Economic Sustainability 8183666999

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The Future is Made in America

"Made in America"

We must preserve and consolidate the stability of our economy. The answer to our problems won't come from lack of financial discipline. We won't find it by returning to budgetary deficits or to high inflation rates. To achieve economic development, it is mandatory to have economic stability.
Then we must improve productivity and efficiency. It is true that we have made macroeconomic advances. Now we must work hard at the microeconomic. We have to strengthen productivity in the workers and businesses. We must achieve a rapid technological actualization; train the workers as well as the companies; achieve a competitive condition in the input factors used by the American enterprises; continue to streamline all of those aspects that affect the investment and the efficiency of workers and companies.
Last, but not least, is my social policy. This is what I place the most importance upon. We have to invest in people, break the vicious circle of poverty and incorporate millions of on unemployed into the modern sectors of the economy. This is my simple proposal: to achieve economic growth with a more favorable income distribution through education and training that will translate into an improved benefit for families. The most powerful point in my campaign is the impoverished family's well-being and equal LA City services to all the people.

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American manufacturing has been decreasing for two generations – It is time to reverse that trend.

Measured as an engine for employment or as a chunk of the economy, American manufacturing has been retreating for two generations. The economy has shifted steadily from generating wealth by making things to counting on finance, insurance, real estate, and other white-collar activities to fuel growth. In 1947, manufacturing accounted for more than 25 percent of the nation's gross domestic product, while finance, insurance, and real estate produced less than 11 percent. By 2009, manufacturing had shrunk to 11 percent of the economy, while those other activities' share had doubled to 21 percent.

Moreover, the profile of American manufacturing has been transformed. Labor-intensive, low-value-added production has all but disappeared. The textile, leather, and apparel industries, which in 1977 accounted for nearly 7 percent of all manufacturing activity, shrank to less than 2 percent by 2008.

Increasingly, U.S. manufacturers have focused on producing capital-intensive goods: computers, electronic products, chemicals, and, soon, energy technologies. "The nuclear business has come alive again," said Eric Garrard, president of Wise Machine, whose shop is making coils for a nuclear reactor. "[It] may be the saving grace for a lot of the manufacturing firms."

But the new American manufacturing sector employs far fewer workers. Only 11 million people now make things in the United States, the lowest number since World War II.

Before the recent recession, however, the value of U.S. manufacturing output had reached an all-time high. The United States still hosts the world's mightiest manufacturing economy, producing 21 percent of all goods made globally. Japan is a distant second, at 13 percent. China, at 12 percent, ranks third.

The reason that the United States has remained the world's manufacturing leader while in relative decline is, in a word, productivity. U.S. manufacturers are the most efficient in the world. AK Steel, for instance, produces more steel today than in the 1970s, with a third of the workforce. This productivity has also helped fuel the rest of the economy. For every dollar that manufacturers spend directly, they foster another $1.40 in economic activity--a multiplier larger than for any other sector.

Manufacturing remains critical to American economic success. Exports of goods account for three-fifths of all U.S. sales abroad, paying the bill for imports of consumer products and oil. Without them, the U.S. trade deficit--at record levels before the recession--would be even worse.

Despite the recent boom in exports of goods, the nation's share of the world's manufacturing trade has been shrinking. China is predicted to overtake the United States next year as the world's leading producer of manufactured items measured by value. And the future looks bleak. From 1989 to 2001, the United States recorded a trade surplus in advanced-technology products, including biotech. Those are the same capital-intensive goods that economists have long argued would naturally be Americans' domain, as the production of labor-intensive wares, such as apparel, moved overseas. Since 2002, however, the U.S. has run a deficit in advanced-technology trade.

Other hindrances may lie ahead. Workers can produce only as much as their plant and equipment permit, and until recently, U.S. industrial production capacity had grown robustly--through good times and bad. In the past decade, however, companies have shown a reluctance to invest in new capacity, which has grown at a third of its 1990s pace. When the economy eventually rebounds, this may limit U.S. manufacturers in satisfying domestic and foreign demand.

Manufacturers are also an important source of innovation, accounting for more than two-thirds of all research and development conducted in the United States. Since 1999, however, American manufacturers have increased their research-and-development investments outside the United States three times as fast as at home.

Manufacturing wages also bolster the economy. Manufacturing workers get higher pay and more generous benefits--20 percent higher in 2007--than Americans in nonmanufacturing jobs, although wages have recently been growing slowly, if at all.

"If you give up on manufacturing," New America's Schwenninger cautioned, "you give up lots of future productivity gains--and gains in the standard of living."

INNOVATION IS THE KEY

The conventional wisdom is that the United States can thrive simply as a place for research and development--that the country no longer needs to actually make things. But this assumes that new products spring full-blown from the minds of laboratory scientists. The reality is that in most industries, the manufacturing process itself is a critical factor in developing radically new products.

In the County, the presence of multiple manufacturers has been self-reinforcing. "People don't understand how much manufacturers feed off each other," said Diane Sheets, the business-development manager of the County Community Development Corp. That symbiotic relationship is vital, she said, in prompting innovation and an entrepreneurial spirit.

For one thing, creating and sustaining a network of competitive manufacturing entails day-to-day interaction between suppliers and customers, which allows each to learn from the other. "The knowledge underlying emerging technologies requires person-to-person contact among manufacturing industries and between manufacturing and services," said Gregory Tassey, a senior economist at the National Institute of Standards and Technology. That interaction is harder when a company's supply chain stretches around the world.

New manufacturers also rarely emerge in a vacuum. They typically morph from existing businesses, when coworkers who think they can build a better gadget than their current employer go out on their own. In the 1970s, the founders of Penn United did just that, spinning off from Oberg Industries, another precision-tool firm down the road. This was history repeating itself: Oberg Industries, too, got its start when its founder left a larger local company in the late 1940s. If U.S. manufacturers move abroad, foreign entrepreneurs create these start-ups.

Consider what happened when the U.S.-based manufacturing of semiconductors and flat-panel displays for computers and televisions moved to China more than a decade ago, as Harvard Business School Professors Gary Pisano and Willy Shih have recounted. At first, American economists saw no cause for concern, arguing that these weren't part of the core manufacturing capability that the United States needed. The experience that the Chinese gained in making computer chips and screens, however, taught them how to process ultrapure, crystalline silicon into wafers and to apply thin films of the silicon onto large glass sheets. By so doing, they created a solar panel industry that has become a major international player.

"The United States cannot continue to rely on outdated economic-growth strategies that fail to understand the complexity of industrial technology and the synergies among supply chains," economist Tassey said.

METHODS OF REVIVAL

During the past couple of years, a national preoccupation with Wall Street's meltdown and the ensuing recession has crowded out any serious debate about how to revive American manufacturing. So has the customary aversion to government-directed industrial policy, often demeaned as "picking winners and losers."

These attitudes, however, may be changing. Despite the distrust of government that Americans displayed in the November congressional elections, four of five Americans support a national manufacturing strategy, according to a poll that the Alliance for American Manufacturing conducted last spring. Proponents of a government-led strategy say that it needs to be comprehensive, with tax cuts, helpful regulations, and interrelated efforts to preserve and rebuild core industries, the small companies that cluster around them, and their skilled managers and workers.

So far, the specter of such a strategy hasn't raised the tea party's hackles or provoked a political furor over government's proper role. Indeed, political antagonists have found points of agreement. Recommendations issued in November by a bipartisan budget commission suggest growing sentiment that the corporate tax rate--among the highest in the world--ought to be reduced to encourage companies to base their operations in the United States.

Similarly, Democrats as well as Republicans support a tax credit for research and development, which lapsed a year ago for the 14th time in the past three decades. The United States accounts for about a third of the world's R&D spending, far more than the second-place Europeans. Still, relative to the size of its economy, America’s spends on research and development ranks eighth among major industrial economies.

But R&D isn't enough. "An R&D policy should not be confused with a manufacturing policy," First Solar's Sohn warned. "The worst thing would be for us to tap into the ingenuity of our engineers and come up with products and manufacturing processes, and then go and put [them] overseas because that is the only place that it makes sense to make things."

Manufacturers gravitate to societies that show they want them, said Sohn, whose company operates factories in Germany, Malaysia, and Perrysburg, Ohio. "We were attracted to Malaysia," he noted, "because of their focus on manufacturing. It starts with a tone in the country. Politicians and businessmen there have acknowledged the utility and value of having manufacturing as a base, and they have established a set of policies that were attractive," including lowering taxes and providing access to low-cost capital.

Subsidies can dry up, of course, and tax benefits can be withdrawn. Manufacturers also look for stable--preferably growing--domestic demand. That's one reason First Solar built a factory in Germany and is expanding it. German utilities are required to buy electricity produced by consumers' roof-top solar panels
at a price set high enough to enable them to pay for its installation. Giving every consumer a chance to earn money as an electricity producer has sent German demand for solar panels skyrocketing.

Research and development alone won't assure a future for American manufacturing.

A vibrant American market for manufactured goods will be harder to achieve, given the likelihood of continual slow growth. The 2009 economic-stimulus package sought to encourage the market by requiring that projects it funded include substantial U.S.-made content. Many economists and foreign governments decried the provision as inefficient and jingoistic. Yet it enabled United Streetcar in Clackamas, Ore., to begin the first production of streetcars in America in more than half a century. "The buy-America provision took the risk factor out, so we could make the start-up investment," said Chandra Brown, United Streetcar's president.

Foreigners, too, can be lured into making in the United States more of what they sell to Americans and to the rest of the world. Because of the recent decline in the dollar and the slow growth in American wages, it's become cheaper in many cases to manufacture in the United States than in Germany or Japan. As a result, Volkswagen is building a plant in Tennessee, and BMW's factory in South Carolina has become the largest exporter of U.S.-built cars. The federal government might also attract and keep manufacturers by matching the investment subsidies and tax breaks that China and Singapore offer.

Lowering the value of the dollar would preserve and expand the U.S. manufacturing base by making homemade goods a better buy for Americans and foreigners. The dollar is estimated to be overvalued against the Chinese renminbi by at least 20 percent. Reducing that to zero, according to the Peterson Institute for International Economics in Washington, would create about a half-million well-paying American jobs, mainly in manufacturing.

KNOWLEDGE, SKILL, AND DESIRE

But something more is needed to assure a vibrant future for American manufacturing: a skilled workforce. That's a scarce commodity these days, even in the County. "Every kid who grows up here wants to go to college and work on Wall Street," said Wise Machine's Garrard, "not follow their fathers into AK Steel."

A local High School has a highly regarded vocational education program that teaches the latest in manufacturing techniques. Almost all of its graduates find jobs. But there are only 43 participants--more students choose training to become beauticians than machinists. "If we want to replicate the highly skilled German workforce," said Scott Paul, executive director of the Alliance for American Manufacturing, "we need a seamless four-year program that starts in high school and goes through community college or technical schools that prepare students for manufacturing jobs."

That proposal costs money. County Community College conducts extensive training programs for local manufacturers, but demand is down, partly because of cuts in the state funding that picked up much of the cost. Nationally, only 0.17 percent of America's GDP is invested in worker training. Germany spends nearly five times as much.

If skills are an obstacle, more money can help. But if it's desire that's lacking, all bets are off. In the past few decades, as manufacturing's share of the American economy and workforce has slipped precipitously, the perception has grown that U.S. manufacturing has no future. No doubt this has contributed, in turn, to the County youths' tepid desire to pursue a manufacturing career.

Yet in the County, where the surviving manufacturers are showing some spunk, these fears seem premature. "There will always be a manufacturing sector in the United States--there has to be one," said Frank Vargo, NAM's vice president for international economic affairs. "The question is what kind of manufacturing. And that is a matter for policymakers to shape."

In any event, there is reason to hope. "The future is still in our hands," said Kent Hughes, director of the program on America and the global economy at the Woodrow Wilson International Center for Scholars in Washington, "if we don't sit on them."