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Retooling U.S. manufacturing is crucial
A nation that hopes to revive its middle class, maintain its innovation edge and begin to ease a trade deficit that could eventually bring nasty consequences must be a robust manufacturer.
Special to The Seattle Times
President Obama's visit to the Puget Sound region earlier this month focused on reviving U.S. manufacturing, using Boeing's booming operations as a showpiece. Republican challenger Rick Santorum has also pledged to boost the making of American products.
Now that they have our attention, a few reflections:
• Manufacturing is vitally important. It pays better than most nonmanufacturing jobs, especially for workers who would otherwise be stuck in poorly paid service positions. Manufacturing accounts for 11 percent of gross domestic product, but it comprises 68 percent of company spending on research and development. Improving exports in this sector is critical to improving the trade balance.
In other words, a nation that hopes to revive its middle class, maintain its innovation edge and begin to ease a trade deficit that could eventually bring nasty consequences must be a robust manufacturer.
It's not enough to depend on smaller niche manufacturers and entrepreneurs, as valuable as they are. If we're going to rebuild wages, as well as maintain our creative edge, innovations must be able to be made here in large, efficient quantities with sizable workforces.
• The sore spot of manufacturing is employment. The United States fell behind China to become the second largest manufacturing country by output last year, according to IHS Global Insight. While this is the first time since the 1890s that America wasn't on top, the percentages of world output are close: China at 19.8 percent and the United States at 19.4 percent.
But the United States lost 41 percent of its factory jobs between 1979 and 2009. The trend accelerated with China's rise. The total share of employment held by manufacturing fell to 8.9 percent in the recession trough of 2009, the lowest in U.S. history, compared with 13.2 percent in 2000. It has rebounded some, but not nearly enough. The decade saw a loss of some 6 million factory jobs.
The reasons are complicated. Increasing productivity and automation are often cited. But a paper released last week by Susan Helper, Timothy Krueger and Howard Wial, of the Brookings Institution, questions how much these factors account for recent job losses.
Indeed, they argue, greater productivity through information technology at least sustains jobs in most cases.
Organized labor is easy to blame, and into the 1980s some unions were self-destructive. So was management, failing to invest in keeping critical industries here at home. But unions represent only 6.9 percent of the private-sector workforce now.
As I've written before, too much emphasis is placed on the labor cost differential between Asia and America. Many European countries and Australia pay higher wages than the United States. Japan pays only slightly less. In addition, China's wages are rising rapidly.
American policy blunders carry much blame. Washington, D.C., has failed to act against the offshoring of jobs, Beijing's demand that foreign companies that want to sell there must produce in China and even share technology, and a variety of unfair trading practices, especially in Asia.
• Some sectors can't be brought back. Most textiles and apparel are examples. Their loss has devastated the Carolinas, but here the labor-cost advantage of Asia is absolute. (This even though Carolina textile mills by the 1990s were high-tech and efficient.)
Other manufacturing need not be lost, from autos and airplanes to renewable-energy technology.
Some companies are "reshoring" jobs, thanks partly to higher costs of Chinese labor and oil. Also, according to Brookings, "American firms are now more likely to appreciate 'hidden costs' of production abroad, such as administrative costs, legal costs, risks and complexities."
Brookings advocates more "high-road" production sectors, ones that take innovation and turn it into the highest-value products for customers.
Workers must learn higher skills and continue to refine them throughout their careers. But they also must get the wages that make it possible to pay off their loans to trade schools.
• This doesn't have to be a race to the bottom. When I wrote about Obama's visit, some readers were quick to blame American environmental rules for the loss of large-scale manufacturing. We do need to evaluate rules on their costs, benefits and trade-offs.
On the other hand, few Americans would support retreating to an era before the Clean Air Act and Clean Water Act (both signed into law by that commie Richard Nixon). Pollution brings costs, too. The costs will be even greater with unaddressed climate change.
David Smukowski, a former Boeing executive and now CEO of California-based Sensors in Motion, has worn caps as manufacturing advocate, White House adviser and sustainability expert. He was a co-founder of Sustainable Seattle.
"We must do both, protect the real environment and provide jobs," he told me. One thing he advocates is that all manufactured items sold here must be designed for reclamation of their materials.
More than 200 million iPhones and iPads are produced every year, eventually to land in dumps, then the soil, water and air.
"I calculate just under 4 million cubic feet, including packaging, of carcinogenic heavy metals, plastics and other ugly things coming off the i-products, that can otherwise become future products," Smukowski said.
"Could Apple be more competitive making its phones here, with very inexpensive raw materials, keeping it out of the environment, avoiding the cost of new materials, while preserving its intellectual property?"
It's smart moves such as this that can keep America competitive in manufacturing.
But we also must match or change the trade policies of China and some other countries. Anything less will see another lost decade.
You may reach Jon Talton at email@example.com. On Twitter @jontalton.
About Jon Talton
Jon Talton comments on economic trends and turning points, putting them into context with people, place and the environment in the Pacific Northwest