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Leo Hindery, Jr.

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It's (Still) All About (Manufacturing) Jobs

Posted: 10/25/11 12:17 PM ET

It's hard to believe that nearly four years into the worst Recession since the Second World War, while mired in a jobless recovery of unprecedented length and magnitude, we continue to hear that manufacturing jobs don't matter.

Take, for example, the recent uninformed (and insensitive) remark of Steven Rattner, the President's former co-auto advisor, that "restoring lost manufacturing jobs" is nothing more than "pervasive, politically attractive happy talk" (see "Let's Admit It: Globalization Has Losers" by Steven Rattner, New York Times, 10-15-11). He went on to say -- ironically given his prior administration position -- that America's "greatest strength... lies in service industries with high intellectual content, like education, entertainment, digital media, and financial services."

The reality is that anyone rightly concerned about the current almost unprecedented real unemployment rate of more than 18 percent must first focus on resuscitating our depleted manufacturing sector.

It's a recipe for economic disaster for an economy as large, complex and geographically far-flung as ours to have less than 20-25 percent of its workers in manufacturing and for the sector to not be contributing a similar percentage of GDP.

Yet as it is, only around 9 percent of Americans now work in manufacturing, and as a percent of GDP, the sector now provides just 11 percent of our total.

In 1955, the largest U.S. employer was the auto manufacturer General Motors, which had a unionized workforce with good pay and quality retirement and health benefits. Today, the top U.S. employer is Wal-Mart, which pays its employees a pittance and just last week announced a major cutback in its employee health benefits. How can anyone favor an economic system that assumes American workers will either have the education and ability to work at Goldman Sachs or Google, or be left to work forever with entry-level wages at Wal-Mart or McDonald's -- with no robust manufacturing sector in the middle?

This paradigm -- this over-favoring of services -- makes no economic sense given the much higher "ripple effects" that manufacturing jobs generate versus all but a few service jobs, and given that the vitality of small and medium size businesses of all sorts directly plays off of the vitality of the manufacturing sector.

Nineteen members of the G-20 have very precise national manufacturing and industrial policies, by whatever name they are called. America alone does not. And among these 19 countries, Germany, Japan and China now most stand out in dramatic contrast with the U.S. because they are the countries that every day are excelling in global trade while we are losing out.

By not having our own manufacturing and industrial policy and by persisting with corporate tax policies that are in conflict with the objective of having a robust domestic manufacturing sector, between 1998 and 2010 we lost approximately six million manufacturing jobs overseas, with more than two million of these occurring just from 2007-2009. In only the years between 2002 and 2006, China added 11 million manufacturing jobs to its rolls, which are as many manufacturing jobs as we now have left in total in America.

Every bit as critical as the economic imperative for having our own manufacturing and industrial policy, however, is the ethical imperative.

Exceeded only by the responsibility to defend itself, a nation must create an economic environment that gives its workers employment opportunities which provide fair compensation and are compatible with their skills and capabilities. Yet for three decades, we've embraced policies that have eliminated millions of manufacturing jobs and shoved these workers into low-skill, low-reward service jobs, all the while blaming manufacturing workers for being overpaid.

The reality is not that we overpay our manufacturing workers, it is that 90 percent of the cost differential between an average good manufactured in China and its counterpart in the U.S. is due to Chinese subsidies of various sorts and not to wages. China's competitive advantage has little to do with labor cost differential and almost everything to do with subsidies and currency manipulation.

It's irresponsible to tolerate a national employment picture that, according to a recent Pew Research study, has 40 percent of Americans reporting that they have more qualifications than their job requires. It's also irresponsible to tolerate a national employment picture that has room for only 9 percent of workers to be employed in manufacturing.

America's economy, social cohesion and dignity, not to mention its optimism -- in short, America's traditional strength -- all rest on a thriving middle class, which in turn depends on a thriving manufacturing sector.

This said, it often seems as if we purposefully are trying to shoot ourselves in the foot when it comes to turning our economy around and creating the more than 20 million jobs needed to again be back at full employment in real terms

Two weeks ago in a public forum, Gene Sperling, the director of the President's National Economic Council, said that enacting the Obama jobs act is a "fundamental economic necessity." At the same event, Laura Tyson, former chairwoman of President Clinton's Council of Economic Advisers, said that, "One of the biggest concerns is the mismatch of skills requirements and that the U.S. is not providing enough Americans to fulfill the needed skills."

However, with more than 29 million workers unemployed in real terms -- and a real unemployment rate of 18.3 percent -- the reality of the President's well-intentioned Jobs Act is that it is too small by several factors. It's a $447 billion smorgasbord comprised of payroll tax cuts (54 percent), unemployment benefits (11 percent), new-hiring tax credits (4 percent) and infrastructure rebuilding & modernization initiatives (31 percent). Of this combined $200 billion in new spending and $240 billion in tax cuts, it's really only the infrastructure proposals which will actually, as the President himself characterized, "put workers back on the job" -- and then at most only thousands of workers, and certainly not millions and certainly not soon.

If the Republicans in Congress are going to say "no" to any Jobs Act, then make them say "no" to a properly sized one. That would be an Act that was only about jobs -- and nothing extraneous -- and designed to create, standing alone, at least 20 million new jobs over the next 5 to 7 years.

Thoughtless assertions that everything will be better jobs-wise when we have reformed education and training in this country and when we have materially reduced wages are simply canards, and cruel ones at that. Sure we must again have the best education and training programs in the world, but the majority of the more than 29 million real unemployed workers are not sitting in long-term unemployment because they lack skills and education. Rather, it's the system that's broken.

I can't close without commenting on the recently passed bilateral "free" trade agreements (FTAs) with South Korea, Colombia and Panama. Notwithstanding the sad state of real unemployment in America today, we now have, with these agreements, taken specific actions to lose even more jobs overseas while mostly just enriching the big American banks.

Back on June 20, Leo Gerard, President of the Steelworkers Union, compellingly wrote:

These three FTAs will undermine our economic recovery, further decimate American manufacturing and jobs and deepen the economic insecurity and devastation faced by workers across the country.

Not one of the agreements just enacted, especially the Korea FTA, follows the maxim that the only two things which matter are (i) the net effect on American workers across the board and (ii) the resulting net (not gross) exports from the U.S.

President Obama said that the South Korea agreement alone will help create 70,000 jobs in the United States. The AFL-CIO, with a much better sense of history, decried the new deals as "the wrong medicine at the wrong time" -- it believes that the agreement with South Korea alone will cost nearly 160,000 American jobs.

Having exhaustively looked at the broken promises, and the deeply flawed analysis, that underpinned each of the 11 multilateral and bilateral FTAs which the U.S. has entered into since 1985 -- which involve 17 countries and range from quite small (Bahrain in 2004) to extremely material (NAFTA in 1994 and CAFTA in 2004) -- I have no doubt that we will soon look back to see that the AFL-CIO was right (again) and that all of the job-creation promises made around the three FTAs will lie unfulfilled.

But of course it will then be too late to recover those jobs, just as it is almost too late today for our nation to recover from the decades-long absence of our own national manufacturing policy and the associated diminishment of our manufacturing sector.

Leo Hindery Jr. is chair of the US Economy/Smart Globalization Initiative at the New America Foundation, co-chair (with Leo Gerard) of The Task Force on Jobs Creation, founder of Jobs First 2012, and a member of the Council on Foreign Relations. He is the former CEO of AT&T Broadband and its predecessors, Tele-Communications, Inc. and Liberty Media, and is currently an investor in media companies.

 

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