Anyone deeply concerned about the current almost unprecedented real unemployment rate of more than 18% and about the ongoing jobless recovery must first focus on resuscitating our depleted manufacturing sector. Especially given the current political mood in Washington concerning new federal expenditures, this focus will necessarily require the Obama administration to seriously rethink its approach to trade, particularly toward China.
There are many economic imperatives behind this conclusion. At the same time, the ethical imperative for (again) having a robust manufacturing sector is central to our national well-being. Yet just as the economic imperatives are often overlooked, so is the ethical imperative very often dismissed out of insensitivity or otherwise put aside in deference to our culture of greed.
Structurally speaking, no economy as large, complex and geographically far-flung as ours can prosper over the long term with less than 20-25% of its workers being in manufacturing and without the sector contributing a similar percentage of GDP. Yet as it is, only around 9% of Americans now work in manufacturing, and as a percent of our GDP, the sector provides just 11% of the total.
The proof of this conclusion is found in history, starting with the forty years leading up to the Second World War, when the percent of U.S. employment in manufacturing was a fairly consistent 30% or so, and followed by the three decades thereafter, when, despite the introduction of new service sector jobs as post-War manufacturing incomes rose, such percent still consistently hovered at around 25%. These seventy years of robust manufacturing were -- it's no coincidence -- generally robust years for the middle class as well, hallmarked by wide-scale new home construction and new car ownership, quality public school education for the nation's youth, and fair salaries with relatively little income inequality.
Beginning in the early 1980s, however, five Presidents in a row have actively in some cases or passively in others presided over a dramatic decline in the number of workers in our manufacturing sector. Today only nine out of every hundred American workers earn their living in manufacturing. So it is -- again no coincidence -- that in the last twenty years, wages for 90% of our workers have been stagnant, we have more income inequality than ever before, and we buy from overseas $260 billion more manufactured goods than we export.
America's trade imbalance alone is now so great that, as the economist Peter Morici of the University of Maryland has calculated, the U.S. economy, measured over just the last ten years, is a staggering $1.5 trillion smaller than it would have been otherwise. As Morici has written, so long as imports to the U.S. of manufactured goods substantially exceed our exports of such products, Americans "must consume much more than the incomes they earn producing goods and services, otherwise the demand for what they make is inadequate to clear the shelves, inventories pile up, layoffs result, and the economy goes into recession."
Nineteen members of the G-20 have very precise national manufacturing & industrial policies -- call them what you will -- which in each case has the support of all branches of government and the big business community. America alone does not. And among these nineteen countries, Germany, Japan and China most stand out for comparison with the U.S. because they are the countries that every day are excelling in global trade while we are losing out.
Germany, with 22% of its employees working in manufacturing and 25% of its GDP coming from the sector, is renowned for understanding the unique role that government must play in a globalized market economy; for encouraging strong partnerships between labor unions and business; and for balancing its foreign trade by essentially demanding that each shipload of imports scheduled to come into Germany have a corresponding shipload of German exports scheduled to leave the country. The result of all of this, as David Leonhardt of the New York Times has written (6-07-11), is that the German economy consistently grew faster than ours since the middle of the last decade and it recovered much more quickly from the financial crisis of 2007.
In contrast with Germany's rules-based industrial policy, much has been written about how China has gained unfair trade advantages through its lack of meaningful environmental and labor standards, currency manipulation and other subsidies, highly restrictive limitations on foreign goods purchases, and demands that countries seeking to do business in China first make massive transfers to it of their intellectual property. These actions and practices of China under its industrial policy -- albeit very often illegal -- have, nonetheless, been highly effective: China just a year ago passed Japan to become the world's second-largest economy and passed Germany to become the world's biggest exporter, and as early as 2030, it will likely pass the U.S. to become the world's biggest economy.
By not having our own manufacturing & 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 from 2007-2009. In just 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.
Even the Obama administration, despite countless promises to the contrary during the '08 campaign, quickly fell into the "a job is a job" fallacy while at the same time it's failed to hold China responsible for its illegal trade practices. Just six months after the Inauguration, on June 19, 2009, Larry Summers, the administration's Director of the National Economic Council, said that to make up for the millions of offshored manufacturing jobs, all we need to do as a nation is focus on exporting "computer software, movies, university degrees and management consulting and legal services." This is an absurd conclusion -- and unachievable by any measure -- yet it has seemingly informed the Obama administration's jobs policy since day one. And as for its failure to move against China, the Obama administration, despite professing to recognize the need to address unbalanced trade and rebuild U.S. exports, has in practice done little more than hope quixotically that a combination of green energy efforts, ever more services and new free trade agreements will magically revitalize American exports.
And then the administration wonders why workers and voters in towns like Flint, Dayton, Wichita and Buffalo are having conniption fits.
In sum, America, with just 9% or so of its employees working in manufacturing, suffers economically in multiple ways when it competes against large-scale trading partners which, percent-wise, have multiples more workers in the sector. We suffer in the magnitude of our trade deficit, the progressiveness of our average wage, the extent of income inequality, the amount of our federal indebtedness, and the pressures put on our nation's state and municipal budgets.
But every bit as critical as the economic imperatives for having a manufacturing & industrial policy of our own is the ethical imperative.
Exceeded only by the responsibility to defend itself, a nation must seek to create an economic environment that give its workers employment opportunities that provide fair compensation, safe working conditions and an absence of discrimination and are compatible with their skills and capabilities. Taking these objectives in order, for at least the last twenty years the average wage of 90% of America's workers has been stagnant, which means we are clearly failing this obligation. As for safe working conditions, we should be pleased where we are generally, excepting only in coal mining. And as for non-discrimination in hiring, going all the way back to the Kennedy-Johnson era we can generally be proud of what we've accomplished as a nation, excepting only fair employment of the LGBT community.
Where I would contend we are truly falling down in major way on a nation-wide level is in not better reacting to the other form of discrimination plaguing the American workforce, which is the decades-long elimination of millions of manufacturing jobs that would better meet the skills and capabilities of workers who have instead been shoved into low-skill, low-reward service jobs.
Last year in a moving and sobering documentary produced by HBO called The Last Truck, we watched the shutting down of a General Motors truck plant in Dayton, Ohio. When the last light in the plant was shut off, which is literally how the film ended, thousands of highly-skilled manufacturing jobs were eliminated -- jobs which had provided fair wages and benefits, matched well individual skills with job requirements, and instilled a sense of camaraderie throughout the community.
Let me elaborate.
Individual dignity and national interest align on the desire to reduce economic inequality and in matching education and skill sets to jobs. And communities and a nation are in trouble when people feel they are being left behind. But right now in America, unless you are in the top 10% of the national economy, this feeling is becoming all too common.
There are many proven predictors of performance in all occupations. For example, we know that the aptitude required to be successful as a professional or technical worker is much higher on average than the aptitude of the average unskilled worker. We also know that the aptitude required to be a successful skilled manufacturing worker or craftsman is much higher on average than the aptitude of the average semi-skilled or standard service worker.
While one needs to be extremely sensitive and careful when trying to correlate jobs with aptitude, three conclusions can be drawn:
• First, it is irresponsible to tolerate a national employment picture that, according to a recent Pew Research study, has 40% of Americans reporting that they have more qualifications than their job requires.
• Second, it is irresponsible to tolerate a national employment picture that has room for only 9% of workers to be employed in skilled manufacturing, since by inference this means that millions of American workers have been and will continue to be shoved down into service jobs far below their aptitudes and capabilities, with all the attendant frustrations and unwarranted lower standards of living which this carries with it.
• Third, it is irresponsible to have as a stated national goal seeing every high school graduate in turn graduate from college, which is both unachievable in fact and cruel in the false expectations it engenders in young people whose long-term employment would be better found as skilled workers and craftsmen. A college degree is not the only path to success, especially a degree from a college with low admission standards and given the reality that among high school students who graduate in the bottom 40% of their classes, two-thirds will still not have earned diplomas eight and a half years later (Office of Texas Workforce Commission, 5-26-11).
America's economy, social cohesion and dignity, and Americans' optimism -- in short, America's traditional strength -- all rest on a thriving middle class which in turn rests on a thriving manufacturing sector. We have benignly and actively neglected this sector for far too long, and regardless of who wins the 2012 election, we need to focus on these manufacturing, trade and education-related issues if we want to have a healthy, vibrant, ethically sound nation moving forward. Today millions of American workers are suffering otherwise. Tomorrow, the very idea of America will suffer.
Leo Hindery, Jr. is Chairman of the US Economy/Smart Globalization Initiative at the New America Foundation and a member of the Council on Foreign Relations. Currently an investor in media companies, he is the former CEO of Tele-Communications, Inc. (TCI), Liberty Media and their successor AT&T Broadband. He also serves on the Board of the Huffington Post Investigative Fund.
Follow Leo Hindery, Jr. on Twitter: www.twitter.com/leohindery
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Ignoring the ANTI MANUFACTURING BIAS of American economists, the GERMANS have kept their workers going strong. Germany exports more each year than America, despite having only 27 percent as many people. German machinery is more than competitive on the world market, even with Germany’s high wages, six-week vacations, strong unions, and workers (by law) getting half the seats on most corporate boards.
For the U.S. to regain its ability to compete economically with its technology-based planning, it must generate and then lead the Automated Innovation Revolution. It is well known that there is a difficult gap between the invention of an innovative process or product and the time it takes to make further development a for profit investment. The only way to fill this gap is government intervention. Example: automation innovation.
Germany exports more each year than America, despite having only 27 percent as many people. German machinery is more than competitive on the world market, even with Germany’s high wages, six-week vacations, strong unions, and workers getting half the seats on most corporate boards. A German law provides that no merchant ships are allowed to unload in a German port unless there is a corresponding load of German made products embarking to a foreign market place. Can you believe that millions of American reactionaries do not believe that we even need an INDUSTIAL POLICY? We now have employed in U. S. manufacturing only one-third of the manufacturing workers we had employed in 1940.
Buy something made in the USA with American workers in American factories and we stand a chance.
Only extremely high import tariffs of 500%+ (if our labor is five to twenty times as expensive as foreign labor) will make it economically feasible to manufacture any products in the USA. This has to apply to imported parts and assemblies also.
Additional import tariffs need to be also applied to overcome the lower environmental and lower labor manufacturing costs available in foreign countries. This will vary product to product, and I do not know how to quantify that differential cost.
Almost all products are made with steel, aluminum, plastics, lead, copper, lumber, paper, gasoline, diesel fuel, electricity, and other products that pollute or destroy the environment as they are produced.
I cannot think of any product that is manufactured using processes that do not pollute the environment. Can you think of any?
as long as we can innovate and bring new products to market we can prosper.
Lets remember that if a US company imports a product and sells (and markets it, and services it etc) here they create jobs here and pay Taxes on the income here.
Sure the manufacturing is part of this but not the only factor. And people who can buy a TV for $500 instead of $1,500 have more money to spend on other activities including eating out etc.
It is impractical to imaging we can tariff all products to compensate for the saving other countries enjoy in labor rates or regulation. China now is where Japan was 30 years ago and has their own problems with pollution, worker safety etc. the problems at the FoxConn Plant that make iPods there is an example.
And they have numerous other problems that will come to hurt them including a system that keeps women relegated to menial jobs in the economy..
The foreigners will then use our paper US dollars to buy title to more privately owned businesses, factories, casinos, hotels, farms, land, ports, breweries, refineries, forests, ports, breweries and other privately owned wealth and other assets located in the USA that were created by previous US generations, since these US dollars cannot be redeemed for Gold.
When the USA has no more privately owned wealth and assets (real estate and businesses) for foreigners in industrial countries to exchange for the foreigners freshly printed paper US Dollars and freshly printed paper US Treasury Bonds that we gave the foreigners to make consumer products for US citizens, those foreigners will not accept any more of our freshly printed US dollars and treasury bonds to pay for the consumer products that we continue to import and consume.
The US government will also not be able to sell any more freshly printed paper US Treasury Bonds to those foreigners (or any other freshly printed paper Securities) to get US dollars back from these foreign manufacturers in order to pay for our US government expenses (bureaucratic payrolls, military payrolls, government contracts, wars, infrastructure expansion, etc.) and/or our imported consumer products.
What if I start a wind powered electrical generator factory in the USA?
What if I import wind driven electrical generators from China and then hire a couple of US citizens (or maybe illegal aliens) to remove the Chinese nameplates and then attach a new nameplate with my factory name, address, serial number, with "Made in the USA" on the nameplate in my factory, and then that product will be "Made in the USA"?
What if I make sufficient political contributions to a sufficient number of congressmen and/or hire lobbyists to have a law passed to require that only "US Made Products" be installed on all of the federally funded "Green Energy" projects, then I will be able to sell these wind driven electrical generators at any price that I desire, and the US unemployment statistics will not be changed.
If the US government objects, then I will have the wind driven electrical generators delivered to my factory without nameplates and then they will be parts for final assembly in the USA by Americans when US citizens add only the nameplate to each of the Chinese wind driven electrical generators.
Germany has strong unions. Obviously the unions are ruining Germany. The difference is that a management/union partnership (more or less) has grown in Germany, while ours is an adversarial relationship. It is that adversarial relationship that is the root-cause of so many problems.
Meanwhile, unions or not, capital will go where it can make the most money. If lower labor rates in China will result in that, you can rest assured that the capital will go there.
I wonder why more people don't complain about the lack of manufacturing in Manhattan? There used to be a lot there. Not now; too expensive.
The fact that the same dynamic now applies to other former manufacturing towns across the country shouldn't surprise us.
The only thing missing is some ideas about how to create the environment to win back the jobs here in our country.
The ONLY Thing that will bring jobs back here are energy prices that are so high that the cost of shipment becomes prohibitive.
We have been busy for two generations (since WW II) raising the standard of living in developing countries on the backs of our workers to put it succinctly.
It had to be done, but the workers here suffered as a result, while the capitalists have made out like bandits. It's a tough adjustment.
I would like to know what sort of economic mix exists in New England, and whether that is sustainable? Used to be a lot of manufacturing there, that is now long gone. So what do people do for a living? Not the scientists and doctors, but working class? How is that working out? Same question applies to the UK.
If local economies like those can recover when the manufacturing leaves, how does it do it? Are there things we need to do to promote that transition? Those are the questions we need to answer.
First let us acknowledge that in the Asian, and upcoming 3rd world countries there isa pool of labor combined with machinery can put out the same goods as American workers, ata much lower cost for both labor, govt regulations and taxes.
Second, we have the people, the technology and the framework and most raw materiels tobe able to outproduce any ofthe other guys and we wouldn;t have to ship goods offshore.
So how tor make MFG WANT tobe located here.......simple any American company mfg HERE is assessed zero corp taxes on any goods made HERE (if they ship any goods in from one of their offshore plants, a stiff tarriff applies), ALL regulatory,govt agencies EPA, etc must be greatly diminished in power to interfere with these plants and the raw materiels that feed them, we must also protect them from the ability of any of the greenie people and outfits to sue them or block them from operating. also the mfg must carry liability insurance in approiate amounts, and make the mfg and the insuring company executives criminally liable for not self policing, in the event of violations.
Lastly pass legislation outlawing the unions from organizing inany ofthe mfg facilities, as they would quickly undo the market based wages we would need to compete. Wihout doubt we would cause much mfg to spring up here!
Or it could be the wine talking:)
The only way America can win is if it is more economical to produce things here than it is to produce the same article there.
1) Virtually every corporation in the US is authoritarian. A dictatorship. The CEO is dictator, his officers, wannabe dictators. A vaguely democratic facade is a 'Board of Directors' who represent the interests of the stockholders.
2) Corporate leaders have LEGAL RESPONSIBILITY to run their corporations to benefit their...shareholders.
This means that it is the LEGAL MANDATE for business leaders to squeeze as much from their workers as possible, while REWARDING THEM AS LITTLE AS POSSIBLE for the work that creates all the wealth for all of us.
WHO REPRESENTS THE REMAINING 95% OF THE EMPLOYEES OF EVERY SINGLE CORPORATION?
WHO has 'fiduciary responsibility' to look after THEIR interests?
The deck is stacked against the workers in every way imaginable.
Note who makes the rules.
Note who makes the benefit decisions(!)
Note who BENEFITS from those rules and those benefits.
It is not coincidence.
Without some sort of counterbalancing rules of the game to protect the average person, the greedy and powerful have free rein to oppress and suppress everyone else for their own reward.
And so they do.
What would you expect them to do???
For awhile unionization tempered that, somewhat.
Reaganism destroyed that counterbalance. The out-of-whack distribution of wealth is a direct consequence of relentless class warfare waged against the middle class.
Sad to say, Warren Buffett is right.
On the other hand, your second statement is also true.
Suggestion: Let's pool ideas and resources and see if we can come up with a solid plan