Manufacturing: Where the Jobs Aren’t

Right now, there is a serious ongoing debate about jobs. Too many people are unemployed or underemployed. Our President, our Congresspeople, and many commentators propose a variety of simple sounding but unfortunately conflicting solutions. Many do not seem to understand that this is not a simple problem with a single easy solution.

On September 4, 2011, in  Manufacturing is on the upswing in the United States , Hilda L. Solis, the U.S. secretary of labor, states that manufacturing is thriving, that America’s manufacturing industry is expected to grow 6.2 percent this year, that manufacturers created 24,000 new jobs in July alone, and that since December 2009, the manufacturing sector has created more than 289,000 jobs – more than 1 in 10 of all new jobs created during the current recovery. She concludes by saying that, while we still have work to do, America is bouncing back as a manufacturing powerhouse. She is overly optimistic; we still have a lot to do if we want her words to become true.

Four days later, President Obama spoke to Congress about his plan to boost jobs and put cash in Americans’ pockets. He talked about continuing and expanding payroll tax cuts; he talked about creating jobs by spending on infrastructure; he talked about hiring teachers. He said this would be paid for by eliminating some tax breaks enjoyed by corporations and the wealthy. He said very little about manufacturing jobs. His plan and the bill he subsequently sent to the Congress received a mixed review at best.

I was a young man in the 1950′s in the now rust-belt city of Buffalo, NY; at that time, if you were willing to subject yourself to a manufacturing environment, well-paying jobs were everywhere and union employment afforded decent benefits and job security.    “Fifty years ago,”  according to USA TODAY, “a third of U.S. employees worked in factories, making everything from clothing to lipstick to cars.”  We didn’t recognize it then, but those were the good old days. Today, a little more than one-tenth of the nation’s 131 million workers are employed by manufacturing firms; four-fifths work in services. Manufacturing employment was 19 million in 1977, 17 million in 1995,  and 12 million in 2005. Creating 289,000 manufacturing jobs in a couple years does not compensate for losing 5 million over forty years.  At this rate, forty years from now, we might be back where we were as to number of jobs, but the population will surely have grown and we won’t be ahead.

At the same time, the United States is still a significant manufacturing force in today’s world. According to the National Association Manufacturers, “… even after the painful recession, the United States continues to stand strong as the No. 1 manufacturing economy in the world. The nation accounts for 21 percent of global manufacturing wealth, and 12 million Americans work in the manufacturing sector, earning 22 percent more in wages and benefits than the rest of the workforce.” China is second in the world at 15 percent; Japan is third at 12 percent. US manufacturing produces $16 trillion of value each year; that’s 11.2% of our GDP. If we are number one in manufacturing, why is there such an ongoing trade deficit?

Something significant has happened. What happened? Why? What, if anything, can we do now?

When World War II ended in 1945, the United States was the only country left with any significant manufacturing capacity. While Europe and Japan were in ruins as the result of massive bombing, the oceans had saved us from this fate. When we switched from war time priorities to peace time manufacturing, there was no competition to speak of and there was tremendous pent up demand within the United States and throughout the world. It was very much a sellers market and we were the only sellers. Over the years, the rest of the world rebuilt – in many cases with our help – and by the 1970′s or 1980′s we should have realized we were no longer alone in the world. It took us a long time to wake up and some of us may still be sleeping. Up until quite recently, management could make poor decisions and survive, labor unions could make ridiculous demands and see them accepted. We were fat and happy and a bit lazy and stupid.

Meanwhile, from the 1940′s until now there was an explosion of manufacturing technology, information technology, and logistics capacity. It became possible to produce goods with much less labor input; it became possible to transport components and finished goods all over the world cheaply and effectively.  (See The World is Flat by Thomas Friedman.)  The oceans no longer protect our manufacturers from the rest of the world. Capitalism being capitalism and business being business, many corporations have decided it’s necessary to shift more and more work to off shore facilities and to buy more and more components from overseas. Our tax laws have often encouraged this. Widespread use of robots in manufacturing and elsewhere is another factor here. It’s not too farfetched to predict that robots will someday perform most of manufacturing labor. How will humans then earn the money to buy the goods the robots produce? This is an income allocation problem we’ve yet to seriously address.

As we’ve purchased more and more from overseas and made more and more goods with less labor input, well paying manufacturing jobs have been disappeared. Many have been replaced by a variety of service economy jobs, but these generally do not pay anywhere near as well. Even service jobs have been moved or contracted out of the country. A leveling effect seems to be working; individual income and the standard of living appear to be rising in other parts of the world and falling in the US.

That isn’t all that has been happening. Economists like to use the qualifying phrase, “all other things being equal,” but they never are. A couple other little problems have recently surfaced. For a complex of reasons, mortgages were granted liberally to people who probably couldn’t afford them; these were then packaged into complex securities and sold to investors. Initially, housing prices went up and up and everyone was happy; eventually the bubble burst. Now, we are looking at large numbers of mortgage foreclosures, many home owners and investors feel a lot poorer than they did when things were booming, some financial institutions have failed, and others teeter on the brink. The government has run up massive debts providing benefits such as Medicare Part D, financing two wars, and attempting to buy us out of a recession. As bad as the financial situation of the US government looks, several countries in Europe appear worse off. Combine these “other things” with our loss of manufacturing jobs, and we have a lot of folks out of work.

So. Given all this, what can we do and what should we be doing?

Here are some recommendations from the National Association of Manufacturers.  Create a national tax climate that does not place manufacturers in the United States at a competitive disadvantage in the global marketplace. This means cut corporate taxes. Encourage the dynamic labor market that is one of America’s great competitive advantages. This means eliminate restrictive union work rules. Implement a common-sense, fair approach to legal reform. This means make it more difficult to bring “frivolous” suits against manufacturers. Create a regulatory environment that promotes economic growth. This means eliminate what they see as burdensome regulations. Promote progressive international trade policy that opens global markets, reduces regulatory and tariff barriers and reduces distortions due to currency exchange rates, ownership restrictions and various “national champion strategies.” This means encourage trading partners to treat us more favorably. This also involves combating currency manipulation. These ideas have been echoed by many commentators. They tend to favor capital over labor. Each has merit. Each could be overdone. Some may be expensive to implement.

Here are a couple more thoughts that have yet to be as widely promoted. Improve the skills and preparedness of our workforce. Our educational system just doesn’t seem to be providing graduates with the skills and knowledge necessary to work in modern manufacturing. Update our decaying infrastructure and manufacturing plant. In our haste to take advantage of cheap labor elsewhere, we’ve allowed our own manufacturing plant to deteriorate.

Each of the ideas in the preceding two paragraphs is worthy of a lengthy discussion. Right now, there is also a serious difference of opinion regarding the role of government in addressing the problems and issues I’ve discussed in this article.

Finally, we need to wake up and start looking at the real problems and we need to understand that there isn’t one single simple solution to all of our woes.

© Charlie Wertz, September 2011

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