CPA’s Fair Trade Message Finds Favor in Capitol Hill Meetings

May 31st, 2018

The week of March 12th, I was one of over 60 members of the Coalition for a Prosperous America (CPA) who attended our annual conference/fly-in.  In a two-day blitz, members visited more than 120 House and Senate offices in Washington, D. C. to sound the alarm: “America’s massive, growing trade deficit is killing jobs, harming communities, and stifling economic growth.”

Our conference began Monday afternoon with remarks by CPA Chairman Dan DiMicco touting Present Trump’s announcement of imposing Section 232 tariffs on steel and aluminum as a long-overdue measure to safeguard our domestic steel and aluminum mills.  He emphasized that CPA also supports all allowable trade enforcement remedies, such as the Section 201 Tariffs on imported solar panels and clothes washers and the Section 301 Investigation into Chinese intellectual property theft.

CEO Michel Stumo highlighted the new flyers covering issues that we were to discuss with Congressional Representatives and their staff.  Research Director Jeff Ferry introduced the new Job Quality Index he has created, which will differentiate high-paying jobs from low-paying jobs in the monthly job data.

We urged Representatives to support legislation that would eliminate the nation’s trade deficit, address an overvalued dollar, provide stronger trade enforcement, and tackle troubling trade issues with China.

In our meetings, we provided Representatives and their staffs with legislative solutions aimed at eliminating America’s trade deficit, which grew to $566 billion last year. A fact sheet produced by CPA highlighted that no other country has run 42 years of consecutive trade deficits, which has been an average 2.99% drag on our Gross Domestic Product. The flyer offered key reasons why “free” and “fair” trade can result in balanced trade—instead of the job loss that has plagued America’s productive sectors for the past 15 years.

Another fact sheet, showed that ten countries account for 97% of our trade deficit, namely China, Mexico, Japan, Germany, Ireland, Vietnam, Italy, India, South Korea, and Malaysia. Our deficit with China alone jumped from a $337 billion deficit or 38% in 2016 to a $375 billion deficit or 47% in 2017.

We discussed how the he Tax Cuts for Jobs Act narrowed, but did not eliminate, the tax benefit for moving operations overseas, and presented information on how the tax system could be improved with Sales Factor Apportionment, based, which is “a destination of sales system used by many states that would tax corporate income in proportion to a companies’ sales in the U.S. regardless of either domicile or location of operations.”  For example, a multinational corporation that still does 40% of its business in the U.S. would be taxed on the profits of that 40% of its worldwide sales.

The North American Free Trade Agreement (NAFTA) was also another topic of discussion during our visits. CPA supports “mending it or ending it” as CPA has long argued that NAFTA has hurt U.S. manufacturing, cost jobs, and incentivized investment in Mexico rather than the U.S. We explained the provisions that must be included in a renegotiated NAFTA to help America’s manufacturers, such as reinstating country of original labeling for beef and pork, tightening country of origin rules to require higher North American content, requiring periodic reviews, and a mechanism for countries to withdraw, if necessary.

During our Hill meetings, we emphasized the importance to our national security of a vibrant domestic steel and aluminum industry. I mentioned that we outproduced Germany and Japan in World War II, but we would not be able to do so in future wars if we let our domestic steel and aluminum industries be further decimated. We expressed our support for President Trump’s tariffs on steel and aluminum import, especially since CPA has many members in the steel industry.

In addition, we discussed the problem of the overvalued U. S. dollar. And presented the flyer that showed as of May 2017, the U. S. dollar was overvalued by 25.5%, whereas the currencies of Japan and Germany were undervalued by nearly as much, with South Korea not far behind at about 15% of undervaluation.  I told them that CPA has a new Advisory Board member, Dr. John R. Hansen, who is a 30-year veteran of the World Bank. He has proposed a solution to address this problem that “pushes American wages down, increases the trade deficit, disrupts capital markets, and hooks consumers on debt.” He proposed that “Congress should provide the Federal Reserve the responsibility to maintain the dollar at a current account balancing equilibrium price. New legislation should provide the Fed with a new tool to moderate the dollar exchange rate called a market access charge (MAC).” He projects that the MAC would balance trade in five years and that balance would be maintained in the future.

In addition to our congressional visits, CPA hosted a bipartisan group of Representatives to meet with our members, including Rep. Tom Reed (R-NY-23), Rep. Dan Lipinski (D-IL-23), Rep. Mo Brooks (R-AL-05), and Rep. Robert Pittinger (R-NC-09). Last fall, Representatives Brooks and Lipinski introduced House Congressional Resolution 37 for Congress to set a national goal to eliminate the trade deficit.  It is only one sentence long: “Expressing the sense of Congress that Congress and the President should prioritize the reduction and elimination, over a reasonable period of time, of the overall trade deficit of the United States.”

Rep. Pittinger is co-sponsor of HR 4311, the Foreign Investment Risk Review Modernization Act of 2017, which would expand and update the review by the Committee on Foreign Investment in the U.S. (CFIUS) to meet new national security risks. As we distributed this flyer to Congressional Members, we expressed our support for the order President Trump signed to prohibit the acquisition of Qualcomm by Broadcom.  When I met with Congressman Duncan Hunter, he said he had sent a letter to President Trump urging him to stop the takeover of Qualcomm by Broadcom.

As the publisher of my newest book, Rebuild Manufacturing – the Key to American Prosperity, CPA provided books for me to present at my 15 appointments with Congressional Members and/or staff, and I also had the pleasure of presenting a copy of my book to Rep. Mo Brooks and Rep. Robert Pittinger.

On March 16, CPA released a press release about the success of the annual conference fly-in. highlighting the following:

“The 2018 CPA fly-in was our best yet,” said Dan DiMicco, CPA Chairman. “The presentations and panels were very well received and by far the most informative yet, with great speakers and panelists. Without a doubt we made a strong impact on those we visited on the Hill. Our congressional speakers clearly showed us that our messaging is having an impact.”

Michael Stumo, CEO of the CPA said, “We came to Capitol Hill with a united message from our members that Main Street America urgently needs action on trade. We were encouraged to find that our elected officials are becoming more receptive to calls for greater trade enforcement. Our next step is to remind them that voters are watching, and that the time for action is now.”

CPA chair Dan DiMicco said, “In 2016, voters spoke very clearly at the ballot box. They are frustrated and tired with the business-as-usual approach in Washington. We came to Capitol Hill this week to remind our elected officials that the American people are waiting for action, and that reducing our mammoth trade deficit must be a top priority.”

“The Coalition for a Prosperous America trade conference was very useful and successful in educating our members and legislators about the dangers of continuing our country’s obsession with free trade,” said Roger Simmermaker, author of How to Buy American and a CPA member. “Several times, it was evident that many members of Congress and their staff experienced what I would call “light bulb moments” as we laid out our ideas and strategies for a better and fairer trade policy that will benefit our national economy.”

“When real workers, manufacturers, and agriculturalists converge on Washington, theory is tested against reality, and good things begin happening in America,” said Bill Bullard, CEO of R-CALF and a CPA board member. “There is no question that CPA had a positive impact on U.S. trade policy this week.”

The steel and aluminum tariff discussions proved particularly wide-ranging. And as Greg Owens, CEO of Sherill Manufacturing and a CPA member, noted, “Trade and our decades-long deficits are a critical and complex issue. While I applaud the recent move to levy tariffs on steel and aluminum, the comprehensive answer must go beyond that. The overvalued dollar and tax policies are major contributors to the problem that must be addressed. CPA has detailed concrete solutions to these and other issues that I fully support. It was a privilege and an honor to help CPA introduce and develop these solutions on Capitol Hill this week.”

I am proud to be one of the 4.1 million members in the manufacturing, labor, and agricultural sectors who are “united in their view that a continuing trade deficit hampers jobs and productivity nationwide. CPA will continue to urge action on America’s troubling trade deficit, and we look forward to expanding its relationship with Members of Congress who have pledged to fight for America’s manufacturers, farmers, and their workers.”

Chairman Dan DiMicco and CEO Michael Stumo will be in southern California April 18 – 20th speaking to members of Metal Service Center and NTMA, as well as speaking at the San Marcos Manufacturing Summit to be held at the San Marcos Community Center on Friday, April 20th.  As Chair of CPA’s California chapter, I invite you to register to attend.

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Posted in Currency Misalignment/Munipulation, Economy, Legislation, Manufacturing, National security, Taxes/Regulations, Trade Policy | No Comments »

Steel and Aluminum Tariffs Will Help Rebuild American Manufacturing

May 22nd, 2018

There has been quite a furor in financial and political circles since President Trump announced the that he would impose tariffs on steel and aluminum imports from all countries.  There has been an outcry that it would raise consumer prices, end “free trade”, and start a trade war.  The fact is that we have been in a trade war with China for nearly 20 years — from when China was granted Most Favored Nation status (PNTR) in the year 2000 under President Bill Clinton. We have been losing this trade war, and it’s about time that we stood up and fought back.

China has been cheating on what they agreed to do to attain their PNTR status within the World Trade Organization.  They have dumped products in the U. S. at below market prices to destroy American competition. The Chinese government has subsidized their steel, aluminum, and other industries. They have manipulated their currency to make it undervalued compared to the U. S. dollar.  They have stolen the Intellectual Property of American companies.  They have forced American companies to transfer technology to Chinese companies in order to establish manufacturing facilities in China.  This hasn’t been free trade or fair trade.

The U. S. trade deficit with China has increased from a small deficit of $6 million in 1985 to $375.2 billion in 2017.  China represented 40% of our total trade deficit in goods of $810 billion in 2017, and our trade deficit has already increased at a record pace for January 2018.

As I pointed out in my December 7, 2017 IndustryWeek column, “How Trade Policies Led to the Decline of American Manufacturing, “As a result of the escalated trade deficits from 2001 to 2010, the U.S. lost 5.8 million manufacturing jobs and 57,000 manufacturing firms closed… our domestic supply chain has weakened…We even lost whole industries…” This number of jobs lost represents about 30% of the manufacturing workforce we once had.  Actually, “the number of jobs in manufacturing has declined by 7,231,000–or 37 percent–since employment in manufacturing peaked in the United States in 1979, according to data published by the Bureau of Labor Statistics.

In the past three days, I’ve listened to conservative radio talk show hosts lambast President Trump’s National Trade Director, Peter Navarro.  I’m personally acquainted with him because of residing in San Diego where he resided for many years. I even remember when he ran for mayor of San Diego in 1992.  What these talk show hosts and their guests fail to mention is that he was a professor of Economics at the University of California, San Diego for many years, and was professor of Economics at the University of California, Irvine prior to becoming part of the Trump administration.  He knows what he is talking about.

Navarro was one of the first authors to point out the threat that China is to the U.S. I’ve read two of his three books:  The Coming China Wars, published in 2008, which I read when I was writing my own book, Can American Manufacturing be Saved?  Why we should and how we can.” Then I read the second book that he co-authored with Greg Autry, Death by China, in 2011. Greg Autry has spoken at several of the manufacturing summits I participated in producing in southern California on behalf of the Coalition for a Prosperous America.  Greg Autry and I also served together on the board of directors for the American Jobs Alliance from 2011 – 2016.

Navarro and Autry outline the eight ways China cheats in trade in cleverly worded phrases:

  1. The Export Subsidies’ Dagger to the Heart.
  2. The New “Great Game”: Chinese Currency Manipulation
  3. They Think It’s Not Stealing if They Don’t Get Caught.
  4. Trashing China’s Environment for a Few Pieces of Silver
  5. Maiming and Killing Chinese Laborers for No Fun but Lots of Profits
  6. The Neutron Bomb of Export Restrictions
  7. Predatory Pricing, Dumping and the Dragon’s Rare Earth Cartel
  8. Goodness Gracious, Great Walls of Protectionism

If you haven’t read either of these books, I can highly recommend them, and they are still available on Amazon.

The tariffs on steel and aluminum are long overdue and constitute only a single step in balancing our trade deficit.  I’m delighted that President Trump is keeping his campaign promise of imposing tariffs on steel and aluminum.  I was happy when he withdrew the U. S. from the Trans Pacific Partnership Agreement as I had written more than a dozen articles about the dangers of that agreement to the U. S.  It would have been the “nail” in the coffin of American manufacturing.

There are many more policies we need to put in place to eliminate the trade deficit and restore manufacturing jobs to create prosperity.  I have made recommendations in the last chapter of my new book, Rebuild Manufacturing – the Key to American Prosperity, based on the research I have done for the articles I have written in the past six years as a columnist for IndustryWeek, along with many recommendations that have been made by the board of directors of the Coalition for a Prosperous America, of which I have been a member since 2011. Check out these issue papers on their website.

We can win this trade war if we have the same kind of courage and insight we had when we won World War II and the Cold War with the Soviet Union with the help of our allies. Remember, China has a written plan to become the Super Power of the 21st Century. If we lose this war, we may lose our country.

 

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Manufacturing Music – Northeast Indiana Brings Harmony to the Rust Belt

May 15th, 2018

To learn more about why there is such a concentration of musical instrument manufacturers in Northeast Indiana, I interviewed John Stoner, president and CEO of Conn-Selmer, Inc., a subsidiary of Steinway Musical Instruments, Inc.  I learned that the history of making musical instruments really started with this one company. Today, Conn-Selmer has a portfolio of musical brands that has made it the leading manufacturer and distributor of band and orchestra musical instruments and accessories for student, amateur and professional use.

I asked Stoner about the origins of the Selmer Company, and learned that the main Selmer Company is still located in Paris, France. The history of the U.S. company dates back to the early 1900s. It has production facilities in Elkhart, Ind., Eastlake, Ohio and Monroe, N.C.

Next, I asked where the Conn part of the name of the company came from, and Stoner said, “C. G. Conn started a company in Troy, Mich., and then he moved to Elkhart, Ind. The company manufactured brasswinds, saxophones and electric organs in the 1950s.”

When the Selmer company acquired CG Conn, the brands Armstrong and King were part of the acquisition. Later, they acquired the LeBlanc Corporation, which brought another family of brand names such as Leblanc, Vito, Holton, Martin, and the distribution rights to Yanagisawa – making Conn-Selmer the largest U.S. full-line manufacturer of band and orchestra instruments.

“We have a strong portfolio of instruments made here in Elkhart. Seventy percent of our products are manufactured here in the United States and sold globally. The other 30 percent are manufactured in France, Japan and other parts of the Asia Pacific and sold in various parts of the world.” Stoner said.

When I asked if the company had implemented Lean principles and tools, he said, “I looked at Lean when working in a previous industry, and I brought the concepts over to Conn-Selmer. We applied Lean principles so that we could be in a position to be more competitive when there was an upturn after the 2009 recession.”

He added, “Northeast Indiana is a hot bed for musical instruments. At one time there were about a hundred manufacturers of instruments. Over the years, people would leave a company and start their own company to make a musical instrument.  Elkhart became the musical instrument center of the country.”

In my interview with Tony Starkey, president of Fox Products, I learned about the interesting history of another musical instrument company.

Starkey said, “I was an owner of a machine shop before I came to Fox Products. Fox Products is located in South Whitley, a small community of less than 2,000 people, about 10 miles from Fort Wayne. I used to mow the lawn for the company when I was 13. The company was founded by Hugo Fox in 1949 after he retired from being the Principal Bassoonist for the Chicago Symphony and returned to his hometown.  He had the goal of making the first world-class bassoon in the U.S.  He started the business in a modified chicken coup on the Fox family farm, and it took him two years to successfully make a bassoon.”

Later, Hugo’s son, Alan, left his career as a chemical engineer and ran the company for over 50 years, applying engineering principles to making instruments. Fox owned the student market because Alan made the instruments much easier to play.

The first Fox oboes came out in 1974. Later that year, a fire destroyed the woodshop and reed-making equipment, so Alan used other sites in South Whitley to keep the company alive while a new plant was being built. The company expanded and started making English Horns in 1999.

Since Starkey became owner in 2012, the company has grown 30 percent. It now has 130 employees.

“When I took over the company, we didn’t have any prints for the instruments. We had 3D models and patterns and tools in Germany. We had to start over and reverse engineer the instruments to create the drawings. Now, we are able to work in Solidworks and have CNC machines to make the metal parts. We even set up our own silver plating line,” Starkey said. “Indiana is a great business state and a great place to have a business. We did a turnkey operation for our silver line without a lot of regulations and delays.”

I asked if they have applied Lean principles and tools to the company. Starkey said, “I hired people who have a Lean background, so we are using technology and implementing Lean wherever we can, taking the human factor into consideration. We are hoping to get to be where we want to be as a Lean company in about two to three years.”

Last of all, I interviewed Bernie Stone, founder and president of Stone Custom Drum Company. Stone said, “I played drums in a marching band in high school. Then, I worked in a musical instrument store and started doing repair of drums and projects for the percussionists of the symphony.”

He explained, “In 2002, I had the opportunity to purchase the drum shell manufacturing equipment, tooling and assembly line from the Slingerland Drum Company, one of the legendary vintage American drum brands. It gave me the opportunity to own the shell-shaping molds and tools, so I invested my money – and my life – into bringing them up to 21st century standards and crafting Super Resonating® shells that surround punchy tom strokes with full, fat tone, make bass drums kick with big and round low-end responses, and snares cut with a crisp articulate ‘snap’ that sings with resonance. I bought some other equipment I needed on eBay and some from the Gretsch Company, another drum company.  I learned how to operate the equipment and reverse engineered the drums.”

He added, “I started my own company as a LLC in 2011. I am now looking to expand into a S corporation to get investors to grow the company. I think the skill set we have as a company is unique as very few people know how to make a great drum set. We manufacture our own Stainless Steel and brass tune lock fixtures to keep the drum in tune.”

I asked what kind of drums he makes – drums for rock and roll bands as well as for the symphony. Fort Wayne has a great philharmonic, which is a stepping stone to bigger and more prestigious symphonies. For example, Pedro Fernandez started at Fort Wayne and then went on to San Diego and is now at the Houston Symphony.

“The reason I am in Fort Wayne to make drums is that all the suppliers I need are within 50 to 100 miles for the wood, metals, tool and die shops, 3D printing, etc.,” Stone said.

From these stories, we can see that the musical instrument industry had developed gradually over the last hundred years or so from one company spinning off from another company or one company acquiring another or buying the rights to a brand name.

The craftmanship legacy of the Northeast Indiana region’s workers has played a big role in the success of many companies, along with a strong supply chain of subcontractors and materials. It is likely that the region will keep fostering the development and growth of new musical instrument companies to support the strong creative musical arts community of Northeast Indiana.

 

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Northeast Indiana Fosters Manufacturing for the Creative Music Community

May 15th, 2018

It’s interesting to find out how certain regions have become centers for specific industries. I recently had the opportunity to interview economic development and business leaders in northeast Indiana to learn about the region’s advantages for manufacturers and what types of industries have flourished in the region. One of these unique industries is musical instrument manufacturing.

During my interview with John Sampson, President and CEO of the Northeast Indiana Regional Partnership, I learned that the region is highly concentrated in manufacturing.

Sampson said, “We cover 11 counties and collaborate with other counties in the south and east.  The business climate is very favorable for the Midwest –  we rank #2 in taxes and are in the top ten for other factors.  We have a very supportive and responsive part-time state legislature to the interests of employers.  The corporate tax rate is down to 6% and is headed to 4.9% in 2021 in a tiered decline.

On our website, we list the target industries [see below]. Back in 2006, we partnered with the regional workforce investment board, Northeast Indiana Works, for a drive to improve skills training. We make sure that all the training is targeted to what industry needs and made sure that students get transportable certifications. We got a $20 million grant in 2009 for a Talent Initiative to align the region’s talent efforts to the direct needs of defense, aerospace and advanced manufacturing industries.  Ivy Tech is the principle partner in providing training, designing skills training for employers.  They have a center for advanced manufacturing and have career technical studies and apprenticeships for high school students.

We have united with other organizations and are trying to better connect students with the trades. We have a statewide organization, called Conexus Indiana, to organize the logistics of the programs devoted to skills training such as CNC machining, welding, etc.  Conexus Indiana brings together a diverse advanced manufacturing and logistics community to build tomorrow’s skilled talent through industry-endorsed classroom curriculum, experiential learning and earning opportunities, and industry partnerships.”

From their website, I learned that there are three major universities:  Purdue U. Fort Wayne (IPFW), Ivy Tech, Northeast, and Indiana Tech. The Indiana Manufacturing Extension Partnership (Indiana MEP) is in Indianapolis, but Indiana Purdue University is satellite MEP site, located about 100 miles from Fort Wayne.

Ivy Tech is the largest public postsecondary institution in Indiana — and the largest singly-accredited statewide community college system in the entire country.  The system has 45 campus and site locations in more than 75 communities, and serve nearly 160,000 students a year.

I asked if the region has any Makerspaces and he replied, “Yes, we currently have two Maker Lab locations as part of the Allen County Public Library: “The Main Library and Georgetown.  Both labs have 3D printers, 3D scanners, electronics workbenches and other specialized equipment.

We also have a new Makerspace in development at the former General Electric campus where GE made electric motors.  The campus and is now being redeveloped as a mixed-use campus, called Electric Works. There is an opportunity for another Makerspace to be incorporated into the 1.2 million sq. ft. campus.” 

From supplemental information I was emailed after the interview, I learned that it’s 47% more affordable to buy a house in Fort Wayne ($116,000) compared to the national average ($222,000), and property tax is capped at 1%.

The region has a high rate of employment in the manufacturing sector:  28.8% compared to the national figure of 8.9%. Also, Indiana was the first right-to-work state in the Great Lakes region of the U. S.

The supplemental information provided more information on training, saying that the Northeast Indiana Regional Partnership is partnering with regional workforce development organizations like Northeast Indiana Works and WorkOne Northeast career centers to invest in the region’s talent. Northeast Indiana Works oversees 11 WorkOne Northeast career centers in northeast Indiana and provides Skill-Link training at little cost to employers. “Skill-Link is a program that offers certification-based training tailored to employers’ specific skill needs. Employers select high-potential employees for the training, which promotes talent retention, career-pathway development, and, in many cases, leads to promotions and pay increases. WorkOne Northeast assists employers in filling positions left open by the promotion of employees who complete Skill-Link training.”

The Northeast Indiana Regional Profile states that Northeast Indiana “serves as a strategic distribution hub for businesses targeting the Great Lakes and Midwest. The region is located only two hours from Indianapolis and three hours from Chicago, Detroit, Cincinnati, and Columbus, Ohio. The region is served by two major interstate highways, I-69 (North/South) and I-80/90 (East/West), also known as the Indiana Toll Road. Fort Wayne International Airport is home to four major carriers: Allegiant Air, American, Delta and United. There are also two Class I freight railroads, CSX and Norfolk Southern, servicing the region.

It states, “The region currently ranks eighth in best tax environments in the United States and the best in the Midwest based on the 2016 State Tax Environment Index by the Tax Foundation. This business-friendly tax climate creates a thriving community for innovative businesses and growth…Due to legislation in 2011, Indiana’s corporate income tax rate fell by 2 percent. This was the continuation of a scheduled multiyear reduction, which will ultimately see the corporate income tax rate reduced to 4.9 percent by 2022, which would make Indiana’s the second lowest corporate tax rate of any state levying the tax.” The current corporate income tax rate is only 6%, and the personal income tax rate is 3.23%.

The profile also states, “The region has an abundance of water and natural gas, as well as a reliable supply of electricity. “The region’s largest municipal water system, Fort Wayne City Utilities, has an excess water capacity of more than 35 million gallons per day. Our excess water supply is a competitive advantage that fuels our growing target industries, such as food processing and agriculture.”

According to a 2016 Target Industry report from Community Research Institute, research identifies the region’s target industries in Northeast Indiana as:

  • Advanced Materials
  • Vehicles
  • Design and Craftmanship
  • Medical Device & Technology
  • Food & Beverage
  • Logistics & E-commerce

 

The top industrial employers are:

 

COMPANY

 

 PRODUCT

 

 EMPLOYMENT

 
Zimmer Biomet

 

 Orthopedic goods

 

 4,370

 
General Motors

 

 Truck manufacturing

 

 3,900

 
Steel Dynamics

 

 scrap metal processing & steel manufacturing

 
LSC Communications (formerly R.R. Donnelly)

 

 

 Book & other specialized printing

 

 1,935

 
BFGoodrich

 

 Rubber tire manufacturing

 

 1,580

 
TI Automotive

 

 Motor vehicle parts manufacturing

 

 

 1,388

 
Frontier Communications

 

 Telecommunications carrier

 

 1,355

 

 

To gain a better perspective about how the relationship of the creative community to musical manufacturing, I interviewed Dan Ross, VP of Community Development for Arts United of Greater Fort Wayne, Inc.

Mr. Ross said, “Arts United is a nonprofit organization that was founded in 1955. We function as both a united art fund and local arts agency, much like a cultural affairs office for the arts community. Arts United provides arts advocacy and promotion, high capacity for creativity through grant support, the arts campus, and creative community development to more than 70 arts and culture organizations in Northeast Indiana. We own the three different facilities – the Auer Center for Arts and Culture, the Arts United Center, and the Hall Community Center for the Arts – and maintain and service the buildings. Arts United cross-promotes events held in our facilities and other arts and culture events available to the community. In addition, resident organizations housed in our facilities receive subsidized rates at about one-fourth of the typical cost for renting office space in Downtown Fort Wayne.

We provide a variety of back office services for 19 arts and culture organizations, including a health plan that provides affordable health care payroll services, and a shared box office.

Arts United works with economic development organizations to utilize the assets of the arts community, because a creative arts community is beneficial for employers to attract talent from other parts of the country. Arts and culture are an amenity and improve the quality of life in a place. Because of the vibrancy of our community, Fort Wayne is drawing more non-residents to the area.”

He added, “In 2016, we had support from the Indiana Arts Commission to commission the Community Research Institute at Indiana University-Purdue University Fort Wayne to conduct a review of the Creative Economy for the state of Indiana.

When I inquired as to how the creative community contributed to the concentration of musical instrument production in the region, he explained that Fort Wayne has one of the United States’ largest dealers in musical equipment for musicians, recording studios, schools, churches, concert sound companies — Sweetwater Sound. Ross, said, “The company was founded in 1979 by Chuck Surack in the back of his VW bus, and since then has outgrown several buildings and constantly expanded its staff to become the leading retailer that it is today.”

From their website, I learned that in 1995, “Sweetwater established an informational website: www.sweetwater.com, and by 1999, most of their inventory was available for purchase online.” The company grew to the point that in 2006, they had a new 44-acre corporate campus designed and built. “The new headquarters, consisting of corporate offices, a distribution center with warehouse, and a retail store, also includes the Sweetwater Productions recording studio complex and 250-seat LARES-equipped performance theater.”

Ross said, “Sweetwater now has over 1,000 employees. Sweetwater attracts employees from all over the country by providing high paying jobs and opportunities for extensive training.  Sweetwater employees are active leaders and performers in the arts community. Employees both gain valuable experience with the variety of arts organizations in the community, and contribute to their success.”

Sweetwater has attracted instrument manufacturers to the area because they are the number one online distributor of musical instruments nationally.  Also, Purdue University is establishing its first School of Music on its Fort Wayne Campus, including a music and arts technology degree program starting next fall housed on the Sweetwater campus.

Ross added, “The history of making musical instruments goes back over a hundred years in the region.  The majority of orchestra and band instruments are produced in northern Indiana.  One local company, Fox Products manufactures 80% of the world’s bassoons and oboes.  Hugo Fox played for the Chicago Symphony, and he moved back to his hometown of Fort Wayne and started to make his own bassoons and oboes.”  These jobs are highly skilled and highly paid because of the craftsmanship required to make many of the complex musical instruments. New technology and scientific research have improved the manufacturing processes.

As we ended the interview, Dan said that he was a musician himself, playing the trumpet.  He plays for the Fort Wayne Philharmonic, and his career has been a combination of arts administration, teaching and playing music. He studied music in college, so it feels good to combine his creativity with community development goals to enhance Fort Wayne’s history of the creative arts and craftmanship.

We can see that northeast Indiana offers a good business climate for manufacturing compared to other states in the Midwest. In my next article, we will learn more about how the region’s focus on design and craftmanship led the development of the musical instrument industry from interviews with three of the companies making musical instruments.

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How could we stop Chinese Investors from Buying U. S. Companies?

April 11th, 2018

After my article, “Should We Allow the Chinese to Buy Any U.S. Company They Want?” was published January 9th, I was made aware that AXIOS published an article by Steve LeVine on January 10th that provided data from MacroPolo showing that the amount of Chinese investment in the U.S is far greater and more dangerous that I thought.

He wrote, “Chinese investors and firms own a majority of almost 2,400 American companies employing 114,000 people, about the same number as the combined U.S. staffs of Google, Facebook and Tesla…”

On their website, MacroPolo is described as “an initiative of the in-house think tank of the Paulson Institute at the University of Chicago,” which “has a dedicated team of experienced observers and seasoned analysts” whose “aim is to decode China’s economic arrival …across multiple dimensions.”

The article featured MacroPolo’s interactive map, which shows the economic impact of Chinese investment in each state by economic contribution, number of firms owned, and total employment of these firms. The map “appears to be the first open-source, county-by-county study of every majority-owned Chinese company in the U.S. — $56 billion worth.”

In 2017, the top three states were:

  • California: $12.3 billion – economic contribution, 19,300 employed, 598 firms
  • Michigan: $7.6 billion economic contribution 15,200 employed, 111 firms
  • New York: $3.1 billion economic contribution, 6,300 employed, 198 firms

Kentucky was the top state in 2016 with the $5.4 billion buyout of GE Appliances in Louisville by Haier.  I was horrified when this happened because I had used GE’s reshoring of a water heater as the headline case study in my reshoring presentations, and I had visited the GE new product design center in Louisville in the fall of 2015. I had been delighted to see one appliance after another being reshored.

The most immediate way that we could reduce Chinese investment in the U. S. would be to pass the legislation I mentioned in my previous article:  The Foreign Investment Risk Review Modernization Act (FIRRMA), introduced on November 8, 2017 by Congressman Pittenger (H.R.4311) and Senator Cornyn (S. 2098).  The key features of these bills are:

  • “Expands CFIUS jurisdiction to include joint ventures, minority position investments, and real estate transactions near military bases and other sensitive national security facilities.
  • Updates CFIUS definition of “critical technologies” to include emerging technologies that could be essential for maintaining the U.S. technological advantage over countries that pose threats.
  • Adds new national security factors to the review process.
  • Strengthens the government’s ability to protect American “critical infrastructure” from foreign government disruption.”
  • Representatives Devin Nunes (CA-22), Chris Smith (NJ-04), Denny Heck (WA-10), Dave Loebsack (IA-02), Sam Johnson (TX-03), and John Culberson (TX-07) are co-sponsors of H.R. 4311.

In his press release, Senator Cornyn said, “By exploiting gaps in the existing CFIUS review process, potential adversaries, such as China, have been effectively degrading our country’s military technological edge by acquiring, and otherwise investing in, U.S. companies…This undermines our national security and highlights the imperative of modernizing the CFIUS review process to address 21st century threats. This bill takes a measured approach by providing long overdue reforms to better protect our country, while also working to ensure that beneficial foreign investment is not chilled.”

Senators Burr (R-VA), Feinstein (D-CA), Marco Rubio (R-FL), Amy Klobuchar (D-MN), John Barrasso (R-WY), Gary Peters (D-MI), James Lankford (R-OK), Joe Manchin (D-WV), and Tim Scott (R-SC) are also co-sponsors of S. 2098.

The introduction of FIRRMA may be the outcome of the recommendations of the draft annual report of the U.S.-China Economic and Security Review Commission  “calling for a ban of the commission’s annual Chinese state-owned enterprises’ purchases of U.S. companies…The Commission recommends Congress amend the statute authorizing the Committee on Foreign Investment in the United States to bar Chinese state-owned enterprises from acquiring or otherwise gaining effective control of U.S. companies…” as reported by Ali Meyer on October 27, 2016 in the Washington Free Beacon.

The first independent review of these 79-page bills was published December 21, 2017 in the Latham & Watkins Client Alert White Paper titled, “CFIUS Reconstructed: The Foreign Investment Risk Review Modernization Act of 2017.” The White Paper states, in part:

“The proposed Foreign Investment Risk Review Modernization Act would bring substantial changes to CFIUS review. Key Points are:

  • FIRRMA could speed review of certain transactions
  • It would provide for increased scrutiny of transactions from countries of concern.
  • It would expand the scope of activities subject to CFIUS review

FIRRMA would also lengthen the CFIUS review process, extending the initial review period from 30 to 45 days, and allowing CFIUS to extend a national security investigation for 30 days beyond the existing 45-day period where “extraordinary circumstances” require. Thus, the post-notice CFIUS clock would expand from 75 days currently to either 90 or 120 days from the time of filing to the end of the national security investigation.

…But FIRRMA would also increase the resources CFIUS would have to undertake its expanded responsibilities.… In a number of important ways FIRRMA would clarify, alter, or expand current CFIUS practices. And yet, the 79-page bill leaves open certain questions, and raises still others.”

The White paper also stated that “an alternative bill was introduced into the Senate, the “United States Foreign Investment Review Act of 2017 (S.1983),” also with bipartisan sponsorship (Sens. Sherrod Brown (D-Ohio) and Charles Grassley(R-Iowa). That said, FIRRMA’s bicameral introduction and bipartisan support, which includes Senator Diane Feinstein (D-California), as well as reports that some of FIRRMA’s sponsors worked with the Administration on the bill before it was introduced, all provide some reason to expect a version of FIRRMA to move during upcoming months.”

On December 11, 2017, Alexandra Kilroy wrote a guest blog for Adam Segal on the Council on Foreign Relations website. Alexandra is an intern in the Digital and Cyberspace Policy program at the Council on Foreign Relations. She wrote, “As Chinese firms pour funds into promising Silicon Valley start-ups, many national security experts are concerned that China may soon surpass the United States as a technological power, in part though investing in U.S. firms and acquiring cutting-edge technology.”

She commented that “the Foreign Investment Risk Review Modernization Act (FIRMMA), … appears to be motivated in part by an unreleased Pentagon report of the military applications of Chinese investments in the United States. Under the new legislation, CFIUS oversight would be expanded to include foreign investments near military facilities, minor-share investments in critical technology and infrastructure sectors, and transfers of dual-use technology to foreign entities. Acquisitions of critical technologies by “countries of special concern” would also be subject to CFIUS oversight.”

She commented that “Chinese state-led capitalism makes it difficult to distinguish between private and state-owned businesses, and many private firms have strong ties to the Chinese government. In addition, China has been historically disinclined to allow private foreign investment in many critical parts of the economy…it has traditionally maintained strict limits on foreign investment in its energy, transportation, and technology industries. Chinese firms, many with connections to the state, can invest billions in U.S. technology, but U.S. companies are often barred from doing the same.”

As a director on the board of the San Diego Inventors Forum, it greatly concerns me that Chinese investors are buying startup companies whose new technologies may be critical to the future of American technological advances.  Under the current law, Chinese investors could be buying small emerging companies that have advanced technologies that are down at the Tier 3 and 4 levels in the supply chain and never get brought up for a CIFIUS review of the acquisition.

In this regard, there are two possible scenarios that frighten me: (1) Chinese investors buying an advanced technology company and shutting it down to keep the U. S. from benefitting from the technology, and (2) having Chinese engineers insert “backdoor” technology into the product to make it not work properly or quit working when triggered remotely. The latter is already a problem with counterfeit Chinese parts in the defense and military supply chain.

On January 22, 2018, Daniel DiMicco, Chairman, and Michael Stumo, CEO, of the Coalition for a Prosperous America sent letters to Congressman Robert Pittenger and Senator John Cornyn, which said, in part:

“The Coalition for a Prosperous America (CPA) board of directors has voted to support the Foreign Investment Risk Review Modernization Act of 2017 (FIRRMA) which you introduced on November 8, 2017 with bipartisan support.

We appreciate your recognition that foreign investment should be more tightly monitored to address new security threats posed by an evolving global landscape. Your bill appropriately expands CFIUS’s authority to review certain transactions that pose national security concerns, expands the list of factors to be considered by CFIUS and mandates disclosures by state-owned enterprises.

We agree with your reasons, and those of your cosponsors, for advancing this bill. We would additionally point out that trade is part of China’s multidisciplinary strategy to surpass the US on the global stage. China engineers persistent trade surpluses. Our corresponding deficits require us to be a net importer of capital. We sell our assets to balance the books as they sell more goods than they buy. Thus, the greater the US trade deficit, the more we sell our assets and the more we must monitor and restrict which assets are sold.

CPA believes your bill could be improved by adding economic security as a basis for rejecting investment. As an example, Canadian laws restricting investment go beyond national to economic security, i.e. net gain to the domestic economy, when buyers are state-influenced companies.”

The expansion of CIFIUS by FIRRMA may not be enough to stop the dangerous level of Chinese investment in the U.S.  Another solution would be to require reciprocity between China and the U.S. with regard to investment.  Currently, U. S. companies are not allowed to buy 100% of any Chinese company.

On January 17, 2018, CPA’s Trade Blog included an excerpt from Jenny Leonard’s article on Inside US Trade, which stated, “The White House is considering the creation of a reciprocal investment regime with China following a Section 301 [Trade act of 1974] investigation into Chinese technology and intellectual property policies…The sources said the administration, if it went that route, would apply the 1977 International Emergency Economic Powers Act, which gives the president broad authority to regulate commerce “to deal with an unusual and extraordinary threat with respect to which a national emergency has been declared for purposes of this chapter and may not be exercised for any other purpose.”

The article describes how it could be done: “Trump, they said, would sign an executive order declaring a national emergency and, as required under the statute, “immediately” transmit a report to Congress specifying the rationale behind the emergency and actions, and naming “any foreign countries with respect to which such actions are to be taken and why such actions are to be taken with respect to those countries.”

The result “would be to restrict Chinese foreign investment in the U.S. to the extent that Beijing restricts U.S. foreign investment in its market, which could effectively lead to sectoral investment bans. Chinese investors under the new regime would have to demonstrate that China allows U.S. investment in a specific sector. For example, one source said, if Chinese investors wanted to buy a U.S. bank, they would be able to acquire no more than a 49 percent stake — in line with Chinese rules on foreign ownership of banks in China.”

Personally, I like this latter solution the best as there is still too much possibility that a Chinese acquisition may escape the expanded CIFIUS “radar screen” for a review. It’s not just our national security that is being threatened, it’s our economic security as well.

 

Posted in Inellectual Property, Legislation, Manufacturing, National security, Trade Policy | No Comments »

Should We Allow the Chinese to Buy Any U.S. Company They Want?

April 11th, 2018

We Americans blithely ignore the long-term effects of allowing foreign corporations to purchase the assets of our country in the form of companies, land, and resources. We are selling off our ability to produce wealth by allowing many American corporations to be purchased by foreign corporations. It is not just foreign companies buying our assets that is the problem ? it is the state-owned and massively subsidized companies of China that are the dangerous because China uses its state-owned enterprises as a strategic tool of the state. By pretending they are private companies abiding by free-market rules makes us the biggest chumps on the planet.

How many Americans paid attention to the news that the world’s largest pork producer, American company Smithfield Foods, was acquired by a Chinese corporation in 2013? Shareholders approved the sale of the company to Shuanghui International Holdings Limited, the biggest meat processor in China.

Very few paid any attention to one of the earliest acquisitions by a Chinese corporation — when the Hoover brand was sold to Hong Kong, China-based firm Techtronic Industries in 2006 after Maytag that owned Hoover was acquired by Whirlpool.

In January 2014, Motorola Mobility was sold by Google to Chinese computer corporation, Lenovo, which means that the nation that invented smart phones is just about entirely out of the business of producing smart phones in America. This acquisition will give one of China’s most prominent technology companies a broader foothold in the U. S. Lenovo is the same company that bought IBM’s line of personal computers in 2004.

Through strategic purchases, China is positioning itself to be our energy supplier as well. Since 2009, Chinese companies have invested billions of dollars acquiring significant percentages of shares of energy companies, such as The AES Corporation, Chesapeake Energy, and Oil & Gas Assets. In 2010, China Communications Construction Company bought 100% of Friede Goldman United, and in 2012, A-Tech Wind Power (Jiangxi) bought 100% of Cirrus Wind Energy.

In a Fortune article titled  “The Biggest American Companies Now Owned by the Chinese” Stephen Gandel provides the following list of American companies acquired by Chinese investors in 2016:

  • Starwood Hotels acquired by Anbang Insurance, a Chinese insurance company that is rapidly buying up U.S. hotels…It is the latest hotel acquisition by the Chinese insurer, which last year bought the company that owns New York’s Waldorf-Astoria. “Starwood would add 1,300 hotels around the world to Anbang’s portfolio.”
  • Ingram Micro, which is No. 62 on the Fortune 500, was bought by Tianjin Tianhai Investement Development Co., “a Chinese firm that specializes in aviation and logistics.”
  • General Electric Appliance Business was bought by Qingdao Haier Co.
  • Terex Corporation, an 83-year-old Connecticut-based company that “makes machinery for construction, agricultural, and industrial purposes,” was bought by Zoomlion Heavy Industry Science.
  • Legendary Entertainment Group, which has co-financed a number of major movies like Jurassic Park, Godzilla, and Pacific Rim, was bought by Dalian Wanda
  • Dalian Wanda also bought AMC Entertainment Holdings, the U.S.’s second largest movie chain at the time of purchase, but now #1.

The acquisition of American companies by foreign corporations isn’t something new. Many prominent companies founded in America were bought by corporations from the United Kingdom, France, Germany, Italy, and other European countries in the latter half of the 20th Century. Most Americans don’t realize that such iconic American companies as BF Goodrich and RCA are now owned by French corporations, and that Carnation and Gerber are now owned by Swiss corporations.

Many foreign countries don’t allow 100% foreign ownership of their businesses, but sadly, the United States does not exercise the same prudence. We allow sales of U. S. companies to foreign companies unless there are national security issues, and they almost never sell theirs to us. The Chinese government limits foreign ownership to very few selected industry sectors, that can change annually, and requires joint ventures with Chinese corporations for most industry sectors.

What is enabling Chinese companies to go on a buying spree of American assets? Trade deficits – our ever-increasing trade deficit with China over the past 20 years is transferring America’s wealth to China and making millionaires out of many Chinese. In 1994, our trade deficit with China was $29.5 billion, and it grew to $83.8 by 2001 when China was granted “Most Favored Nation” status and admitted to the World Trade Organization. By 2004, it had doubled to $162.3 billion. After a slight dip in 2009 during the depths of the Great Recession, the trade deficit grew to $347 billion in 2016. If you add the annual trade deficits with China alone for the past 20 years, it totals $4.22 trillion. China now has over one billion serious savers and more than a million millionaires whose assets when combined provide billions to spend to buy our assets.

In theory, we have the means to protect ourselves from this. CFIUS, the Committee on Foreign Investment in the United States, has the power to regulate, approve and deny these purchases. Unfortunately, it has been rare for CFIUS to block deals that don’t directly pose a threat to our national security.

The last time CFIUS reviews were expanded was July 26, 2007 when the President signed H.R. 556, Foreign Investment and National Security Act of 2007 (FINSA) “after the Dubai Ports World transaction passed through CFIUS without a formal investigation, leaving a surprised and angry Congress determined to avoid a repetition of that scenario.”

However, this new Act didn’t stop recommendations for expanding the scope of CFIUS reviews. Diane Francis, author of “Merger of the Century: Why Canada and America Should Become One Country, wrote  expressed her opinion of why CFIUS reviews should be expanded in an article in the December 15, 2013, New York Post: “Currently, American authorities only evaluate foreign takeovers on the basis of national-security issues or shareholder rights and securities laws. But these criteria are inadequate. A fairer test in the case of Smithfield, and future buyout attempts by China, should also require reciprocity: Only corporations from countries that allow Americans to buy large companies should be allowed to buy large American companies. That is why Washington must impose new foreign ownership restrictions based on the principle of reciprocity. The rule must be that foreigners can only buy companies if Americans can make similar buyouts in their countries.”

The dangers of these foreign acquisitions were also mentioned in the 2013 Annual Report to Congress by the U.S.-China Economic and Security Review Commission, which states, “China presents new challenges for CFIUS, because investment by SOEs can blur the line between national security and economic security. The possibility of government intent or coordinated strategy behind Chinese investments raises national security concerns. For example, Chinese companies’ attempts to acquire technology track closely the government’s plan to move up the value-added chain. There is also an inherent tension among state and federal agencies in the United States regarding FDI from China. The federal government tends to be concerned with maintaining national security and protecting a rules-based, nondiscriminatory investment regime. The state governments are more concerned with local economic benefits, such as an expanded tax base and increased local employment, rather than a national strategic issue, especially as job growth has stagnated.”

This report, continues, “China has amassed the world’s largest trove of dollar-denominated assets. Although the true composition of China’s foreign exchange reserves, valued at $3.66 trillion, is a state secret, outside observers estimate that about 70 percent is in dollars. In recent years, China has become less risk averse and more willing to invest directly in U.S. land, factories, and businesses.”

On January 26, 2017, Robert D. Atkinson, President of the Information Technology and Innovation Foundation, testified at a hearing on “Chinese Investment in the United States: Impacts and Issues for Policymakers” before the U.S.-China Economic and Security Review Commission.  He testified: “For many years, China has recycled the earnings from its large and sustained trade deficit with the United States into U.S. Treasury bills. But the last few years have seen a marked increase in the amount of inward foreign direct investment (FDI) from China to the United States, across a range of industries. While the underlying motivation for some of this investment is commercial, at least one-third is from Chinese state-owned enterprises, and it is likely that considerably more is guided and supported by the Chinese government, specifically targeting sectors that are strategically important for U.S. national security or economic leadership.“

After ten years, there is finally action on expanding the scope of CFIUS reviews. On November 8, 2017, Congressman Robert Pittenger (R-NC) and Senate Majority Whip John Cornyn (R-TX) “introduced bipartisan, bicameral legislation to modernize the national security review of potential foreign investments in the United States, Foreign Investment Risk Review Modernization Act (“FIRRMA).”

The Press Release stated, “Chinese investment in the United States increased more than 900 percent between 2010 and 2016.  Much of this investment was part of a strategic, coordinated, Chinese government effort to target critical American infrastructure…China is buying American companies at a breathtaking pace.  While some are legitimate business investments, many others are part of a backdoor effort to compromise U.S. national security,” said Congressman Pittenger.  “For example, China recently attempted to purchase a U.S. missile defense supplier using a shell company to evade detection.  The global economy presents new security risks, and so our bipartisan legislation provides Washington the necessary tools to better track and evaluate Chinese investment…”

In a letter to Senator Cornyn, Attorney General Jeff Sessions wrote, “I am particularly supportive of the goals of several aspects of your proposed legislation, including but not limited to (1) the expansion of CFIUS’s authority to review certain transactions that may pose national security concerns; (2) an expanded list of national security factors that CFIUS should consider; and (3) mandatory disclosures of certain investments by state-owned enterprises.”

Earlier this year, the Coalition for a Prosperous America (CPA) published an issue flyer titled “America Must Modernize its Foreign Investment Rules.” It states:

“A wave of strategic foreign acquisitions of U.S. companies threatens our security and future prosperity. The U.S. liberalized rules on incoming foreign investment believing others would follow our lead. That belief was wrong. freely invest here while severely restricting U.S. investment there. America’s trade deficits result in a tsunami of incoming foreign investment, a change from when the US was the world’s sole superpower. The Committee on Foreign Investment in the U.S. (CFIUS) can block incoming investment based upon national security concerns, but not for economic strategy reasons as other countries do.”

The Coalition proposed the follow remedies:

  • Expand consideration beyond national security to include economic security
  • Allow longer review periods, beyond 30 days, for CFIUS to review proposed investments
  • Include a “net benefit” test to encompass American economic interests where proposed
  • Acquisitions of companies important to future U.S. technology and employment, both civilian and defense related
  • Gauge systemic threats to U.S. interests in addition to individual cases
  • Require country by country reciprocity to allow foreign investment in U.S. companies and technology only to the extent they allow incoming US investment there
  • Prescribe heightened scrutiny of investments by state-influenced enterprises

CPA CEO Michael Stumo stated, “We must ensure that foreign greenfield investments in the US and acquisitions of existing US companies provide a clear ‘net benefit’ to the US with special scrutiny in cases of state influenced foreign entities.”

My question is:  Did we let the USSR buy our companies during the Cold War? No, we didn’t! We realized that we would be helping our enemy. This was pretty simple, common sense, but we don’t seem to have this same common sense when dealing with China.

It is time to wake up to the real dangers of our relationship with China. The Communist Chinese government is not our friend. China a geopolitical rival that has a written plan to become the Super Power of the 21st Century. Letting Chinese corporations acquire American companies, especially energy or technology-based companies is the biggest threat to rebuilding American manufacturing. With regard to China’s military buildup, the U.S.-China Commission report states, “PLA modernization is altering the security balance in the Asia Pacific, challenging decades of U.S. military preeminence in the region…The PLA is rapidly expanding and diversifying its ability to strike U.S. bases, ships, and aircraft throughout the Asia Pacific region, including those that it previously could not reach, such as U.S. military facilities on Guam.” We must not allow this policy to continue if we want to maintain our national sovereignty.

Posted in Legislation, Manufacturing, National security, Trade Policy | No Comments »

Los Angeles NTMA Training Centers to Celebrate 50 Year Anniversary in early 2018

January 24th, 2018

Last month, I had the opportunity to take a tour of the NTMA Training Centers in Santa Fe Springs, which was founded “to address the ever-increasing need for machinists to replace their retiring workforce.”

I met with J.R. Ragaisis, Exec. Director of Education and Training, and Carey Knutson, Exec. Director of Accounting and H.R. Carey emailed me info on the historical background of the Training Centers.  From the written history, I learned that Seymour Lehrer and Del Molinari led the charge to develop the Center in 1968 with the backing of the National Association organization. Members of the Southern California Tool & Die Association (later known as the Los Angeles NTMA) generously donated machining equipment and made a donation of $4,800 to get the Training Center started. This means that on February 1, 2018, the Center will celebrate its 50th anniversary!

I really liked that the goal of the Training Centers was “to transition tax-takers into tax-payers, by training them for a career in machining.”  J.R. Ragaisis, said, “The Training Centers was a step toward creating something unheard of at the time: to develop specialized training by industry for industry.”

It was amazing to me that the training program and school survived several recessions in the last 50 years and that no other centers were ever established in other parts of the country. J.R. said, “We have been contacted by others to set up other training centers in their areas, but nothing ever materialized.”

As he gave our group the tour, JR said, “In 1999, we set up a second training center in Ontario, (also in Southern California.); currently, the NTMA Training Centers have two state-of- the-art campuses with fully equipped machine shops, modern computer labs, and all the supplies and materials needed to train for machining. Both campuses are designed to emulate actual machine shops; we have machine tools and equipment leading industry employers use while accommodating students with spacious work stations and ample break areas indoors and outdoors.”

The Santa Fe Springs facility is a two-story building with classrooms, offices, and a large meeting room upstairs, and all of the machining equipment downstairs.  J. R. said that both training centers have many training programs available to service individuals and the manufacturing community ranging from entry level training to advanced programs for existing employees. Some of the training can be funded by what manufacturers have already paid into the Employment Training Fund through their employment taxes.  The NTMA Centers are currently on their 35th contract from the Employment Training Panel of California. For a nominal $250 in-kind contribution from employers for books, and tapping into their paid tax assessments, we will train your workforce to enhance and enrich your productivity.”

He explained that in the basic Machinist Training program, students learn the set up and operation of conventional machining equipment such as grinders, mills, lathes, drill presses, and saws. Instruction time is divided between classroom, computer lab, and shop, providing a unique blend of practical theory and hands-on experience. Instruction includes; quality control and inspection procedures, shop theory, precision measuring instruments, mathematics, blueprint reading, and basic CNC operations. Upon graduation, students may find entry-level machinist employment as an operator of a lathe, mill, grinder, drill press, etc. in the machining and tooling industry. In addition, our machinist classes are usually about 15 students per session, of which we run 3 sessions per day.”

I told him that for more than 70 years, the only place to get machinist training was in San Diego at San Diego City College, where most of the students were grabbed up as fast as they graduated by companies like Solar Turbines. Now, we also have the MiraCosta Technical Career Center in Carlsbad.  Since I have always represented machine shops as a manufacturer’s sales rep., I know there has been a shortage of CNC lathe operators for more than 20 years in the San Diego area.

I asked if the classes incorporate any training in Lean Manufacturing, and he said, “We emphasize 5S + 1 of Lean, in which the +1 stands for “Safety.” We teach safety first, and all the students are trained on the safety protocol for each piece of equipment from a hack saw to a CNC machine. Meaning, students have to sign off on what they learned before they can use any of the equipment.”

J.R. provided me information on what kinds of advanced training they provide for existing manufacturing employees:

Coordinate Measuring Machine (CMM) – This course is designed to provide students with the principles and practices in the operation of a CMM.

Computer Aided Manufacturing (CAM) software package called Mastercam – This course bundles theoretical knowledge that the students bring into the course applying a computer-generated graphic of manufactured components for machining. The course is designed for machinists who have no computer aided manufacturing background.

Computerized Numerical Control (CNC) – This course develops the skills to perform fundamental operations of CNC Mills/CNC Lathes, emphasizing on the basic operation of the machinery, process, and shop safety. The course is designed for machinists who have no CNC machining background.

Inspection – This course develops the skills to perform fundamental inspection techniques, emphasizing on third angle projection of blueprints and applying basic concepts of inspection techniques through the use of indicators, micrometers, optical comparator, and the CMM. The course is designed for individuals who have no inspection experience

I asked J.R. if they provide any training for veterans, and he said, “We provide training in the machining, tooling and manufacturing industry for all veterans, who have or are serving in any branch of the U.S Military.  We recognize the unique situation that veterans may face transitioning and readjusting into their life out of the military. We do everything possible to assist them in the transition while enrolled in our programs.” The website states: “There are Veteran Education Benefits available to you if:

  • You have served in the military
  •  Currently serving in the military
  •  You are an eligible dependent of a veteran
  •  You are a spouse of a veteran receiving benefits”

J.R. said, “We start new classes every few weeks, and a class just started on December 6th, and another class will start January 29th.  We have a modular program of five modules, and each module is six weeks in length. It takes students seven months to complete all of the modules, and they graduate with certification as an entry level machinist with an 86% job placement rate for graduates. We are currently in a transition mode; for the first time in years, we need more students to keep up with the demand.  Manufacturers are calling us to find out when we will have new graduates, instead of us calling them to fill job openings.

After visiting this training center, I recommend that other NTMA chapters around the country reconsider establishing a training center in their region.  They could partner with their local community college on training programs as well as apprenticeship programs. They could also partner with their local SME chapter (formerly the Society of Manufacturing Engineers) because SME is heavily involved in partnering with high schools for training in manufacturing skills.  NTMA wouldn’t have to start from scratch because SME’s ToolingU has modular curriculum available for use in the training programs.

We need more collaboration between industry associations and educational institutions at the high school and college level if we are going to solve the skills gap and attract the next generation of manufacturing workers.

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How Trade Policies Led to the Decline of American Manufacturing

January 24th, 2018

Many people think that the decline in American manufacturing started with American manufacturers sourcing manufacturing offshore in order to achieve lower labor costs, avoid regulations, and pay lower taxes. While the decline accelerated after China was granted the status of Permanent Normal Trade Relations (PNTR) and was allowed to join the World Trade Organization, it actually began decades earlier.

PNTR is a legal designation in the U. S. for free trade with a foreign nation and was called Most-Favored-Nation (MFN) until the name was changed in 1998. Thefreedictionary.com defines it as “A method of establishing equality of trading opportunity among states by guaranteeing that if one country is given better trade terms by another, then all other states must get the same terms.”

Thus, it is a method to prevent discriminatory treatment among members of an international trading organization. It provides trade equality among trading partners by ensuring that an importing country will not discriminate against another country’s goods in favor of those from a third. Once a country grants any type of concession to a third-party country, this concession must be given to all other countries.

At the end of World War II, the United States was the dominant manufacturing country of the world.  The American manufacturing base had enabled the U. S. to win the war with Germany and Japan by outproducing these two countries in implements of war from ships to tanks to weapons.

Over the next 20 years, American manufacturing became synonymous with quality and inventiveness.  Companies like Ford, General Motors, General Electric, Hewlett Packard, and Levi Straus became household names.

One of the main reasons why the United States became the dominant manufacturing country in the world was that for over 150 years, our government protected and fostered the growth of American industry through tariffs. The first tariff law passed by the Congress, was the Tariff of 1789.  The purpose was to generate revenue to fund the federal government, pay down the debt of the government, and also act as a protective barrier for domestic industries from imports from England and France in particular.

Tariffs played a key role in our country’s foreign trade policy and were the main source of revenue for the federal government from 1789 to 1914, the year after income taxes went into effect in 1913.  During this long period of time, tariffs averaged about 20% on foreign imports, and at times, tariff revenue approached 95% of federal revenue.

During the Truman Administration (1945-52), foreign trade policies began to focus on liberalizing trade through moving from protective tariffs to free trade. The instructions given from Congress to the U. S. Trade Representative were:  Remove barriers to trade. A key concept of the liberalization of trade was reciprocal tariffs and low tariff rates. Two of the main reasons for this change in trade policy were to help Europe and Japan rebuild after the war and engender closer relations with the U. S. as a deterrent to the spread of communism. This ended the use of tariffs as a significant source of Federal revenue and began the increase of corporate and personal income taxes.

In 1948, the General Agreement on Tariffs and Trade (GATT) treaty “was signed by 23 nations in Geneva on October 30, 1947, and took effect on January 1, 1948. It remained in effect until the signature by 123 nations in Marrakesh on April 14, 1994, of the Uruguay Round Agreements, which established the World Trade Organization (WTO) on January 1, 1995. The WTO is in some ways a successor to GATT, and the original GATT text (GATT 1947) is still in effect under the WTO framework, subject to the modifications of GATT 1994. GATT, and its successor WTO, have successfully reduced tariffs. The average tariff levels for the major GATT participants were about 22% in 1947, but were 5% after the Uruguay Round in 1999.”

GATT requires that exports of all countries that are party to the treaty should be treated alike by other countries that are party to the treaty, and each member is granted Most Favored Nation status. Since GATT was first signed, MFN (now PNTR) status has been granted to about 180 countries. Only a handful of communist countries have been denied MFN status.

For over 20 years, American manufacturers experienced little competition from foreign exports, but in the 1970’s Japanese and German products began to significantly penetrate the U. S. market. Due to the focus on demilitarization and decentralization in the U. S.- directed rebuilding of the Japanese and German economies, producing consumers goods was the focus.

Japan focused on audio/stereo products, cameras, pianos/keyboards, and TVs, as well as low cost automobiles and motorcycles. Companies such as Panasonic, Sony, Sanyo, Yamaha, Toyota, Mitsubishi, and Datsun (now Nissan) became the new household names in America. Mitsubishi had produced aircraft in Japan before and during WWII, including the infamous fighter plane, the Zero. Nakajima was another aircraft manufacturer that was reformed as Fuji Heavy Industries after the war and began to produce the Subaru vehicles.

Germany started focusing on automobiles such as the Volkswagen “Bug” and bus, BMWs, and then Mercedes vehicles.  They expanded into manufacturing equipment, machine tools, and scientific and laboratory instruments and equipment. Volkswagen was instrumental in Germany’s industrial recovery as their plants have escaped damage from bombing. The Volkswagen plant had been offered to England after the war as reparations, but England turned it down. Without Volkswagen being able to start manufacturing autos in 1946 after the war, the reindustrialization of Germany would have been delayed considerably.

It didn’t take long for the increased imports from Japan and Germanys to take their toll on the U. S. trade balance.  As the below chart shows, the last year we had a positive trade balance in goods was 1975:

Source:  Coalition for a Prosperous America

As a developing country, imports from China didn’t become a significant factor until the beginning of the 21st Century. The development and growth of China’s manufacturing industry was essentially funded through American companies setting up manufacturing plants in China starting in the 1990s and transferring manufacturing to Chinese contract manufacturers. Foxconn, Apple’s contract manufacturer for the iPhone and iPad, is the only Chinese manufacturer to become well known in the U.S. While Foxconn has plants in mainland China, it is actually owned by Hon Hai Precision Industry Co., Ltd., a Taiwanese multinational electronics contract manufacturing company headquartered in Tucheng, New Taipei, Taiwan.

“In article titled “The Death of American Manufacturing,” published in the February 2006 Trumpet Print Edition, Robert Morley wrote: “Manufacturing loss is occurring because of globalization and outsourcing. Globalization is the increased mobility of goods, services, labor, technology and capital throughout the world; outsourcing is the performance of a production activity in another country that was previously done by a domestic firm or plant.

At the dawn of globalization, the elimination of trade barriers opened up access to foreign markets for American manufacturers in return for building factories abroad. In due course, more and more manufacturers set up shop overseas, producing goods to be sold to Americans.”

According to Yashen Huang author of Capitalism with Chinese Characteristics, China’s “indigenous private sector is conspicuously small.” The majority of urban companies are still State-Owned Enterprises (SOE’s). Other companies are privately owned, but the owner(s) are government employees, so they are still essentially government controlled.

China had lost its status as MFN through suspension in 1951 after the Communists took over control of the government in 1949. It was “restored in 1980 and was continued in effect through subsequent annual Presidential extensions. Following the massacre of pro-democracy demonstrators in Tiananmen Square in 1989, the annual renewal of China’s MFN status became a source of considerable debate in the Congress…Congress agreed to permanent normal trade relations (PNTR) status in P.L. 106-286, President Clinton signed into law on October 10, 2000.  PNTR paved the way for China’s accession to the WTO in December 2000…;”

  1. S. trade with China began to be measured in 1985 by the U. S. Census Bureau, and we had only a small deficit of $6 million. The trade deficit grew to $83.8 billion by the year 2000. However, after China was granted PNTR and became a member of the WTO, the trade deficit started to escalate. It doubled to $162.3 in 2002 and doubled again by 2014 to $344.8 billion. The 2016 trade deficit was $347 billion, down from $367 billion in 2015.  In 2016, China represented 38% of our overall trade deficit of $654.5 billion.

As a result of the escalated trade deficits from 2001 to 2010, the U.S. lost 5.8 million manufacturing jobs and 57,000 manufacturing firms closed. Where do all the jobs go?  Well, the 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.” So, we lost about half to offshoring of manufacturing to China and other parts of Asia.

The real story is even worse than this data. In an article by Terence P. Jeffrey published on www.CBSNews.com on May 12, 2015, “The number of jobs in manufacturing has declined by 7,231,000–or 37 percent–since employment in manufacturing peaked in the United States in 1979, according to data published by the Bureau of Labor Statistics.

As a result of more and more American manufacturers setting up plants in China, our domestic supply chain was weakened. From 2001 to 2010:  The U. S. textile industry lost 63% of jobs since 2001. Communication equipment industry lost 47% of its jobs. Motor vehicles and parts industry lost 43% of its jobs. U. S. machine tool industry consumption fell 78% in 2008 and another 60% in 2009. U. S. printed circuit board industry has shrunk by 74% since 2000.  We even lost whole industries, such as:  fabless chips, compact fluorescent lighting, LCDs for monitors, TVs and handheld devices like mobile phones displays, Lithium ion, lithium polymer and NiMH batteries, low-end servers, hard-disk drives, and many others.

After over 40 years of trade policies that foster offshoring, it’s time to have a new goal for trade policies.  Instead of “remove barriers to trade,” we need to have a goal of “eliminating the trade deficit.”  The Coalition for a Prosperous America has recommended this goal for years, and on March, Representatives Brooks and Lipinski introduced House Congressional Resolution 37 for Congress to set a national goal to eliminate the trade deficit.  It is only one sentence long:  “Expressing the sense of Congress that Congress and the President should prioritize the reduction and elimination, over a reasonable period of time, of the overall trade deficit of the United States.”

As soon as the tax reform bill is signed by President Trump, Congress needs to pass this Resolution before the end of the year, so we can start 2018 on a new track.

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Restoring the “Maker spirit” to Thomasville that lost an Industry and Jobs to China

January 24th, 2018

After my article that featured The Forge in Greensboro was published, I was contacted by Joel Leonard, who informed me that he worked with the original founders of The Forge as the community developer to help uncover equipment and talent and set up initial programs “to convert Greensboring to Greensciting.”

He said, “We hosted numerous large events to get the community aware of our efforts, such as a Silo Busting Roundtable to connect various groups in our society together to have meaning conversation together about manufacturing challenges. Then, some of the area employers shipped numerous tractor trailer loads of equipment, and we were able to sell what we couldn’t use and generate capital to pay for our lease, insurance, and other operational costs.  In the first year of The Forge, we launched 16 new companies, had 9 patents filed, and helped over 50 get connected to new jobs.”

I asked how he became involved with the Makerspace movement, and he responded, “Fifteen years ago, I decided to make it my life’s mission to build the next generation of skilled technicians (i.e. makers). I realized to reach the masses, a book or magazine may not make the cut, but more may listen to a song.

I wrote the lyrics to the ‘Maintenance Crisis Song,’ which has been played at dozens of engineering conferences all over the globe, on NPR and CNBC, at the Rock and Roll Hall of Fame, and during the U.S. Congressional Forum on how to revitalize the U.S. economy. To reach a larger audience, it has been recorded in 15 different genres, that include rock, opera, hip hop, bluegrass, reggae, blues, funk, gospel, pop rock, and two Greek versions.” After our conversation, he emailed me links to a couple of the versions.

He added, “Once I learned about the Maker Movement, and how it connects directly to all that I had already been doing, I quickly joined in and have been helping connect manufacturing leaders to makerspaces. Organizations around the world come to me to tell them what to do to advance their workforce development strategies, and, even better, sometimes I get paid for it.”

After leaving The Forge in the good hands of Joe Rotondi, he was freed up to consult and support makerspaces around the country like Newton Conover Middle School, Makerspace CT, Make Nashville, NASA Langley, St. Louis, and numerous others.  He is currently involved with developing a makerspace in Thomasville, NC.

When I asked how he became involved with Thomasville, he said, “Last June, Thomasville City Councilwoman Wendy Sellars of Thomasville, NC, asked me to build a makerspace in her community that had been devastated by Thomasville Furniture’s departure to China. I realized that I could not say no to helping revitalize Thomasville’s manufacturing economy because I worked at Thomasville Furniture to pay for college during the third shift starting in June of 1986. It was a great summer job because I was paid $8 per hour, which was much better than other jobs at that time.”

He commented, “If you have any pieces of Thomasville furniture made during the late 1980s, chances are the veneer on the furniture was put there by me and my team. I worked behind a veneer press. The veneer press was an old furnace that was acquired via a WWII military auction from Germany, and it heated the thinly sliced sections of wood veneer to particle board that had been slathered with glue for 10 minutes at close to 1,000 degrees. I worked on the crew that took the 4-feet by 8-feet aluminum sheets out of the oven. The veneers were used for tables, chair seats, armoires, and entertainment centers for televisions.

There was no air conditioning, and the fans didn’t help much, so I had to drink gallons each shift to keep hydrated. But, I had to keep my wits about me and keep up with my assigned partner to synchronize our movements, or one of us would get 2nd degree burns on our wrists.  Although it was hard work, it was great pay for the time and gave me a sense of accomplishment seeing the stacks of veneer we made each shift and then later see the finished goods on display in galleries and sent to the High Point Furniture Market to be sold in retail outlets all over the world.”

Leonard explained, “At that time, Thomasville Furniture offered those with just a little education the opportunity to earn a steady income. Skilled labor was getting paid $15/hour, which would be around $30/hour at today’s rates.  Now, Thomasville is without a middle-class because of loss of job opportunities and is struggling to keep crime under control.  The whole community of 27,000 is at risk of living in poverty.

Continuing, he said, “I was hesitant to agree to commit to building a makerspace immediately because I know that just building a makerspace isn’t always the solution. I visited a mall, and the idea emerged of building chairs like the successful Build a Bear franchise. I went home and put that idea on Facebook and, boom, Andrew Clement, a licensed general contractor and shop teacher at Thomasville High School, committed to making the raw material for Farmhouse Chairs from Bolivian Poplar with his students.

Andrew and I formed a partnership, established a nonprofit corporation, developed a plan, and three months later, on September 9th, the CHAIR CITY MAKERspace  hosted our first BUILD A CHAIR event to get the community familiar with makerspace concepts. Numerous area chambers sent out flyers, posted announcements, shared calendars, and several news outlets joined in spreading the news about chair making returning to Thomasville. More than 40 people gathered in the bandstand behind the famous Giant Thomasville Chair to build a chair.  Peter Hirshberg, co-author of The Maker City: A Practical Guide to the Reinvention of our Cities, even featured our event in MAKE: Magazine.”

Our second event was held on September 23rd. Tom Conley, the CEO of High Point Market Authority, led the lumber guard ceremony by carrying the first chair. This time, a group of about 45 people emerged to build chairs and offered encouragement and support for the Chair City MAKERspace quest to grow skills, jobs, and community unity.”

When I asked what the Big Chair Monument was, Leonard told me that Thomasville is often referred to as the “Chair Town” or “Chair City” because of a 30-foot landmark chair that sits in the middle of the city. Later, I looked it up on Wikipedia and learned that it is a replica of a Duncan Phyfe armchair that “was constructed in 1922 by the Thomasville Chair Company (now Thomasville Furniture Industries) out of lumber and Swiss steer hide to reflect the city’s prominent furniture industry. However, this chair was scrapped in 1936 after 15 years of exposure to the weather. In 1951, a larger concrete version of the chair was erected with the collaboration of local businesses and civic organizations and still remains today.”

The third BUILD A CHAIR event was held at the Big Chair Monument on October 7th in celebration of National Manufacturing Day on October 5th.  Thomasville Mayor Raleigh York even issued a proclamation during the event.

Leonard added, “Three retired employees of Thomasville Furniture, who had over 100 years of experience between them, joined our BUILD A CHAIR event on October 7th.  Brad Myers had been responsible for the production of over 100 chairs per hour, 800 each shift, and when the Boy Scouts and Cub Scouts weren’t listening to him, I told them he was responsible for more chairs being made in one hour than they will ever make in their lifetime. The Scouts had the opportunity to learn important skill sets from making their own chair, and each one had to be carry their own chair back to their car.”

Leonard said, “Because of our efforts over the last five months, we went from just having an idea to getting a city proclamation at the Build a Chair Event to getting a future building under contract.  Andrew purchased a house on 1 ½ acres of land for the facility.  We now have a GoFundMe page to seek donations of money and equipment for our Chairmaker Space”. Contact Joel@skilltv.net if you have any questions.

To put what they had accomplished in perspective, I asked why the makerspace is important to the region. Leonard said, “Thomasville Furniture started as Thomasville Chair in 1904 making chairs and soon became the town’s leading furniture manufacturer and largest employer. The company expanded into making other furniture in the 1960s. With over 5000 employees at the peak out of a community of 27,000, Thomasville Furniture earned an international reputation for producing quality furniture. However, that did not last. Thomasville Furniture fell apart when the manufacturing companies moved manufacturing to China in the 2000s. After the last two plants closed in 2014, all chair and furniture production ceased, eliminating the income of most of the middle class in Thomasville. The only part of the company still located in Thomasville is the Thomasville Furniture Industries Showroom. The entire city’s future became at risk, and the city has had difficulty rebounding. Many city officials have abandoned the heritage of the town and have considered new pathways and identities.”

He said, “A successful Chair City MAKERspace will prove that small communities can participate in the Maker movement and have more of a dire need to do so. That is why the Chair City MAKERspace is not only going to have a community workshop, but I am going to host a series of career development programs, job fairs, apprenticeship programs, and internships to help the local community locate opportunities in Thomasville and throughout the Piedmont Triad region.

We are still going to host regular BUILD A CHAIR events, and may expand to Adirondack Chair designs and then perhaps onto other projects, but we will always work to build on the furniture legacy that made this city world famous.”

I share Mr. Leonard’s opinion about the importance of makerspaces to a city’s efforts to develop new manufacturing companies to re-industrialize their community. In my new book, Rebuild Manufacturing – the key American Prosperity, I equate developing makerspaces as important as developing incubators or accelerators, and inventor forums into regional economic development.  However, I recommend that makerspaces partner with either public or charter skills to provide manufacturing skills training for high school students as part of their career technical training programs. There are still not enough high schools nationwide that have introduced manufacturing skills training (formerly called “shop” classes) into their curriculum. I also encourage manufacturers to find out if their city or region has a local makerspace, and if they do, then get involved to develop relationships with the makerspace to grow more talent for their company and region.

 

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California Economic Summit Sets Goals to Elevate California

January 24th, 2018

The sixth annual California Economic Summit was held on November 2nd – 3rd in San Diego.  The Summit was convened by CA Fwd and the California Stewardship Network, with a long-list of sponsors and partners. More than 500 civic, business, attended the event held at the Hilton San Diego Bayfront.  The theme of the Summit was Elevate California with the goal of achieving:

  • One million more skilled workers
  • One million more homes
  • One million more acre-feet of water

The statewide gathering highlighted higher education as an important component to a new initiative to restore upward mobility in the state. I was only able to attend day two, which began with a welcome by Mark Cafferty, President of the San Diego Regional Economic Development Corporation, and San Diego County Supervisor Greg Cox. Mr. Cafferty said, “California’s brand around the world is remarkable.  We need to prepare and support our most important assets – people. We need to help Californians live in sustainable communities, and we need to create one million more middle class jobs to ‘future proof’ California for Californians.”

Supervisor Cox said, “We now have 1,400 “Blue tech” companies representing 46,000 employees and making a $14 billion contribution to our economic, creating blue collar and white-collar jobs.” He mentioned that according to the recent report, the impact of the military represents 22% of the region’s jobs.

The day started with a panel of millennial and Next Gen leaders discussing their perspective on how California’s economy and the high cost of living are affecting them and their peers. Christine Werstler was the panel leader, and the panelists were:  Assemblywomen Autumn Burke, Sean Bhardwaj, founder and CEO of Aspire 3, and Laura Clark of YIMBY Action. They shared that the major challenges are:  affordable housing, access to fundamental services like health care and education, rapid change, and an unknown future.

Assemblywoman Burke said, “You can only do so much with legislation. We need to provide resources. It’s important to know that we have a college system that doesn’t have room for everybody, even if they qualify, Access to education should be a high priority.” Burke added that many of those are students from disenfranchised communities. Burke said, “We have the data, and now we need to put it into action and work with private industry to provide the opportunities and resources. It is our job as legislators to provide all of the things they need. “

Panelist Sean Bhardwaj said, “We need to teach entrepreneurism as a skill across disciplines in colleges and universities so they are prepared to find and create their career opportunities for the future. Only 19% of millennials see other people as trustworthy, 10% lower than other generations. They need to build personal relationships or they will not engage.

Bhardwaj added, “Each and every one of us has a talent and a skill that we can bring to the world. We need to break out of the thinking of what we link learning is and think what it could be. Technology is a tool to make resources more accessible.  We need to look at what are the tools we can provide so we can use the tools quickly We need to figure out what are the skills needed today and quickly provide the opportunities to learn them.”

Clark said, “Millennials are angry – 20% are living in poverty, and we need to bring them up. It is important to have clustering of industries in regions to provide career advancement.” She urged institutions to make sure college students are registered to vote so they have a voice on issues including funding.

The next panel featured leaders from all three of the state’s public higher education systems: University of California President Janet Napolitano, California State University Chancellor Timothy White and California Community Colleges Chancellor Eloy Ortiz Oakley. Ryan Smith was the panel leader.

“When we think about income inequality in our country and California, the single tried and true tactic that has worked over time has been access to higher education in terms of increasing social mobility,” said Napolitano. “When I remind people that 45 percent of the entering class at University of California are first-generation college students, that’s real opportunity that public higher education presents in California. In the UC system, we have increased enrollment by 10% in the last two years.”

When asked about affordability, the leaders emphasized the widespread use of financial aid to cut tuition and fees, but reminded the audience that the total cost of education also includes California’s high housing costs and other expenses.

Chancellor White said, “There is a capacity problem. We turn away about 30,000 students every year. We need to build more capacity.  If we don’t make this investment, it will be a higher cost in the future if we don’t succeed.”

Ortiz Oakley said, “We are in 114 communities and we need to design for the future jobs, so we looking at what are the job needs of different regions to create upward mobility and train more skilled workers needed across the state. We’ve spent a lot of time and fortunately we’ve had the investment over the last several years through the Strong Workforce to take a hard look at the regions of California to begin preparing ourselves to develop curricula for the jobs of today and the future, not the jobs of yesterday.”

All three of the Democrat gubernatorial candidates appeared at the Summit.  I missed the appearance of Lt. Governor Gavin Newsom the first day, but day two, former Los Angeles Mayor Antonio Villaraigosa and State Treasurer John Chiang were interviewed. Villagorosa said, “If it were a country, California would rank sixth in the world economies, but we rank down with Romania in the level of poverty.”  He agreed with Assemblywoman Burke. “If we’re going to survive and thrive, we’re going to have to do a better job at growing middle class jobs,” adding that 60 percent of high school kids are Latino and African American, but only 13 percent go on to a four-year college. He said, “We’ve got to address that. We’ll be a million and half down in college graduates by 2025 and a million down in people with specialized skills.”

Chiang said, “We have to understand that we ought to celebrate the diversity of our resources. It’s all about the people and I believe we have an area that is the magnet that draws people. It’s the idea of what California is, so we can flourish uniquely because of the extraordinary diversity that we have.”

“The 2017 Summit sought to advance these ambitious themes during the event and in the coming year:

  • Create a unifying triple-bottom-line vision for increasing economic security and upward mobility
  • Expand the strength and diversity of the Summit network to increase its influence on state and local policy decisions
  • Mature the Summit as a formal civic partner with government to advance triple-bottom-line policies:

While I applaud the goals of the Summit co-conveners and partners, I wonder why no one seemed to connect the fact that our losing 33% (618,000) of our higher-paying manufacturing jobs from the year 2000 -2010 might be a major cause of our increased rate of poverty.

According to data from the California Manufacturing Technology Association, we have only regained about 50,000 manufacturing jobs since then.  As shown by the following chart from CMTA Champions of Manufacturing blog by V.P. Gino diCaro, California is lagging behind the rest of the country in regaining manufacturing jobs, and California only attracted 1.6% of reshored jobs from 2013 – 2016.

I also fail to see how we can achieve the goal one million more skilled workers without addressing California’s adverse business climate that is driving manufacturing companies to leave California. Not one speaker even mentioned the topic of California’s business climate.

For 20 years, the Small Business & Entrepreneurship Council has published a report, titled the Small Business Policy Index, by their Chief Economist, Raymond J. Keating, which ranks the states on policy measures and costs impacting entrepreneurship and small business growth. According to the 2016 report, California ranks dead last, and has been dead last for several years. The report “ties together 50 major government-imposed or government-related costs impacting small businesses and entrepreneurs across a broad spectrum of industries and types of businesses, which include: corporate and personal income tax rates, individual and corporate capital gains taxes, property taxes, sales, growth receipts, and excise taxes, death taxes, unemployment tax rates, gas and diesel tax rates, Workers’ Compensation premium costs, energy regulation, State minimum wage, paid family leave, etc.  It even ranks states by the number of government employees, Per Capita State and Local Government Spending, Per Capita State and Local Government Debt, and various categories of lawsuit reform.

A brief look at how California ranks reveals:

  • California has the highest personal income tax rate and individual capital gains tax at 13.3%
  • California ranks 50th in Workers Compensation premiums cost at 3.48
  • California ranks 49th in energy regulatory costs
  • California ranks 43rd in corporate income taxes and 44th in corporate capital gains tax at 8.84%

On the plus side, California ranks first in the lowest unemployment taxes at the low rate of 0.81. Thanks to Proposition 13 still being in effect, California only ranks 22nd in property taxes at 2.835%. In 2016, California only ranked 46th in gas taxes at 0.409 cents per gallon, but would rank 49th now after raising its gas taxes by 12 cents per gallon the week after the Summit.

As long as California’s legislators and other leaders have their “head in the sand,” nothing will be done about improving the business climate of California. I challenge the State legislature to do their job as legislators to provide all of the things business needs to grow and expand employment.

At the conclusion of the Summit, Oscar Chavez, assistant director at the Sonoma County Department of Human Services, announced that Sonoma County will be the site of the 2018 California Economic Summit. He said, “You cannot sit on the sidelines. This state needs you.” I would say, “This state needs leaders who address the issues affecting manufacturing if we want to achieve the lofty goals of the Summit.

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