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Columbus Castings has learned how to survive and thrive in challenging marketl

Tuesday, May 20th, 2014

The metal casting industry has been one of the hardest hit by competition from China and India, but some companies have been able to survive and even prosper despite the combined onslaught of intense offshore competition and the Great Recession. That has now put them in the position to benefit from reshoring trend. I recently had the pleasure of interviewing Megan McCuan, Communications and Development Coordinator, of Columbus Castings in Columbus, Ohio, which is the largest single site steel foundry in North America.

Columbus Castings manufactures steel castings for the freight and passenger rail cars, locomotives, mining equipment, industrial magnets, construction equipment, agricultural equipment, and other heavy industrial industries. They produce high-quality industrial castings from 100 to70, 000 pounds. The company has about one million sq. ft. of space in 14-15 buildings, covering an area of 90 + acres, including 22 acres under roof, with access to 19 miles of rail. Columbus Castings currently has 695 employees, and most employees have long time experience. Some of their employees have been there for as long as 30-50 years.

The company’s roots date back to 1881 when the Murray-Hayden Foundry, a small iron foundry, served a growing agricultural based economy. The business flourished when it began manufacturing iron couplers for the infant rail industry and in 1891, the name was changed to the Buckeye Automatic Car Coupler Company.

As the American rail industry expanded, the operation was relocated to a larger facility, and the name was changed to the Buckeye Malleable Iron and Coupler Company to reflect its new emphasis on iron couplers. As the American rail industry growth boomed through the early 1900’s, the demand for iron couplers soon exceeded capacity, and the business moved to the present day location in 1902.

As the industry demand for stronger, tougher products, the foundry changed to steelmaking and the name of the business was changed to the Buckeye Steel Castings Company. In 1967, Buckeye Steel became the flagship company of Buckeye International Inc., which was formed as a parent company for purchasing other non-foundry related businesses. Buckeye International was acquired by Worthington Industries Inc. in 1980, in a stock for stock merger. Buckeye Steel remained an operating subsidiary of Worthington Industries until 1999, when it was sold to Key Equity Capital in a leveraged buy-out. Buckeye Steel operated as a stand-alone entity until December 2002, when bankruptcy was filed after the double blow of a weak freight rail market in 2000 followed by the devastating economic effects of 9/11 and the intense competition from China, which proved too much for the debt burdened business.

That could have been the end of the story, but the former President of Worthington Industries, Don Malenick, had different idea. Don had recently retired after 40 plus years from Worthington, where he had held the position of President for the final 26 years. He had an in-depth understanding of the potential value of the facility and also maintained his love for the steel industry in the Central Ohio area. He assembled a team of investors to purchase the assets of the business out of bankruptcy, as well as a team of veteran railroad foundry men to start the new business.

The new entity, Columbus Steel Castings, was based on a business model designed to be the lowest cost and highest integrity supplier of cast steel products in the industries it serves. The business was formed with a “pro-employee”, “union-free” philosophy, created to engage its employee’s talents to the fullest. When the business does well and makes a profit, then all eligible employees share in the success. As a “Pay for Performance” company, the wage and salary compensation is based on an employee’s contribution to the bottom line. Employees are incited to work hard as a team and find ways to do their jobs better, faster and safer.

The company experienced a slight upturn in their rail business from 2004 to 2007, while their industrial market was slow and steady. In 2008, Protostar Partners, LLC purchased Columbus Steel Castings and renamed the company Columbus Castings.

Their rail business slowed in the fall of 2008 after the economic crash that led to the Great Recession in 2009-2010. The demand for freight cars dropped during the recession, and they had to lay off employees.

In 2011, they implemented a new sales plan and focused on their quality and on-time delivery. They responded to the shift of their customers from coal cars to tankers for natural gas in 2012 when the natural gas industry boomed in the upper Midwest. They are currently marketing more to tank car customers and featuring new materials for sand castings for this market.

Richard T. Ruebusch took over as President and CEO in 2012 after having held numerous senior level executive level positions that included 14 years experience at global foundries. In order to be more competitive in the global economy, the company became ISO 9001:2008 Certified. They also started lean manufacturing training as both Mr. Ruebusch and their V. P. of Operations, Randy Parish, have extensive lean manufacturing backgrounds. As a result of implementing lean, the company has achieved a 30% improvement in cycle times and reduced their lead times. Columbus can now produce and ship average components in less than 12 days, ad large components take only around nine weeks.

While, China is still a big competitor for rail car components, the company is getting some work back from offshore. As oil prices increased, costs to ship massive steel castings from China reduced profit margins for their customers and long deliveries became a disadvantage. Columbus can produce and deliver high-quality steel castings in less time than it would take to ship them from overseas. Ms. McCuan said that Caterpillar had a factory in India and brought the work back to the U.S. in 2012, and Columbus was able to get part of the reshored business.

In November 2013, Columbus landed the largest order in its 130-year history. The deal with Nippon Sharyo USA Inc. for railcar undercarriages could be worth up to $70 million to the manufacturer and added more than 50 jobs at the foundry. Nippon’s end customer is Amtrak, which is in the midst of an extensive replacement of its passenger railcars. “If they exercise all their options, this will keep us at full capacity until 2021,” CEO Rick Ruebusch said. “In addition to the Nippon deal, the manufacturer also has orders from additional Amtrak suppliers CAF USA and Hyundai Rote Co. for the same railcar components.”

Columbus utilizes “green” practices, such as thermal sand reclamation, and the company has two new design projects: one of which is a new “knuckle” that is a rail component that goes on the end of rail car to fasten it to another car. They are also working on reducing the weight of parts without reducing performance.

Their “Open Door” policy assures every employee an opportunity to voice his or her concerns about the business and their employment. The company’s management knows that their business is only as good as their people, and the development and recognition of the best people will assure continued growth and improvement of the company in the future.

Mr. Ruebush said, “The main factor contributing to the success of our company since recovering from the Great Recession was becoming a diverse manufacturer. In past times, our company was too focused on freight rail. We are building business levels in our industrial business unit, as well as in our mass transit (passenger rail) business as demonstrated with the recent largest order in the company’s history with the announcement of our $72MM contract with Amtrak and Nippon Sharyo.”

It certainly looks like Columbus Casting is well on its way to achieving its goal of being the best large steel casting company in the world. If the U. S. had a national manufacturing strategy that supported American manufacturers to help them become winners in the global trade wars, more American companies would be able to achieve the same kind of worthy goal for their industry. We need a strategy for prosperity for American-owned businesses and not just the large multinational corporations. It’s time for our elected leaders to address the predatory mercantilist trade policies of foreign countries, such as currency manipulation, product dumping, government subsidies, and intellectual property theft that put American manufacturers at a disadvantage in the global marketplace. This is the only way we will be able to create the higher paying manufacturing jobs we need to grow our middle class and reduce our trade deficit and national debt.

Posted in Economy, Jobs, Manufacturing, Reshoring, Trade Policy | 1 Comment »

California’s Metalworking Industry is a Leader in Technology and Environmental Consciousness

Tuesday, May 13th, 2014

The California Metals Coalition (CMC) held their 41st annual meeting in Anaheim on May 8-9th, 2013. Over 150 business leaders from metalworking companies and the industry’s service providers attended the meeting. The California Metals Coalition membership is a diverse representation of the state’s metals industry. Membership in CMC is corporate, and the employees of each facility are individual members of the organization. The member companies are small businesses ? the average number of employees per company is only 50, so without an organization to be the voice and advocate for the metalworking industry in California, these companies and this industry would have no influence on statewide policies affecting them.

California’s metalworking industry began when metalworking facilities were established in1848 to manufacture the tools that led to the start of the gold rush and birth of our state in 1850. Today, California is home to 6,100 metalworking facilities, employing approximately 213,500 Californians, providing high-paying manufacturing jobs, health benefits, and a solid economic foundation to the Golden State. This level of employment represents 18% of California’s 1.2 million manufacturing jobs. This industry generates $12.2 billion in goods and services and $7.9 billion in wages for the economy.

The types of services provided by member companies includes: sand, permanent mold, investment, rubber/plaster mold, and die casting, machining, forging, metal fabrication and welding, metal stamping, metal finishing, metal raw materials, metal recycling, and tools and dies.

According to CMC data, in the metalworking industry, 8 out of 10 employees are considered ethnic minorities or reside in communities of concern. Living-wage employment for this diverse workforce can be found in working-class communities throughout the state because the average full-time hourly wage is $18.00 (not including benefits) or $37,000 per year. Jobs provided by this industry are the path to the middle class for many Californians.

What do these companies make? Metal manufacturers make the parts that go into solar panels, electric cars, medical devices, airplanes, unmanned vehicles, ships for the Navy and private companies, products for the military and defense industry, and thousands of other applications. Metalworking products and services are a direct reflection of the innovation and hard work put forth by California’s workforce and business owners.

Californians discard enough aluminum each day to build five Boeing 737 jets, and California metalworking companies recycle millions of tons of discarded metal each year. Metal is recycled and used as the primary material source to build components that fly our planes, housings that spin renewable-energy windmills, medical devices that keep our families safe, and defense items used by our troops. California metalworking companies recycle about 1,830,000 tons of metal per year, and every ton of waste that is recycled rather than disposed in landfill produces $275 more in goods and services.

The keynote speaker of the conference was Jerome Horton, Chairman of the Board of Equalization, who acknowledged the importance of this industry to the economy of California by mentioning some of the above data. He said that the BOE is helping California companies grow and had worked with the California Metals Coalition and other organizations to obtain the new manufacturers exemption tax credit that was signed into law by Governor Brown as part of Assembly Bill 93 and Senate Bill 90. This exemption will become effective July 1, 2014 and expires on July 1, 2022. It applies to specified NAICS codes, applicable to the whole metalworking industry and has a $200 million limitation. Tax-exempt property must be used 50% or more in one of the following activities:

  • Manufacturing, processing, refining, fabrication, or recycling tangible property
  • Research and development
  • Maintaining, repairing, measuring, or testing any qualified property
  • As a special purpose building and/or foundation

The BOE expanded the meaning of this tax credit to apply to tooling, whether it is retained or sold. Tooling must be either manufacturing by a company or purchased, be used in the manufacturing process, and have a life of over one year.

He also outlined the benefits of the new employee hiring credit that replaces the tax credits offered by Enterprise Zones that have been eliminated. This tax credit is based on wages of $12-$28/hour. There is a maximum of $56,000 per employee over five years, and the credit is equal to 35% each year.

The BOE has a much larger reserve than they need and are starting to refund monies to California companies. Last year the sales tax revenue increased from $52 billion to $56 billion, which helped enable the state budget to be balanced, but the State still has $300 billion in debt.

Kimberly Ritter-Martinez, Chief Economist for the Kyser Center for Economic Research at the Los Angeles Economic Development Corporation was the next speaker. She provided an overview and comparison of the national economy and the state economy. If California were a country, it would be the 9th largest economy measured by Gross Regional Product in the world. However, California is lagging the national average in creating jobs, so that the unemployment rate in March was 8.1% compared to 6.7% nationwide. Jobs in durable goods manufacturing only increased by .8% for the state. She predicted 2.4% growth in the State GRG in 2014, and 2.9% in 2015.

Although California is losing businesses to other states, the LAEDC has helped companies such as Space X and American Apparel stay in California.

Jack Broadbent, Executive Office of the Bay Area Air Quality Management District, was added to Thursday’s schedule of speakers as he had a conflict with attending on Friday as originally scheduled. The Bay area District was established in 1955, includes 9 counties with a population of seven million, and covers 5,540 square miles. The purpose of the Bay Area District was to improve air quality by reducing particulate matter, noxious odors, reduce visible emissions, and reduce future emissions. The California Air Pollution Control Officers Association (CAPCOA) was formed to coordinate the rules of many local and statewide agencies involved in air quality.

In 2013, two new rules were adopted after extensive consultation with industry and other stakeholders. Rule 12-13 applies to foundries and forges, and Rule 6-4 applies to metal recycling operations. The Bay Area District led the state in creating an Emissions Minimization Plan to focus on fugitive emissions by reducing particulate matter, toxics, and odors. It incorporates continuous improvement via on-going facility assessments and Plan updates. All the draft plans have been received, and the next step will be a determination of District completeness, a public review period, District review and approval, followed by facility implementation.

In the Q & A period, I asked if the air pollution being transported by the trade winds from China is being taken into consideration, and he said that they have had to adjust the base of the ambient air quality because of the transported pollution. He has been to China five times in the past three years, and he said that China’s particulate matter in their air is more than 10 times the U. S. standard.

Brian Johnson, Deputy Director of the Department of Toxic Substances Control (DTSC) was the next speaker. He briefly described the Hazardous Waste Management program and the new Policy and Program Support Division that was formed after restructuring last year. The metalworking industry is getting a great deal of attention by the legislature, regulators, and the community around specific metals sites. A Hazardous Waste Reduction Initiative was introduced into the legislature last year, and a Safer Emissions Products Initiative is on the horizon. The Department is using 17 categories of pollution burden data of Census Track ratings to prioritize their response to community complaints for specific metals sites.

The next topic was workmen’s compensation insurance, and State Senator Ted Gaines (R) who is a candidate for Insurance Commissioner described how his long experience as an insurance agent would be beneficial to working with the metalworking industry to improve this insurance program. A panel of five members of CMC shared their experiences with regard to this issue. Of note, is the fact that California has some of the highest workmen’s compensation rates of any other state for certain industries. For example, the California rate for die casting companies is 5 times the rate in Mississippi.

The issues discussed at this conference demonstrate why the metalworking industry is challenged in doing business in California. However, many of these companies, especially foundries and forgers, cannot easily pick up stakes and move to other states. The high cost of doing business in California has resulted in more companies going out of business rather than moving to another state.

Adding to these challenges has been the fierce competition this industry has experienced from China in the past decade. CMC Executive Director, James Simonelli, told me that in the year 2000, the industry had about 325,000 employees. This means that the current employment of 213,500 is 40% less than it was 14 years ago. The good news is that all of the attendees to whom I spoke were experiencing some “reshoring” of parts coming back from China.

When compared to manufacturing facilities around the world, California is the place to find the most technologically advanced, and environmentally conscious metal manufacturers. California’s metalworking industry is arguably the world’s leader for efficient, clean, and safe metal manufacturing.

Posted in Economy, Environment, Jobs, Manufacturing, Reshoring, Taxes/Regulations | No Comments »

San Diego’s Maritime Industry is Becoming Increasingly Important to the Region

Tuesday, April 15th, 2014

While we all know that San Diego has a world-class port that is the gateway to the Pacific and the growing markets of Asia and Latin America, most don’t realize that its maritime industry “represents one of the most unique regional economies in the world with more than 1,400 companies producing over $14 billion of direct sales and a workforce of almost 46,000 spread across an array of traditional and technology-oriented sectors.” The knowledge of how important that the maritime industry clusters has become to the regional economy was made clear to me when  I recently came across a report that was released in 2012:  the San Diego Maritime Industry Report, sponsored by the San Diego Workforce Partnership, (SDWP) San Diego Regional Economic Development Corporation (SDREDC), and The Maritime Alliance (TMA).

The survey portion of the project was conducted over a period of four weeks during May and June 2012. It involved quantitative economic analysis of data from proprietary business resources (such as Info-USA and Dun and Bradstreet), standard data from the BLS and Census Bureau, and first-hand information from San Diego-based ERISS Corporation through numerous in-person and telephone interviews and both a telephone and an online survey of more than 230 companies.

San Diego’s Maritime Industry and related economic activity comprise what is being called the “Blue Economy.” The maritime technology or “Blue Tech” cluster  “includes nearly 200 separate NAICS (North American Industry Classification System) codes and includes businesses in sectors as obvious as fishing and as surprising as metal forging.”

The 84-page report divides the Blue Economy into three general categories of the functional organization of San Diego’s Maritime Industry:

  • The traditional maritime space, in which industries are exclusively maritime, such as fishing and ship building
  • The traditional maritime space, in which an industry includes maritime and non-maritime activity, such as construction industries capable of working on ports
  • The maritime technology space, or “Blue Tech”

The analysis suggests an estimated 46,000 employees work in San Diego’s Maritime Industry:

  • Total employment (September, 2011) 45,778
  • Traditional maritime exclusive industries 8,176
  • Maritime technology industries “Blue Tech” 18,948
  • Other maritime 18,654  (in traditional industries that include maritime activities but are not exclusively maritime)

Shipbuilding and ship repair provide the most jobs, 6,127, followed by Testing Laboratories, 3,689, R&D in Physical, Engineering, & Life Sciences (exc. Biotechnology), 3,376, and Engineering services, 3,228.

Based on the survey, “the projected total employment growth between 2011 and 2020 is for nearly 6,000 new jobs, or 12 percent of the current total (though fast growth, new technologies, and new opportunities could yield significantly higher numbers.)”

Total revenue was estimated at slightly more than $14 billion (direct spend only) in 2011:

  • Traditional maritime exclusive industries $ 1,403,082,257
  • Maritime technology industries   $ 6,165,840,257
  • Other maritime   $ 6,465,162,848

Source: ERISS; Info-USA; U.S. Bureau of Labor Statistics, Quarterly Census of Employment and Wages; Dun and Bradstreet; Corporation Wiki

The report states, “The region’s focus on the high-technology aspects of the Blue Economy is increasingly well-placed. Technology is becoming ever more enmeshed in even the most traditional maritime activities…The role of technology in San Diego’s maritime economy is also unique because of the close relationship with the U.S. Navy and the need for innovation for the Defense Department and defense industries.”

The Maritime Alliance undertook “yeomen’s efforts to define the totality of the Maritime Technology Cluster – really a sub-set of the larger Blue Economy – similar to how maritime technology clusters around the world seem to identify their industry activity as an innovation industry with close and overlapping relationships to the spheres of traditional maritime activity. Their efforts resulted in 14 sectors for the San Diego Maritime Technology Cluster map with many sub-sectors:”

  • Aquaculture and Fishing
  • Biomedicine
  • Boat and Shipbuilding
  • Cables and Connectors
  • Defense and Security
  • Desalination and Water Treatment
  • Marine Recreation
  • Ocean Energy and Minerals
  • Ocean Science and Observation
  • Ports and Marine Transportation
  • Robotics and Submarines
  • Telecommunications
  • Very Large Floating Platforms
  • Weather and Climate Science

The report made the following general observations about San Diego’s “Blue Tech” industry:

  • Highly differentiated  – 14 sectors in San Diego; 71 sub-sectors
  • Prevalence of multi-use technologies from small, specialized firms
  • Typically high gross margins
  • Largely self-reliant – traditionally modest users of bank debt and outside equity
  • Largely invisible in local markets / limited public & government awareness
  • Little baseline economic data due to non-specific NAICS codes
  • Highly export-oriented – typically 40-60 percent for most companies
  • Markets exist in virtually every country around the world
  • Growth in most sectors strongly outpaces world economic growth

These sectors can largely be used to describe the overall Maritime Industry and doing so “ helps to emphasize the increasing connectedness and overlap between the traditional and technology dimensions of San Diego’s maritime businesses…to leverage shared assets and opportunities, from formal investments all the way to informal instances of collaboration among stakeholders. “

While commercial fishing in the region is much smaller than in its heyday, the industry has the potential to double in size over the next decade. Plans have been made to provide ongoing support for commercial fishing, and recommendations have been incorporated in the Commercial Fisheries Revitalization and Coastal Public Access Plan that took three years to complete. The Port of San Diego staff has begun implementation. Implementation will take several years and cost several million dollars.

For about “one-third of the 22 companies that participated in live interviews, energy, especially offshore oil and gas, directly or indirectly, represented major, if not dominant customers. Most of these firms have few or no local customers. Their customers are either foreign firms or, if U.S. firms, located in either the Gulf of Mexico or foreign waters.” This sector has a high-growth potential market.

San Diego is the world leader in desalination and reverse osmosis technology, which was patented in San Diego in 1964. “More than 3,000 professionals and workers are employed by companies in the region which includes two of the three global market-share leaders in membrane supply.”

“San Diego has a long history in underwater vehicles and maritime robotics, initially driven by the Navy’s needs. The major Navy lab in San Diego (SPAWAR Systems Center Pacific) developed ten manned underwater vehicles and nearly two dozen unmanned vehicles.” Private companies have developed various kinds of UUVs (Unmanned Underwater Vehicles), such as the underwater vehicle models of SeaBotix Inc., the world’s leading MiniROV manufacturer.

The report states, “Workforce development has a critical role to play when cluster strategies consider the practical challenges and opportunities within any region…workers at the top of the income and education spectrum are no longer a central facet of what cluster strategies can offer a region…An occupational strategy for the Maritime Industry must be necessarily unique. On the one hand, the industry composition is too diverse to look for industry-driven occupational patterns as a driving rationale. On the other hand, that diversity includes both the kinds of firms that headline The Maritime Alliance’s membership and those that rely critically on workers who are skilled but unlikely to hold a bachelor’s degree.”

Most of the small, high-tech firms interviewed primarily recruited individuals with college or advanced degrees, with very high concentrations of various engineering disciplines. They reported considerable talent availability, particularly due to the recession. “The primary recruiting concern was lack of maritime-specific experience and training. Lack of undersea experience was especially noted by several firms. A few firms expressed concern about a growing shortage of software developers and programmers.”

The company interviews revealed the following common trends and challenges:

  •  Firms saw considerable opportunity, especially in offshore markets, but some of the most attractive deals are seen as too large or too complex for small companies to pursue effectively by themselves.
  • Strong global competition is emerging, especially from firms with considerable foreign government support or from large firms with access to significant private or public capital resources.
  • A large number expressed concerns about California’s regulatory burden, as well as that of the U.S. Environmental Protection Agency (EPA).
  • Many were very concerned about threats to the working waterfront and saw residential and tourism interests eating away at industrial and commercial uses of the waterfront.

Many supported strong local advocacy in support of reducing the state burden on maritime activity, easing commercial regulation on surveying and mapping activity and on recreational yachts over 300 tons, as well as harmonizing California ballast water regulations with those promulgated by the International Maritime Organization, until a common suite of U.S. regulations are issued. Shipyards claimed that they face overlapping and sometimes conflicting regulations and oversight from multiple agencies and that San Diego is worse than the rest of California.

Policy Recommendations

While these are too numerous and detailed to consider in depth in this brief article one of the most important was that it was recommended that the SDREDC focus on attracting and promoting high wage, high value-added, capital and R&D intensive firms and operations, with five focus areas for initial priority attention:

  1. Target offshore energy, and potentially offshore minerals extraction, as a priority cluster strategy effort. The range of companies in the San Diego region with deep expertise and technologies focused on operations in hostile ocean environments face an exciting array of opportunities.
  2. Launch a focused effort to take advantage of (and protect San Diego from) changing DoD strategy and restructuring.
  3. Strengthen organizational participation in the existing TMA Seafood (Aquaculture and Fishing) Working Group that brings together the fishing, processing, aquaculture, and other related interests to determine if the strong mutual interests identified can be leveraged into a seafood strategy for the region or the state.
  4. Aggressively promote shipbuilding, repair, and refit as this is a relatively robust local industry.
  5. Enhance seaborne trade and the associated land-based, logistics infrastructure.

The respondents expressed strong concerns that the various maritime organizations were not doing enough collectively to “protect the working waterfront.” Some of the recommendations included:

  •   Create joint-use facilities such as a world-class testing facility that firms could access
  •  Create incubator space for young firms, which would include access to shared equipment and facilities
  • Create a network of existing specialized facilities, equipment, and other assets that could be made available to smaller firms (for a fee)
  • Create a core marine biology facility for joint use (similar to an existing North Carolina initiative)

Finally, there was strong interest in more networking and collaboration between the Navy and private industry, between large firms and small firms, and among the many maritime-related organizations in the San Diego region. The consensus was that that the San Diego community does not think big enough in the maritime space. A clear recommendation was made for the San Diego maritime community to come up with a big idea and make it happen (such as the Maritime Center of Excellence).

Posted in Economy, Jobs, Manufacturing | No Comments »

Manufacturing in Golden State Summit shows how to make California Thrive

Tuesday, March 25th, 2014

On March 19th, over 100 business leaders met at the community center of the City of Brea in Orange County for the “Manufacturing in the Golden State – Making California Thrive” economic summit. The summit was hosted by State Senator Mark Wyland in partnership with the Coalition for a Prosperous America and many other regional businesses and associations. The purpose of the summit was to discuss how our national trade policies and tax policies are harming California manufacturers and what policies should be changed to help them grow and thrive.

After State Senator Wyland welcomed attendees, Michael Stumo, CEO of the Coalition for a Prosperous America, provided an overview of the schedule for the day.

I provided an overview of California manufacturing in which I briefly discussed the history of manufacturing in California, pointing out that California is the 8th largest market in world and ranks first in manufacturing for both jobs and output. Manufacturing accounts for 12.5 % of the California’s Gross State Product and 9% of California jobs. California leads the nation in monies spent on R&D, and California companies received over 50% of all Venture Capital dollars invested in the U. S. in 2011. California’s high-tech exports also ranked first nationwide, totaling $48 billion in 2011.

California dropped to 50th in ranking for its business climate by the Small Business Entrepreneur Council Survival Index of 2013 because of its high personal and corporate income & capital gains taxes, its high gas and diesel taxes, high state minimum wage, high electric utility costs, high workers’ compensation costs, and stringent environmental and air quality regulations.

As a result, California lost over 600,000 manufacturing jobs since the year 2001, which represents 33.3% of its manufacturing industry. I mentioned that all of us had undoubtedly heard the latest ad by Texas Governor Rick Perry touting that 50 California companies had relocated to Texas in the last two years.

I then moderated a panel of the following local manufacturers, who gave their viewpoints of the challenges of doing business in California:

  • Bob Lane, President, laneOPX
  • Dana Mitchell, President, Advanced Mold Technology Inc.
  • Tim Nguyen, President, Alva Manufacturing
  • Nick Ventura, Co-founder WearVenley.com

Ms. Mitchell, Mr. Nguyen, and Mr. Ventura highlighted the difficulty in competing against Chinese prices and finding skilled workers. Their other comments provided examples of some of the above-cited disadvantages of doing business in California.

Dr. Greg Autry, Adjunct Professor of Entrepreneurship, Marshall School of Business, University of Southern California, led off the national panel with the topic of “Currency Valuation and National Security Concerns with the Current U.S. Trade Regime.” He began by showing the falsity of classical  assumptions behind “free trade” by Ricardo and Hume ? absolute advantages are non-transferable, there are no externalities, such as pollution and military expenses, trade is in kind, there are no fiat currency distortions, and no strategies that are time constrained.

Autry then discussed the currency manipulation models of Japan and China, showing how China’s currency manipulation affects our national security. While China has adjusted the valuation of their renminbi (yuan) slightly since they drastically devalued it in 1994, it has still not reached the level that it was at that time. To keep their currency valuation low they either keep the dollars they get from their trade surplus in reserve or buy U. S. Treasury bonds. The dollars they earn from our trade imbalance and the interest they earn from buying our debt in the form of bonds has funded the dramatic buildup of their military.

Our technical superiority in military systems will not assure our national security any more than the technical superiority of Nazi Germany’s aircraft and tanks did for them. Economic superiority is what matters. The manufacturing industry of the U. S. out produced Germany during WWII and the Soviet Union in the Cold War. Autry stated, “An economy that builds only F-35s is unsustainable – productive capacity is what wins real wars. Sophisticated systems require complex supply chains of supporting industries. They require experienced production engineers and experienced machinists.” He concluded that we cannot rely on China to produce what we need for our military and defense systems. We should not be relying on Russia’s Mr. Putin to launch our satellites and space vehicles and provide us a seat to get to the international space station.

Next, Michael Stumo presented “Can Consumption Taxes Create Jobs and Help Regain American Prosperity?” He said, “America has no strategy to win… in terms of being a successful producing and exporting nation. Growing exports, expanding two-way trade, and establishing global supply chains makes us losers.Unilateral trade disarmament makes us losers.We should want to win and not be ashamed of pursuing our national interest.”

Stumo described the math about how a consumption tax could reduce our income tax burden, include imports in our tax base, and shrink the trade deficit, and increase U.S. production while maintaining progressivity. He explained that our national Gross Domestic Product (GDP) equals Consumption plus Investment plus Government Procurement plus Net Exports (Total exports minus Total Imports). Because our imports exceed exports, our economy is smaller than it would be if the U.S. balanced trade.

More than 150 countries have a form of consumption tax, either a goods and services tax (GST) or a value added tax (VAT), with an average 17% level. These countries rebate these taxes on their exports, which is a subsidy. The taxes are “border adjustable” because they act as a 17% tariff on our goods sent to other countries.

After NAFTA, Mexico replaced its tariff reduction by establishing a 15% VAT, and Central America did the same, establishing a 12% VAT after CAFTA. Other countries use consumption taxes to offset income, payroll, or other employer taxes to help their manufacturers be more competitive in the global marketplace or to offset other costs like national health care or pension programs.

These border adjustable consumption taxes have been a causative factor in increasing our trade deficits with our trading partners, which was $471.5 billion in 2013, $318 billion with China alone. CPA advocates changes in U. S. trade policy to address this unfairness which tremendously distorts trade flows. The goal of a U. S. consumption tax should be:

  • Neutralize foreign tax (tariff/subsidy) advantage
  • Reduce non-border adjustable taxes: Income and/or Payroll
  • Replace them with border adjustable consumption taxes like a GST
  • Be revenue neutral
  • Be distribution/progressivity neutral
  • Minimize fight over exemptions, deductions, and location of profits

Pat Choate (Economist; Author, Saving Capitalism: Keeping America Strong) covered the importance of protecting Intellectual Property to the future of American manufacturing. He said that the U. S. is the most innovative country in the world, issuing more patents than any other country, and California represents 25% of all U. S. patents. Choate highlighted how our current trade policies do not address patent infringement, trademark counterfeiting, and the outright theft of our trade secrets by China and other Asian countries. The intellectual property clauses of the Trans-Pacific Partnership would exacerbate the problems already created by the passage of the America Invents Act in 2012 converting the U. S. from a “first-to-invent” to “first-to-file” that has hurt our innovation. Any future trade agreement must address intellectual property theft.

The next speaker was Mike Dolan, Legislative Representative for the Teamsters, who has long experience working for Fair Trade (fighting expansion of the job-killing NAFTA/WTO model). If we build and maintain a strong bipartisan mobilization, we can stop Fast Track trade authority from being granted to the President and stop the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) Agreements from being passed. Dolan called the TPP “NAFTA on steroids” said that TTIP is just as bad. Dolan concluded that the path to victory on sensible trade policy is not possible without the Coalition for a Prosperous America and the constituencies it represents — small business, particularly in industries that are sensitive to trade fluctuations, family farmers and ranchers, working families and “trade patriot” activists including Tea Party groups.

Keynote speaker Dan DiMicco, Chairman Emeritus of Nucor Steel Corporation, spoke about “Seizing the Opportunity.” He led off by shocking the audience with facts about the real state of our economy and our unemployment rate. By December 2013, we still had not reached the level of employment that we had when the recession began in December 2007 although 72 months had passed. We lost 8.7 million jobsfrom December 2007 to the “trough” reached in February 2010, but because our recovery has been much slower than the previous recessions of 1974, 1981, 1990, and 2001, the gap in recovery of jobs compared to these recessions is actually 12,363 jobs.  

In contrast to the misleading U-3 unemployment rate of 6.7% for December that is reported in the news media, the U-6 rate was 13.1%.  The government’s U-6 rate is more accurate because it counts “marginally attached workers and those working part-time for economic reasons.” However, the actual unemployment is worse because the participation in the workforce has dropped from 66.0% to 62.8%. In other words, if the December 2013 Civilian Labor Force Participation Rate was back to the December 2007 level of 66.0%, it would  add 7.9 million people to the ranks of those looking for jobs.The manufacturing industry lost 20% of its jobs, and the construction industry lost 19% of its jobs.

Unemployment Data Adjusted For Decline in Civilian Labor Force Participation Rate
(Adjusted For Decline from December 2007 Level Of 66.0% to 62.8% in December 2013)

Reported Unemployed U.S. Workers 10,351,000
Involuntary Part-time workers 7,771,000
Marginally Attached To Labor Force Workers 2,427,000
Additional Unemployed Workers With 66% CLF Participation Rate 7,896,000

 
Unemployed U.S. Workers In Reality 28,445,000
Adjusted Civilian Labor force 162,833,000
Unemployment Rate In Reality 17.5%

We got in this position from 1970 until today because of failed trade policies allowing mercantilism to win out against true FREE Trade. We bought into wrongheaded economic opinions that America could become a service-based economy to replace a manufacturing-based economy. Manufacturing supply chains are the Wealth Creation Engine of our economy and the driver for a healthy and growing middle class! The result has been that manufacturing shrank from over 30% to 9.9% of GDP causing the destruction of the middle class. It created the service/financial based Bubble Economy (Dot.com/Enron/Housing/PONZI scheme type financial instruments.)

In addition, we have had 30 years of massive increases in inefficient and unnecessary Government regulations. These regulations, for the most part, in the past have been put in place by Congress and the Executive Branch. However, today they are increasingly being put in place by unelected officials/bureaucrats as they intentionally by-pass Congress.

American’s prosperity in the 20th century arose from producing more than it consumed, saving more than it spent, and keeping deficits to manageable and sustainable levels. Today, America’s trade and budget deficits are on track to reach record levels threatening our prosperity and our future.

Creating jobs must be our top priority, and we need to create 26-29 million jobs over the next 4-5 years. There are four steps we can take to bring about job creation:

  • Achieve energy independence,
  • Balance our trade deficit,
  • Rebuild our infrastructure for this century.
  • Rework American’s regulatory nightmare

We need to recapture American independence through investment in our country’s people, infrastructure, and energy independence, and by reversing the deficit-driven trends that currently define our nation’s economic policy. In conclusion, DiMicco said, “Real and lasting wealth IS, and always has been, created by innovating, making and building things — ALL 3 ? and servicing the goods producing sector NOT by a predominance of servicing services!”

Now is the time for all Americans to put aside their political differences and work together to restore California to the Golden State it once was and restore the United States to the land of opportunity it once was.

Posted in Economy, Innovation, Jobs, Manufacturing, National security, Taxes/Regulations, Trade Policy | 1 Comment »

Bill to Address Skills Training is Stalled in Senate

Tuesday, March 4th, 2014

In the past 15 years, the manufacturing industry has evolved from needing low-skilled production-type assembly workers to being highly technology-infused. It’s no secret that manufacturing companies are now struggling to fill the gap for workers trained with the specific skills needed for today’s advanced manufacturing jobs.

To address this problem and provide training that the youth and the unemployed need to secure jobs, the House passed the Supporting Knowledge and Investing in Lifelong Skills (SKILLS) Act (H.R. 803) in March 2013, which was authored by Higher Education and Workforce Training subcommittee chair Virginia Foxx (R-NC). The SKILLS Act would revise and reauthorize job training, employment service, adult education and literacy, and rehabilitation programs currently provided under the Workforce Investment Act (WIA), which has not been reauthorized since its enactment, and is now nearly a decade overdue for reauthorization. The Skills Act would eliminate 35 existing programs and consolidate funding into a single Workforce Investment Fund.

Several governors and workforce training leaders praised the bill:  New Jersey Governor Chris Christie stated, “By streamlining federal workforce training programs, the SKILLS Act would reduce the administrative burden that current law places on the states. It also provides states with the needed flexibility to tailor job training programs, acknowledging that the needs of New Jersey are surely different than those of other states.”

Pennsylvania Governor Tom Corbett stated, “The SKILLS Act restores 15% state set-aside funding to support innovative strategies statewide and locally…In addition to providing flexibility and encouraging innovation, the restored state set-aside also supports the needs of our most vulnerable citizens.”

Florida Governor Rick Scott stated, “H.R. 803 proposes a market-driven approach to talent development designed to prepare individuals seeking employment for the jobs of today – and the jobs of tomorrow…Increasing the business representation on state and local boards improves our alignment with market needs.”

Dr. R. Scott Ralls, president of the North Carolina Community College System, noted that it is “important that reauthorization of the Workforce Investment Act streamlines programs, limits administrative overhead, and enables state and local flexibility to design systems that meet the legislative goals in the most effective and efficient manner. Simplifying the system and moving past the myriad of multiple program titles and funding streams is a fundamental step.”

 Todd Gustafson, executive director of Michigan Works—Berrien-Cass-Van Buren, noted, “Eliminating the 19 federal mandates on representation will further strengthen business engagement. Requiring two-thirds of board members to be employers will enhance the shift from a supply side designed system to a demand or market driven system.”

The Senate version of this bill is S. 1356, the Workforce Investment Act of 2013, and on December 19, 2013, a Motion to proceed to consideration of the measure was made in the Senate.

During an executive session in the Senate Committee on Health, Education, Labor and Pensions in August 2013, Senator Tom Harkin of Iowa delivered the following statement on S.1356, (quoted in part): “It requires states to develop and submit one unified plan to the Secretary of Education and the Secretary of Labor, covering all of the programs authorized under WIA – job training, adult education, employment services, and vocational rehabilitation – streamlining administrative processes at the state level in a thoughtful way. It eliminates several unfunded programs and provides for an innovation fund that will help the system to identify and replicate the most effective strategies for workforce development. It also includes provisions to support better data and evaluations that can be used across all core programs, including common definitions and performance indicators.”

If the Senate passes S. 1356, the measure would then move to conference, a process by which the House and Senate each appoint “conferees” to reconcile the differences between the two pieces of legislation in an effort to produce a version that could gain enough support for passage in both chambers.

According to the Congressional Budget Office, the programs covered by these bills are currently overseen by the Departments of Labor and Education and provide grants to state and local governments as well as to private and nonprofit organizations to provide specified services. Those programs received discretionary funding of $5.5 billion and mandatory funding of $3.1 billion in 2013.

The National Skills Coalition has prepared a side-by-side comparison report on the occupational training and adult education and family literacy provisions1 in the House and Senate Workforce Investment Act (WIA) reauthorization proposals with current law. The 41-page report goes into considerable detail in comparing the current law with the Skills Act and S. 1356.

One of the differences between the House Skills Act and the proposed Senate bill is the composition of the membership of the State Board. Under current law, the membership is composed of:

  • Governor
  • Two members of each chamber of the state legislature, and
  • Representatives appointed by the governor, including: Business representatives, Chief elected officials (representing both cities and counties where appropriate),Labor representatives, and Youth organization representatives

Representatives of individuals and organizations with experience and expertise in the delivery of workforce investment activities including chief executive officers of community colleges and community based organizations, lead state officials of mandatory partner agencies, and other representatives and state agency officials that the governor may designate.

In contrast, the Skills Act requires that “two-thirds of board members be representatives of the business community”  and “eliminates requirement that local board include representatives from local educational entities, labor organizations, community-based organizations, economic development agencies, and one-stop partners.” It maintains “the governor, chief elected officials, a state agency official responsible for economic development and other such representatives as the governor should designate to serve on the board.”

The Senate bill, however, revises current law for State Board membership as follows: majority of representatives must be employers or representatives of business or trade associations; at least 20 percent must be representatives of labor and CBOs or youth serving organizations, and adds representatives of a joint labor-management program or apprenticeship program as a required partner.

Judy Lawton, CEO of The Lawton Group, past president of the San Diego Workforce Investment Board and current Chair of the Adult Programs Committee, provided me with the following comments regarding the Skills Act: “The San Diego Workforce Partnership completed their Five (5) Year Plan more than a year ago and rolled it out to the public shortly thereafter. It is very comprehensive, well thought out, and definitely streamlines practices and procedures and strategic thinking along the lines of programs and program delivery methods. At our last Adult Programs Committee meeting, we recommended apprenticeship programs to the full Workforce Investment Board through the collaborative efforts of local Union leaders, business leaders, educators, and skills trainers. As for the Boards being comprised of 2/3rd business people, I’m not so sure. The WIB is already mandated by law to have 51% business and that community is well represented. The Unions belong at the table as they are becoming more involved with the necessary apprenticeship programs, and their presence is welcomed.”

The current law requires a unified state plan that is based on a five-year strategy, while the Skills Act requires a three-year plan, and the Senate bill requires a four-year plan.

Both the Skills Act and the Senate bill maintain the current law with regard to the establishment of the One-Stop Delivery System for services and the delivery of services, but have different plans than the current law for infrastructure funding.

A major difference of the Skills Act compared to current law and the Senate bill is that it repeals the Youth Activities section of the current Workforce Investment Act. It also repeals:

  • Native American programs
  • Migrant and seasonal farm worker programs
  • Veterans’ workforce investment programs
  • Youth opportunity grant program

The National Skills Coalition sent a four-page letter on March 4, 2013 to the Committee on Education and the Workforce Committee of the House of Representatives expressing their grave concerns about eliminating the above programs and explained their additional reasons for opposing the passage of the SKILLS Act. The other reasons for their opposition are too complex for me to attempt to summarize. As usual, the “devil is in the details,” so I highly recommend that readers check out the links to the report and letter that are herein provided.

 San Diego Workforce Partnership President Peter Callstrom provided me with the following word of caution:  “The Workforce Investment Act (WIA) is long overdue for reauthorization. There are competing visions with respect to how to best go forward: reauthorize as is, or reconstruct through the ‘Skills Act’ – or some combination of both. The WIA works well and thousands of individuals have, and continue to be, supported in their careers. Where, and how, we go from here is important. In the end, we all want local control in order to address our unique needs. As the local Workforce Investment Board (WIB), we welcome any solution that results in more resources for Our region led by Our residents to support Our workforce. Let’s hope that politics doesn’t get in the way of that.”

Well said, Peter.

 

Posted in Education, Jobs, Manufacturing, Training | No Comments »

Why Manufacturing is Critical to California’s Economy

Tuesday, February 25th, 2014

For every one job created in manufacturing, at least two to three jobs are created to support the sector. Further, manufacturing firms create regional wealth by producing a product that is exported to other states and countries. This attracts additional funds to the region — creating business, individual and community wealth. Because of this ripple effect, manufacturing firms have a deeper impact on the state of the economy than most other industries.

California is the number one state for manufacturing jobs, firms and output – accounting for 11.7 percent of the total U. S. output, and employing 9 percent of the U. S. manufacturing workforce. California manufacturing generates $229.9 billion, more than any other state. Manufacturing is California’s most export-intensive activity contributing significantly to California’s $159 billion in exports in 2011. Overall, manufacturing exports represent 9.4% ($120 billion in goods) of California’s GDP, and computers and electronic products constitute 29.3% of the state’s total manufacturing exports. More than one-fifth (21.9%) of all manufacturing workers in California directly depend on exports for their jobs.

Since January 2001, the manufacturing sector lost 33% of its job base, down from 1.86 million jobs in 2001 to 1.237 million jobs in 2019. In 2010, the manufacturing sector began adding employment, regaining 7,900 jobs. California exports have also increased — up from $104 billion of manufactured goods in 2009 to $124 billion in 2010.

A 2011 report by the Center for Applied Competitive Technologies (CACT) at El Camino College and the Center Of Excellence (COE) of the Los Rios Community College District identified the following 17 cluster industries in California:

  •  Aerospace Manufacturing
  • Biotechnology, Medical Devices, & Pharmaceutical Manufacturing
  • Building Materials Manufacturing
  • Chemical Manufacturing
  • Computers/Electronics Manufacturing
  • Dental Equipment, Supplies & Laboratories Manufacturing
  • Fashion/Clothing Manufacturing
  • Furniture Manufacturing
  • Household Products Manufacturing
  • Machinery Manufacturing
  • Metals Manufacturing
  • Paper Products Manufacturing
  • Petroleum Manufacturing
  • Plastic Products Manufacturing
  • Printing and Publishing
  • Transportation Manufacturing

 The report states, “With the exception of food manufacturing, biotechnology, dental equipment, and petroleum, nearly every manufacturing cluster in California has shed jobs over the last five years [2006-2011.] Building materials lost the most jobs with a decline of 32%, followed by printing (22%), and computers/electronics (10%).”

Challenges

The report states that the “manufacturing sector must address a variety of challenges, from navigating a complex regulatory environment to developing strategies to compete with low cost economics. There are a number of factors that have inhibited the manufacturing sector’s ability to compete locally and internationally.” Some of these challenges are:

  • California’s regulatory climate is difficult, expensive and time consuming to navigate
  • Higher health care expenditures compared to countries where health care is paid for by general tax revenues
  • Higher salaries and other benefits, such as paid leave, insurance, and retirement plans
  • Higher costs associated with litigation claims
  • Higher costs associated with environmental compliance;
  • Higher corporate tax rates than most other countries (the United States’ tax rate is 40%, the second highest tax rate among major trading partners.)

Opportunities

Competition from low-cost economies, such as China, India, Singapore, South Korea, Thailand, and Vietnam, is one of the major challenges faced by the manufacturing sector. However, the total cost of outsourcing to other countries is often miscalculated. According to the Reshore Initiative, the true cost of manufacturing outside of the United States does not include costs associated with:

  •  National policy issues (trade negotiations, etc.)
  • Changes in currency exchange rates
  • Intellectual Property theft
  • Supply chain disruptions
  • Lengthy delivery times
  • Traveling to the manufacturing site to assess and resolving production issues

Further, in the last few years many countries have started to raise their prices to adjust for increases in wages and higher transportation/fuel expenses. By examining the total cost of outsourcing, the Reshore Initiative argues that hiring local production firms is just as price sensitive as hiring firms from low-cost economies. Also, there are several benefits to working local, such as:

  •  Improved quality and consistency of inputs
  • Ability to create just-in-time operations that reduce inventory and shipping costs and improve business-to-business relations
  • Intellectual property security
  • Faster delivery to customers

As this viewpoint has gained popularity, it has started to shift production back to the United States, creating jobs and wealth in the process. By 2013, the Reshoring Initiative estimated that about 80,000 jobs returned to the United States through reshoring, about 15% of the nationwide increase of 526,000 manufacturing jobs since 2010.

If you are in the southern California region, you can find out more about how we can help the manufacturing industry thrive in California by attending the “Manufacturing in the Golden State – Making California Thrive” economic summit on Wednesday, March 19, 2014, 9:30 AM – 1:30 PM.

This leadership summit will explore how to grow manufacturing jobs and businesses in California. National experts and local business owners will present the best solutions to help craft a successful growth strategy. 

Where:  Brea Community Center, 1 Civic Center Circle, Brea, CA 92821

Keynote Speaker:   Dan DiMicco, Chairman Emeritus, Nucor Steel Corporation

Speakers/Topics:

* Dr. Greg Autry – Senior Economist, Coalition for a Prosperous America; Adjunct Professor of Entrepreneurship, Marshall School of Business, University of Southern California (Trade Reform)
* Pat Choate – Economist; Author, “Saving Capitalism: Keeping America Strong” (Manufacturing Strategy)
* Mike Dolan – Legislative Representative, International Brotherhood of Teamsters (Currency Manipulation) (invited)
* Michael Stumo – CEO, Coalition for a Prosperous America (Tax Reform)

Panel of local business leaders (partial listing):

* Michele Nash-Hoff – Chair, Coalition for a Prosperous America CA Chapter; President, ElectroFab Sales (Overview of California Manufacturing)

*Dana Mitchell, Advanced Mold Technology Inc.
* Nick Ventura – Co Founder, Venley by Youth Monument

Presented by:  Senator Mark Wyland, in partnership with the Coalition for a Prosperous America and other regional businesses and associations.

Cost: Early Bird Rate $25 through March 5, 2014; $35 thereafter (Includes light breakfast and full lunch)

 Sponsors:

City of Brea

ATE Corporation (ATEC)

California Manufacturing Technology Consulting

Industrial Metal Supply Company

Event partners
APICS – Orange County Chapter

Brea Chamber of Commerce

Corona Chamber of Commerce
Cypress Chamber of Commerce

Fountain Valley Chamber of Commerce

Fullerton Chamber of Commerce
Garden Grove Chamber of Commerce
Global Innovative Systems

La Habra Chamber
PlanetTogether

Orange County Hispanic Chamber of Commerce
Orange County SBDC
Riverside County Manufacturers & Exporters Association
West Orange County Regional Chamber
Yorba Linda Chamber of Commerce

Register today for this important event.

For more information, or if you are unable to pay online, contact Sara Haimowitz (202-688-5145, sara@prosperousamerica.org).

Also: click here to find out about becoming an event sponsor!

Thanks,

Michele Nash-Hoff, Chair
California Chapter of the Coalition for a Prosperous America

 

Posted in Economic Development, Jobs, Manufacturing, Reshoring, Taxes/Regulations | No Comments »

Should California Copy Ohio’s Economic Development Policies?

Tuesday, February 4th, 2014

Ohio’s Governor and economic development agencies may not be visiting California companies to woo them back to Ohio as Texas Governor Rick Perry has been doing, but I would say the answer is “yes” to this question. California would do well to emulate the successful economic development policies of central Ohio surrounding its capital city of Columbus.

Recessions usually didn’t affect this region very much, but the Great Recession was different. In 2009, business leaders formed Columbus 2020 to address the effects of the recession on the 11-county region surrounding the state capital. It is now a private, nonprofit entity incorporated as both a 501(c) (6) and a 501(c) (3) (Columbus 2020 Foundation) and has become a collaboration between business leaders, government, and educational institutions. Its mission is to generate opportunity and build capacity for economic growth throughout Central Ohio.

To achieve this mission, the founders set the following goals to achieve by the year 2020:

  • Add 150,000 net new jobs
  • Increase personal per capita income by 30 percent
  • Add $8 billion of capital investment
  • Be recognized as a national leader in economic development

The plan to achieve these goals is:

  • Retain and expand the companies and industries that call the Columbus Region home today
  • Attract major employers to establish operations in the Columbus Region
  • Create more commercial enterprises by leveraging research assets and entrepreneurs
  • Improve civic infrastructure that enhances the economic development environment

In my interview with Kenny McDonald, CEO of Columbus 2020, he said, “The key factor of our success was starting with the vision of the business leaders that formed Columbus 2020 and having corporate leaders that are willing to engage in the process. You need both vision and engagement. There has been a real partnership between business, government, and educational institutions.”

He added, “We take a holistic view of trade and investment, as many of the companies in the region have a global footprint, and take time to understand what is driving business. The business climate has improved, especially for companies that sell in the U. S., and we’ve noticed that many companies are reshoring back to the US as part of their strategy to regionalize. The U. S. has never been more competitive, and our markets remain attractive, while there remains instability elsewhere in the world. Companies that had a plant in China or India to export to the U. S. are bringing production back to the U. S., to sell to the U. S., while some companies are bringing back work to export to other countries.”

He said, “Honda of America, which has a significant presence in the Columbus Region, recently announced that they were planning to export more to countries outside of the U. S. Honda’s supply chain and other companies that are part of the global automotive supply chain are evidence of the trend to regionalize. It’s been recommended that foreign companies, especially mid-size companies, regionalize by having a plant in the U. S. to reduce risks that disrupt the supply chain.”

The region has a population of only 2 million, but has 15 Fortune 1000 companies, such as Cardinal Health, The Scotts Miracle-Gro Company, Big Lots, L Brands (including Victoria’s Secret and Bath & Body Works, Express, and Nationwide.)

There is a special industrial park, the Personal Care and Beauty Campus, built up near Victoria’s Secret and Bath & Body Works, where all of types of companies in their supply chain are located, representing about 2,000 jobs.

Middle market companies are also an important part of the Columbus Region economy. There are 1,313 businesses that have between $10 million and $1 billion in annual revenue. Even though they represent only 2.3 percent of business establishments in the Region, they employ 15.4 percent of the private sector workforce and have an outsized presence in manufacturing, headquarters and back office functions, and other key industries.

The Columbus Region is home to 63 colleges and university campuses with a total enrollment of nearly 150,000 students and more than 22,000 annual graduates. It is also home to the largest concentration of PhDs in the Midwest, and has more PhDs than the national average. The Ohio State University – the state’s flagship university and one of the country’s leading research institutions – has more than 56,000 students at its main campus in Columbus.

Businesses in the Columbus Region benefit from:

  • No personal property tax
  • No inventory tax
  • No state corporate income tax

Ohio offers the following tax incentives:

  • Job Creation Tax Credit
  • Ohio Enterprise Zone Program
  • Community Reinvestment Areas
  • Research and Development Investment Tax Credit

Ohio also offers several unique loan and grant programs as additional incentives for companies to relocate in the region.

The chart below shows the largest manufacturers in the Columbus region:

COMPANY INDUSTRY EMPLOYEES
Honda of America Mfg. Inc. Automotive 9,433
Whirlpool Corporation Appliances 2,344
TS TECH Co, Ltd. Automotive 2,078
Abbott Nutrition Food & Beverage 2,055
Emerson Electric Co. Utilities 1,720
Worthington Industries Inc. Steel 1,390
Ariel Corporation Energy 1,265
Boehringer Medical 1,250
The Anchor Hocking Co. Glass 1,202
The Scotts Miracle-Gro Co. Lawn Care Products 1,165
Rolls-Royce Energy Systems Machinery 1,146
Commercial Vehicle Group Automotive 1,125
Owens Corning Corporation Automotive 1,011
Lancaster Colony Corporation Food & Beverage 856
Mettler-Toledo International Precision Instruments 800
Jefferson Industries Automotive 750
Cardington Yutaka Technologies, Inc. Automotive 725
Columbus Castings Steel 700

As a result of these policies, Columbus is now ranked as the 8th most affordable location in the U. S. for corporate headquarters. The cost of doing business is half the cost of New York City, Los Angeles, and Silicon Valley. For all of these reasons, Columbus has become the state’s largest and fastest growing city.

Columbus 2020 is well on the way to not only achieving, but exceeding these goals by 2020 as shown below:

JOB CREATION CAPITAL INVESTMENT PERSONAL PER CAPITA INCOME
As of August 2013, more than 53,000 jobs have been created in the Columbus Region since Columbus 2020’s founding in 2010. As of December2013, $3.71 billion of capital investment has been added to the Columbus Region since 2010. As of 2012, personal per capita income in the Columbus Region has increased 10.8 percent since 2010, from $38,547 to $42,728.

California’s Governor Brown and the State legislature should review what the Columbus 2020 organization has accomplished in revitalizing the economy of central Ohio. California’s manufacturers would love to benefit from having no corporate income tax and no inventory tax, as well as having a Job Creation Tax Credit and a Research and Development Investment Tax Credit. 

The new hiring tax credit and partial exemption of certain property from California’s sales and use tax are meager benefits being offered to manufacturers as part of Assembly Bill 93 and Senate Bill 90 that went into effect January 1st. Our California legislature needs to “stop fiddling while Rome is burning,” so that we will be able to stem the tide of companies moving out of California and add more than the pitiful 7,900 manufacturing jobs we have added since 2010 after losing  over 625,000 manufacturing jobs since 2001.

 

 

Posted in Economic Development, Economy, Jobs, Manufacturing, Reshoring | No Comments »

Has NAFTA Benefited Americans?

Tuesday, January 28th, 2014

By this question, I mean the American people, not America, our country, nor American corporations. There can be diplomatic benefits to trade agreements, such as strengthening our relationships with countries that are allies in the world’s political arena. There can be benefits to American-based global corporations to open doors to new markets in specific countries. These are two of the reasons touted by “free trade” proponents as benefits to negotiating trade agreements.

To discern the answer to the title’s question, let us examine whether the North American Free Trade Agreement (NAFTA) has benefited Americans as a whole. NAFTA was negotiated under President Bill Clinton and went into effect in January 1994. The agreement was supposed to reduce market barriers to trade between the United States, Canada and Mexico to reduce the cost of goods, increase our surplus trade balance with Mexico, reduce our trade deficit with Canada, and create 170,000 jobs a year. Twenty years later, the fallacy of these supposed benefits is well documented.

According to the report “NAFTA at 20” released this month by Public Citizen’s Global Trade Watch, “More than 845,000 specific U.S. workers have been certified for Trade Adjustment Assistance (TAA) as having lost their jobs due to imports from Canada and Mexico or the relocation of factories to those countries.”

Major corporations such as General Electric, Caterpillar, and Chrysler announced they would add jobs for increased sales to Mexico; instead they eliminated jobs. For example, General Electric testified before Congress saying, “We are looking at another $7.5 billion in potential sales over the next 10 years. These sales could support 10,000 jobs for General Electric and its suppliers. In reality, “General Electric has eliminated 4,936 U.S. jobs since NAFTA due to rising imports from Canada and Mexico or decisions to offshore production to those countries.”

The report also documents the fact that “the small pre-NAFTA U.S. trade surplus with Mexico turned into a massive new trade deficit and the pre-NAFTA U.S. trade deficit with Canada expanded greatly.” According to Census Bureau data, in 1993, the non-inflation adjusted U.S. trade surplus with Mexico was $1.6 billion, and in 2013, the U. S. trade deficit had grown to $50.1 billion. The non-inflation adjust U. S. deficit with Canada grew from $4.4 billion in 1994 to $7.4 billion in 2013. Together the Mexico and Canada inflation-adjusted trade deficits “have morphed into a combined NAFTA trade deficit of $181 billion.”

Most people do not understand how trade deficits hurt them. They do not realize that when our country imports more goods than it exports, we go in debt as a country to pay for these goods. We then have to borrow money or increase taxes to have enough money to run our government. This is why we now have a nearly $17 trillion national debt. As individuals, we would soon go bankrupt if we did not earn enough money to pay our bills and had to keep borrowing money, but the government can just keep printing money. The problem with printing more money is that the value of the dollar keeps going down, so each of us has to work harder to make more money to try to keep our pay equal to what we earned previously.

According to the Coalition for a Prosperous America, trade deficits also diminish the U. S. Gross Domestic Product since GDP equals the sum of Consumption, Investment, Government Procurement, and Net Exports (Exports – Imports). Our trade deficit in 2011 alone shaved an astounding 4% from overall U. S. GDP.

Our efforts to keep our earnings of equal value have not succeeded because the report states, “NAFTA has contributed to downward pressure on U.S. wages and growing income inequality.” What this means is that as Americans lost their higher paying manufacturing jobs, they had to compete with the glut of other Americans for the non-offshorable, lower paying, low-skill jobs, in retail, hospitality, and food service. “According to the U.S. Bureau of Labor Statistics, two out of every three displaced manufacturing workers who were rehired in 2012 experienced a wage reduction, most of them taking a pay cut of greater than 20 percent.” The result is an increasing gap between the rich and the poor and a shrinking middle class.

Manufacturing jobs are the foundation of the middle class; these jobs raised the average daily wage between 1900 and 2000 from $2.50 a day to $96.00 a day. If we lose the majority of our manufacturing industry, we will lose our middle class.

We were supposed to realize the benefits of lower prices as consumers, but in contrast, the report states, “Despite a 188 percent rise in food imports from Canada and Mexico under NAFTA, the average nominal price of food in the United States has jumped 65 percent since the deal went into effect.”

As a result, our “average annual U.S. agricultural trade deficit with Mexico and Canada under NAFTA stands at $800 million, more than twice the pre-NAFTA level.” American ranchers and cattlemen have been hurt by the 130 percent increase of beef imports from Mexico and Canada since NAFTA took effect, “and today U.S. consumption of “NAFTA” beef tops $1.3 billion annually.” U.S. food processors moved to Mexico to take advantage of low wages, resulting in a loss of jobs for Americans at U. S. food processing plants.

The report was a revelation to me about an unintended consequence of NAFTA ? the dramatic increase of illegal immigrants to the U. S. in the past 20 years. According to the report, the increased export of subsidized U. S. corn to Mexico resulted in the destruction of “…the livelihoods of more than one million Mexican campesino farmers and about 1.4 million additional Mexican workers whose livelihoods depended on agriculture.”

The report quotes an exposé, “Trade Secrets,” by John Judis in the April 9, 2008 issue of New Republic, which stated. “Wages dropped so precipitously that today the income of a farm laborer is one-third that of what it was before NAFTA. As jobs disappeared and wages sank, many of these rural Mexicans emigrated, swelling the ranks of the 12 million illegal immigrants living incognito and competing for low-wage jobs in the United States.”

As a result, “The desperate migration of those displaced from Mexico’s rural economy pushed down wages in Mexico’s border maquiladora factory zone and contributed to a doubling of Mexican immigration to the United States following NAFTA’s implementation.”

Prior to NAFTA, jobs at maquiladora factories were responsible for a growing middle class in cities such as Tijuana and Tecate in Baja California, Mexico. The report states that “Real wages in Mexico have fallen significantly below pre-NAFTA levels as price increases for basic consumer goods have exceeded wage increases. A minimum wage earner in Mexico today can buy 38 percent fewer consumer goods as on the day that NAFTA took effect.”

The lower wages at Mexican maquiladoras since NAFTA explains why Mexico is now benefitting from “nearsourcing,” which is returning manufacturing from China where wages have risen 15-20% year over year for the past five years. Taking into consideration the other costs and hidden costs of doing business offshore that comprise a Total Cost of Ownership analysis; Mexico is now more competitive than the coastal areas of China’s manufacturing industry.

Of course, the influx of illegal immigrants from Mexico is another factor in the downward pressure on wages in the United States. Today, only 1.9 million hourly workers make $20 per hour, which is a marker for jobs that provide a middle-class standard of living, down 60% since 1979, according to the Bureau of Labor Statistics.

In conclusion, we can clearly see from the well-documented evidence that NAFTA has not benefited the American people. It may have benefited American corporations that expanded their sales in Mexico or moved manufacturing to Mexico to increase their profits. However, I am sure that none of the American company owners of the more than 60,000 manufacturing firms that have closed since 1994 or the nearly one million American workers who lost their jobs because of NAFTA would say they benefited from this trade agreement.

The last thing we need is another free trade agreement such as the Trans-Pacific Partnership Agreement that has been negotiated behind closed doors by the Obama Administration for the past three years. We can’t afford the loss of more American jobs. What we need are trade policies that will help American manufacturers and address the predatory mercantilist policies of China, Japan, Korea, and other countries with regard to government subsidies, currency manipulation, product dumping, and intellectual property theft. We need to have balanced trade as recommended by the Coalition for a Prosperous America (CPA) in their issue paper, “21st Century Trade Agreement Principles.” As chair of the newly formed California chapter of CPA, I would welcome your support and involvement to rebuild American manufacturing, create more higher-paying manufacturing jobs, and reduce our trade deficit and national debt.

Posted in Economy, Jobs, Manufacturing, Outsourcing, Trade, Trade Policy | 2 Comments »

San Diego Manufacturing Trends

Wednesday, January 15th, 2014

From 2000 to 2011, the U. S. lost 5.8 million manufacturing jobs and 57,000 manufacturing firms closed. U.S. Department of Commerce shows that “U.S. multinational corporations… cut their work forces in the U.S. by 2.9 million during the 2000s while increasing employment overseas by 2.4 million.”

Over the last three years, we have finally seen a growth of about 526,000 manufacturing jobs nationwide for a 4.59% growth rate, but California has lagged behind the nation at only a 0.63% growth rate for 7,900 jobs gained. Mainly due to the effects of sequestration on our military/defense industry, San Diego continued to lose manufacturing jobsin 2013, losing more than 2,000 jobs from February – November.

Offshoring has been major cause of slow economic growth after Great Recession and the high unemployment has exacerbated local, state and federal budget deficits. This has resulted in a weakened middle-class, declining innovation, and lower sales levels in weakened home market.

“Reshoring”/Resurgence of “Made in USA”

A September 2003 report prepared for the U. S. Congress U. S.–China Committee on Economic and Security Review Commission, by Peter Nolan of the University of Cambridge stated, “A ‘‘herd herd ‘mentality to participate in the ‘‘Chinese miracle’’ developed among global giant corporations… Global corporations now view China as central to their long long-term strategy.”

A Stone Associates interview with Technology Forecasters (10/21/03) corroborated the fact that some companies were following this “herd mentality” in migrating to China even when it didn’t make economic sense:  “There is a herd mentality with OEMs in China China—sometimes it makes sense, sometimes it doesn’t—not always rational decision… People tell their bosses what they want to hear hear—(going to China) gives a boost to the stock valuation, but you really have to do the analysis on a case by case basis.”

Now, the offshore supply chain dynamics are changing:

  • Oil prices – tripled in the last 5 years raising shipping costs
  • Labor rates rose about 15-20% year-over-year for last 5 years in China
  • Component/material prices increasing
  • Automation/robotics in U.S. has increased productivity
  • Political instability in China – Labor riots/strikes
  • Risk of disruption from natural disasters
  • U.S. $ declining

Most companies don’t look beyond quoted unit price to make a decision of which vendor to select. They don’t do a Total Cost of Ownership (TCO) analysis, which simply stated, is an estimate of direct and indirect costs. The 13th edition of the APICS (supply chain organization) dictionary says:  “In supply chain management, the total cost of ownership of the supply delivery system is the sum of all the costs associated with every activity of the supply stream.”

The Reshoring Initiative was founded by Harry Moser, former CEO of GF Agie Charmilles in 2010. The goal is to change the sourcing mindset from “offshored is cheaper” to “local reduces the Total Cost of Ownership” and train OEMs and suppliers on why to source local and how to use TCO Calculator. Free Total Cost of Ownership (TCO) software is provided for OEMs and suppliers/unions.

Sourcing is slowly moving back to the United States. The 2012 MIT Forum for Supply Chain Innovation Reshoring Study revealed:  61% of larger companies surveyed “are considering bringing manufacturing back to the U.S” and 15.3% of U.S. companies stated that they are “definitively” planning to re-shore activities to the U.S. In April 2012 www.mfg.com stated that 40% of contract manufacturers had done reshoring work this year.

Manufacturing Jobs / Year

*Estimated / **Calculated 

The Reshoring Initiative has calculated reshoring’s share of manufacturing job growth since Jan. 2010 is:

Job growth: ?500,000

Reshored jobs: ?80,000

Reshoring % of total: ?15%

Now in 2013, more companies are moving their services and manufacturing operations back to the United States. Nationally, General Electric and Whirlpool have moved some appliance manufacturing back to the U. S. Caterpillar moved operations from China to Mexico and the US. Locally, EcoATM, 451 Degrees, and Solatube have reshored by moving manufacturing back to San Diego County. Some of the parts, assemblies, and products that are not cost effective to come back to the U. S. are going across the border to Baja California, Mexico, and major contract manufacturers in Tijuana, Mexico, such as Sumitronics, are experiencing significant reshoring.

The demand for “Made in USA” goods seems to be increasing and is helping the resurgence of American manufacturing in certain areas, especially true in the apparel industry. Indeed, many consumers like the quality perception boost associated with “Made in USA” labels certifying that these goods were in fact made in America. American made items are also growing in popularity because our production costs are declining while Chinese labor is actually increasing.

Offshore outsourcing will continue indefinitely. The desirable” locations for outsourcing will change over time, and the purely financial benefits of lower cost will erode over time. The challenge is to keep as much as possible within the United States, and if more companies would utilize the TCO estimator worksheet, it would help maintain and return manufacturing to America.

Additive Manufacturing

Additive Manufacturing has been hailed by ‘The Economist’ as the catalyst of ‘the third industrial revolution’ and is projected to have a significant impact on manufacturing in the near future. It has the potential to revolutionize the way we make almost everything. Currently about 28% of the money spent on 3D printing of parts is for final products, but it is predicted to rise to 50% by 2016 and to 80% by 2020.

The major Additive Manufacturing methods are:

  • Stereo lithography
  • 3D printing
  • Laser sintering
  • high powered laser fuses powered metals into fully dense 3D objects, layer by layer
  • Fused-deposition modeling
  • A plastic or metal wire is unwound from a coil, supplying material to an extrusion nozzle to form success layers

San Diego is blessed with hundreds of design engineering and product development companies, many of which have one or more types of Additive Manufacturing equipment. There is also a service bureau for Additive Manufacturing in Poway, Solid Concepts, which has all of the types of equipment. A few of the engineering design/product development companies with which we are familiar are:

A Squared Technologies

Clarity Design

DD Studio

D&K Engineering

Dynapac Design Group

Expertise Engineering

Fallbrook Engineering

Flex Partners

Leardon Solutions

Koncept Design

Redpoint Engineering

Triaxial Design

In addition, there is the MakerPlace in San Diego, which inventors and entrepreneurs can think of it as their “dream” garage shop for developing and producing their own products. It is a place where they can use a variety of fabrication equipment & tools to work on projects:  Woodworking, metalworking, electronics, embroidery, sewing and specialty tools such as 3D printers, laser cutters and engravers. There are even

“incubator” offices upstairs for businesses to operate out of the same building as the fab shop.

Training to meet Manufacturing Skills Gap

In 2011, the U.S. Bureau of Labor statistics estimated that 2.8 million, nearly a quarter of all U.S. manufacturing workers, were 55 or older. The improvement of the manufacturing industry has been a mixed blessing because as more skilled workers are needed, the supply is limited because baby boomers are retiring or getting close to retirement. “The oldest baby boomers turned 65 on Jan. 1, 2011, and every day thereafter for about the next 19 years, some 10,000 more will reach the traditional retirement age, according to the Pew Research Center.” What makes the situation worse is that there are not enough new ones to replace them because the subsequent generations were smaller and fewer chose manufacturing as a career.

This has resulted in an insufficient number of workers trained for advanced manufacturing jobs. Modern manufacturing is highly technical and requires understanding and proficiency in a wide variety of competencies. In the past 15 years, the manufacturing industry has evolved from needing low-skilled production-type assembly workers to being highly technology-infused. Thus, it is more of a skills gap in the specific skills needed by today’s manufacturers than a shortage of skilled workers.

A key component has been the development of the (National Association of Manufacturers) NAM-Endorsed Manufacturing Skills Certification System—a system of stackable credentials applicable to all sectors in the manufacturing industry. In June 2011, President Obama announced that the Skills Certification System was the national talent solution for closing the skills gap and addressing this key issue for American manufacturers. The Society of Manufacturing Engineers (SME) Education Foundation leads in encouraging youth to get involved in manufacturing technologies through STEM-related activities in the K–12 levels, as well as supporting and advancing the Certification System for manufacturing skills.

San Diego is fortunate to have more opportunities for training in manufacturing skills than many other regions as shown below:

  • San Diego City College – AA degree in Manufacturing Technology, Machining Certificate
  • SDCCD Continuing Education Center – metal fab, welding, plasma cutting
  • Miramar College – biotech/biomedical lab technicians
  • Mira Costa College – Machining Certificate
  • San Pasqual High School – two year machining program
  • Chaparell High School (Charter) – two year machining program
  • Quality Controlled Manufacturing Inc. – machining training and apprenticeship
  • Workshops for Warriors (non-profit) – machining, sheet metal fab, welding, programming

Licensing vs. starting a company

As a member of the steering committee for the San Diego Inventors Forum (SDIF), I have noticed that in the last two years, more inventors are planning to license their technology vs. starting a company (probably about 70%) compared to about 50% previously). However, this trend doesn’t hold true for CONNECT’s Springboard program for entrepreneurs according to Ruprecht von Butlar. In an interview, he said, “The demand for the Springboard program has stayed consistent over the past few years, but the composition has changed ? more technology, biotech/biomedical, and life science. All of the entrepreneurs in their program have either already formed companies or plan to form companies rather than licensing their technology.”

I also interviewed Dr. Rosibel Ochoa, Executive Director of the UCSD Jacobs School of Engineering von Liebig Entrepreneurism Center, and she said they have 30 teams in their program, and all of them plan to start companies rather than licensing their technology.” The Center serves UCSD professors, graduate students, undergraduate students, and alumni. The professors are the only persons more interested in licensing their technology rather than leaving UCSD to be part of a team to start a company.

The difference between the Inventors Forum and the other two programs may be the fact that most of the inventors coming to our meeting in the past two years have been in the “Baby Boom” generation, now between the ages of 48 – 68, and they may realize by now that they don’t have the entrepreneurial skills to found and develop a company. Also, many of them are serial inventors, who enjoy the technical part of inventing a new product, and then want to go on to working on their next invention. Many of the under 40 inventors seem to be more interested in starting a company.

Outlook for 2014

Positives:

–     Reshoring is creating more manufacturing jobs and generating more regional GDP

–     Additive manufacturing is accelerating development of new products

–     Broad access to skills training is available in San Diego

Negatives:

–     Unknown economic impact of Obamacare for manufacturers because of employer mandate

–     Possibility of full sequestration being restored to pay for extending unemployment benefits

If the current military/defense budget remains in effect without the restoration of full sequestration that affected San Diego adversely last year, this year should be better than 2013 for local manufacturers. All of us in San Diego’s manufacturing industry certainly hope so.

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We Must Stop Fast Track Trade Authority from Being Granted!

Tuesday, January 7th, 2014

President Obama had hoped to be able to announce that he had been granted Fast Track Authority before the Asia-Pacific Economic Cooperation (APEC) meeting in Bali, Indonesia on October 8, 2013, but due to budget issues and the government shutdown, the bill wasn’t introduced and approved in the fall. He had also hoped to complete negotiations for the Trans-Pacific Partnership (TPP) Agreement at this meeting, but no agreement was reached by the countries involved. For the last three years, the Obama administration has conducted negotiations behind closed doors through the offices of U.S. Trade Representative Ron Kirk without any involvement with Congress.

Eleven nations have participated in the negotiations: Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. Japan announced its intention to join the agreement last spring. Because the TPP is intended as a “docking agreement,” other Pacific Rim countries could join over time, and the Philippines, Thailand, Colombia, and others have expressed interest. China could join the TPP at a later date without suffering any disadvantage even though this would negate the original reason for the TPP as a counter to China’s hegemony in the Pacific.

Reliable sources have revealed that a bill to grant the president Fast Track Authority under the Trade Promotion Authority will be introduced on January 8th in the Senate Finance Committee and the House Ways and Means Committee. It appears that there is sufficient support to pass these bills out of the committees for a vote on the floor.

Earlier this year, I published three blog articles on the dangers of the Trans-Pacific Partnership agreement and granting the president Fast Track Authority:  “The Trans-Pacific Partnership Would Destroy our National Sovereignty;” “Why the Trans Pacific Partnership Would Hurt American Manufacturers;” and “The Trans Pacific Partnership Trade Agreement Would Harm our Environment.”

In my first article, I commented on the many articles that Lori Wallach of Public Citizen had written about the Trans-Pacific Partnership:  “Ms. Wallach opines that U.S. multinational corporations have the goal of imposing on more countries a set of extreme foreign investor privileges and rights and their private enforcement through the notorious “investor-state” system. ‘ This system elevates individual corporations and investors to equal standing with each TPP signatory country’s government- and above all of us citizens.’ This would enable ‘foreign investors to skirt domestic courts and laws, and sue governments directly before tribunals of three private sector lawyers operating under World Bank and UN rules to demand taxpayer compensation for any domestic law that investors believe will diminish their ‘expected future profits.’”

With regard to “Buy American” laws in my second article, I wrote, “What this means is that the TPP’s procurement chapter would require that all companies operating in any country signing the agreement be provided access equal to domestic firms to U.S. government procurement contracts over a certain dollar threshold. To meet this requirement, the U.S. would have to agree to waive Buy America procurement policies for all companies operating in TPP countries.”

I also noted that as far back as May 3, 2012, a letter from Rep. Donna Edwards (D-Md.) and 68 other Congressional Reps to President Obama stated in part, “We are concerned about proposals we understand are under consideration in the Trans-Pacific Partnership (TPP) agreement negotiations that could significantly limit Buy American provisions and as a result adversely impact American jobs, workers, and manufacturers…We do not believe this approach is in the best interest of U.S. manufacturers and U.S. workers. Of special concern is the prospect that firms established in TPP countries, such as the many Chinese firms in Vietnam, could obtain waivers from Buy American policies. This could result in larger sums of U.S. tax dollars being invested to strengthen other countries’ manufacturing sectors, rather than our own.”

In a commentary article on October 15, 2013, Lt. Col (Retired) Allen West wrote, “TPP would subject the U.S. to the jurisdiction of foreign tribunals under the authority of the World Bank and United Nations. These unelected, unaccountable panels would constitute a judicial authority higher than the U.S. Supreme Court. They would have the power to overrule federal court rulings and order payment of U.S. tax dollars to enforce the special privileges granted to foreign firms that would be exempt from EPA and other regulations that strangle American firms.”

He added, “We’re also told TPP shows our Asian allies we’re serious about confronting China. But it would actually weaken the U.S. As the Chinese People’s Liberation Army uses every means possible to infiltrate our command and control systems, TPP bans Buy American policies that require crucial equipment for our troops be produced in the U.S. We don’t need TPP to stop China’s military expansion – we need to tell the same crowd pushing TPP to stop transferring their capital and technology to that communist dictatorship.”

In a commentary on the Economy in Crisis website, economist Pat Choate outlined the reasons why we should oppose President Obama being granted Fast Track Authority:

  • Allows the President to select countries with which to enter into trade agreements, set the substance of the talks and then sign those pacts without prior Congressional approval.
  • Allows the President to negotiate and include in these trade agreements not only tariffs and quotas, but also changes in federal, state and local laws on taxes, food and health safety, patents, copyrights, trademarks, immigration, Environment, Labor standards, and Buy America provisions, among many other issues.
  • Creates a Presidential advisory system, comprising 700 industry representatives appointed by the President. These advisors have access to confidential negotiating documents that are kept secret from most members of Congress and the public.
  • Empowers the President to draft the agreements to implement legislation without Congressional input.
  • Requires House and Senate Leaders to introduce the President’s bill on the first legislative day following the President’s submission.
  • Requires that the legislation be discharged from Committee 45 days after submission.
  • Requires a floor vote 15 days after the bill is discharged from Committees.
  • Allows only 20 hours of debate in each House.
  • Prohibits any amendments either in Committee or during the floor debate.
  • Eliminates several floor procedures, including Senate unanimous consent, normal debate and cloture rules, and the ability to amend the legislation.
  • Prevents a Senate filibuster.
  • Requires only a simple majority vote in each House for enactment.

In conclusion Mr. Choate states, “These trade pacts will have the effect of a treaty, though the Constitution requires a two thirds majority vote by the Senate for the United States to enter into a treaty.”

It is precisely this sort of amassing of powers that defines a dictatorship. Our Founding Fathers wisely chose to keep governmental power separated in a system of checks and balances, but by utilizing the Fast Track Authority, our Constitutional system of checks and balances would be destroyed and our national sovereignty would be given to foreign nations and multinational corporations in the name of “free trade.”

A letter addressed to President Obama, signed by 24 Republican Representatives in the House, stated, “Under Fast Track, the executive branch is empowered to sign trade agreements before Congress has an opportunity to vote on them, and then unilaterally write legislation making the pacts’ terms U.S. federal law. Fast Track allows the president to send these executive branch-authored bills directly to the floor for a vote under rules forbidding all floor amendments and limiting debate. And by requiring the House to vote on the bill within a preset period of time, it takes the floor schedule out of the hands of the House majority and gives it to the president.

Given these factors, we do not agree to cede our constitutional authority to the executive through an approval of a request for “Fast Track Trade Promotion Authority.”

The signatories were:  Jones, Bachmann, Joyce, Gohmert, Cook, McKinley, Jimmy Duncan, Stockman, LoBiondo, R. Bishop, C. Collins, C. Smith, Rohrabacher, Bentivolio, Grimm, Mica, Broun, Brooks, D. Young, Jeff Duncan, Gibson, Denham, Hunter and Fitzpatrick.

On the Democrat side of the aisle, Representatives Rosa DeLauro (D-CT) and George Miller (D-CA) took the lead in getting a total of 151 Democrats in the House to oppose the use of “Fast Track” procedures that usurp Congress’s authority over trade matters. Their opposition stands for both the Trans-Pacific Partnership (TPP) agreement and any future trade agreements. The letter in part states, “Congress, not the Executive Branch, must determine when an agreement meets the objectives Congress sets in the exercise of its Article I-8 exclusive constitutional authority to set the terms of trade. For instance, an agreement that does not specifically meet congressional negotiating objectives must not receive preferential consideration in Congress. A new trade agreement negotiation and approval process that restores a robust role for Congress is essential to achieving U.S. trade agreements that can secure prosperity for the greatest number of Americans, while preserving the vital tenets of American democracy in the era of globalization.”

If Fast Track Authority is approved, it would allow President Obama to essentially have dictatorial control over the country in many respects. Fast Track Authority gives the executive branch legislative powers, something expressly forbidden by the Constitution. We must deny the President Fast Track Authority. If this is granted, it will be even more difficult to stop the Trans-Pacific Partnership from being approved.

It would be the final nail in the coffin for U.S. sovereignty. Contact your Congressional representative and urge them to oppose the Fast Track Authority and forward this article to your friends and ask them to do the same!

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