01/04/2009 05:12 am ET | Updated May 25, 2011

Obama's Industrial Challenge

French President Nicolas Sarkozy recently made a blunt pronouncement that the incoming Obama administration would be well advised to take to heart. "Once the factories go," he said, "everything goes."

With America's industrial sector going bust at an alarming rate, Sarkozy's prophecy could prove the biggest impediment to the President elect's hope of an economic recovery.

Congress' preoccupation of late with the fate of the Big Three automakers has masked a far more pervasive and potentially dire decline in the nation's industrial sector, whose workers' earnings are the underpinnings of a thriving middle class.

U.S. manufacturing facilities are being downsized or shuttered at an alarming rate.
The United Steelworkers, which represents workers in a broad array of industries including steel, oil, rubber and tire, aluminum, auto parts, and paper and forest products reports chilling evidence of the nation's industrial decline.

The global steel industry is rapidly reducing capacity, with many U.S. mills running below 50 percent. The nation's largest and most modern integrated mill in northwest Indiana is being idled indefinitely on January 1, with several more scheduled for idling. And some steel companies have no orders whatsoever on their books for 2009.

One tire maker reports that U.S. tire miles traveled this year have been reduced by two billion miles, with even more reductions possible in 2009. Almost every aluminum smelter in the country is down, and scores paper mills that produce boxes have been shut down, with more closures sure to come.

Meanwhile, the best of industrial intentions go begging. US Steel, which has committed to invest $1 billion in environmentally-friendly renovations to its coke plant outside Pittsburgh is having great difficulty accessing capital from the frozen credit markets. All in all, the onset of the Obama administration promises to be the winter of America's industrial discontent.

Depressing Wages

The challenges the nation's consumer-driven economy faces have been vivified by the recent crises in credit markets and the auto industry, but the core problems smoldering within the economy predated the latest firestorms. Primary among them is Wall Street's hoarding of wealth from economic growth, much of it empowered by the sweeping expansion in global trade that Wall Street free market zealots have advocated over the past 30 years, wiping out an average of 12,000 manufacturing jobs per month since 1980 -- five million in all. Since May, the pace of manufacturing job losses has accelerated to nearly 60,000 a month.

Globalization's cheerleaders claim unfettered free trade has created astronomical income growth. The Peter G. Peterson Institute for International Economics estimates that trade and investment liberalization over the past decades has added between $500 billion and $1 trillion in annual income -- "between $1,650 and $3,300 a year for every American," according to professors Kenneth F. Scheve and Matthew J. Slaughter.

The majority of working Americans haven't seen the improvement in their bottom lines that this simplistic arithmetic suggests -- far from it.

Much of the wealth resulting from the cutthroat capitalism practiced by market fundamentalists has done little more than transform the financiers of Wall Street into a rentier class of hyper wealth -- a far cry from the shared prosperity encouraged by the progressive policies pursued after World War II. For the great majority of wage earners -- the 70 percent of working Americans who don't have college degrees -- the consequences of this financiers' bonanza have been dire.

Recent research developed by Ralph Whitehead at the University of Massachusetts reveals that since 1973, the median income of male wage earners in this category, adjusted for inflation, has actually declined by $2 an hour. (During this period women earners experienced modest increases.) At best these workers earnings have flat lined over the past 35 years.

As for the vaunted promise of income growth through the "knowledge economy," Whitehead points out that "in 1973, the percentage of earners who hadn't finished high school was 32 percent. By 2000, this percentage was down to only 13 percent. So, the median hourly wage had gone down, even as the level of education had gone up."

Simply put, a majority of American workers are learning more and earning less, victims of a wage depression well underway before the current financial crises hit the proverbial fan.

Changing Course

At the heart of the nation's industrial decline are free trade zealots who content themselves with condemning their critics as "protectionists," rather than considering the need for policies that would address the depths of the problem.

The real dynamics at work, former Reagan administration Assistant Secretary of Labor Paul Craig Roberts points out, are at odds with the "protectionist" smear. "Credit has grown far more than production," Roberts asserts. "Indeed, U.S. production has been moved offshore. Jobs that used to support the growth of American incomes and the tax bases of cities and states have moved, along with U.S. GDP, to China and elsewhere. The work is gone. All that are left are credit card and mortgage debts."
To overcome these problems, candidate Obama proposed offering tax credits to U.S. employers for each new job they create. Although this is a worthwhile step toward the sort of employment policy absent under Bush, the incoming administration would be well informed by the words of the late, Matt Reesse, an old-school political consultant who would counsel, "When you want to pick cherries, go where the cherries is!"

The more fruitful course for the incoming administration may prove to be in creating the certainty that manufacturing firms need to risk borrowing and that banks need to overcome their fear of lending, especially for the large-scale investments necessary for capitalizing value-added production.

Such certainty would be considerably bolstered if Congress passes legislation creating decade-long terms for both the production and investment tax credits, rather than the short term approaches of the past which induced the fear among producers that Congress would abandon or change the policies before investment cycles had run their course.

Unless an Obama administration is willing to consider much bolder steps than those currently being considered, such as literally forging an industrial policy that addresses new investment and trade strategies, there's a very real danger the president elect's hope of renewing American prosperity may prove little more than audacious