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Leo Hindery, Jr. Headshot

Why We Need a Manufacturing Renaissance - Economically and Ethically

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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.

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