Archive for December, 2010

Will NAM’s Manufacturing Strategy Plan Save American Manufacturing?

Tuesday, December 7th, 2010

In June 2010, the National Association of Manufacturers (NAM) released a report titled, “Manufacturing Strategy for Jobs and a Competitive America.”  In considering the recommendations made by NAM, it is important to understand where they are coming from as an organization and what kind of companies comprise their membership.

NAM is the largest, most well known trade association in the United States, headed up by former Governor of Michigan, John Engler.   Many Fortune 500 companies that are manufacturers are members of NAM, and the member companies that comprise NAM’s policy committees and subcommittees are mainly large, multinational companies because small-to-medium-sized companies don’t have full-time representatives in Washington where policy matters are discussed and voted on.  Also, many of these multinational companies have manufacturing operations in China and other foreign countries, and this influences their position on trade issues.

NAM’s Executive Summary begins with what I consider absolute truths:  “America’s prosperity and strength are build on a foundation of manufacturing.  Manufacturers create, innovate and employ millions of Americans in some of the best jobs our country has to offer.”

We agree on the fact that the United States needs a comprehensive manufacturing strategy to be able to compete against foreign governments that provide all the tools of government to support their manufacturing industries.

NAM’s proposed strategy “highlights the need for:

  • Tax policies to bring American more closely into alignment with major manufacturing competitors
  • Government investments in infrastructure and innovation
  • Trade initiatives to reduce barriers and open markets to U. S. exports”

The need to create a national tax climate that allows U. S. manufacturers to be competitive in the global marketplace is unquestionably the highest priority.  We must reduce the corporate tax rate and promote fair rules for taxation of active foreign income, both of which I wrote about in my recent article, “Congress – It’s Jobs, Stupid,” as well as in previous articles and my book.  We must institute permanent lower tax rates for individuals and small businesses because most small businesses are not incorporated and create the majority of new jobs in the United States.

There is no question that the continuing expansion of federal mandates and labor regulations undermines employer flexibility and increases costs that discourages hiring new employees.  New regulations and federal mandates must be rejected and opposed.

Implementing a common sense, fair approach to legal reform is vital to bringing legal costs under control and eliminating the disadvantage American companies face in competing globally.

We definitely need to create a regulatory environment that promotes economic growth.  U. S. manufacturers are forced to comply with scores of regulations that manufacturers don’t have to face in other countries.    As NAM’s plan points out, “the Small Business Administrations office of Advocacy has estimated that regulatory compliance costs amount to $1.1 trillion annually.”

I share NAM’s goal for the United States to be the best country in the world to innovate and perform the bulk of a company’s goal R&D, but this goes against the trend of its own membership of large, multinational companies.  More and more R&D is being conducted offshore in China and India each year.  The danger is that innovation and production are intertwined.  Stephen Cohen, co-director of the Berkeley Roundtable on the International Economy at the University of California Berkeley, said, “Most innovation does not come from disembodied laboratory.  In order to innovate in what you make, you have to be pretty good at making it – and we are losing that ability.”

A 2008 report by Duke University’s Fuqua School of Business Offshoring Research Network and Booz Allen Hamilton, predicted that offshoring of R&D would increase 65 percent and offshoring of engineering services would increase 80 percent in the next 18 to 36 months.

I agree with NAM’s recommendations regarding enacting tax provisions that stimulate investment and recovery, encouraging the federal government’s critical role in basic R&D, and enhancing efforts by the federal government to protect American Intellectual Property (IP) and impede the continuing trade in counterfeit products that results in hundreds of thousands of jobs annually.

However, I question NAM’s recommendation to support substantial increases in the number of employer-sponsored visas as the solution to attract the best talent within the United States and from the entire world.  With the U. S. unemployment ranging between a low of 9.6 to a high of 10.0 in the past year, the last thing we need is more immigrant workers, legal or otherwise taking jobs away from qualified Americans.  There are plenty of highly skilled American workers to fill the needs of American manufacturers.  We are still attracting a large number of foreign undergraduate and graduate students, but a high number of Indians and Chinese are returning to their native countries to work in the industries their governments support instead of remaining in the United States.

I share NAM’s goal to have the U. S. be a great place to manufacture to meet the needs of the American market and export our products to the world.  The United States outdated export control system needs to be modernized to encourage exports and strengthen national security.  Small-to-medium-sized manufacturers need more assistance in export promotion and export credit.   The biggest problem is that the United States is no longer the source for products consumers buy around the world (electronics, small appliances, clothing, etc).  These products are now being made in China and other Asian countries and imported into the United States and other developed countries.  The end result is the export of more and more high tech products by United States manufacturers, some of which involve technology useful for military weapon systems.

It is imperative that the United States develop a comprehensive energy strategy that embraces an “all of the above” approach to energy independence.  A large portion of our worldwide trade deficit is for the importation of oil.  We must end our dependence on imported oil and utilized all of our domestic resources for energy generation.

The United States already leads the world in innovation and investment related to protecting the environment to the point that American manufacturers are at a competitive disadvantage compared to China and other Asian countries.  Until these countries start enacting similar laws and regulations or enforcing existing ones, the United States must avoid signing treaties that make it even harder for American companies to compete in the global marketplace.

At a time when the federal government’s budget deficit exceeds $1.5 trillion for 2010 and many cities and states are near bankruptcy, it is unlikely that it will be possible to invest in the infrastructure that will help American manufacturers move products and people more efficiently.

I strongly disagree with NAM’s recommendation to “enact pending trade agreements and negotiate additional agreements in the Pacific area and elsewhere.”  In my June blog article, “Do Free Trade Agreements Create Jobs?” I pointed out that NAFTA, effective in 1994, and the subsequent free trade agreements haven’t created American jobs, they have cost American jobs.  Between 1994 and 1999, we lost about a half million manufacturing jobs, but we’ve lost another 5.5 million jobs since the year 2000 when China was granted Most Favored National status and gained access to the World Trade Organization thereafter.  Our trade deficit with China rose from $84 billion in 2001 to $226.9 billion in 2009, down from $268 billion in 2008 due to the worldwide recession.  As Ian Fletcher stated in his book, Free Trade Doesn’t Work, What Should Replace It and Why, Chinese imports now constitute 83 percent of our non-oil deficit.  Elsewhere in his book, Fletcher noted, “It has been estimated that every billion dollars of trade deficit costs American about 9,000 jobs.  In his book, Mr. Fletcher makes a compelling argument that a “natural strategic tariff” should replace free trade agreements.  I strongly suggest that NAM and other national economists consider Mr. Fletcher’s proposed solution.

In conclusion, NAM’s proposed manufacturing strategy has many admirable recommendations; however, it is really a codification of positions and recommendations promoted by NAM for the past 20 years during which we have lost over six million manufacturing jobs.  NAM’s strong emphasis on a progressive international trade policy based on “free trade” will not save American manufacturing in the future.  The continuation and expansion of “free trade” policies will lead to the destruction of more American industries and the loss of more American jobs. We must change course if we want the United States to remain a great nation.  There is still time, but the clock is ticking!