Dude, Where's My Industrial Policy?
Increasingly people are asking about our country's plan for restoring and reinventing the economy. And that means thinking about manufacturing -- the root of economic power. How will we revive American manufacturing and bring back the good-paying jobs manufacturing creates?
Just look at the growth of China, Korea and other countries that have been following their own plans for growing their industry. On Friday Ian Welsh, asking at Open Left why the US is hemorrhaging good manufacturing jobs, described examples of industrial policies of a few other countries:
For good chunks of the 2000's, the Chinese government spent about 10% of their entire GDP keeping the Yuan undervalued. Other countries, like Japan and Korea also worked hard to keep their currencies undervalued (or the US dollar propped up, depending on how you want to look at it.) This made their goods more competitive than they would have been otherwise and the direct result was the loss of US manufacturing jobs.
Tuesday, Scott Paul and Leo W. Gerard also pointed out that other countries have manufacturing policies,
This is the untold story of protectionism: the barriers that other governments erect to block American goods and the mercantilist measures they utilize to gain market share in the U.S. These practices range from China's currency misalignment and massive industrial subsidies to non-tariff barriers in Korea and Japan.
Even the "Green Jobs" efforts face competitive problems from countries that have industrial policies. Tuesday Mike Elk pointed out,
The president correctly views the green economy as the pathway to economic recovery. But if the windmills, solar panels and other key building blocks of that economy are made in China, we'll only end up in deeper debt.
Not having a clear forward-looking policy is hurting us. But this isn't really accurate, because even if you don't have a policy you have one, because it IS a policy not to have one. A vacuum is a policy.
So current American policy appears to be:
- Send manufacturing plants to other countries that do have proactive industrial policies.
- Send manufacturing jobs to other countries that do have proactive industrial policies.
- Send manufacturing technology to other countries that do have proactive industrial policies.
- Send the manufacturing supply chain - parts, suppliers, designers, etc. - to other countries that do have proactive industrial policies.
- Buy what other countries make, even if it is made by people who are exploited or by using processes that pollute
- Etc.
Face it, if we do not have an active and engaged industrial policy we are handing the business over to those who do. And they do. And we are. Meanwhile there are interests who benefit from this (lack of) policy and fight to keep it as it is.
Some argue that a policy of sending our jobs to poorer counties is a good thing, because it reduces poverty in those countries. But does it? Look at Mexico's decline in the wake of NAFTA. When the workers in those countries are exploited and receive substandard wages, or the countries do not protect our planet's environment, the world's economy and environment are dragged down and everyone loses. If they were paid fair wages they would be able to purchase goods made here, and everyone would benefit. Of course, if they were paid fair wages the jobs probably wouldn't be sent there, would they?
President Obama's "stimulus" is a crucially important stopgap measure, but doesn't do enough even to cover the slack in demand from consumers and businesses. The package's investment in infrastructure is a start but is a drop in the bucket after years of neglect and maintenance deferral. Its "Buy America" clause is important, because we need to concentrate American economic stimulus on the American economy or it will be so diluted as to be useless.
But this is really just stopgap, holding actions, temporary, makeup, backfill and after-the-fact reaction. Where is the comprehensive, thought-out, forward-looking plan for bringing our economy back up and into the future? Where is the discussion?
Friday Senator Sherrod Brown of Ohio summed it up, writing at Huffington Post,
Not too long ago, the ticket to the middle class was straightforward. Work hard, play by the rules, and you'll have something to show for it -- a good wage, a secure job and home, and a solid pension.
...Job loss and wage stagnation figures reflect a decade's long decline in U.S. manufacturing, a decline that has shattered the American dream for millions of Americans....We need a national plan -- a national manufacturing policy -- that aligns federal actions with the goal of strengthening our manufacturing sector. [emphasis added]
Wednesday Bob Borosage asked,
"We haven't even begun an adult conversation about the fundamental question of America's global economic strategy. What is the economy we will build out of the ashes of the old?... We can't go back to borrowing $2 billion a day, largely from the Chinese, to serve as consumer to the world. We can't go back to an economy in which finance captures 45% of the nation's profits. We can't keep shipping good jobs, technology, and manufacturing capacity abroad and expect to sustain a broad middle class at home. We've got to start making it in America again."
So what can we do?
Senator Brown wrote,
To realize our full potential, we must stop ignoring the challenges that manufacturing faces. We need a national plan -- a national manufacturing policy -- that aligns federal actions with the goal of strengthening our manufacturing sector.
In Mike Elk's post, he noted,
Today, the Senate Environment and Public Works Committee is holding a hearing on Capitol Hill with governors and mayors to look at ways the U.S. can adopt a comprehensive manufacturing job policy that makes sure that the green economy keeps jobs here in America. Through a series of measures, including incentives for companies to stay in America, "Buy America" provisions and trade law reform, lawmakers like Ohio Sen. Sherrod Brown are hoping to keep green jobs in America.
These are voices, asking what we are going to do and making suggestions. Yet this fundamental question is not broadly discussed. This is not a comprehensive policy planning process, led from the top.
Where is your voice in this? What should our national plan for manufacturing be? Or, more broadly, what is our national plan for restoring jobs and for restructuring our economic system in ways that work for all of us? It is time to start discussing it. Let's see if we can get this going in the blogosphere.
This post originally appeared at the Campaign for America's Future blog.
Follow Dave Johnson on Twitter: www.twitter.com/dcjohnson
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That´s a good article. However, I always hear about the U.S. compared to China or Korea. I think our reference should be more like the strong manufacturing countries of Europe. In Europe, you end up buying a surprising number of items like German-made Staedler-Norris pencils, not to mention scooters, motorbikes, fitness equipment etc, all kinds of things that we use daily.
Trade laws and forward - looking industrial policy have created a type of life that results from having a strong manufacturing sector.
We should consider the total benefits that result from this type of manufacturing - heavy economy and society, not just the numbers on a piece of paper, as if life were nothing but a competition with China ....
Above all, as you well point out Dave, we have to PLAN into the future and not just react to events and crisis. Unfortunately I have not heard ONE WORD from Obama on this subject !
Cheers ---
The only people who haven't heard anything from Obama on this subject are the ones who aren't listening.
:-)
Industrial policy? It is outsourcing. If people complain, promise them "Information Economy Jobs."
Oh, but, that was in the 1990's. What is the new distraction?
"Green Economy Jobs."
This idea gives Democratic party elites the feeling they are still for the people, rather than the party of Wall Street Finance which wants to sell overseas their financial products.
Republican elites like anything that sounds like it makes rich people richer, so the Democrats have no worries about opposition pointing out their hypocrisy.
Well, there are plenty of information economy jobs. More than we can fill with qualified US applicants, actually. There are plenty of lifesciences jobs, too. Same problem. Physical sciences... you name it. Semiconductor design... not enough US engineers to fill the demand.
Of course, if you don't have the education, life WILL pass you by.
See Dave Johnson's Profile
That's just offensive. In Silicon Valley we have 12% unemployment.
Tell your employer you get your bonus for pissing off the people at HuffPo.
Many American companies took their manufacturing plants overseas to escape the cost of doing business in America. It was not just low wages, it was the absence of regulations like those establised under OSHA, the Occupational Health and Safety Act. About ten years ago Rolling Stone did an article on the conditions in some automobile parts manufacturing plants that had been sent to Mexico. They sent a Detroit worker who had been employed in one of those plants to see how his plant was being operated in Mexico. He was appalled by how basic safety rules were no longer being followed and the numbers of workers being injured and crippled..
I have long felt that the concept of crimes against humanity should be applied to business activity, and not confined to war crimes and genocide. I first got to thinking about this when I heard a presentation by a white lung victim about how abspestos producers had lobbied state legislatures to enact "safety laws" requiring abspestos to be used in schools despite their knowledge that it caused cancer (mesothelioma), There are lots of other conduct by businesses that I would consider crimes against humanity. I think that the executives and boards of companies that send manufacturing plants out of this country and then kill and cripple workers by eliminating basic safety rules should be held liable for crimes against humanity. This is only just, but it would eliminate one of the biggest motives for exporting manufacturing plants.
Not having OSHA does nothing to your profitability...
Now, if you follow the reality of it, the US semiconductor industry took production to Malaysia and Singapore and Taiwan for two reasons: cheaper labor and better quality. The better quality in this case has to do with the fact that semiconductor fabs have to run 24/7/365. Every change in the production environment, even the change in the heating/cooling of the building due to a change of shift makes a difference in the yield (at least it did in the early days). It's a lot easier to do in those countries than around here.
Now... the US semiconductor industry is still here, it's still the leader of the pack and it shows no signs of giving up that leadership. Moving production to countries in Asia made that possible and it's very likely that, had they kept the fabs in the US, the reality now would be very different... and Japan/Korea would own that industry now.
In the manufacturing business only one thing matters: not to be broke at the end of the fiscal year. If you don't like that, I would suggest you look for a different source of income than manufacturing.
Dave, hers is some food for thought;
Maybe industrialism (the over-arching policy) is the mother of all speculative bubbles- because all bubbles have winners and losers and depend on the transfer of wealth from the home of the resource to the user(s), consumers, of the wealth. The users would also be those who transform the resource into a "value added" commodity.
Cheap energy certainly makes all this possible.
So what happens to the 200 year "bubble" when this transfer of wealth becomes too expensive, i.e. the return on investment is not worth it? You know, when energy input costs don't justify making trinkets anymore.
What then of the "policy"?
Part 2
With the disaster capitalist program in full swing however, even this first element is proving difficult. Blue dogs and Republicans are blowing smoke about how human health is something that needs businessmen to make it accessible when everyone knows that doctors shouldn't be business folk first and medical practitioners second, and that insurance is a business tool to ration care, and always has been. But people are wising up and I have hope. If only they will tell their reps that they know better than to listen to the fiscally irresponsible when deciding how to spend precious tax dollars. Some representative has even gone so far as to correct the Bushism about fooling (us) me twice... the second line is not "c-c-can't get fooled agin," it's "shame on me." (for letting ourselves get fooled by you scoundrels again).
Until we have health care that works for working class, we won't have the power to impose industrial policy on the shadow leaders of industry. Once we do, we shall rule them with a policy which is good for us.
Dave,
I think the plan is to attack the infrastructure deficit first, that is, fix medical delivery and insurance systems so that the US is not stuck with the monkey on its back that killed General Motors first, and only after the human element is a little calmer about getting their needs met moving on to the rest of the industrial policy. I think it's because if the populace is not behind the move toward industrial policy, it can't get through the Maginot line of industry lobbyists with their "special" interest "needs" to prevent human beings from being served by government first. Then when we have that, we can outline how the rest of the economy can be geared towards rewarding American ingenuity again.
(see part 2)
The monkey that killed GM is called "GM management".
Wall Street killed GM. High gas jumping to $5 a gallon due to Wall Street Speculators. That killed auto sales. Wall Street froze National credit due to their criminal swindols. That kept sales down. Then Wall Street car czar Rattner forced GM to abandon loyal Saturn & Pontiac customers as well as customers loyal to thousands of dealers. GM will never have the economy of scale again since Wall Street crooks forced out GM management and replaced them with willing sycophants.
Um, I don't disagree with that, but they were also dealing with the monkey I mentioned. The two monkeys killed them.
Mr. Johnson, did you, ever, design, manufacture or even market any manufactured products? If so, why did you not continue to design, manufacture or market manufactured products?
I am curious because it seems to me that few who are particularly vocal in this discussion have any practical clue about manufacturing. Yet you all seem to know best how to bring American manufacturing to life (not that it was dead, ever). How does that work, exactly? Would you also explain brain surgery to brain surgeons because you feel that an outsider can easily put himself into the position of one?
Just my two cents as someone who actually designs products that sell quite well in both the US and abroad and who will spend the rest of his working life in manufacturing because he likes to build "stuff".
Yes, very few Americans have experience manufacturing these days. It is one of our country's weaknesses.
Americans make very good armchair coaches, though. And we make plenty of 'em, too.
See Dave Johnson's Profile
"Mr. Johnson, did you, ever, design, manufacture or even market any manufactured products?"
Yes. In several positions.
Its KTM who is the naive one about mfg
Let's hear it for the boys. Come on, now, what did you manufacture and why do you like to make your living as a blogger now?
:-)
One component of the problem is characterized as "race to the bottom" as jobs go to low wage low ecological standards countries.
Levelist policies , which use tariffs to equalize but not protect, would be a start.
Levelist policies are not protection because they are not applied against countries with high wages and high ecological standards.
More data
http://corporatestatesmen.org/images/LEVELISM.pdf
and lots more :
http://corporatestatesmen.org/policiesandinitiatives.html
.
Many Democrats, like our president, believe very strongly in spreading around the wealth. The wealth disparity between the US and the rest of the world is huge. It's inevitable that the wealth of the US will be spread around to other countries. When they gain, we lose.
The US is the only country in the world where the poorest people have problems with obesity. If spreading our wealth around inside the US is good idea, why isn't it good idea to spread our wealth around to the rest of the world?
You may have noticed that the more intelligent participants in this discussion do not frame it as a problem of distribution of wealth. We frame it, among other things, as a problem of education. The poorest of nations in the world know that their poverty is based on the level of education of their population. The developing nations, and even more so the industrializing nations like China know that the wealth of the US was a return on its policy to educate its people in the 20th century. So guess what they are doing? They are mass educating their people in the skills needed in the 21st century.
At the same time we let our school system fall to ruins and make higher education too expensive to obtain for a significant number of our own. As a result we are falling behind those nations who are emulating our very own past success strategies.
we need to pay for the improved public education by taxing the wealthy (redistributing the wealth)
Also, the obesity amongst poor citizens is not related to too much healthy food, just corporate junk food. An obesity rate of about 25% of ALL economic classes. So a fat population is an indicator of wealth? Bad analysis.
I'm pretty sure the people in Africa frame it as a problem of food and water, not education.
"The US is the only country in the world where the poorest people have problems with obesity."
Really?
I agree that manufacturing or other industries that create value are essential to our country's future prosperity. Commerce is a zero-sum activity that merely transfers wealth around but does not transform inputs into more valuable outputs.
The problem with manufacturing is that it doesn't usually provide the short term profits that our tax structure favors. Until earned income (dividends) is taxed at a lower rate than capital gains, the incentives favor commerce at the expense of manufacturing and other transformative industries.
"Until earned income (dividends) is taxed at a lower rate than capital gains, the incentives favor commerce at the expense of manufacturing and other transformative industries."
True, but there is more to it than that. Commerce, for example, is also very cheap and flexible in terms of human capital. Almost everybody can be taught to sell milk, butter and eggs at the grocery store. But it takes years to teach all the required techniques to a professional metal worker and it takes decades for the person to perfect his skills. The person who sells milk, butter and eggs can as well sell sweaters and socks. The metal worker, on the other hand, would take years to learn another industrial skill, say injection molding, to the same perfection. Therefor commerce can be made very agile because of its limited reliance on specialty skills. Manufacturing, OTOH, can not.
So even if we changed the tax structure, it would take many years to get this heave train moving. We would have to educate a whole new generation of skilled workers and engineers.
Maybe I'm wrong, but the dividend rate was 15% and the capital gains rate is too.
http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States
Lower still for the lower bracket taxpayers too.
Maybe you were talking about real earned income, as in wages. Well, there if you are in the highest tax bracket, you can take deductions up to a certain cap, but then all income is taxed at the highest marginal rate. Then you get yourself a corporation or business to start deducting business expenses and to pay you dividends instead of salary or use other means to spread the money around as needed and legally acceptable. Not tax advice, just what happens. Do it wrong and the IRS will get you, but do it right, and your rate is very low if looked at from your gross income.
As for manufacturing being given the short end of the tax sh-stick, well, I think you are right. I think Dave is talking about bigger than tax loophole driven industrial policy here though.
Reduce our corporate tax rate, one of the highest in the developed world besides Japan.
Pure nonsense.
You call that an industrial policy? It the same policy that gets states fighting each others with incentives to businesses to rape their landscape and population to locate there instead of in another state. I'll even say it out loud. It's not thoughtful, it's reactionary, and long term, it's clearly a losing strategy.
Japan has had a government manufacturing policy for decades. Subsidizing the startup of their auto and electronics industries has worked quite well (they had a few decades headstart on too proud to cooperate US industry and government).
Except for the fact that they subsidized and administered their electronics industry and that didn't manage to take on the US electronics industry on any large scale. In contrast they hardly subsidized their automobile industries, which, probably thanks to being able to operate independently of some humongous state bureaucracy thrived much better than their electronics industry did. And, if we want to go down that road, steel went to China and much of their ship building capacity went to South Korea (and now China, again), despite all of the Japanese intervention...
And they indeed had a few decades of a head start of us... they bankrupted themselves with a real estate bubble in the early 1990s... followed by one of the longest recessions in history.
We need to learn from the Japanese... just not the things you seem to like so much about them.
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