Create a Secretary of Manufacturing

Three events in the last few months highlight why the United States needs a Secretary of Manufacturing, who will sit at the Cabinet Table with as much sway and importance as the Secretary of Agriculture, the Secretary of Defense, or any other Cabinet Officer.

The first was the cancellation of the Presidential helicopter program, a cancellation that will throw about 1,000 aerospace specialists out of work in Owego, New York. The President canceled the VH-71 helicopter project after being criticized for the program by Senator McCain. Sure, we do not want needless pork. But what sense does it make to throw these people out of work when we are spending close to a trillion dollars to create jobs in this country?

We need to create jobs that have a multiplier effect and that build on our comparative advantage. For example, we need to create jobs in aerospace. These jobs enhance our manufacturing and engineering prowess and increase our ability to compete internationally. They are a better place for American tax dollars to be invested than what I saw on one parkway in Washington, D. C. recently: a big sign announcing that stimulus funds were being used to replace a row of streetlights.

When we think about where to put stimulus funds or other United States investments, someone has to stand up for manufacturing. We have lost seven million manufacturing jobs in this country since 1969, and the manufacturing sector is close to a tipping point. Speak to any mid-level manager in an American manufacturing company and you will hear the same story. The effect of this off-shore movement of jobs is cascading.

Suppliers of input products to OEM manufacturers -- things like semiconductors or glass companies -- are all moving off-shore. The companies that create complex end products -- computers and PDA and cell phone manufacturers -- are all moving off-shore. And the great big investments in the next cycle of technology improvement -- like three and a half billion dollar semiconductor fabrication plants -- are all moving off-shore, largely to South Asia. So as a mid-level manager, if you're tasked with sighting a plant, you have to go where the input suppliers are, where the OEM customers are, and where the technology is -- namely, outside the United States.

A second significant event was an off-hand comment by the Untied States Trade Representative, Ron Kirk, the former mayor of Dallas. Speaking to House Democrats about three free trade agreements pending before Congress, he said, "Well, if we're not passing trade agreements, then what's the purpose of me being USTR? I might as well pack my bags and go back to Dallas." Ambassador Kirk is focused and will do a good job. He recently announced a trade law enforcement initiative which should be helpful for U. S industry. But the statement about trade agreements is revealing. Many trade agreements have probably not in fact helped U. S. manufacturers. They have allowed large amounts of imports of low priced products from China and elsewhere to come into this country and led to the shutdown of manufacturing plants.

Many economists would say low-cost imports are good for the economy even if they throw manufacturing employees out of work. But someone in the government needs to be responsible for reviewing these trends and doing something about them. To like effect, the Secretary of Commerce, who is often said to be in charge of manufacturing issues, has hundreds of other issues on his plate and little real authority over anything to do with manufacturing. In fact, two of the largest units within Commerce are the weather bureau and the Census.

A cabinet level official needs to be responsible for coordinating tax, trade, labor, spending, investment and technology policy as it relates to manufacturing. We have a Secretary of Agriculture, but the agricultural sector is much smaller than the manufacturing sector, even with its recent declines, in terms of both output and employment.

The third recent event was a conversation I had with my manicurist. Being an international trade lawyer, half way through my manicure and pedicure (something I recommend every red blooded American try), the conversation naturally turned to the declines in the industrial prowess of America. "My husband and I used to have a beauty supply business," my manicurist Annie said, "but then all the beauty supplies started coming from China. Companies that bought from the Chinese could sell product in the United States for less than we could buy it for from U. S. companies. So we had to close the business and I went back to what I was doing 20 years ago. Being a manicurist."

This kind of story is being replicated every day in this country. But the main point is that we are no longer talking about high-profile and glitzy industries being displaced and leading to job losses -- things like steel or computers or autos. Now, almost every industry is being displaced. I recently finished a trade case on something called light weight thermal paper. This is the paper used in ATM machines and for gas station receipts. Who ever even thinks about this product? Well it turns out the Chinese government has been subsidizing the production of this product in China for years and building up its industry at the expense of U. S. manufactures who used to make it.

Someone in the United States government has to monitor these trends and develop a long term, comprehensive response to them. There is no one magic bullet. We have lost millions of manufacturing jobs and entire American industries over the last four decades. It is time to designate someone whose main job it is to bring these back.

Gilbert B. Kaplan was formerly Deputy Assistant and Acting Assistant Secretary of the U. S. Department of Commerce. He is a partner in the international trade firm of King & Spalding in Washington, D. C. He filed the first successful anti-subsidy case by any U. S. industry against China, which led to large anti-subsidy duties on imports of Chinese pipe into the United States in 2008. On behalf of the United States government, he was one of the negotiators of the U. S./Japan Agreement on Trade in Semiconductors and the U. S. Agreement on lumber trade with Canada.

Comments

[Ben6768]

Now talking seriously, a Secretary Of Industrial Policy would be the most important positon in the Obama administration. It is surprising that this crucial position does not exist by now in the U.S. If there is no manufacturing, how is the country going to make a living ?

It would be the most important Secretary of all : planning 10 - 20 years in advance, to create a good future by means of collaboration between the private and the public sectors. As of now, the U.S. is only reacting to crisis after crisis.
Obama lives in the moon. I have not heard a word from him on this subject. What is he thinking about ? How is the U.S. going to feed itself in 10 years ? where is the money going to come from ?

Good post, Mr.Kaplan. Please lets hear more about the subject. One objection I have : please lets talk about how Europe does things in industrial policy and how this has created a certain way of life. I am opposed to hearing about the U.S. compared to China. China still has a long way to go.
For the U.S., this is looking backwards instead of forwards.

[Ben6768]

The U.S. is brave with the weak : invading Iraq
The U.S, is cowardly with the strong : standing up the Big Business interests in offshoring and making profits from trade.

Im F%$/G tired of this : how many divisions does China have ? How much does it say on a piece of paper that we owe them ? tear up the piece of paper and let them complain. Send a carrier group.

[KillTheMessenger]

What could a carrier group sent to China achieve? Getting itself sunk and the aircraft shot out of the air? While, in the meantime, Walmart alone would lay off 1.5 million people because they wouldn't have anything to sell. And the rest of the retail industry would lay off another 10+ million...

Sounds like a plan... for the crazy.

:-)

[Conk]

Hey Citizen! This is the United Socialist States of America. Don't you mean Czar of Manufacturing?

[MarkBoston]

The US creates NOTHING now days .... We only make consulting and information .. Nothing tangible . The blood sucking anti American Republican owners sold us out by shipping hundreds of thousands of jobs to Mexico and India and .. and ... How can we survive selling ideas and suggestions ???? Our new Anthem should be " I pledge allegiance to the Greed of The United Banks of America and to the corporations with whom they sleep . One Nation under a neo con, hateful God ... with liberty and justice for the select few"

[larry278]

A Secretary of Manufacturing would be as useless as the Secretaty of Agriculture. Agriculture is dead, the family farm lost out to agri-business, run by corporations, back in the 1950's. The USA no longer has heavy industry to make steel & machinery for the world; those industries have moved off shore. They won't be coming back to the USA, The automobile industry is dead in the USA. The idea of a Secty of Mfg is a hoot, not an idea.

[nomoredead]

I nominate John Sweeney.

[oldgeek1]

I have studied the loss of manufacturing jobs for years. There are many myths that serve a political agenda such as high union wages but the loss of manufacturing jobs is the result of a wider variety of issues that many just do not want to own up to.

First the wages in places like China are a tiny fraction of those in the US, it isn't even close. The working conditions are those that most of our workers would not tolerate, and one only has to look at farm workers in California to get the drift.

Air and industrial pollution regulations that some may point there finger and blame the tree huggers in the US as impediments factually represent a real health risk that many foreign countries could care less about.

In Europe Government support and direct funding of R&D and manufacturing is common, in this country it is colored as pork or bail outs.

Until the economy fell into a recession there were far more jobs in the US than there were workers and at that, few people willing to do the dirty work to include manufacturing. The loss of jobs like sewing shoes and shirts went off shore because there was a cheap workforce willing to do that work without companies having to invest in expensive automation.

A manufacturing Czar would be powerless to change the decisions of companies/

[KillTheMessenger]

The US manufacturing industry is doing quite well... it's just the largest on the planet. What is not doing well is the US population because fewer and fewer people are working for it. The reason for that is simply education. We educate less engineers and scientists than we need to run our own high tech businesses. So we have to import them. At the same time we need fewer and fewer workers because manual labor at the cost level of the US is essentially obsolete.

[bluescat47]

A great commentary but I have a few issues. First, trade is only one issue affecting the U.S. manufacturing base. Automation and computerization have shaved jobs off the manufacturing base and the lack of health care and tort reform has also affected competitiveness. And just look at the self-inflicted wounds by auto management and auto unions on that industry. Second, the U.S. runs substantial trade deficits with a wide range of countries, low wage China and high wage Germany, Ireland, France, and Japan. That suggests our problems are structural and tied to larger economic issues, including the lack of savings, excessive consumption, overvalued dollar. Third, most of our trade deficit is with countries that we do not have a free trade agreement with; the latter (China especially) accounted for $686 billion of our deficit in 2006. Finally, the U.S. share of world manufactured exports and world production of manufactures has remained fairly steady for two decades and the U.S. is still the 3rd largest exporter of goods in the world.

[watchTVgetSTUPID]

The reason California economy is falling off a cliff is imports have recently taken over the lions share of electronics in office, autos, consumers, and computers. They now suffer the same fate as the rust belt. Any new manufacturing will likely be set up in Asia for all the reasons you mentioned. By the time the dollar bubble pops, our factories and manufacturing infrastructure will have been disestablished with expensive manufacturing equipment being scrapped or sold to Asia for pennies on the dollar. That is happening right now in the auto industry.

[KillTheMessenger]

That's a great story, but sadly it isn't true. The US owns the electronics industry for the most part. What we do not own is the consumer manufacturing industry... but that's mostly low paying jobs, anyway. Not the kind of jobs we want or need. Any nation that bets the future on sweat shops will be sweating in the future.

As for manufacturing in the US... it's fine. I wouldn't want to manufacture industrial products in Asia. Way to complicated to get things set up there and not that much of a financial upside, if you know what you are doing.

[watchTVgetSTUPID]

Sadly not onlly consumer electronics but office electronics are almost completely manufactured off shore. The computer you use at work, the printers, the projectors, the connectors, the cables. NO flat panel displays are made here. The only thing left here are nitch markets that have very little overall impact on our economy. Admittedly, the military is a large nitch but the preponderance of our electronic manufacturing has recently crossed over

[watchTVgetSTUPID]

Commerce department should have been car czar. Obama put Wall Street takeover artists in charge of the auto bail out. Rattner (aka the DNC's ATM Machine and Bloomberg's financial investor) is an example of how Wall Street is destroying America through their self serving control over our politicians.

As car czar, Rattner forced GM and Chrysler to abandon many loyal customers. Millions of them will now switch to foreign imports making the trade imbalance worse. Rattner performed a classic corporate coup by beheading GM's CEO and replacing him and the board with loyalists. Rattner then forced massive destruction of both GM and Chrysler's capacity both in manufacturing and design/development. He butchered Chysler and forced its marrage with FIAT where Fiat got a large chunk of Chrysler for free but employees, retirees, bondholders, all take a big hit. (distress sale). He said it was necessary because butchered Chrysler needed economy of scale to survive. Then he forced GM to abandon thousands of dealerships, Saturn and Pontiac saying GM needed to shrink to be profitable. The logic Rattner used to justify his actions is contradictory (forced shrinkage versus economy of scale).

The result of Rattner's destructive actions caused Detroit's unemployment to jump from 14.9 to 17.1 percent from May to June. Obama is protecting the paper charletans on Wall Street and sacrificing Main Street and America's ability to manufacture instead of importing. Trade will never balance because Wall Street controls all our politicians at the expense of Main Street

[KillTheMessenger]

Yawn... can you do something else than to verbally hang people?

[toocold06]

GDP!

[TJCole]

Why not a secretary of Blacksmiths as well, or a Secretary of Whaling...?

We had since 1980 to act in our nations best interest, but the Free Traders were dead set on destroying America as a great nation...as well as our National Security..!

Free Traders = Free Traitors...!

[THEPILGRIM]

We have lost on our manufacturing base since the 70’s.
Ever since Nixon and Kissinger got away from our well served fixed exchange system (which is based on Gold) and went for a free exchange system.
We than went from a production society into a consumer society and turned this country into a big Hugh shopping mall.
Now after 8 years of Bush tax cuts (for the rich), free market policies, after a completely unregulated Wall Street with Hedge Funds (from Britain) and Derivatives (thanks Alan Greenspan) we are now realizing that our entire economic system is broke and bankrupt.
China is our biggest creditor which in itself shows the complete failure and idiocy of the financial oligarchy.
Corporate America has strangled this country for far too long and the damage is devastating.
Wall Street (corporate America) is not our economy and our economy is not Wall Street
We need a healthy economy and that means we need strong small and medium sized business. This is the back – bone of our economy. As long as you back the corporate world which has put the law on their side the real economy cannot function
We need to go back and be a production society and not continue to be a consumer society.
Banks need to forced to lend money to small and medium size businesses and new start ups!

[edupreneur]

From http://edupreneursvkleptobankers.wordpress.com/

"Canonical research findings suggest that American entrepreneurs who establish popular online markets for customized education will catalyze the creation of many good jobs in America, and will end the reign of America’s kleptobankers. Some of the researchers: Clayton Christensen, Paul Romer and Paul Krugman."

[watchTVgetSTUPID]

Sorry but all the education in the world will not help when there are no job openings. Teachers do not create wealth. Factories create tangible wealth. Most jobs are service jobs that simply transfer wealth for a service. Without jobs that create tangible wealth, the service jobs will have no paying customers. Goldman Sachs did not create wealth when they created CDOs built on subprime loans. They simply sold a fraudulant security that never was the AAA they claimed it to be.

Manufacturing, Agriculture, oil and mining are the wealth creating industries. Without these as the base of the economic food chain ecosystem, the other industries will have no sustenance and will perish. Note, foreign countries are very interested in accumulating the industries that create wealth. Our Wall Street insiders who control our Administration's policies is focused on making money for themselves through international trade. Our manufacturing is being out sourced in exchange for a quick buck. This is the cause of America's downfall.

When the dollar bubble bursts, most of the service jobs will perish.

[KillTheMessenger]

There are always job openings... for the well educated. Which might explain why you don't know about them...

:-)

[strugglingstudent]

Part 1

Mr. Kaplan,

Let me start by saying I work as a manufacturing process designer and IT consultant while I am attending college for a degree in manufacturing engineering (basically a combination mechanical and electrical program with an emphasis on industrial production).

I love manufacturing. I take great joy in turning raw materials turned into useful goods. So what I am about to say may come as a bit of a shock. The shrinking of our workforce in the manufacturing sector is quite expected and really cannot be avoided. There is no amount of effort on behalf of the government or the American people that will restore America to its previous position of world manufacturing leader in terms of the number of people employed in our manufacturing sector.

Why? It has nothing to do with economics. The economic issues can be addressed. Trade imbalances can be modified through tariffs or subsidies, wage discrepancies tend to be temporary and are eliminated over the long term through the increase in per capita incomes in developing countries.

Continued…

[strugglingstudent]

Part 2

It has to do with technology. My area of expertise is in automation and autonomous systems. Over my career I have seen a consistently accelerating trend towards factory automation and reductions in the number of required employees. As we automate more processes fewer and fewer traditional manufacturing jobs will remain. Instead of training manufacturing employees to function as machines by performing the same repetitive task over and over, we need to be training workers to understand and maintain the new automated processes that next generation manufacturing requires. Sadly there will never be positions for every person now working in the manufacturing sector. When automation productivity replaces 10 assembly employees with five robotic assembly stations those five stations may only require a single operator. Those 9 people are unlikely to be needed elsewhere.

And this is the crux of the matter. In the short term our only hope for regaining manufacturing supremacy for the country as a whole, our only way to restore our lead as the worlds go to manufacturer, is by adopting the automation strategies that allow us to develop products faster and more efficiently than our competitors. We cannot hope to compete with China or India in terms of employee costs. The only way we can beat them is by more rapidly adopting automation than they do allowing our products to be produced for costs similar to those achieved through low cost labor.

Continued…