Missing Manufacturing Boom
One of the most read posts I ever wrote was a piece in April called The Hollowed-Out Economy, in which I mocked Treasury Secretary Paulson's contention that Bush's economic stimulus package was going to create 600,000 new jobs in America. I think he secretly thought it wasn't the stimulus checks but rather the falling dollar that would revive America's hollowed-out manufacturing base.
This morning it's clear that not only was Paulson wrong about the job creation, but the current boom in exports is not from manufacturing, but rather from selling corn and soy.
Exports are the bright spot this year in an otherwise bleak economy. But the world is not suddenly snapping up made-in-America goods like aircraft, machinery and staplers. The great attraction is decidedly low-luster commodities like corn, wheat, ore and scrap metal.This helps explain why manufacturing jobs are continuing to disappear by the tens of thousands and factories are closing even during a miniboom in exports. While the surge in commodities is a welcome relief, it is an unreliable prop for an industrial power.
As I have tried to point out in America Since Reagan, the 38 year trajectory of Republican political economics has hollowed out our manufacturing prowess, reduced our competitiveness, put us deeply in debt to the Chinese and the Russians and eviscerated parts of the Bill of Rights. Like a third world economy, we are reduced to export dependence on a literal commodity product that can be bought from Argentina or China. The vaunted knowledge economy value add cannot be applied to a shipping container full of grain. I am well aware that for a company like Whirlpool to manufacture their product abroad may make sense, but when they are shipping washing machines from their factories in Germany to South America, you've got to wonder if we can ever rebuild a vibrant manufacturing economy that puts good jobs in America.
We can.
Where will it start? With the environmentally and economically wise decision to lay high-speed intercity rail in corridors where a 500-600 mile trip would be competitive in time terms with a short flight. It would make very little sense to build (enormously heavy) rail engines and cars overseas and ship them here, and the simple truth is that there is no possible way to send the laying of the rail itself or the construction and operation of the infrastructure needed for those rail lines elsewhere. Those will be high-value-added American jobs.
The construction of a solid urban light rail system in every medium-to-large American city is another place to look. There are systems in place in some instances that provide either a connection point or a launch pad.
Bridges. Minneapolis is getting I-35W back in operation soon. There are many more bridges, though, across the US that are in need of refit before they too collapse. Hard to build a bridge elsewhere and ship it in, isn't it?
Wind and solar energy represent yet another opportunity. These are very large items and thus very costly to ship long distances. Build them nearby and reap the benefit.
In short, infrastructure. If for no other reason than that without those well-placed investments, no other manufacturing is likely. With them, as people do better by working at those high-value-additive jobs, housing and other things will follow.
What is required is a combination of vision and political will.
August 18, 2008 12:47 PM | Reply | Permalink
Other than Boston and New York lawyers on their weekly run down to Washington to seek undeserved favors from the federal government,* who the hell wants to travel from one "nowhere city" to another "nowhere city"?
* I guess you can add Albany, Springfield, and Sacramento bound vultures to the mix.
August 18, 2008 1:12 PM | Reply | Permalink
Let's see...
San Diego-LA-San Francisco (maybe with a spur to Sacramento)
Miami-Orlando-Atlanta (link also to NC's "Research Triangle")
Minneapolis-Milwaukee-Chicago, then Chicago-Cleveland-NYC (a little longer, still, I see definite potential there)
New Orleans-Houston-Austin*-Dallas/Fort Worth
* spur to San Antonio
Sorry there are no places anywhere in the US where such things make sense. Clearly, I was suffering from a complete delusion. No one in any of those places ever needs to go anywhere else at all, do they?
August 18, 2008 1:28 PM | Reply | Permalink
The Old Grouch,
Philadelphia to Harvey Cedars, NJ, so I can go crabbing easily.
August 18, 2008 3:23 PM | Reply | Permalink
Isn't there a high speed rail line between Washington and Boston today? How's that going?
AMtrak hired Bombardier for the engines. Oh well...
One other question: how will rail lines resurrect manufacturing? Wouldn't there be a finite number of buyers and a limited marketplace?
Bridges are always a good investment (so says Senator Stevens), but again, I'm not sure how they help manufacturing (unless you're a Chinese manufacturer looking to ship cross country).
The solar stuff is a slightly better example, however, we're still looking at a small market place (unless everyone is going to buy a solar panel). No one will argue such things would be installed by Americans (of course my friend the roofer hires teams from El Salvadore). The question is can we build the units here snd ship them to Europe?
August 18, 2008 2:21 PM | Reply | Permalink
Protectionism helps the US rail industry.
The main non-tariff barriers [for Canada] in the United States market are the "Buy America" provisions of the United States' Intermodal Surface Transportation Efficiency Act and similar state and local content or assembly requirements. Transit authorities receiving United States federal government funding must ensure that 60 percent of rolling stock content value is sourced in the United States, as well as final assembly. All non-rolling stock equipment must be entirely sourced in the United States.
http://www.ic.gc.ca/epic/site/remi-pmf.nsf/en/ti01010e.html
August 18, 2008 4:41 PM | Reply | Permalink
It is really difficult to find budget dollars, in government and business, for maintenance of existing infrastructure. The mindset of management just doesn't see the value of spending money on something that is working fine. You only spend money on something that is broke or on new stuff.
Obviously, that isn't a realistic policy when it comes to crucial infrastructure systems but it is nevertheless the one most often used. I am sure that over time we will continue to experience catastrophic failures such as Minneapolis.
The perception of mass transit doesn't get much attention because we have way too many of the players in Washington being driven around in chauffeur driven limos. The mental leap to mass transit for these people poses too great a challenge for most of them. They should be lawfully required to use mass transit for a year while they are junior congressman and senators so they gain some idea of what it is they are supposed to be doing.
August 19, 2008 2:35 AM | Reply | Permalink
Right. It's all the Republican's fault. Not Democratic Congresses, not environmental roadblocks, not regulations and mandates, or pay scales overseas that make it insane to manufacture here?
Like most libs here, I see a lot of complaining and no solutions offered. Perhaps you should consider that we prepare to continue down this path until global economies hit the proverbial level playing field.
That is unless you have something else to offer?
August 18, 2008 1:00 PM | Reply | Permalink
Right. It's all the Republican's fault. Not Democratic Congresses...?
You make an good point. Many of the policies to which Jonathan refers were perpetrated by Republicans who wore a "D" in front of their names. But they persist in being Republican policies.
August 18, 2008 1:07 PM | Reply | Permalink
in America Since Reagan, the 38 year trajectory of Republican political economics has hollowed out our manufacturing prowess, reduced our competitiveness, put us deeply in debt to the Chinese and the Russians and eviscerated parts of the Bill of Rights.
Concise and correct, but not entirely complete. You left out "placed the our ability even to live on this planet."
August 18, 2008 1:04 PM | Reply | Permalink
in jeopardy.
August 18, 2008 2:31 PM | Reply | Permalink
I can't think of any manufactured goods that America dominates. Not cameras or lenses, not electronics, not cars, (although Caterpillar does OK). Maybe pharmaceuticals.
Third World refresher courses will be offered in how to kowtow to our creditors. Big uptick in students taking courses in Chinese and Russian.
August 18, 2008 1:38 PM | Reply | Permalink
I am not optimistic at all that manufacturing jobs for export goods will ever return.
First and foremost is the hostility corporations have towards trade unions. Mr. Taplin claims there has been a 38 year republican assisted assault on good paying (and therefore unionized) manufacturing jobs. I want to say it has been more like a 70 year battle with that battle being temporarily suspended during WWII. It was during the Reagan administration that corporations, with considerable help from their republican allies, were finally able to crush organized labor and our domestic manufacturing base once and for all. I don't think we'll ever be a world leader in the export of finished goods ever again...cheap labor, and therefore the 'cheap goods' that Wal-Mart demands, is easy to find in the global market. I think the best we can hope for is at least increasing manufacturing jobs for some domestically consumed goods. Work projects like Old Grouch suggested can be temporary stop gaps but we are gonna need to rebuild our economy on a foundation other than the export of goods.
August 18, 2008 1:39 PM | Reply | Permalink
An interesting way that the US government has promoted US job loss has been with its offset programs, whereby the purchases by foreign governments of US military equipment is "offset" by US investments in those countries. One of the most noteworthy of these was Poland's purchase of F-16 aircraft, which received offsets of twice the value of the purchase due principally to the diligence of the US ambassador to Poland Victor Ashe. Here are some excerpts from a speech Ambassador Ashe made to the American Chamber of Commerce in Warsaw in 2005:
"The goal is to develop capabilities and technology in Poland that might otherwise be difficult to obtain, thereby boosting the economy. And at a value of $6 billion, the offsets are a return of almost twice the purchase price for the aircraft.
"American investors are taking advantage of Poland’s skilled labor and European Union market access. Claiming 17% of Poland’s foreign direct investment, U.S. enterprise is a potent force in a range of product and service sectors.
"Our Commercial Service—the part of our embassy that devotes itself to trade promotion--has given priority to several sectors, under the Department of Commerce’s priority “Manufacturing Initiative.” I would like to mention just a few. . .Aerospace (Pratt & Whitney United Technologies, Lockheed Martin,General and Electric, Sikorsky and Boeing) . . .Automotive (GM, Delphi, Goodyear, Eaton, Federal Mogul, Fiat-GM Powertrain, Lear, TRW, Visteon, Gates and Wabco). . .Environmental Technologies (Atkins, Fluor, Parsons Brinkerhoff, C.D.M, Foster Wheeler, Caterpillar and U.S. Filter). . .Information and Communications (Hewlett Packard)
Way to go, Vic.
http://warsaw.usembassy.gov/poland/ashe_amcham.html
August 18, 2008 3:23 PM | Reply | Permalink
Don Bacon,
The Overseas Private Investment Corp (OPIC), an arm of the Federal Government, has been helping American companies invest overseas for more than 35 years.
OVERVIEW:
The Overseas Private Investment Corporation (OPIC) was established as an agency of the U.S. government in 1971. OPIC helps U.S. businesses invest overseas, fosters economic development in new and emerging markets, complements the private sector in managing risks associated with foreign direct investment, and supports U.S. foreign policy. Because OPIC charges market-based fees for its products, it operates on a self-sustaining basis at no net cost to taxpayers.
Mobilizing the U.S. private sector to advance U.S. foreign policy and development initiatives, OPIC-supported projects make a difference by expanding economic development, which can encourage political stability and free market reforms. Currently, OPIC services are available for new and expanding business enterprises in more than 150 countries worldwide.
OPIC’s financing and political risk insurance also help U.S. businesses of all sizes to compete in emerging markets and meet the challenges of investing overseas when private sector support is not available. OPIC promotes U.S. best practices by requiring projects to adhere to international standards on the environment and worker and human rights.
August 18, 2008 3:35 PM | Reply | Permalink
With the government working against them, working men and women don't stand a chance. As Reagan said, government IS the problem. And then he proved it.
The US is the only industrialized country without a Labor Party, and this is the result.
August 18, 2008 11:12 PM | Reply | Permalink
I heard some small manufacturers in Ohio chatting on NPR the other day. They said that for them high oil prices were helping their Cleveland operations by making shipping costs uneconomical. Companies were buying the parts they manufacture locally rather than importing them from abroad.
http://www.npr.org/templates/story/story.php?storyId=93203258
August 18, 2008 5:02 PM | Reply | Permalink
Re: I am not optimistic at all that manufacturing jobs for export goods will ever return.
Transportation costs may increase to the point where it will be cheaper to buy American-made goods domestically, so our doemstic sector manufacturing could improve. I've read stories already about some businesses looking for local suppliers to cut delivery fees.
August 18, 2008 8:24 PM | Reply | Permalink
Pain is the answer! We have had very little relative to the world.
For example, GM's pension overhead keeps it from competing. GM unions demanded it and GM management made it happen.
Now in China, see the pain! We want clean air, China is opting to chew their air.
No Pain example, we have expensive personal convenient on demand transportation. We vote urban transport for the other folks.
Hurray! We import to avoid pain. We get cheaper product generating pollution else where to avoid life style changes.
We will suffer inconveniences when pushed by empty purses and wallets. Hold your breath, see how long it lasts.
We yakkity yaked environment, conservation, inequity across borders and inequity at home. We are making progress with inequity across borders and at home. Our environment is clean.
Conservation, no winning score, until recently. We found the holy grail motivating us. Higher prices! Pain at the pump, oil tank. Pain in housing. Pain borrowing more money to avoid ... pain!
Hmm... Life styles will change with a proper motivation. We may work for less, we may chew some air, and we may see a lot of wind mills with Boone Pickens name on it.
August 18, 2008 11:03 PM | Reply | Permalink
Old Grouch- I agree. I wrote about this a few months ago.
http://jtaplin.wordpress.com/2008/04/13/rebuilding-america/
August 19, 2008 12:07 AM | Reply | Permalink
The problem is that the biggest driver of the US economy is war spending, and both parties are complicit in this, not to mention the average trigger-happy American of all political stripes who were 80% behind Iraq and who are just as happy to take on Russia, the economy and dollar be damned.
Trillions of $$$ have disappeared down the Pentagon rabbit hole with little or no media or Congress scrutiny.
http://www.marketwatch.com/news/story/why-we-love-americas-outrageous/story.aspx?guid=%7B0D31C880%2D32CD%2D4BA1%2D8133%2D329EA57CB069%7D
August 19, 2008 1:47 AM | Reply | Permalink
Here's $1.3BN in loopholes:
1996 - Amtrak deal with Bombardier for Acela engines and cars - $611M
2001 - NYC/MTA deal with Bombardier for 350 subwat cars - $420M
2008 - New Jersey Transit deal with Bombardier for 26 new duel power locomotives - $310M
August 19, 2008 11:49 AM | Reply | Permalink
A 3 year plan buys space and capital for a 20 year plan.
Slow the out flow of capital in 2009, 10 and 11. We need the funds to support mass transit. These projects are 10 years away on the easy corridors.
Reducing oil consumption short term in a capitalist, free enterprise environment is via a single tool, the consumer price at the pump. Pain, simple financial pain has changed life style just a little.
For those believing
oil interests motivate the Iraq war,
alternative fuels must come on line,
man can stop global warming,
we need an end to the war,
we interest in Georgia is turly oil,
THEN reducing oil consumption by 20% changes the picture in the USA.
To get to mass transit, requires us to clear immediate hurdles. Some dirty immediate work is required to buy duel power locomotives, redirect war spending, develop new corridors and invigorate a return of manufacturing.
Support the immediate solutions that will support the futurists.
Now, requires some shirt sleeve work, sweat, and effective short term planning. Don't stop the future stuff that is 10 years in the making.
Our visionary candidates apply little leadership to today's market. With the price of gas slipping a little, their 10+ year planning is very comfortable to all. Safe politically, the president has yet to step forward. The candidates will treat it like a third rail.
I am scratching my head, wondering if either presidential or congressional candidate has the metal to lead us before this situation progresses much further.
In the mean time, appreciate the financial pain that falls.
AJ
August 19, 2008 4:35 PM | Reply | Permalink