Labor Day, earlier this week, could have been called Un-Labor Day or We-Need-More-Labor Day, with the unemployment rate reaching a 26-year high of 9.7%, and, according to the Washington Post, reaching the highest level ever measured if you include people who have given up looking for work -- 16.8%. This is a remarkable number. Well over one in 10 Americans is out of work.
Some of this results from the recession, and will be corrected as we move out of it. But some of the problem is a structural readjustment, including the decline in U. S. manufacturing where jobs have dropped from a high of over 19 million in 1979 to less than 12 million earlier this year. This will not be turned around by the end of the recession. It seems like an inexorable march toward the end of U. S. manufacturing. All factories will be located in South China, and then we won't even have to have a job for someone in the U. S. to count manufacturing jobs.
To remedy this, President Obama earlier this week announced the appointment of Ron Bloom to coordinate the revival of the U. S. manufacturing sector. This is a good idea, and Mr. Bloom brings great credentials to the position, having worked in investment banking as well as in labor and in a senior government position, overseeing the auto industry bail-out.
But what is it that Mr. Bloom should do? His appointment is only the first step. As someone who has worked in this area for over 20 years, and with industries ranging from steel to semiconductors to cellular mobile telephones to plastic bags, let me offer a few prescriptions to get this project off the ground.
First, create a Cabinet level Secretary of Manufacturing -- Mr. Bloom could well be the first occupant of the seat. The turn around of manufacturing is a long term issue, and a policy czar, by its nature, is generally limited to a Presidential term, and lacks the bureaucratic power to make long term change. A second structural change should be to have all major government policies reviewed in terms of their effect on manufacturing just as environmental impact statements are done for new construction. For example, if we cut off funding for a major defense project, as was recently done for the Presidential helicopter, what is the effect on the manufacturing sector? Is it a reasonable thing to do if we want to keep a strong aerospace manufacturing base?
Second, Mr. Bloom should create an unfair trade strike force that would coordinate across the entire Cabinet, determining where unfair trade practices are occurring and what trade cases or other actions should be taken to remedy them. This was done by President Reagan 20 years ago and resulted in self-initiated cases on major trade problems with Japan in the semiconductor sector. The result of that is that semiconductors is one area where we do retain significant manufacturing prowess in this country.
Thirdly, create programs that reward companies for keeping manufacturing here. These could be grants or tax incentives. Right now the financial rewards seem to favor major U. S. companies moving abroad. Selective R & D and start-up grants have been very effective for priming the pump to build industry, as has been done to a limited extent by the Defense Advanced Research Projects Agency (DARPA), which contributed significantly to our aerospace industry and to the start-up of the internet. To like effect, we need to do a major study on the cost of manufacturing a number of key products -- say, semiconductors, autos, paper, and steel -- in each of four or five major venues, such as China, Taiwan, Korea, Germany, and of course the U. S. We need to pinpoint the causes of cost differences in order to remedy them. Finally, in the tax area, we need to fix the fact that when foreign companies export their products they get a major tax rebate of their VAT taxes, but the WTO Agreements forbid a similar rebate of the income taxes we have in this country. This is an outrageous unfairness agreed to in a simpler time.
Fourthly, Mr. Bloom and his team should thoroughly study the wage issue. It is true that wages are much lower in foreign venues, but it is also true that for almost everything the U. S. manufactures or could manufacture labor cost is already well less than 10% of the overall cost. Both steel and semiconductors fall within this category. But we still need to understand the effect of low wages and determine whether we need to do more about it, either in international trade agreements, or perhaps through some kind of employment cost equalization program.
Fifth, Mr. Bloom should look at the structural economic disadvantages U. S. manufacturers face. Two are already under review more generally, the excessive cost of health care for U. S. companies, and the differential environmental costs between the United States and most other countries, where environmental rules are often honored only in the breach.
Sixth, the ultimate goal must be to bring manufacturing back to a critical mass in this country, so the manufacturing supply chain can fully function here. In speaking with manufacturing managers across this country, it is clear that one major problem, growing exponentially every day, is that all the input suppliers for manufacturers are moving abroad, and all the customers for manufacturers, other than for retail end products, are moving abroad. So even putting aside cost and tax differentials there is no reason for manufacturers to stay here. This manufacturing chain deterioration needs to be turned around, and quickly.
And finally, Mr. Bloom needs to have the courage to apply time frames and metrics to his actions. Within his tenure, he should set specific goals for the return of manufacturing jobs for key industries. If he is willing to set those goals, we will have a czar with a meaningful manifesto.