savingusmanufacturing.com

It’s said it’s always darkest before the dawn.  With continued high unemployment, escalating national debt, and soaring trade deficits with China, the economic news seems pretty dark.  Two events occurred last week that are like a bright dawn coming after a dark night.

The first was the Design-2-Part Show held October 20-21 in Long Beach, California.  This show features design and contract manufacturers located in the United States.  While some of these companies may also have a plant offshore, no offshore-only companies are allowed to exhibit in the show.  The mission of The Job Shop Company that owns and puts on the dozen different Design2Part shows around the country is to support and feature American companies.

This year’s show was exciting!  It was the most well attended show since the fall of 2007, before the recession started.  Show management said it was one of the best southern California shows in the history of the company, with attendance up 21 percent over last year’s show in Pasadena and up10 percent over the 2008 show in Pomona.  In fact, it was so well attended that many exhibitors had trouble talking to all of the attendees that were visiting their booths.   The attendees weren’t just browsing, as many exhibitors had far more leads from this show than the two previous shows.

The demise of shows such as the Design-2-Part show was expected because of the Internet.  But there’s no substitute for the face-to-face interaction provided by trade shows.  At the Design2Part shows, engineers get to see and touch actual parts built by the exhibitors.  This gives them ideas to use for new products they are designing and shows them how other people have solved problems they may be encountering in their design phase.

What made it even more exciting this year was the number of attendees that came to the show looking for domestic sources for parts for new products or looking for a domestic source to replace an offshore vendor for parts for existing products, with some even bringing prints to quote.  We heard several stories about quality problems with offshore vendors that are making it no longer advantageous to source the parts offshore.  One company mentioned that because parts coming from China didn’t meet dimensional specifications, they had to rework the parts and modify assembly steps at their own cost.  When they contacted the Chinese vendor to return the parts, the Chinese vendors said, “We’ll be happy to accept a new order for the parts,” but wouldn’t give credit for the defective parts from the previous order.

Other factors mentioned in the decision to rethink sourcing offshore in China were the increases in wages as a result of the suicides and strikes during the summer, as well as increases in shipping costs.

The other event was the 17^th Annual TechAmerica (formerly AeA) High Tech Awards that were presented at a luncheon attended by over 600 people in San Diego on October 22^nd.  This event highlighted the creativeness and ingenuity of American companies, which is one of our greatest strengths in competing globally.   There were ten categories of awards this year with the addition of contract services for the first time.  Out of many dozens of applications, three to five finalists were selected for each category. The award winners in each category were:

Software:  Anakam Inc. provides integrated no-touch risk-based identity verification and multi-factor authentication solutions for government, healthcare, and commercial organizations.  Anakam was just acquired by Equifax Inc. earlier this month.

Internet/Web Commerce:  Anonymizer provides a proprietary set of solutions for the corporate online privacy sector.

Contract Services:  D&K Engineering provides full turnkey development and manufacturing services, as well as focused projects to address a specific client need anywhere along the product life cycle.

Computers & Related Products:  Z Microsystems provides field-ready computing technologies, focused on government and DoD, including a full range of deployable data storage systems.

Defense/IT Solutions: DefenseWeb Technologies helps government organizations address complex automation and information technology challenges through innovative software development.  DefenseWeb became a wholly owned subsidiary of Humana Inc.

Semiconductors, Industrial & Analytical Instrumentation:  Quantum Design provides automated temperature and magnetic field testing platforms for materials characterization.

Communications Products & Services:  Entropic Communications is a leading fabless semiconductor company that designs, develops, and markets system solutions to enable connected home entertainment.

Medical Device Technology/Instrumentation:  GenMark Diagnostics, Inc. provides the eSensor® XT-8 to perform multiplexed molecular diagnostics utilizing a micro fluidic system to accelerate target binding and improve time to result.

Clean Technology:  Reaction Design empowers transportation manufacturers and energy companies to achieve their clean technology goals with a comprehensive and east-to-use set of software simulation tools, chemical models, and expert consulting services.

Outstanding Emerging Growth (under $5 million revenue):  Seacoast Science, Inc. provides the next generation of chemical sensor and chemical detection devices for a variety of markets including leak detection, military, homeland security, air quality monitoring, and emission gas detection.

While the technology represented by these companies is amazingly cutting-edge, it is even more amazing that many were founded and have grown to be successful during the recession of the early 2000s and the most recent Great Recession in a state that has the 49^th worst business climate in the United States.  One new technology company starts every day of the year in San Diego, and high-tech companies represent six percent of all companies in San Diego and eleven percent of the workforce.

These companies are an example of the entrepreneurial spirit and ingenuity of Americans and provide the best hope for a resurgence of American technology-based manufacturing and services in the face of challenging global competition.

The Manufacturing Institute and Deloitte Development LLC recently released their annual public view on manufacturing in a report titled, “Made in America?  What the Pubic thinks about manufacturing today.”

The report revealed that Americans continue to believe manufacturing is vitally important to our nation’s economy, with 78 percent saying it’s very important to our economic prosperity, 76 percent indicating that it is very important to our standard of living, and 65 percent believe it is important to our national security.  If the general public were aware of how much all branches of the military depend on the manufacturing industry for the development and production of products and systems for the defense of our country, the latter figure would be equally high, if not higher.

Americans think we have the skills and resources to compete globally.  In fact, they are “bullish on the skills and abilities of our workforce in the face of global competition.”  The three sources providing the U. S. manufacturing industry with the greatest competitive advantages are:  technology use and availability, a skilled workforce, and strong R&D capabilities.  Energy availability, natural resources and our infrastructure were the next three important attributes of U. S. competitiveness.

They “think the strength of the workforce is one of the most important factors to our success.”  The top three most important items to maintaining U. S. manufacturing competitiveness are: work ethic, a skilled workforce, and worker productivity

Americans want to strengthen the manufacturing industry, with 75 percent agreeing that the U.S. needs a more strategic approach to the development of its manufacturing base.  Seventy-three percent believe the U. S. should invest more in the manufacturing industry, and 68 percent believe that developing a strong manufacturing base should be a national priority.

At the same time, Americans are concerned about the future of the manufacturing industry, and over half (55 percent) believe that the long-term outlook for manufacturing in the U. S. will weaken.  This may explain the dichotomy of why 55 percent believe manufacturing provides careers that are both interesting and rewarding, and 44 percent believe that jobs offer a safe, clean environment, but only 30 percent would encourage their children to pursue a manufacturing career.

Americans are concerned that U. S. government policies are putting the manufacturing industry at a disadvantage in the global economy.  The top three areas of concern are:

• State and federal government leadership
• Tax rates on individuals
• Government business policies

The survey didn’t delve deeper into these three areas of concern by respondents.  An independent research company conducted the survey in June 2010 with a nationally representative sample of 1,055 Americans across the fifty states.

However, we can see that these three areas of concern have become key issues in the upcoming election in November.  The September 30^th issue of Manufacturing & Technology News contains an interview with Tom Mullikin, who helped organize the Nucor town hall meetings in the 2006 election and described voter anger in his 2007 book, Truck Stop Politics.  He said that his book “attempted to capture the rage of a class of voters who feel they are sliding backward through no fault of their own.  They are forced to downsize their expectations for achieving the American dream… They have a fairly accurate idea about why this is happening.”   He said that if you went to a truck stop and tried to explain why we haven’t effectively dealt with Chinese cheating, like currency manipulation, “you will be met by disbelief and outrage.  Capitol Hill has refused to deal with these issues for over a decade.  Issues such as the unstoppable flow of jobs to other countries, the constant currency manipulation that makes American goods too expensive to sell to our trading partners, and the subsidies some foreign manufacturers receive from their government.  The change the people of Truck Stop Politics were looking for is a change on these fundamental issues.”

He said, “this grassroots revolution has been years in the making… What every-day working Americans want to see is a government that ensures fair trade so they can have jobs, a clean environment and an ability to provide for their families.”  He predicts “a storm surge of electoral activity in November,” and that “you will continue to see volatility in the electorate until we elect Members of Congress with conviction enough to address the real and underlying issues.”

His comments about fair trade are borne out by a poll conducted between September 22nd and September 26th for NBC and the Wall Street Journal.  When asked if they believe that free trade agreements signed by the United States have led to the creation of U. S. jobs or the destruction of U. S. jobs, 69 percent said they cost the country jobs compared to 18 percent saying they created jobs.

When asked if they believe that free trade agreements helped the United States, hurt the United States or did not make much difference, 53 percent said they hurt, and only 17 percent said they helped.  When asked the same question in 1999, 30 percent said they hurt, and 39 percent said they helped.

Perhaps the loss of 5.5 million jobs in the last decade has had an influence on this change of opinion.  Let’s hope that American voters remember these issues when they go to the polls in November.

Amidst the crowded ballot of initiatives for the November election is one that its proponents call the “California Jobs Initiative.”  The ballot title is much longer: “ Suspends Implementation of Air Pollution Control Law AB 32) Requiring Major Sources of Emissions to Report and Reduce Greenhouse Gas Emissions that Cause Global Warming Until Unemployment Drops to 5.5 Percent or Less for Full Year.”

While the majority of the $6.5 million funding in support of Proposition 23 initially came from oil companies outside of California:  Valero, Tesoro Companies, Flint Hills Resources, Marathon Petroleum Company, and Occidental Petroleum, the Howard Jarvis Taxpayers Association, Adam Smith Foundation, California Trucking Association, and California State Pipes Trade Association have donated substantially since the ballot initiative qualified.

The majority of the funding for the opposition campaign has come from a group called “Californians for Clean Energy and Jobs,” made up of wealthy individuals who are believers in global warming as a reality:  Thomas Steyer, Robert Fisher, Wendy Schmidt, Claire Perry, L. John Doerr, William Patterson, as well as such organizations as the Natural Resources Defense Council, the Green Tech Action Fund, and the California Teachers Association.

Thomas Steyer, founder of San Francisco-based hedge fund Farrallon Capital Management LLC, gave $2.5 million and promised another $2.5 million to come.  Steyer and his wife donated about $40 million to fund renewable energy research at Stanford University last year.

Governor Arnold Schwarzenegger is just as strongly opposed to Proposition 23, as he was supportive of AB 32.  He isn’t buying the report from California’s Legislative Analyst’s Office that shows near term job loss from implementing AB 32.

Opponents say that Proposition 23 would delay sensible measures to create a clean energy economy. William Sundstrom, Professor of Economics at Santa Clara University, said “The net impact on California’s employment picture is likely to be so small as to barely noticeable in the unemployment statistics…. Offsetting these transitional impacts will be new ‘green jobs’ in the renewable energy and energy efficiency sectors.  Clean technology is a growth industry, and California has been a significant beneficiary of that growth…”

James Birkelund, an attorney at Cleantech Law Partners, said, “California has invested billions of dollars in clean energy technology such as wind and solar, and is well positioned to lead the nation in the rapidly expanding renewable energy sector… California already had 500,000 workers employed in green jobs, and more than 12,000 clean tech companies call the state home.  It is estimated that Prop. 23 will reduce the state’s economic output by $80 billion and cut over half a million jobs by 2020.

On the other side, a new study released on October 6, 2010 by the non-profit Pacific Research Institute showed that passage of Proposition 23 would create about 1.3 million California jobs by 2020, with 500,000 of those jobs created by 2012, and 150,000 in 2011.  The study assumes that four consecutive quarters of 5.5 percent unemployment or less would not be observed, so that implementation of AB 32 would not resume.   If AB 32 is implemented, they project an employment loss equal to about 5 percent of the working age population, or more than a million jobs.

The California Trucking Association is strongly in favor of Prop. 23 because the California Air Resources Board (CARB) has imposed billions of dollars in high costs on trucking companies to comply with on-road and off-road diesel regulation, and fuel costs could increase another 32%, depending on how AB 32 is implemented.  A study authored by a former Executive Officer of CARB found that the Low Carbon Fuel Standard (AB 32 Scoping Plan Measure T-2) would increase gasoline and diesel costs by $3.7 billion a year with no detectable impact on global warming and a five ton per day increase in smog-forming emissions. The increase in fuel costs would apply to everyone purchasing gasoline and diesel fuel, not just businesses.

Valerie Liese, Chairwoman, California Trucking Association said, “Implementing AB 32 at this time would break the back of the trucking business in California.  That’s why the California Jobs Initiative is so important …Right now, that represents the difference between surviving this recession or going under for a lot of our members.

Law enforcement and firefighters have voiced their support.  Kevin Nida, President California State Firefighters Association said, “The economic crisis of the last few years has put a real strain on resources available to fund firefighters, emergency medical technicians and other public safety personnel throughout the state…The last thing we need is a law that will leave local governments with even less money to fund public safety.”

Small businesses have joined the campaign to support Prop. 23.  Reid Ennis, Ennis Inc., Lakeside, CA said, “We already are burdened with so many taxes and regulations, we barely exist.  We are down from 190 people to 46 and are losing money every month.  With California’s construction unemployment above 30% any more fuel cost increases, fees, or taxes, will destroy many more businesses.”

Michelle Grangetto, 5^th Axis, San Diego, CA, said, “…We machine parts for aerospace, military, and medical fields…another increase in electricity will force us to relocate to another state.”

San Bernardino County Supervisor, Brad Mitzelfelt said, “Our top priority has to be job creation…With more than 2.2 million people out of work in the state and the jobless rate at close to 15 percent in some counties including San Bernardino, Prop. 23 represents a common-sense approach to protecting jobs and holding the line on costs for California’s struggling families.”

When the California Global Warming Solutions Act of 2006 (AB 32) was passed in 2006, California’s economy was booming, with unemployment at only 4.8 percent.  Now California’s unemployment is at 12.4 percent statewide, and we’ve lost over 50,000 manufacturing jobs since the recession began at the end of 2007.   Over the last several years, hundreds of manufacturers have relocated to Nevada and Oregon where there is no state income tax, workers’ compensation costs are much lower, and the cost of regulatory compliance is also much lower.

Now is not the time to make it harder for California companies to stay in business and stay in California.  County Supervisor Mitzelfelt said it best — a “yes” vote on Prop. 23 makes sense.  Passage of Prop. 23 will save more California businesses than it will hurt in the clean energy technology industry.

Since saving American manufacturing has become my main mission in life and the focus of this blog, I have reviewed the Republican’s “A Pledge to America” with that viewpoint in mind.

The Republican pledge includes five major plans that they will work to achieve if they take over control of Congress and the U. S. Senate as a result of the upcoming elections in November.

These plans are:

• A plan to create jobs, end economic uncertainty, and make America more competitive – includes a pledge to permanently stop all tax increases, give small businesses a 20% tax deduction, repeal the mandate to report purchases that run more than $600 to the IRS included in the health care reform, and require congressional approval of any new federal regulation that has an annual cost to our economy of $100 million or more.

• A plan to stop out-of-control spending and reduce the size of government – includes canceling unspent “stimulus” funds, blocking attempts to extend the timeline for spending “stimulus” funds, rolling back government spending to pre-stimulus levels, setting strict budget caps to limit federal spending annually, cutting Congress’ budget, holding weekly votes on spending cuts (YouCut initiative), ending TARP (Troubled Asset Relief Program, ending government control of Fannie Mae and Freddie Mac, and imposing a net federal hiring freeze on non-security employees.
• A plan to repeal and replace the government takeover of health care – includes repeal of the Health Care Act of 2010 and replacing it with medical liability reform, allowing consumers to purchase health insurance across state lines, expand Health Savings Accounts (HSAs), and make it illegal for insurers to deny coverage to someone with prior coverage on the basis of a pre-existing condition, eliminate annual and lifetime spending caps, and prevent insurers from dropping coverage when a person gets sick.
• A plan to reform Congress and restore trust – includes pledge to publish the text of a bill online for at least three days before it comes to a vote in the House, require each bill moving through Congress to include a clause citing the specific constitutional authority upon which the bill is justified, allow any lawmaker, Democrat or Republican, to offer amendments to reduce spending, and end the practice of packaging unpopular bills with “must-pass” legislation by advancing major legislation one issue at a time.
• A plan to keep our nation secure at home and abroad – includes passing “clean troop funding bills (not attached to other policy issues or pork-barrel projects), prevent the government from importing terrorists onto American soil, ensure that foreign terrorists are tried in military, not civilian court, fully fund missile defense, require tough enforcement of sanctions against Iran, establish operational control of the border, work with state and local officials to enforce immigration laws, and strengthen Visa security.

The merits of the specific plans in the Republicans “Pledge” will be hotly debated in the future, but the urgent need to prevent tax hikes from going in effect on January 1, 2011 will be decided by the “lame duck” Congress after the election.  Who’s to say they will do what’s right?  These tax hikes will not only hurt businesses, especially small businesses, but millions of average Americans.  An analysis by Deloitte Tax LLP shows that a family of four with a household income of $50,000 a year will pay $2,900 more in taxes in 2011, and the same family making $100,000 a year will see its taxes rise by $4,500.  Even more crucial is to eliminate the restoration of the exorbitant 55% Death Tax, which would be the death knell to family-owned small businesses when the principal owner dies and the survivors have to sell the business to pay the taxes.

There is no need to “reinvent the wheel” to determine what is needed to create jobs.  Manufacturing jobs are the foundation of our economy, and we need to restore our manufacturing base to create jobs.  Not all of the recommendations of the Manufacturing Initiative reported in the 2004 “Manufacturing in America:  A Comprehensive Strategy to Address the Challenges to U S. Manufacturers” have been implemented.  The Interagency Working group set up by this Initiative released a report on topics for the federal government’s manufacturing research programs in March 2008, “Manufacturing the Future – Federal Priorities for Manufacturing R & D.”  Many more recommendations of how to restore America’s manufacturing base are summarized in chapter 10 of my book, Can American Manufacturing be Saved?  Why we should and how we can.

The U. S. tax system needs to be improved to make U. S. businesses more competitive in the global economy.  On July 26, 2007, the Treasury Department hosted a conference on Global Competitiveness and Business Tax Reform that brought together distinguished leaders to discuss the topic.  As follow-up to this conference, on December 20, 2007, the U. S. Department of the Treasury released a 124-page report titled “Approaches t Improve the Competitiveness of the U. S. Business Tax System for the 21^st century.  None of the recommendations have been passed by Congress since the report was released so this report should be dusted off and used as a starting point for revamping our tax system.

In addition, the first plan speaks about “…repealing job-killing policies…”  Does this include repealing ruinous one-sided free trade agreements where American workers are expected to compete with foreign workers making a tiny fraction of what an American worker makes in order to survive in America?  As long as China, India, and other cheap labor countries are permitted to wage unrestricted economic warfare against the America worker in the form of predatory mercantilism, we will continue to witness ever-increasing unemployment in our country.  There is nothing in the “Pledge” that addresses this problem.

While Democrats drive jobs overseas from excessive regulation and taxation, Republicans have enticed jobs overseas by promoting free trade agreements.  It is a policy that benefits consumers in the short run, until they lose their jobs.  But, it greatly benefits international business interests in the long run, which profit handsomely at the expense of American workers.  Will Republicans remain in lock step with the pied pipers of free trade by insisting on negotiating more free trade agreements?  Will Republicans continue to ignore the damage to the competitiveness of American companies from Chinese currency manipulation?  Will Republicans continue to allow China to impose tariffs and other restrictions on U. S. imports to their country without imposing tariffs on Chinese goods?

Just last week, on September 26^th, Chinese government officials said that it would slap a hefty tariff on U. S. chicken imports to combat what it says are unfairly low prices.  New import duties ranging from 50.3% to as much as 105.4% took effect the next day and will last for five years. The tariffs apply to chicken parts and whole birds, but not to live chickens or cooked products such as chicken sausage.  China was the largest importer of U. S. chicken in 2009 at $752.5 million.

The Republican “Pledge” is a good start to getting our country back on track, but it’s not enough to save American manufacturing.  It would undo much of the damage done by the Obama administration and Democratic controlled Congress and Senate in the last 20 months, especially if they succeed in repealing the Health Care Act of 2010.

We need to stop the downhill slide of our economy that has been occurring since the year 2000 when China became part of the World Trade Organization after being granted Most Favored Nation status by the United States.  While we’ve lost 5.5 million manufacturing jobs in the U. S. since the year 2000, 3.5 million occurred before the Obama administration came into power.  The end result has been an unsustainable escalation of the U. S. trade deficit with China and an equally unsustainable national debt to China from our staggering budget deficits.

Republicans need to go beyond the proposed actions in the “Pledge” to make real changes in our national policies with regard to trade so that American manufacturers have a more level playing field in which to compete in the global economy.  We can’t continue to export our wealth and be able to remain a first-world country.  We must restore our manufacturing base and help small businesses succeed and grow to create the jobs we need to remain a sovereign nation.  How you vote this fall will determine the course of our nation.   I urge you to make the right choice.