-->A Crisis Unmasked: Our Critical Choices for Manufacturing
By Bob Weidner
One of the most difficult issues confronting public and private policy makers is the continuing exodus of North American manufacturing, especially U.S. manufacturing, to offshore locations.
On the one hand, most senior business executives applaud and pursue policies that boost productivity and build shareholder value. From this perspective, it makes perfect economic sense for companies to buy products from, or move plants and jobs to, countries where wages and other operating costs are just fractions of the typical North American expense structure. This would include nations like China, India and Indonesia.
Even so, as the chief executive officer of the Metals Service Center Institute, one of the continent’s most active metals industry trade associations, I also regret people who are unconcerned about the very obviously adverse public and private consequences of a shrinking U.S. manufacturing base. An example would be a recent commentary by Robert D. McTeer, Jr., president and CEO of the Federal Reserve Bank of Dallas, who declares, “Economics majors understand the non-intuitive reality that real progress comes from job destruction.”
One man’s “real progress” is another’s disaster. Our tens of millions of manufacturing workers, our thousands of manufacturing-based communities, our tax base and our national security depend on a strong, growing manufacturing base. No other private sector activity provides the same overall direct and indirect economic multiplier as manufacturing (every $1 of final demand for manufactured goods generates an additional $0.67 in other manufactured products and $0.76 in products and services from non-manufacturing sectors). What’s missing from the current discussion about the manufacturing sector has been a practical, hard-eyed examination of the very substantial negative consequences of ceding major portions of our manufacturing base to nations that may not be our allies and that have built their competitive advantage on the backs of workers who may earn just pennies a day.
“This is not just a matter of jobs going to Asia or elsewhere,” says Professor Fariborz Ghadar, director of the Center for Global Business Studies at Pennsylvania State University. “This is a matter of what policy we are going to use to defend our society from the hollowing out of our industrial base.”
We feel this need acutely in our metals service center industry. We’re the people who maintain stockpiles of metals for first-stage fabrication and distribution to hundreds of thousands of manufacturers. Despite immense productivity gains in recent years, sophisticated metals buying and inventory techniques, and advanced warehouse management skills, our industry is in serious decline. Hundreds of service centers have closed, merged or otherwise left the marketplace in the last several years. They’ve closed because their customers have gone away, many of them unable to compete with the Lilliputian cost structures of offshore competition, and many of them to take advantage of those same low costs by building plants in China and other low-cost havens.
Departing with all our customers have been millions of manufacturing jobs, some 2.7 million in the last three years alone. It is thought that at best, half of those jobs might be restored if manufacturing stages something more than its recent mild recovery. More likely, many economists say, is that because of structural changes to our economy, those jobs are lost forever.
Of course many manufacturing workers have found employment elsewhere. But it has been well documented that very few displaced workers find employment with income similar to what they previously earned. The National Association of Manufacturers, in its outstanding recent report, “Securing America’s Future: The Case for a Strong Manufacturing Base,” concludes that without intervention, North American manufacturing is in danger of losing the critical mass it needs to stimulate continuing investment, innovation and prosperity.
It is time for North American politicians to awaken to the issue. There have been some signs that with the 2004 election season approaching, some have. Responding to a chorus of complaints, Treasury Secretary John Snow has now pressured China to let its currency rise to appropriate valuations. More and more members of Congress recognize that it’s imperative they pay more than just lip service to manufacturing sector ills. “If you don’t manufacture and if you don’t mine…you become a third-world nation,” observes Congressman Don Manzullo (R-Illinois), one of the long-time pro-manufacturing activists. But so far, he says, “Washington is clueless as to the importance of manufacturing.”
We believe serious, determined, long-term programs must be devised to stop the manufacturing outflow and, eventually, to rebuild America’s manufacturing base. For example:
· We strongly support efforts by Secretary Snow to halt currency manipulation by Asian nations intent on gaining additional trade advantage by undervaluing their own currencies. For example, just days after Snow visited Japan to urge fair market valuation for the yen, that nation spent $5 billion in one day buying dollars to make the yen comparatively cheap again. We recognize that our relationship with China, Japan, South Korea and Taiwan are complex. Even so, as one of the most important customers for each - last year we imported $125.2 billion worth of goods from China alone, running in the process a $103 billion net trade deficit with the Chinese - we simply must stand up for free and fair currency markets as the necessary partner to free and fair trade. We must begin now to move closer to purchasing power parity with all of our trade partners.
· The Bush administration, like the Clinton administration before it, has failed to adopt a coordinated policy to support manufacturing. In today’s fragmented policy environment, politicians debate taxes, export and import controls, health care costs, regulatory costs and trade policy piecemeal. We advocate a coordinated agenda of initiatives viewed through a pro-manufacturing prism.
· We encourage Congressional committees with oversight responsibility for the economy to focus on what it will take to maintain our manufacturing sector. Appallingly, few congressional committees, members of Congress or senators even mention “manufacturing” as a legislative priority. For too many elected officials, manufacturing is still not a matter of pressing concern.
· As responsible business strategists, we must continue to find ways to counter the low offshore cost structure with up-market products, services and customer-sensitive goods that build loyalty, respond to niche needs and outpace the ability of distant factories to respond to local market conditions. There is no substitute for continuous innovation, speed, reliability and strategies that build value. Equally, however, we must as a nation recognize that our bargain basement manufacturing competitors are no longer making only simple things. They are rapidly graduating to value-added products that directly challenge our ability to survive.
We recognize the very complex nature of what we seek. Economic theory, policy, short-term political thinking, precarious and shifting international relationships, capital flows, uncertain markets, wars - all of these and more have at times tipped the balance against pro-manufacturing policies. We must come together as never before - producers, distributors, fabricators and end users; Republicans and Democrats; management and labor; business and government. We should view this in terms of a “supplier - customer” relationship with China as the former and the United States as the latter. Our country controls the order side of the equation. Congress and the Executive branch of government need to exercise every economic tool they possess to get our Asian trading partners to comply with our demands on currency intervention. I don’t know of a viable business model where the supplier doesn’t do everything within reason to address the customer’s concerns. Currencies need to trade freely on the open gl
obal foreign exchange markets. Our task now is to sound the alarm and respond to maintain a prosperous and essential North American manufacturing base.
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M. Robert ‘Bob’ Weidner, III is president and chief executive officer of the Metals Service Center Institute, a North American trade association with more than 350 members.
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