For many years, policy makers and public officials have argued about whether public policy should help promote American manufacturing or whether we should leave it alone and let the market do what it will.
As usual, such stark positions have little to do with reality. I start from the position that, like it or not, we have and will continue to have a significant industrial policy in America. It's just not a very smart one.
Each year we provide hundreds of billions in tax breaks for all sorts of industrial sectors, including manufacturing (tax credits for U.S. production and accelerated depreciation of equipment alone account for $450 billion in tax breaks, 2013-2017). But is this money well spent? Is this ad-hoc industrial policy working?
I'd say "not so much" at least relative to better, more coordinated ideas that grow out of a close look at the sector with respect to its potential role in economic growth and global competition. And yet, each year economists pull chins and wag fingers about how we must avoid an "industrial policy" that "picks winners." Meanwhile, other advanced and emerging economies, unburdened by this ideological parlor game, are crafting policy -- sometimes useful, sometimes not -- designed to boost their manufacturing sectors and claim global market share.
As strongly argued in a new Brookings document coming out next week (they're having a release event there Wed a.m.):
...manufacturing does indeed matter to the U.S. economy and that public policy can strengthen American manufacturing. The nation need not and should not passively accept the decline or stagnation of manufacturing jobs, wages, or production. American manufacturing matters because it makes crucial contributions to four important national goals.
-- Manufacturing provides high-wage jobs, especially for workers who would otherwise earn the lowest wages.
-- Manufacturing is the major source of commercial innovation and is essential for innovation in the service sector.
-- Manufacturing can make a major contribution to reducing the nation's trade deficit.
-- Manufacturing makes a disproportionately large contribution to environmental sustainability.
I've stressed these arguments in various posts, noting that 70 percent of private sector R&D comes from manufacturing, the trade surplus in services is small relative to the deficit in manufactured goods (see figure here), and, as I spoke to in Portland, OR just last week, clean energy manufacturing should be an important part of future production.
But, as my friend and wise economic thinker Christy Romer asked in a recent NYT critique of the pro-manufacturing policy position: where's the market failure? I was also reminded of this critical question in Zach Goldfarb's interesting piece in the WaPo yesterday on how subsidies to an American manufacturer (Boeing) created a comparative disadvantage for another firm (Delta).
Such critiques demand a response.
First, broadly speaking, you've got to know your history here (as Christy does, and her position is actually closer to the Brookings folks' view of targeted support). There exist market barriers, unique to manufacturing, that no individual private firm can overcome by themselves. There is no private firm that can coordinate a national smart grid, make or recoup the investment needed to move advanced battery technology from the university labs to the factory floor, penetrate export markets, and fight back against mercantilists trying to sew up market share here in clean energy manufacturing.
History also reveals -- as documented in must-read detail in this book on the history of government's role in innovation -- there is no transformative investment that reshaped our economy, from railroads to the Internet, wherein the federal government did not partner with the private sector to overcome these barriers. Not here, not in any other advanced economies, not even in emerging economies. To ignore this reality in the interest of "not picking winners" or "government doesn't create jobs" or whatever atavistic ideology you want to plug in, is to concede global competition to those unburdened by such dangerously wrongheaded thinking.
But what about Delta? Now, that's a tough one. Why does a private manufacturer like Boeing need the government (in this case, the Export-Import (XM) bank) to backstop its borrowing? If private credit markets won't do so, isn't that a market signal that something's wrong here and that if anything, the taxpayer should be spared?
Again, there are market failures and risks in play here that private investors cannot adequately offset. For one, Europe has its own consortium supporting aircraft manufacturing, Airbus, and those who oppose XM financing here have to explain why it's OK to unilaterally disarm. Second, and unique to this industry, there's just too much investment risk when you take a $20 billion order from Indonesia, e.g. (as in the WaPo piece); there's currency risk, stability risk, and for private lenders to take on such uncertainty would require very high rates of interest (h/t TM on these points).
Still, and this requires more research that I'll get to, I came away from the WaPo piece agreeing more with Christy et al in this case. Given the risks and competitive factors just noted, we should subsidize our exporters when they need it. But Delta has a case here. These subsidies have grown too large -- they are now more a function of the skill of your lobbyists than the need to offset the market failures.
So what should we be doing in this space? That comes right out of the market barriers noted above:
-- We should push back against the mercantilists who manage currency to tilt the playing field in uncompetitive ways -- and it's not just currency; non-tariff barriers abound.
-- We should support R&D, particularly in clean energy, with great attention the "death valley" between discovery in the labs and production in the factories.
-- We should ensure that workers have the technological skills that contemporary production demands.
-- We should pay a lot more attention to supply chains, as that's where most of the jobs are (Sue Helper, an author of the Brookings study, is a big promoter of this insight); that often means transitional support for, e.g., a machine shop that was making gear boxes for a Chevy to making gear boxes for a wind turbine.
-- We should carefully examine the union/management/government partnerships that Germany successfully implements in the interest of a stronger manufacturing presence, a point the Brookings folks also stress.
Again, I need to crunch more numbers on this, but my intuition is that we could do all this and more for less than we're spending now on credits, tax breaks, and subsidies that we're not adequately evaluating through the lens of market failure, innovation, and potential growth sectors.
We've already got a manufacturing policy. Now let's make it a smarter one.
This post originally appeared at Jared Bernstein's On The Economy blog.
Robert Reich: Manufacturing Illusions
Carl Pope: The Clean Energy Election
Susannah Meyer: The Controversy Over Apple's Factories
U.S. Stocks Advance Amid Signs of Growth in Global Manufacturing ...
Manufacturing Growth in U.S. Defies China Slowdown: Economy ...
Trading Year Starts Off With a Rally - NYTimes.com
Japanese Futures Gain on Manufacturing Growth in U.S., Europe ...
"Made in the World" labels
http://www.manufacturingnews.com/news/11/0930/madeintheworld.html
European Technocrats May Soon Deprive Americans Of Knowing Where Everything They Buy Is Made
"The World Trade Organization, the OECD, the International Chamber of Commerce and the European Commission are moving aggressively to eliminate "Country of Origin" labeling, claiming that it does not reflect the current structure of global trade. The Europe-based organizations instead want to adopt a "Made in the World" logo for all products on the grounds that global supply chains have rendered country of origin labeling inaccurate and obsolete.
The intent of the proposal is to reduce public pressure on politicians for protectionist trade policies..."
More at:
http://www.wto.org/english/res_e/statis_e/miwi_e/miwi_e.htm
WTO | Made in the World
I do note with great interest that the part of the 99% who had theirs preserved it without a whit of concern for anyone else --
Human Nature is Human Nature and Progressive altruistic intention is quite dependent on whose axe is being ground
Simply put wealth in the final analysis is measured by production -- Not paper, not gold, not government. The adding of value to a material is the root of success. Without that process in place their is no value to be spent on other endeavors.
Without production ALL the gold in Ft Knox would soon be gone -- It is the process of adding value that REALLY defines the wealth of a Nation.
This is why overextending entitlement without getting anything tangible in return is a doomed system. These programs need to be redesigned to get people to do something other tan hold out a hand --- Every piece of public largesse given to an able body needs to have a cost to that able body in some form of labor that either produces added value or lessens the cost of operation elsewhere.
New San Francisco-Oakland Bay Bridge made in China | The Daily Caller
"SHANGHAI — Talk about outsourcing.
At a sprawling manufacturing complex here, hundreds of Chinese laborers are now completing work on the San Francisco-Oakland Bay Bridge.
Next month, the last four of more than two dozen giant steel modules — each with a roadbed segment about half the size of a football field — will be loaded onto a huge ship and transported 6,500 miles to Oakland. There, they will be assembled to fit into the eastern span of the new Bay Bridge.
The project is part of China’s continual move up the global economic value chain — from cheap toys to Apple iPads to commercial jetliners — as it aims to become the world’s civil engineer."
People like you will make sure that it is harder to start a company, that it's chance of failure is increased, that the site the company wants to open up in won't be given the proper permits thus killing it before it even starts and most importantly that as a requirement for opening the company operates at a loss using unions to suck the life blood out of the company much as the unions are sucking the life blood out of the US tax payers now via exponential rises in pension costs.
http://www.huffingtonpost.com/2010/11/28/health-care-tax-break-deficit_n_788852.html
Job-Based Health Care Threatened
"WASHINGTON — Job-based health care benefits could wind up on the chopping block if President Barack Obama and congressional Republicans get serious about cutting the deficit.
Budget proposals from leaders in both parties have urged shrinking or eliminating tax breaks that help make employer health insurance the leading source of coverage in the nation and a middle-class mainstay.
The idea isn't to just raise revenue, economists say, but finally to turn Americans into frugal health care consumers by having them face the full costs of their medical decisions.
[snip]
Repealing the tax break would raise several hundred billion dollars a year, depending on how it's done. Many economists believe employers would boost pay if they didn't provide health care..."
Anyone who thinks employers would boost pay to compensate is delusional.
I mean are folks out of their minds? Close your eyes and imagine millions of new manufacturing jobs in the U.S. --- insane ain't it, but that's what we would need. Ya, really tough to be that stupid.
I've worked manufacturing on too many occassions. I feel without credentials, regardless. Candor, chk. labor stats. : puttings stuff togethor takes fewer folks each year. Imagination that builds bridges parks forest lakes -- maybe be able to eat 1 fish. Come on let us make this a wonderland.
1. What is the major difference between private and public manufacturing??
2. Which is more important , to be treated fairly, or to be paid fairly?
3. Does marketing research play a major role in implimenting a manufacturing business??
4. During start-up, what is the primary factor affecting attrition?
5. Just how important is a " business plan "??
6. In a manufacturing enviornment, what is the difference between leadership and management??
7. From DAY # 1, which department is more important, TRAINING or QUALITY ASSURANCE??
8. If an employee is terminated, should Human Resources or the Department Head inform them??
9. Should we teach our children the importance of competiivness in the business world??
10.What one thing would cause a nation's government to nationalize manufaturing?
1 - Probably allocation which is in effect the root of efficiency
2 - These are entwined to tightly to differentiate
3 - It surely does if the start up is to be successful
4 - There is rarely attrition in a start up unless it is a planned reallocation
5 - Should be three -- Short - mid - long - and they are very important - See 3 above
6 - You can not manage well without leading -- You can however lead without managing -- That is why it is important to nurture strong production people who will lead others by example where the material meets the machine.
7 - Day 1 Training --- Without proper job training QA is a nightmare
8 - The Department Head should have that responsibility -- HS should be involved at exit to explain the term package
9 - YES !!!!!
10 Shortsightedness
Lets see -- Johnny I am taking a quarter of your pay --- BUT -- If you do as I say I will give a nickle back
Tax Break is an oxymoron
More people have attained the "American Dream" in the past decade than ever before -- Unfortunately it is and was a House of Cards in this time period -- It was attained by use of debt in place of equity and has therefore proved very fragile. With that said
The American Dream has always been a dream for the majority -- It always will be -- Economics regardless of the form it takes will always be a zero sum game with losers and winners. Even in the Progressive land of dreams.
The advantage of capitalism is that it MAY reward effort and raise some economically --- Socialism on the other hand penalizes effort to one degree or another and LOWERS the successful.
Unregulated Capitalism will eventually cannibalize society --- Unfetterred Socialism will simply starve everyone eventually -- The key is strive for a balance and the point of balance is not only illusive it is also fluid.
The Chinese have an interesting experiment going -- So far it looks like they have discovered a method of balancing the needs --- Last Century America was able to do this.
I note that in BOTH cases that the balancing
How is that working out in Greece - Spain - Italy - Portugal -
Germany has increased its work week in practice (back to just under 40 hours average) It should be noted that the average is a weekly average over 52 weeks
France -- Most Companies simply increased hourly production quotas in response to the 35 hour week -- They DID NOT hire more people -- and the law has been significantly relaxed with plenty of exceptions allowed
England -- 40 hours
So it would seem that the Nations supporting the EU are those who work
The answer to unemployment is to increase markets so that people can find a job --
I'll give you another reason.
Helping manufacturing does more in a local community to help Main Street than any other public policy Washington can push!
Look - for to long Washington has pushed policies that support Wall Street over Main Street.
Think mid - small town America how important are those manufactures to their economy?
A manufacturer in a small - mid size town in middle America does more good than any Washington handout could ever do!
Congress needs a new litmus test!
Is it good for Main Street?
Anything good for Main Street is good for the middle class and anything good for the middle class is good for America!
Think about BANKS TO BIG TO FAIL has this been good for Main Street? Has this been good for America?
I rest my case!
Screw them.
We haven't been able to create an energy policy, environmental policy, a reasonable anti-terrorism strategy, a transportation, agricultural policy, health care policy, banking, housing or drug-war policy. The few that we have created such as a food safety policy are quickly deteriorating.
Like our roads and bridges and our electrical grid, the basic structure of our government is broken. To discuss building any policy without fixing the fundamental problems seems meaningless.
Many of the comments relate to the jobs threat from China. There's lots of evidence to say that China is getting more and more expensive (20%+ wage inflation, up to 75% commercial rent inflation in top cities). There's a growing view that by 2015 there will be little cost advantage of moving production to China ( analysis: http://bit.ly/xl1Hr6 )
So, play the long game, set the right environment and the advantage will return.
Forcing industry to be more efficient benefits everyone
Look at all the labor in the madated safety equipment in your car.