New Haven, again to use my tired old example, there is also the Regional Water Authority and the sewer authority which each hand you outrageous bills to cover your water, and the other to cover environmental costs associated with it.

Then there are the legions of lawyers who work "pro bono" for the minorities who will sue you and keep you locked in the legal system for years if you fire them for a legitimate reason. Yale University is in New Haven, and its law school (Where BJ Clinton and his mother Hillary learned their evil trade) inflicts untold damage upon the entrepreneurs of the region in a sick and harmful crusade.

Then there is sexual harassment to worry about.

None of these things existed in the good old days. None of these things exist in most other countries.

When I open a factory to make money, I will open it abroad. I have already opened a factory abroad, and would never go through the agony of running one in America again unless some very serious changes are made.

Not that I don't want to create jobs in the USA. I want to do so more than anything else in the world. But I am in business to make money. For me. Not for City Hall. Not for lawyers. Not for every aggrieved party who feels hurt or humiliated on my premises.

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