The Plight of American Manufacturing
Long before the collapse of the U.S. investment banking system in late 2008, once-dominant and important U.S. industries producing items such as semiconductors, machine tools, printed circuit boards, consumer electronics, auto parts, appliances, furniture, clothing, telecommunications equipment, home furnishing and many others suffered their own economic collapse, sputtering anemically in a global economic system that continues to be stacked against U.S.-based producers.
Many of the executives in these industries along with their workers have raised alarms, issued reports, testified before Congress and held press conferences about the plight of their U.S. manufacturing assets and the potential for widespread economic adversity. They warned repeatedly that without industry generating good jobs, wealth and the funding needed for research and development, that the United States risked an economic collapse. The federal government ignored them at every turn, and it did so at its peril. With a severely weakened industrial base – one of the only sectors of the economy that creates wealth – the U.S. financial system suffered a historic meltdown.
With the U.S. government plunging deeper into debt by trillions of dollars, it now becomes imperative for the United States to ensure that the industrial sector regains its strength and that the nation becomes an exporting juggernaut. In order to avert a slide into economic depression, the United States will have to stop going deeper into debt to pay off its bad debts. The country must restart its industrial engine and produce products that Americans need to buy and the world demands. If this does not happen, a federal government bankruptcy could dwarf the financial industry collapse of 2008.
Free trade economists, retailers, Wall Street mavericks who relentlessly pressured companies to move their production offshore to make a few more pennies per share, shipping companies, foreign producers, foreign countries, newspapers dependent on retailers for their ad revenue, multinational companies and all their lawyers, lobbyists and think tanks in Washington, and most members of Congress supported by all of these interests have been in control of the economic agenda for the past 30 years. They have successfully argued that it is not necessary for the United States to maintain a strong, vibrant industrial base, because it is cheaper to buy goods from developing countries that have distinct economic advantages.
The mindset among America’s economic elite – that the country does not need an industrial base – has put the country and the world economy in a ditch.
The chief economist of the National Institutes of Standards and Technology, Greg Tassey, has labeled these people “Apostles of Denial.” They are the “single largest barrier” to the adoption of policy changes needed to provide for long-term economic stability and growth, he writes in a courageous book, The Technology Imperative. “Apostles of Denial will point to coincident indicators as evidence that the U.S. economy is, in fact, quite healthy,” when in fact it is not.
The Apostles of Denial are “befuddling” the debate over the need for the federal government to actively defend the industrial interests of the country, nurture an environment that encourages investment in plant, equipment and workers, and fund the development of the next generation of technologies that create entirely new industries, wealth and jobs. The interests have successfully fought against any type of industrially oriented policy initiatives by citing the old stooge of “corporate welfare,” “picking winners and losers” and “protectionism.”
Yet they have put the United States government in the position of having to bail out the free market losers: mortgage companies and investment banking firms that issued bad debt, versus making investments in technology and pro-growth economic policies that result in the domestic manufacture of products that create high-paying jobs.
It wasn’t long ago that the Soviet Empire collapsed, not because it couldn’t produce nuclear warheads, but because it couldn’t produce a loaf of bread. Today, the United States can produce a stealth bomber, but it can’t produce a pair of shoes. The Unites States government and its military strategic thinkers have forgotten a basic military principle: Without industry a country cannot maintain an army.
Manufacturers warned of the financial collapse that occurred in 2008 starting in 2002 after more than two years of sustained job losses and outsourcing of important production capabilities. But their voices have been outnumbered by the Apostles of Denial, who downplayed key economic facts such as the growing and massive asymmetrical U.S. trade imbalance in the important advanced technology sector. “To the degree that the decline in competitiveness is recognized, refusal to act is rampant” – blocked by interests that promote the movement of jobs and factories overseas, Tassey writes.
Two years before the crash of the U.S. financial system, President Bush’s top economic team held a weekend of meetings in Camp David. Afterward, Office of Management and Budget Director Rob Portman appeared before the media, saying there were no real problems with the U.S. economy. Instead, the problem was that the Bush administration was doing a poor job of “communicating the strength of the economy and its pro-growth economic policies” to the American public. Edward Lazear, chairman of President Bush’s Council of Economic Advisors, told reporters that there were plenty of positive economic indicators that were not being appreciated by the American public. Americans were spending a lot of money and investment in real estate was strong. But neither of the men mentioned anything about ballooning consumer debt, mortgage debt, massive trade deficits and federal budget deficits. “If we look at consumer behavior rather than the response to polls, the behavior is consistent with a strong economy,” said Lazear.
Former Commerce Secretary Carlos Gutierrez often claimed that the real economic problem facing the United States was the “popular coverage of media in its use of spreading anxiety for political gain.” In November 2005, he told the Woodrow Wilson Center that “if you follow popular coverage, you would think that, as a country, American has peaked, but I would suggest that policy choices should not be dictated by fear.” But fear is exactly what “dictated” the policy choices that were made during the great American government takeover of the U.S. financial system in 2008. “Without immediate action by Congress, America could slip into a financial panic and a distressing scenario would unfold,” President Bush told the nation in a televised speech on September 24, 2008. “More banks would fail. The stock market would drop more. The value of your home could plummet. Foreclosures would rise dramatically. Millions of Americans could lose their jobs. Fellow citizens, we must not let this happen.”
It happened.
The collective denial by America’s economic elite of the need for an industrial base has led the country to a precipice. Domestic manufacturers and producers have grown increasingly frustrated with economists who for decades have rationalized manufacturing job losses as being good for the economy. Manufacturers argue that the federal agencies, the administration and Congress – Republicans and Democrats alike – have been negligent in their stewardship of the economy. The United States is not generating enough wealth to pay its mounting and massive debts. Cheap imports made in unsafe, low-wage factories overseas are not improving the fortunes of American’s least fortunate, much less its middle class. The U.S. trade deficit in 2008 stood at $700 billion – or about $2,000 for every American. That is $8,000 for a family of four, far greater than the $2,000 in savings importers and retailers claim a family saves from the lower costs of imported products. And the $8,000 per year debt does not include the interest that must be paid over the long run.
Without a healthy industrial base, workers are no longer making a livable wage needed to maintain payments on assets like homes and they cannot afford basic necessities like energy, food, education and health care. In 2008, only 6.5 million people out of a population of 305 million Americans purchased a new vehicle from a U.S. automobile company. Total auto sales in 2008 dropped by 18 percent to 13.2 million units.
Even more alarming is the fact that without an industrial base, an increase in consumer demand, which historically pulled the country out of recession, will not put Americans back to work. Any additional consumer spending will only help workers making products overseas. This represents a fundamental break from previous recessions and has led many in the manufacturing sector to fear the growing likelihood of a sustained downturn.
Without an industrial base, the country ran out of money to fix an infrastructure that was rapidly deteriorating, with bridges and levies falling to the mighty Mississippi River. Without an industrial base, major American cities such as Detroit and New Orleans lay in ruins. Without an industrial base, California’s economy has gone bust. Literally thousands of other American communities have lost their local factories and are decrepit. In 2008, the largest public works project on the entire East Coast of the United States was a bridge over the Potomac River between Virginia and Maryland on Interstate 95. Even the federal Highway Trust Fund is insolvent.
Alexander Hamilton, American’s first treasury secretary, understood that the United States would become a world power by focusing government resources on creating a robust and dynamic manufacturing enterprise. His “Plan for American Manufacturers,” written in 1791, argued for the development of an industrial economy over an agrarian economy favored by Thomas Jefferson, and it remains valid to this day.
Without an industrial base, it was only a matter of time before the contagion in manufacturing hit the financial, construction, housing and retail sectors. At some point, the contagion will reach the country’s largest employers: state, local and federal governments.
Those who work in the U.S. manufacturing sector – those who own companies that produce goods – know that without Americans making products, there will not be enough wealth to support the retirement and staggering health costs of the largest generation in the history of the nation.
The United States is broke. It is broke because it has stopped producing what it consumes. The Apostles of Denial would have Americans believing otherwise, arguing that the colossal trade deficit – which in 2006 rose above 6 percent of the U.S. GDP – is not an indicator of U.S. economic weakness, but of its economic strength.
Today, the United States can produce a stealth bomber, but it can’t produce a pair of shoes.
Richard McCormack is editor and publisher of Manufacturing & Technology News, a publication he created in 1994. As a Washington, D.C.-based journalist, he has covered science, technology, industry and government for more than 25 years, specializing in economic competitiveness and globalization. This article is excerpted from Manufacturing a Better Future for America, a book published by the Alliance for American Manufacturing in 2009. For more information, log on to www.americanmanufacturing.org.
