Friday, June 17, 2011

Bringing U.S. Manufacturing Back; Part 5 of 5, Success Realities

Photo Credit - Flickr Common

Even with the U.S. growing debt crisis, the U.S. has a more stable power structure, innovation history, and entrepreneurial culture than its global neighbors with few exceptions. U.S. foreign policy must support bringing U.S. manufacturing back by allowing U.S. production to be globally competitive in cost comparison and product quality superiority.

U.S. money and debt policy must balance supporting a strong dollar value and a stable credit confidence with understanding the strength must not worsen U.S. trade imbalances and competitive disadvantage. U.S. foreign policy must have the integrity that Free Trade will only be granted if it is Fair Trade policy.

Politicians and those negotiating U.S. global trade must not be intimidated by the threat of a trade war with any country. They must have the yet to be displayed courage to negotiate from a position of Americans being a sought after large consumer base for any other country.

Internally, the U.S. must also reflect political courage in getting a realistic handle on illegal immigration policy that puts realism and what is best for all American citizens above politics, voting blocks, special interest, Union interests, and political correctness. This may involve a controlled Guest Worker Program.

It will not involve comprehensive immigration reform that ignores secure borders or offers front or back door amnesty. This will not be tolerated by the American people and is already seen for what it realistically is – political demography rhetoric for the upcoming 2012 election.

It is vital the new American manufacturing workforce is trained in 21st century manufacturing methods including the newer skills required that are advanced technology and robotic based. As in days gone by, high schools, community colleges, and trade schools must pick up this mantle.

In addition, private sector leadership must be more exposed to the knowledge now studied and proven in calculating the “real” costs of off-shoring manufacturing and American jobs. They must consider rising shipping costs, instability risk costs, error duplicity work costs, overall quality costs, and fractured staff location costs. A re-shoring challenge must be adopted in the U.S.

Dr. MatthewLieber answers some success realities questions:

BKH: What is the balance needed in having a globally competitive tax policy and structure – lower corporate tax, less loopholes, offshore tax changes, flat tax, fair tax?
ML: Politics aside, reform options may include tax simplification, a value added tax, a gasoline or carbon tax. A grand bargain would have exemptions and loopholes phased out while significant rate reductions are phased in.

Rates may be lower on individual and particularly corporate income and stay revenue neutral provided the taxable economic base is expanded. Brackets are retained but with a reduced number.

This requires a compromise on taxation levels in line with historic norms. A consumption tax offers efficiency gains and would allow further income tax rate reduction. A fuel tax enhances energy efficiency and independence while providing revenues for infrastructure improvements.

Building in credits to lower income persons is one way to offset regressive effects. Rural constituencies and energy industry presently exercise a veto blocking debate of these. Reform requires consensus building with strategic political planning and transition steps.

BKH: What is the balance needed in government deficit spending, inflation, a strong dollar, reasonable interest rates, and credit availability?
ML: The national debt matters more than the budget deficit. It is a serious long-term problem that requires adjustments on both revenue and spending side. This discussion started last year. Nothing is more important to reducing the debt than ensuring that the U.S. economy grows at the fastest possible sustainable rate.

Implementing austerity immediately would injure the economy and worsen the debt. Reductions and revenue increases should take place in three to five years. The risk is Washington promises but never takes the painful medicine. The President needs a more consistent and forceful message - Growth and jobs first, long-term planning on the debt, deficits now and surplus in three to five years.

A stable dollar has replaced a strong dollar as the touchstone of the Treasury. Fed policies under Greenspan and Bernanke have allowed a great deal of monetary growth for many good reasons. Today’s commodity inflation has not yet undermined price stability, despite much market anticipation, because wages and consumer demand remain depressed. Steady, gradual depreciation of the dollar will support export-led growth in the U.S., whereas a zero-inflation strong dollar policy would freeze recovery and prolong household deleveraging.

BKH: What is the balance needed in government infrastructure investment and sound taxpayer money stewardship?
ML: We should expect both. The federal government’s role in infrastructure was a philosophical debate for the first half of the republic. Today, we take it for granted we have interstate highways and safe skies and airports. Rising fuel costs and oil dependency make more comprehensive transport development crucial. Our system suffers from piecemeal actions and an absence of long term planning.

There could be great national gains for a more massive effort, but many states and localities do not presently share the same agenda. The rejection by Wisconsin and Ohio of high-speed rail funds demonstrates this. We will remain auto-dependent, but better intermodal systems of light rail, electric cars, shuttle buses and other linkages will also be needed. Best financial efficiency is ensured with a national strategic plan which implements combining direct, mixed, and market mechanisms.

BKH: What is the balance needed in collective bargaining rights and private sector sovereignty in making business decisions in expansion?
ML: From the point of view of the enterprising worker, an important principle is access to the market. In 21st century economies, capital-intensive production makes many workers reliant on corporations. The recent decades have released the chains restraining corporations. They have boosted productivity and cleaned up financially, but it has not played out as well for working people of all stripes lately.

Organized labor has a vital role to play in defending labor interests. The material reality of skilled technical and professional people makes collective organization dubious, since they negotiate directly with their employer. The ideology of the knowledge economy and the entrepreneurship model appear overstretched.

Many may be entrepreneurial but lack the capital required to be business entrepreneurs. Helping them put themselves to work is an opportunity for leadership on the part of labor, private sector and government.

BKH: What is the balance needed in national security and immigration reform?
ML: Washington’s doctrine of the “war on terrorism” gave license through media framing to anti-illegal immigration groups, such as the Minutemen, who claim being patriotic by defending the country from an invasion of Mexican workers. While this sounds absurd to some, the emphasis upon border security and illegals has spurred real fear in mainstream segments and exerted a powerful chilling effect on immigration reform.

Reform would actually aid national security by inducing greater rule of law and government knowledge. Its absence has created growing zones of illegality in trafficking, corruption and document fraud.

BKH: Crisis proportion drug trafficking, increasing murder and violence upon Americans living or vacationing on or even miles from the border, and the federal government’s refusal to enforce border security and illegal deportation must be realities addressed also.
ML: I am well aware of the growing violence in Mexico, but militarizing US policy will not increase border security. Effective rule of law requires we recognize the underlying economic logic. Every president since Nixon has asserted the “war on drugs,” but national security has proven itself a poor framework for foiling transnational crime. The illegal traffic increases because it is good business. The same is true with immigrants.

Militarizing the border actually has increased the profitability of illegal activities. Enforcement needs to be smartly crafted within a comprehensive regional strategy aimed at supply, trafficking, consumption, and workplace elements. That requires an active and vigilant stance on the border. The Obama Administration has continued to uphold border security but has smartly reviewed some of the more wasteful and ineffective parts of the deportation system.

BKH: What is the balance needed in growing the American workforce base, eliminating illegal immigration costs and gaming of the American taxpayer, a Guest Worker Program, and penalizing companies that hire illegal immigrants?
ML: Much of U.S. immigration policy is political spectacle designed to assure Americans that the U.S. is “in control” of the border. Billions of dollars were paid to contractors to build a wall to keep foreign workers out. They hired undocumented Mexican workers. The billions spent have boosted organized fraud and crime.

Policy needs to take into account economic logic and the rule of law. Undocumented immigrants are by far net contributors but cannot access lawful status. Increasing the volume of visas and the types of work permits for foreign workers would better suit the reality of U.S. involvement in the global economy. A Guest Worker Program could be part of that. Increasing the allowances generates greater worker and firm compliance for workplace as well as border monitoring.

BKH: What is the balance needed in the Environmental Policy Agency energy policy and killing the business and manufacturing optimal environment as well as negating job creation?
ML: A green economy is a huge economic opportunity the U.S. is missing by letting one particular vision veto reform and block off debate. Burning fuel is neither economically virtuous or wasteful – it depends what you do with it – but it does have environmental and political costs that are not priced into the cost.

I believe an energy consumption tax, rather than mandates and bureaucracy, offers efficiency advantages and could channel resources to finance a smart grid, transport upgrades, etc.

The challenge in creating green jobs is to set standards that allow U.S. industry to race ahead into these industry projects. Germany is now leading, and China and India threaten to begin domination.

BKH: What is the balance needed in environmentalist priorities and not destroying an industry or company that supports people’s livelihoods?
ML: Green causes cannot thrive and endure without a sustainable economic basis. It is interesting that bringing the two together remains a challenge for environmentalism in the U.S. Throughout the world, resource conflict is increasingly making them come together.

As an example, the Gulf oil spill had a devastating effect on the Gulf economy. Transforming our economy from an extractive heavy industry-based production to specialized, knowledge-based industries will require investment. The challenge is to make policy that aligns business interests with that direction.

BKH: What is the balance needed in granting ObamaCare waivers to some businesses as an expressed hardship and being honest in what additional costs and regulations will do to the economy and job creation in general?
ML: The complexity of the challenge facing health care regulators following the 2010 reform is precisely what advocates of single payer reform foresaw. We are preserving a private insurance system while seeking to achieve universal coverage and cost reduction through regulation. This will actually result in more regulation than a single payer system where people would be transitioned into government insurance like Medicare.

Either way, coverage expansion can and must bring cost reductions. The 2010 Act has a number of such mechanisms in it. Firms have an interest in keeping their employees healthy, so a wellness agenda and a preventive approach, rather than high-tech profit-driven care, strikes me as one basic opportunity for business to offer contributions in return for waiver or allowance requests.

BKH: What are the main local and regional government policy changes that are needed in general?
ML: States and localities have been innovative in different ways. Beloit, Wisconsin has expanded a successful business opportunity zone that provides up to $5 million in state tax credits annually. The project was originally dedicated to an area by I-90 and resulted in several new warehousing and logistical investments. State Assemblywoman Amy Loudenbeck has expanded the coverage so the tax breaks are available to new investments throughout this diverse city of 37,000.

In Rockford, Illinois, Mayor Larry Morrissey has worked to attract direct investments in the airport and in auto manufacturing. Why these state and local leaders opt for different tools and which work best is something I am investigating.

BKH: What are the main federal government policy changes that are needed in general?
ML: Policy design can improve from new understanding about human behavior and the limits of rationality. One vital area for applying that is in the realm of economic security. Market reforms of recent decades shifted risk from corporations to individuals. As pensions became 401-Ks, there was always the underlying notion that more individual choice and information would make Americans better off. The housing market events offer dramatic evidence that that vision far too rosy.

BKH: What main considerations reflect 21st century manufacturing is similar to manufacturing history?
ML: Manufacturing remains about making stuff. What and how is made evolves and advances over time. The premium on technological innovation endures. America’s long history of innovation has contributed to making it the greatest industrial economy. That leading edge is in question with the rise of China, the recent recession, and a range of internal difficulties that have begun to set in.

To remain a leader, the U.S. needs to do more manufacturing and more innovation, but not necessarily both at the same time. Much of the manufacturing, and many of workers, need not be innovative. Workers must be employed at producing goods and services at a living wage. The U.S. attracts foreign-born technological innovators, but perhaps we need to encourage more home-grown entrepreneurs too.

BKH: What main considerations reflect 21st century manufacturing differs from manufacturing in the past?
ML: I recall a point made by Alan Greenspan during testimony to Congress around 1998. The Fed Chairman noted that the total physical volume of production by the U.S. economy in 1997 was equivalent to the volume in 1945. The real value of the production, meanwhile, had increased something like 500% during that time. Greenspan’s point was that U.S. economy had transformed from industrial production into a post-industrial consumer economy.

Exaggerations about a “new economy” followed then were replaced by the 19th century extractive industry mindset that dominated the last decade. However, Greenspan was right about the basic direction of manufacturing pointed out by the rise of consumer economics, service industries, and information technology.

In the 21st century, the advancement of civilization and human happiness requires a finite amount of raw industrial production but moves forward more dramatically with high-skilled services and knowledge industries that need less and less physical stuff.

BKH: Thank you Professor Lieber for your points of view.

No matter your political leaning, it is evident bringing manufacturing back to the U.S. will be one of the major contributions to stabilizing the American middle class and moving out of a recession economy. U.S. global neighbors and competitors are a factor in 2011. Manufacturing cost include labor, taxes, and regulation. The future of American jobs and the ongoing acceptable “normal” unemployment rate will depend on the balancing competing U.S. internal identities with government policy that incentives business to maintain and expand the U.S. as its production location.

American taxpayer monies being used to invest in manufacturing and/or oil production in Mexico, Brazil, China and other countries by the U.S. government, while denying American companies in the same industry the same support, adds even more pressure to U.S. jobs and the economy.

U.S. manufacturing can not be brought back if there is a deliberate pull-back of global competitiveness in higher tax talk and crushing new regulations for large corporations and several industries that do and can create thousands of U.S. based jobs.

The bottom line is we have an “uncertainty effect” as a direct result of poor political private sector success realities understanding. This has a devastating impact on business investment and job creation in the U.S. for all size business - small, medium, and large companies.

There must be policy certainty to plan expansion within the private sector, reasonable business credit possibility, and an environment where it is prudent and responsible to risk capital expenditure. There must be a pro-business attitude in America to bring manufacturing back. Business and manufacturing investment must also be pro-American workers and job creation.

One constant in success reality is true political leadership starts at taking responsibility and not using demography to demonize those that do choose to lead in the interest of Americans. The U.S. needs the courage of true leadership in both politicians and private sector CEOs to move forward.

See also:
Part 1, Who is Professor Matthew Lieber?
Part 2, Global Neighbors & Competitors
Part 3, U.S. Foreign Policy
Part 4, Competing Internal Identity

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