Does this book hold the key to Restoring American Prosperity?

June 26th, 2012

Every day Americans face choices on what products to buy to meet their every day needs.  A 2010 Harris poll, showed three in five Americans (61%) say they are more likely to purchase something when the ad touts it is “Made in America.”  Recently, an ongoing poll on www.ewednewz shows that 61 percent say they would buy American products if they existed.

Take a look at what you have in your own home and check the country of origin label.  If you have set up your residence in the last 15 years, it is likely that most everything was made somewhere else besides America.  It is highly likely that the majority of the products were “Made in China” because so much of the manufacturing of consumer products has been shifted offshore to Asia, especially China.

As our country slogs along in a recession that has never ended for many, more and more Americans are realizing that making and buying products made in America is essential to strengthening our economy, creating jobs and balancing our trade deficit.

San Diego entrepreneur and businessman, Alan Uke, has written a book, Buying American Back:  A Real-Deal Blueprint for Restoring American Prosperity, that provides a simple solution that “puts control in the hands of American consumers to make powerful buying choices to boost our economy and create jobs,” as well as reduce our trade deficit.

Mr. Uke is the founder and president of Underwater Kinetics, which he started 41 years ago as a sophomore at the University of California San Diego.  He holds more than 40 patents, and the majority of his SCUBA diving and his industrial lighting products are exported to more than 60 countries.

In his introduction, he writes, “Our future as a nation and as individuals is being threatened.  Since our spending habits as consumers have contributed to this situation we can change our spending habits to reverse it… in order for a change to happen, consumers must demand to be more honestly and completely informed about what they are buying and where their money goes.  To this end, we are starting a consumer movement to bring this to the attention of Congress…The goal of this movement and of this book is to encourage people to change their buying habits toward purchasing things that help the U. S. economy and job situation.”

In chapter 1, Mr. Uke states that because consumer spending makes up 70% of the U. S. economy, we consumers have been encouraged to spend in order to spur the economy.  The problem is that when the majority of the consumer goods we buy are imported, our shopping doesn’t support our own economy and create jobs.  Our money goes to support the economies of foreign countries.  Mr. Uke writes, “In order to support our economy and American industries, we must have easily accessible, clearly communicated, and truthful information about a product’s entire origins.”

In chapter 2, Mr. Uke shares his perspective as a business owner stating that “despite the challenges and the heartache, I like making my products in the U. S. because I want to help our country.”  He could move his production to Asia like many of his competitors, but he wants to keep his factory here in America, see more companies return, bringing jobs back with them, and see the American worker regain security and prosperity.  As I have pointed out in my book and previous articles, he writes that “U. S. factories lost 5.2 million jobs from 2000 to 2010” while large, multinational corporations hired 2.4 million workers at their oversees operations.

In chapter 3, “The Importance of Manufacturing in America,” I really like his illustration of the jar of marbles that we as a nation have to use to trade with.  When we buy something within the U. S., the marbles stay in the jar, but when we buy something from another country, the marbles go out of the jar.  If they buy from us in the same amount that we buy, then the number of marbles in the jar stays the same, but if we buy more than they buy, our jar of marbles begins to empty.  Our jar is becoming empty because in 1960, only 8% of the manufactured consumer products Americans purchased were imported, but today 60% are imported.   Our deficit with China alone reached $260 billion in 2010, and the Department of Commerce estimates that each $1 billion in trade deficit translates to about 13,000 lost jobs.  Manufacturing jobs now only make up 9% of the American workforce.

Imports to the U. S. now represent 17% of the gross domestic product (GDP) while manufacturing’s share of the U. S. GDP has dropped to 11.5%.  Alan quotes economist Ian Fletcher, who stated, “We could quite literally export our entire manufacturing output and still not balance our trade,” and concludes that “we are importing almost 25% more than we are exporting.”

Mr. Uke emphasizes that he isn’t against trade because “it’s good for business,” “good for foreign relations,” and good for development in all sectors of the economy.”  However, it’s important for us to have balanced trade because “in 2010, each person’s share of the annual trade deficit adds up to about $2,700.”   He comments that “creating free-trade agreements around the world are devastating for our country because they only benefit big businesses that can boost their profit margins by replacing our American workforce.”

In chapter 4 on “How Competing Countries are Succeeding,” Mr. Uke provides insights into how Germany, Japan, and South Korea have managed to keep a strong manufacturing base and successfully export more manufactured goods than they import.  One of the key factors is that consumers in these countries prefer to buy products made in their own country even if they cost more than imports.

Chapter 7, “The Label Game,” discusses the fact that current information provided on country of origin labels is “misleading, incomplete, inaccessible, or all of these.”    In order to have a “Made in USA” label, a product has to be “substantially all” made in the USA, defined as follows by the Federal Trade Commission:

  • “The product was last substantially transformed in the United States and U. S. manufacturing costs are at least 75% of the total manufacturing costs; or
  • The product was last substantially transformed in the United States and all significant parts or components of the product were last substantially transformed in the United States.”

The vagueness and looseness of these definitions have led companies to intentionally mislead the public with brand names that imply that the product was made in one country when it was actually made in another, such as expensive “American Girl” dolls that are actually made in China.  Labels that say “assembled in the United States from domestic and foreign components” are even more confusing and vague.

It’s even worse for consumers who purchase products online or from catalogs ? no information on country of origin is required to be provided.  It is estimated that 11% of all retail sales will be Internet sales by 2015.  A few companies, such as Levi Strauss, Patagonia, and Nike provide the locations of manufacturing plants around the world on their websites, and New Balance goes a step further in providing a comprehensive listing “detailing exactly which of its shoes are made in the United States, which ones are assembled or only partially made in the U. S., and which ones are entirely imported.”  Mr. Uke recommends that consumers be provided the country of origin information they need at the point of sale whether at a store or online.

In chapter 6, Mr. Uke presents his proposal for the U. S. government to require detailed country-of-origin labels for all manufactured products similar to the nutritional information labels now required on packaged food products.  These labels now list all ingredients, the nutritional information about the food, and the possible presence of eight of the most common allergens in the product.    He feels that it is important for consumers to not only “see the last place where the product was manufactured. You should be able to discern what portion of its components came from other places.”

So far the only industry that provides detailed country of origin information is the automobile industry.  The American Automobile Labeling Act of 1992 “requires all cars to  have labels displaying the percentage of American/Canadian parts content, the country of its assembly, as well as the country of origin of the engine and transmission…Any car with less than 70% American/Canadian content is classified as an “import.”

Chapter 7 describes what “The Transparent Label” would be:  one that would include the cost by country of origin by both percentage and trade ratio, as well as the location of the company’s headquarters.  The percentage is the total cost of the product that is produced or transformed in a particular country.  The trade ratio describes the amount of exports vs. imports for a country in relation to the United States.  “A healthy, balanced trade ratio is close to 1.0” ? equal exports to imports.  A number more than one means more U. S. exports to that country than imports from that country, and a number less than one means more imports from that country than U. S. exports to that country.   Part Two of the book provides information on our major trading partners by detailing the state of their manufacturing and what kind of trade balance we have with that country.  For example, we have a balanced trade relationship with New Zealand at 1.02, Switzerland at 1.06, and the United Kingdom at .97 whereas our balance with China is .25.

According to Mr. Uke, accessibility is just as important as accuracy.  A consumer shouldbe able to review this data before making a purchase whether it is in a store, online, or through a catalog.    Since manufacturers succeed by providing products that consumers want to buy, the “ultimate goal is to apply consumer pressure on companies in order for them to see a direct, profitable benefit in relying on American labor and components.”

Accurate labeling of the percentage of the product that is attributable to the U. S. will benefit manufacturers because consumers can select products that have the highest content of American parts and labor even if it doesn’t qualify for a “Made in USA” label under current law.

The last chapter shows how Americans can make every dollar count by choosing what products to buy.  Mr. Uke writes that “it is really, we, the consumers, who are the power that can initiate the change…This power is located in the sum of our buying decisions.  Our climb back to the top begins with where you spend your next dollar.”

If every American would make the decision to buy American products and avoid imports from countries with which we have a deficit trade balance, we could make a real difference in our nation’s economy.  That’s why Mr. Uke has called on Congress to pass a resolution to make July 1 to 7 “Buy American Week.”  Whether or not this resolution passes, I urge every American to make a personal resolution to “buy American” that week and continue doing so thereafter.

Posted in Economy, Manufacturing, Outsourcing | 1 Comment »

What’s Really Wrong with Corporate America?

June 19th, 2012

A common refrain is that the purpose of a business is to maximize profits.  It’s obvious that a company has to make a profit to stay in business, grow, and prosper, but I don’t think this should be the main purpose of a company.  Most entrepreneurs have some kind of “vision” or bigger reason for starting a company ? whether it’s to produce a new product that will benefit others or to provide a service they feel they can provide better than others.

What’s wrong with companies today, especially publicly trade corporations, is that they have lost their “soul” ? their vision or bigger reason for being a company.  They have become too focused on the “bottom line” of maximizing profits and forgotten the real reason the company was founded.  Our history as a country is filled with men and women of vision who changed the world by the products or services they invented or provided ? Thomas Edison, Henry Ford, George Westinghouse, and Aaron Montgomery Ward.

Today, you need to be able to provide or add value to have a place in the global supply chain of goods and services.  If you don’t provide or add value, you won’t be able to stay in business in the long run.  Providing or adding the maximum value possible is the goal behind all of the steps and tools used to become a “Lean Six Sigma” company whether you are a manufacturer of a service provider.   You focus on the customer by removing wasted and non-value added steps to become “lean” and reduce variation and improve quality to achieve the “Six Sigma” level.

However, this renewed focus on the customer by becoming a “Lean Six Sigma” enterprise won’t restore the soul of a company.  To do this, you need to create or revive the concept of “for the sake of others;” that is, serving others by what you do or make.  This is the main concept presented in Dr. Tony Baron’s book, The Art of Servant Leadership.  This book shows you how to design or redesign your organization for the sake of others and is “a guidebook on how a private or public company can achieve its true purpose in the world.”  The book has a lofty purpose:  “To equip, inspire, and encourage those we influence in order to make a profound positive difference in the world.

In a 1970 Times magazine article, the economist Milton Friedman argued that businesses’ sole purpose is to generate profit for shareholders, as long as it is doing so legally and ethically. In contrast, Dr. Baron believes that the “sole goal of a business is to exist for the sake of others.”

The book provides “a case study of the principles and practices Art Barter used as a servant leader to reform Datron and transform lives inside and outside the company.”  Datron World Communications, Inc. (DWC) is a privately owned company located in Vista, California. For over 40 years, Datron has provided tactical military and public safety radio equipment to a diverse worldwide customer base doing business in over 80 countries through an international sales representative network and regional support centers.

Part 1, “The Need for a New Kind of Leader,” discusses leadership and the common misguided use of “applied power” vs. “true power” in the first chapter.  Chapter 2 examines a leader’s epiphany or defining moments that transforms him/her into a “servant leader.”  In Art Barter’s life, his father’s example, his work at Disney Company as a young man, and the teachings of Ken Blanchard and John Maxwell led to his being ready to become a “servant leader.” with the guidance of Dr. Baron.

In chapter 3, we learn that a leader often is best revealed by adversity and what was the adversity that contributed to the transformation of Art Barter and Datron.  Mr. Barter had started at Datron in 1997 as Chief Financial Officer, assumed the position of General Manager after Titan Corporation bought Datron in 2001, and purchased Datron in 2004 during the depths of  adversity.

Chapter 4 considers the fact that most corruption and disruption in corporations results from leaders’ failure to lead themselves and what are the seven essential elements of leading yourself before leading others.

At the end of each chapter, there are Table Talk” questions you can ask yourself and others to use the book as a guide to help you transform yourself or your company.  For example, after chapter 1, some of the questions are:  “What is your organization’s story?  Who are your leadership role models?   How did they shape your beliefs about leadership?”

Part 2 provides “The Formula for Success:  Living for the Sake of Others,” beginning with how to create a servant leadership culture in a company or organization in chapter 5.  Dr. Baron’s definition of corporate culture “is a way of life cultivated over time through shared experiences, values, and behaviors.”  He states that every corporation must share the following at a minimum in order to sustain a healthy environment:  shared beliefs, shared experience, and shared expressions; that is, “a verbal commitment to do what they know they can do.”

In chapter 6, “Cultivating a Servant Leadership Culture,” Dr. Baron writes that the four components necessary for transformation within an organization are:

  • Cultural Architect – a person with the highest level of positional, power within the corporate circle of influence
  • Commitment level – a personal commitment of belief, behavior, values and vocational activities that align with servant leadership by the cultural architect
  • Climate control – creating an atmosphere of balance with the right people, opportunities and resources
  • Culture formation – based on new experiences repeated and reinforced through modeling, teaching, affirming, and rewarding to transform people and the business

Dr. Baron writes, “Because most corporations have taught that profitability is the sole purpose of the organization, the workforce has lost its faith in business and in people.  They have lost the confidence that leaders have their best interests in mind when considering corporate decisions that affect the bottom line.  They have lost trust.  I don’t blame them. Over the last twenty years in various boardrooms around the country, I have seen executives choose to receive their year-end bonuses over keeping employees on the payroll.”

Teaching servant leadership progresses through four stages:

  1. Instruct-  solid instruction on the principles of servant leadership
  2. Invest – use some of the principles with varying degrees of success
  3. Influence – high discussion and consensus building
  4. Incarnate – the servant leader is building other servant leaders

Chapter 7 considers “Vision, Values and Virtues.”  Dr. Baron writes, “In corporate language, vision describes the vivid mental image created by a leader so that people will have the experience of truly seeing into the future.”  The vision statement of Datron states the company’s purpose “a self-sustaining, profitable communications company which positively impacts the lives of others today and in the future.”   Dr. Baron laments that so many Fortune 500 companies don’t consider that “their primary mission is to exist for the sake of others” outside of their shareholder family.  He believes that “the stakeholders for every company are our local, national, and global community.”

The book concludes with the chapter on “Extending the Servant Leadership Culture to the Community” describing how Art Barter, his wife, and the employees at Datron have worked “for the sake of others.   Shortly after acquiring Datron, Art Barter and his wife set up a charitable fund with a donation of $600,000.  Datron employees can submit a request for donations to a charity of their choice.  From 2004 – 2010, over $2.5 million dollars was contributed to causes as diverse as the Boys and Girls Club, an orphanage in Kenya, the Special Olympics, Breast Cancer Research, AIDS research, and women’s shelters.  Datron also founded the Servant Leadership Institute, headed, by Dr. Tony Baron, whose mission is “to create servant leaders who will transform organizations.

Datron has been able to make these contributions because of its financial success, increasing revenue from $10 million in 2004 to $200 million in 2010, while being organically funded internally and debt free.  New products introduced include the Scout Air Reconnaissance System unmanned vehicle designed to capture and transmit high quality video and images in the field and the PRC7700H variant of its high frequency software-defined radio.

Datron has been my customer for over 25 years, and a long-time employee, Mark Satttel, said, “although the transformation was difficult at times, servant leadership is gaining at Datron.”  A new employee recently told me that working at Datron is different than working at any other company ? “it works as if the pyramid is upside down, with the president at the bottom.  Everyone keeps asking me “what can I do to help you.’”

Every American has the choice of using your talent and experience for the sake of others by becoming a servant leader. Doing this would make American great again and make the world a better place.  What’s your choice?

Posted in Economy, Education, Manufacturing | 2 Comments »

Senate Report Reveals Extent of Chinese Counterfeit Parts in Defense Industry

May 29th, 2012

On May 21, 2012, the Senate Armed Services Committee released a report on counterfeit parts in the Department of Defense supply chain.  The Committee discovered counterfeit electronic parts from China in the Air Force’s C-130J and C-27J cargo plane, in assemblies used in the Navy’s SH-60B helicopter, and in the Navy’s P-8A surveillance plane, among 1,800 cases of bogus parts.

“The systems we rely on for national security and the protection of our military men and women depend on the performance and reliability of small, incredibly sophisticated electronic components.  Our fighter pilots rely on night vision systems enabled by transistors the size of paper clips to identify targets.  Our soldiers and Marines depend on radios ad GPS devices, and the microelectronics that make them work, to stay in contact with their units and get advance warning of threats that may be around the next corner. The failure of a single electronic part can leave a soldier, sailor, airman, or Marine vulnerable at the worst possible time,” the report says. “Unfortunately, a flood of counterfeit electronic parts has made it a lot harder to prevent that from happening.”

The year-long investigation launched by Sen. Carl Levin, D-Mich., the committee’s chairman,and Ranking Member Sen. John McCain, R-Ariz., found over a million suspect counterfeit parts involved in those 1,800 cases.

“Our report outlines how this flood of counterfeit parts, overwhelmingly from China, threatens national security, the safety of our troops and American jobs,” Levin said. “It underscores China’s failure to police the blatant market in counterfeit parts – a failure China should rectify.”  The Chinese government denied visas to Committee staff to travel to mainland China as part of the Committee’s investigation.

The investigation revealed that China was the dominant source of counterfeit electronic parts ? more than 70 percent of the parts tracked were traced to China, coming from more than 650 companies.  Counterfeit parts included unauthorized copies of an authentic product and previously used parts that were made to look new and sold as new.  The parts often change hands multiple times before being bought by defense contractors, who may know little about the source of the parts they buy, the report said.

“Our committee’s report makes it abundantly clear that vulnerabilities throughout the defense supply chain allow counterfeit electronic parts to infiltrate critical U.S. military systems, risking our security and the lives of the men and women who protect it,” said McCain. “As directed by last year’s Defense Authorization bill, the Department of Defense and its contractors must attack this problem more aggressively, particularly since counterfeiters are becoming better at shielding their dangerous fakes from detection.”

In November 2012, the Committee held a hearing on the investigation’s preliminary findings.  Following that hearing, Committee Chairman Carl Levin and Ranking Member John McCain offered an amendment to the National Defense Authorization Act for Fiscal Year 2012 to address weaknesses in the defense supply chain and to promote the adoption of aggressive counterfeit avoidance practices by DOD and the defense industry. The amendment was adopted in the Senate and a revised version was included in the final bill signed by President Obama on December  31, 2011.

The law requires the Secretary of Defense to conduct an assessment of Department of Defense acquisition policies and systems for the detection and avoidance of counterfeit electronic parts not later than 180 days after the date of the enactment of the Act to:

  • establish Department-wide definitions of the terms “counterfeit” or “suspect counterfeit electronic part”
  • issue guidance regarding “training personnel, making sourcing decisions, ensuring traceability of parts, inspecting and testing parts, reporting and quarantining counterfeit electronic parts and suspect counterfeit electronic parts, and taking corrective actions (including actions to recover costs…”
  • issue or revise guidance “on remedial actions to be taken in the case of a supplier who has repeatedly failed to detect and avoid counterfeit electronic parts or otherwise failed to exercise due diligence in the detection and avoidance of such parts, including consideration of whether to suspend or debar a supplier until such time as the supplier has effectively addressed the issues that led to such failures.”
  • require contractors or subcontractors that suspect a counterfeit part provide “a report in writing within 60 days to appropriate Government authorities and to the Government-Industry Data Exchange Program
  • “establish a process for analyzing, assessing, and acting on reports of counterfeit electronic parts and suspect counterfeit electronic parts” that are reported.
  • Require the Secretary to revise the Department of Defense Supplement to the Federal Acquisition Regulation to address the detection and avoidance of counterfeit electronic parts not later than 270 days after the date of the enactment of this Act.

The law includes provisions to help stop counterfeit electronic parts before they enter the U.S, strengthens the inspection regimen for imported parts, and gives the government wider berth in seeking assistance from the private sector in determining whether parts are authentic.  It also requires that contractors or subcontractors “obtain electronic parts that are in production or currently available in stock from the original manufacturers of the parts or their authorized dealers, or from trusted suppliers who obtain such parts exclusively from the original manufacturers of the parts or their authorized dealers manufacturers or authorized distributors.”

The investigation revealed that the defense industry also has routinely failed to report cases of suspected bogus parts.  For example, the majority of the 1,800 cases involving counterfeit parts appear to have gone unreported to the DOD or criminal authorities.  Boeing failed to report a case of a suspect counterfeit part used in the Navy’s P-8A surveillance airplane until the Senate Armed Services Committee began inquiring, the report said.  And L-3 Communications didn’t report the suspect memory chip to the Air Force until the day before the committee’s staff was scheduled to meet with the Air Force program office responsible for the program.

The Committee’s report includes detailed descriptions of how counterfeits are flooding the supply chain, risking the performance and reliability of critical defense systems. In just one example described in the report, the U.S. Air Force says that a single electronic parts supplier, Hong Dark Electronic Trade of Shenzhen, China, supplied approximately 84,000 suspect counterfeit electronic parts into the DOD supply chain. Parts from Hong Dark made it into Traffic Alert and Collision Avoidance Systems (TCAS) intended for the C-5AMP, C-12, and the Global Hawk.  In addition, parts from Hong Dark made it into assemblies intended for the P-3, the Special Operations Force A/MH-6M, and other military equipment, like the Excalibur (an extended range artillery projectile), the Navy Integrated Submarine Imaging System, and the Army Stryker Mobile Gun.

The Armed Services Committee reached the follow conclusions on counterfeit parts:

Conclusion 1: China is the dominant source country for counterfeit electronic parts that are infiltrating the defense supply chain.

Conclusion 2: The Chinese government has failed to take steps to stop counterfeiting operations that are carried out openly in that country.

Conclusion 3: The Department of Defense lacks knowledge of the scope and impact of counterfeit parts on critical defense systems.

Conclusion 4: The use of counterfeit electronic parts in defense systems can compromise performance and reliability, risk national security, and endanger the safety of military personnel.

Conclusion 5: Permitting contractors to recover costs incurred as a result of their own failure to detect counterfeit electronic parts does not encourage the adoption of aggressive counterfeit avoidance and detection programs.

Conclusion 6: The defense industry’s reliance on unvetted independent distributors to supply electronic parts for critical military applications results in unacceptable risks to national security and the safety of U.S. military personnel.

Conclusion 7: Weaknesses in the testing regime for electronic parts create vulnerabilities that are exploited by counterfeiters.

Conclusion 8: The defense industry routinely failed to report cases of suspect counterfeit parts, putting the integrity of the defense supply chain at risk.

Of course, China denies any culpability.  On May 25, 2012 an article appeared in China Defense News that stated, “The U.S. government has found yet another reason to ignore its own problems and bash China, this time accusing the country of compromising national security via the manufacture of counterfeit electronic components used by the U.S. military…The accuracy of the claims is questionable at best, but bigger questions should be answered first: how did counterfeit parts end up slipping into the U.S. military system in the first place? And for what purpose were the parts originally shipped for?

The U.S. has maintained a military embargo on China for 23 years. Military components and weapons aren’t supposed to be officially traded between the two countries to begin with. Taking this into consideration, the U.S. ought to find out precisely who purchased the parts and how they passed muster before accusing China of wrongdoing.”

I answered the question of how counterfeit parts ended up “slipping into the U. S. military system in the first place” in my blog article last fall, titled “What Led to the Problem of Chinese Counterfeit Parts.”  I detailed the following four main reasons for the problem of Chinese counterfeit parts:

  1. Mil. Spec. qualified components replaced by off the shelf components by allowing use of “dual use technology” of commercial components
  2. Relaxing “Buy American” requirements for Federal procurement
  3. American companies sourcing manufacturing offshore, mainly in China
  4. Rapid obsolescence of components, especially micro chips

The provisions of the National Defense Authorization for FY 2012 don’t directly address these four main reasons for the counterfeit part problem.  This is another typical example of Congressional legislation where they attempt to have their cake and eat it too by seeming to crack down on counterfeit parts while not endangering U. S. corporate investments in China.  In order not to anger their big political donors, who include some of the corporations that export our jobs to China, they place the burden of identifying and reporting counterfeit parts on contractors and subcontractors instead of addressing the root causes I have listed above.

The new Federal procurement regulations being drafted by the Department of Defense are supposed to “address the detection and avoidance of counterfeit electronic parts,” but there has been no mention of eliminating “dual use technology” of commercial parts for military/defense applications.  And, there has been no discussion of tightening or strengthening the “Buy American” requirements for Federal procurement to what they were prior to 1993.

Worst of all, there has been no action by Congress on addressing the trade and tax laws that currently incentivize American manufacturers to continue to offshore manufacturing in China and other foreign countries.  Congress must act to eliminate the incentives for offshoring and provide incentives for bringing manufacturing back to America.  Until these root causes are addressed, we will continue to have counterfeit parts slip into the military/defense procurement system and endanger the lives of our military personnel and threaten our national security.

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

Changing to WTO’s “Made in the World” Labeling Would Harm Americans

May 22nd, 2012

How would you like to go shopping and find that everywhere you went, the label said “Made in the World” instead of “Made in China,” “Made in India,” “Made in USA” etc.?  The label on products Americans purchase that names the country in which they are made may soon be gone.    How could this be possible?

The World Trade Organization has been working on the “Made in the World” initiative for years, and in 2008, the WTO and Organization for Economic Co-operation & Development (OECD) began cooperating with other stakeholders to provide data that would shed lights on what is called “trade in tasks” i.e., the domestic value added content of trade.   While traditional statistics are necessary, they don’t identify the contribution of each trade partner to the total value of the final good in the supply chain. By contributing to specific segments of a global value chains, trade partners are actually “trading tasks” rather than trading final products.

In 2011, Andreas Maurer, chief of the WTO’s International Trade Statistics Section, “… in the past two or three years there has been huge momentum to get the necessary information” that would be used to rationalize elimination of country of origin labeling.”

The World Trade Organization and the European Union moved one step closer to eliminating “country of origin” labeling. On April 16, 2012, the European Commission and WTO held a conference to mark the launch of the World Input-Output Database (WIOD).  This new database allows trade analysts to have a better view of the global value chains created by world trade.

Globalization is changing business models and increasing fragmentation of production.  Companies divide their operations around the world, from product design, manufacturing, to assembly and marketing, creating global production chains.  More and more products are ‘made in the world’ rather than in any particular country.

Today’s traded products are not produced in a single location but are the end-result of a series of steps carried out in many countries around the world.  For example, cars and trucks produced by General Motors or Ford may have parts and assemblies coming from several other countries, including China.

Instead of counting the gross value of goods and services exchanged, the new database reveals the value-added that make up these goods and services as they are traded internationally.  The findings The Europe-based organizations instead want to adopt a “Made in the World” logo for all products on the grounds that global supply chains have rendered country of origin labeling inaccurate and obsolete. are significant as they may change the perception of the competitiveness of certain industrial sectors in some countries.

The WTO and OECD have been working with the U.S. International Trade Commission and the World Bank in the United States, the Institute of Developing Economies (IDE) and the Japan External Trade Organization in Asia, and the recently created World Input-Output Database (WIOD) consortium in Europe to implement the new trade statistics. The WTO has signed a contract with the OECD to start issuing official statistics on international trade based on value added.

The WTO’s Made in the World initiative is part of the process of “re-engineering global governance,” said WTO Deputy Director General Alejandro Jara at the event launching the opening of the World Input-Output Database.  With the rise of global supply chains “it is misleading to rely solely on gross trade flows as a measure” of a country’s competitive position.  As companies have created global supply chains, “attributing the full commercial value of imports to the last country of origin can skew bilateral trade balances, pervert the political debate on trade imbalances and may lead to wrong and counter-productive decisions,” says the WTO.

The intent of the WTO’s “Made in the World” initiative is to modernize global trade statistics, reduce public pressure on politicians for protectionist trade policies, and reduce public opposition to free trade.

Director-General Pascal Lamy has said that “improved measurement and knowledge of actual trade flows will help better understand the interdependencies of today’s national economies, supporting the design of better policies and better trade regulation worldwide.”

In an article on the Economy in Crisis website, “WTO Pushes ‘Made in the World’” on May 16, 2012, Karl Rusnak commented, “This may be a good PR move for the WTO and its agenda, but it doesn’t change the facts: trade still picks winners and losers, and the United States consistently finds itself in the “losers” column…This new initiative takes the same ill effects that have been occurring from free trade and attempts to reframe them in a more positive light…Trade deficits lead to bad results, but ultimately it is the bad results we need to look at, not the nominal number that represents the trade deficit.  If the numbers had shown that the United States was running a trade deficit but maintaining strong job growth, the WTO’s new calculation method might be something worth looking at.  Instead, we have lost millions of jobs as a result of free trade. Whether you calculate our trade deficit as $100 billion or $600 billion, those job losses can still be directly attributed to our failed free trade agreements.”

This Initiative could have dire consequences for America’s manufacturers and consumers. For manufacturers, it could eliminate one of the options allowed by the WTO ?  filing a charge for product  “dumping” against another country to have countervailing duties applied against that country.  For consumers, “Made in the World” labels wouldn’t allow you to protect your family from the tainted, harmful, and even life threatening products coming from China.  You wouldn’t be able to support saving and creating jobs for other Americans by buying “Made in USA.”

Alan Uke, founder of Underwater Kinetics, a company that manufactures high intensity lighting and other products, believes that “country of origin” labels could change consumer behavior and revive U.S. manufacturing.  He wants the government to require a detailed country-of-origin label on every product sold in America. The label would include sourcing information on all of the product’s parts and components along with the trade balance the U.S. maintains with each of those countries. Uke outlines his proposal in his book, Buying America Back, a Real-Deal Blueprint for Restoring American Prosperity.

The labels would be similar to those that have been successfully implemented in the U.S. food industry, describing such things as fat content, calories and nutritional values. Those labels have changed consumer behavior, forced producers to change ingredients, and motivated retailers to stock items that are demanded by customers.

“I am trying to start a movement of American consumers,” says Uke. “We need a home-team preference.” Uke is convinced that only the American consumer, whose spending represents 70 percent of the economy, will change the international trade dynamic in favor of U.S. manufacturing.  Knowledgeable consumers demanding products made in the United States or in countries that have employ ethical business practices could motivate companies to change their sourcing practices.

During my interview, Uke said, “The “Made in the World” label is the antithesis of my proposal. This initiative was probably promoted by those who profit from environmental abuse and child labor.  It makes countries that rape our environment and support child labor unaccountable to the world.  Knowing the sources for products is the only way that people can make countries accountable for their actions. Consumers can’t determine their own destiny if they have no idea of the sources.  If we want a better world, consumers need to be able to send their money to countries whose policies they support.  This isn’t free trade, it is slave trade.”

Peter Navarro and Greg Autry, the authors of Death by China – Confronting the Dragon, A Global Call to Action, also recommend that “country of origin” information be provided for all products sold on the Internet by online retailers that “Congress should require all food and drug producers to clearly label the countries of origin for all major ingredients that go into a product – and do so in a standardized and legible manner” in order to protect American consumers from tainted and poisonous products coming from China.

Greg Autry told me, “The “Made in the World” label is an obvious attempt to disguise the political differences between countries and normalize despotic regimes like China. This initiative can only result in the reduction of critical information to consumers.  I agree that we don’t have full information provided on the sources for products today, but this is the exact opposite direction to go.”

The authors believe that if 10% or more of Chinese products were boycotted by Americans, it could be enough to destabilize the Chinese economy and topple the Communist regime.  Converting to “Made in the World” labels would eliminate this possibility.

 

I urge everyone to contact your current representative to urge them to oppose this initiative and ask all candidates for federal office if they support our current “country of origin” labeling laws and oppose “Made in the World” labeling.

Posted in Economy, Trade, Trade Policy | No Comments »

Regional Trade Shows Provide Value for Exhibitors and Attendees

May 8th, 2012

At a time when trade shows and exhibitions have been shrinking in size, combining with other shows, and even disappearing like NEPCON and WESCON, a successful 18th Del Mar Electronics and Design Show was held May 2nd and 3rd in the San Diego region.

According to the report, “Manufacturing & Industrial Exhibition & Event Marketing Trends & Outlook,” published by TradeShow Week and Skyline Exhibits, a survey of manufacturers revealed that manufacturing trade shows and exhibitions in the United States have been affected by the shift of production offshore since the year 2000.  Manufacturers are exhibiting at fewer events in North America and are heading to China to participate in trade shows. Many companies are scaling down the size of their booths and placing fewer, but more informed people in their booths. “Two out of three exhibitors believe that demographics are impacting their industry and shows and about half of this group indicates that attendance levels are lower as waves of executives and managers retire in the industry.”

While the demise of trade shows has been predicted because of the Internet and outsourcing offshore, DMEDS and other regional shows such as the Design-2-Part shows been able to buck the trend and provide value for exhibitors and attendees.

DMEDS is the only show in the San Diego region for the broad base of the manufacturing, electronics, and design industry to exhibit and attend.   It is large for a regional show with nearly 400 booths filling the two largest buildings and a tent between them at the Del Mar Fairgrounds.  It originated as a show where the majority of exhibitors were manufacturers’ representatives and distributors exhibited their product lines, primarily related to the electronics industry.  However, the number of manufacturers’ representatives and distributors exhibiting dwindled every year and the number of manufacturers displaying a wider range of products and services increased every year until reps and distributor exhibits comprised less than ten percent of the booths.

DMEDS is now a very different show than what it used to be and provides value for attendees by giving them the opportunity to meet and talk with a wide variety of potential sources.  Products displayed are as diverse as adhesives to wireless and portable products in the A to Z show directory index.  Some of the services available include 3D scanning, assembly, design engineering, contract manufacturing, research prototyping, test measurement and calibration, and training.  Custom fabrication services exhibited include: dip brazing, die and investment casting, forging, machining, plastic and rubber molding, sheet metal fabrication, vacuum and pressure forming, and welding.  You can still find electronic components, as well as fasteners, hardware, and tools.  My company, ElectroFab Sales, has participated in the show for 15 years, displaying the custom fabrication services of the companies we represent.

Most of the manufacturing exhibitors had parts, assemblies, and products on display at their booths so engineers could have examples of how their designs could be fabricated.  Browsing websites to find pictures of parts just isn’t the same as seeing actual parts in person.  Besides, engineers could ask questions about materials, design details, and tolerances that are not easily answered through contact on the Internet.

Free seminars on a broad range of topics were provided for attendees both days of the show.  I gave one of the presentations on “Returning Manufacturing to America, highlighting the Total Cost of Ownership worksheet that was developed by Harry Moser of the Reshoring Initiative.

An informal poll of attendees, visitors to our booth, and exhibitors in our building revealed that in the past year, all but one American company had one or more customers give them a chance to quote on making parts that were currently being made in China.  One purchasing agent told me that if pricing from an American company comes within 20% or less than the pricing from China, he is allowed to select a domestic source.  If more companies would use the TCO worksheet to do a true total cost analysis, American companies would have even greater opportunities to recapture business now being done in China.

The show location is centrally located in San Diego County, with easy access to a major interstate highway, and parking is also free.  What makes it even more popular is a free reception immediately after the show ends at 5 PM on the first day of the show, providing excellent networking opportunities with industry peers for exhibitors and attendees.   If you haven’t been to a DMEDS show for a few years, be sure to make it a priority to attend the next show in May 2013.

The dozen different Design-2-Part shows, produced by the Job Shop Company, are held regionally around the county and feature design, custom fabrication, and contract manufacturers located in the United States.  While some of these companies may also have a plant offshore, no offshore-only companies are allowed to exhibit in the show.  No sales representatives or distributors are allowed to have their own booths in the show.  The mission of Design-2-Part shows is to support and feature American manufacturers.

At the Design-2-Part shows, engineers get to see and touch actual parts built by the exhibitors. This gives them ideas to use for new products they are designing and shows them how other people have solved problems they may be encountering in their design phase.

I have been attending the Design-2-Part shows since 1982 when I started in sales, and the Long Beach show in October 2010 and Pasadena show in 2011 were exciting. The show attendance for both shows was up to the pre-recession levels of fall 2007.  Show management said the Long Beach show was one of the best Southern California shows in the history of the company, with attendance up 21 percent over the 2009 show in Pasadena and up ten percent over the 2008 show in Pomona.   The shows were so well attended that many exhibitors had trouble talking to all of the attendees that were visiting their booths.  The attendees weren’t just browsing, and many exhibitors had far more leads from these shows than the 2008 and 2009 shows.

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

Harry Moser of the Reshoring Initiative has been a featured speaker at some of the Design-2-Part shows around the country, and I have given presentations at three of the West Coast shows on returning manufacturing to America by doing a thorough TCO analysis.  As more and more companies learn how to utilize this worksheet, the “reshoring” trend will continue to grow.

As long as show exhibitors and attendees receive value from regional trade shows such as DMEDS and the Design-2-Part shows, they will continue to thrive and grow.  In our new age of digital communication, many realize that there is no substitute for the face-to-face interaction provided by this type of trade show. Be sure to put one of these shows on your calendar to attend in the future.

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Posted in Manufacturing, Outsourcing, Reshoring | No Comments »

Death by China is a Global Call to Action to Confront the Dragon

May 1st, 2012

Every once in a while a book comes along that puts all the pieces into a complete picture.  The well-written, easy-to-read book, Death by China, is one such book, and the picture it portrays is both revolting and frightening.   For too long, our business and political leaders have kowtowed to China, and the consequences have been disastrous.  The response of most American economists and government leaders’ to the economic imperialism of China has been either naïveté, cowardice, or sheer stupidity.  As a result, we Americans now face the risk of losing our national sovereignty, freedom, and way of life.  But the whole world is in danger, both from a political and environmental viewpoint.

In the first chapter, “It’s Not China Bashing if It’s True,” co-authors Peter Navarro and Greg Autry portray the grim picture of the many tactics China uses to conduct unrestricted economic war against the United States in order to achieve its written goal of becoming the world’s super power of the 21st Century.

They write, “Even as thousands literally die from this onslaught of Chinese junk and poison, the American economy and its workers are suffering a no-less-painful ‘death to the American manufacturing base.’”  They corroborate the shrinking of the manufacturing industry that I wrote about in my book:  “America’s apparel, textile, and wood furniture industries have shrunk to half their size ? with textile jobs alone beaten down by 70%.” And, “other critical industries like chemicals, paper, steel, and tires are under similar siege.”

Navarro and Autry point out that as a consequence of China’s becoming the world’s “’factory floor,’ it must consume half of the world’s cement, nearly half of its steel, one-third of its copper, and a third of its aluminum.”  Even more alarming is the fact that “by the year 2035, China’s oil demand alone will exceed that of total oil production today for the entire world.”

To feed its voracious appetite for the world’s natural resources, China is practicing its own brand of colonialism that beings with a “Mephistophelean bargain:  lavish, low-interest loans to build up the country’s infrastructure in exchange for raw materials and access to local markets.”

The second chapter goes into detail on “death by Chinese poison.”  I’ve been careful in avoiding “made in China” products in the grocery store, but was horrified to find out that Chinese farmers produce 60% of our apple juice concentrate, 50% of our garlic, and a significant amount of “everything from canned pears and preserved mushrooms to honey and royal bee jelly.”

If that doesn’t make you sick enough thinking about how much mercury and other poisons you are accumulating in your body from eating these products, consider the fact that China now “produces 70% of the world’s penicillin, 50% of its aspirin, and 33% of its Tylenol.  Chinese drug companies have also captured much of the world market you in antibiotics, enzymes, primary amino acids, and vitamins. China has even cornered the world market for vitamin C — with 90% of market share ? even as it plays a dominant role in the production of vitamins A, B12, and E, besides many of the raw ingredients that go into multivitamins.”

While some of the poisons are accidental results of shoddy production methods, unsanitary processing, or soil toxicity due to a polluted environment, others are simply a way to boost profits by Chinese “’black hearts’ ? a term used by their own countrymen” ? to purposely increase their profits. Their retelling of stories you’ve read in the news will make you sick:

Melamine added to human and pet food products to increase protein levels, the adulteration of the life-saving anticoagulant drug Heparin, and lead and cadmium used in making toys and jewelry.  In addition, China is now “the world’s leading source of farm-raised fish and dominates the markets for catfish, tilapia, shrimp, and eel.”   It was horrifying to learn that China’s fish ponds are filled with water so polluted that it would be equivalent to sewer water in the U. S. and the Chinese put poultry cages over the ponds so that the fish can feed on poultry droppings.

This is why “Chinese foods and drugs always rank #1 of those flagged down at the border or recalled by both the U.S. Food and Drug Administration and the European Food Safety Authority.”  The authors point out that the “U. S. Food and Drug Administration is so grossly understaffed that although it regulates 80% of America’s food supply, it only inspects less than 1% of food imports.”

In the third chapter, the authors go on to “regale you with tale after tale of the myriad Chinese products that can sicken, maim, or kill you” so that you will be  become motivated to “call, write, or e-mail your Congressional representatives.”  They urge “all of us to stand up just like Peter Finch did in the movie Network and shout, “We’re mad as hell, and we won’t buy your ‘Chinese junk’ anymore.”

The book moves on in chapter 4 to explain how China uses “Weapons of Job Destruction” to gut the manufacturing industries in the United States.  Navarro and Autry specifically illustrate how the Chinese bureaucracy systematically targets American industries to take over market share and destroy their competition.  They explain how the Chinese Communist Party seeks to achieve economic imperialism through its “eight pillars”:

1. An elaborate web of illegal export subsidies;

2. A cleverly manipulated and grossly undervalued currency;

3. The blatant counterfeiting, piracy, and outright theft of America’s intellectual property 4. Engaging in massive environmental damage;

5. Ultra-lax worker health and safety standards;

6. Unlawful tariffs, quotas, and other export restrictions;

7. Predatory pricing and practices to push foreign rivals out of key resource markets and then gouge consumers with monopoly pricing;

8. “Great Walls of Protectionism” — to keep all foreign competitors from setting up shop in China.

The next chapter provides an explanation of how China uses the second pillar of currency manipulation, followed by the chapter, “Death by American Corporate Turncoat:  When Greenbacks Trump the Red, White, and Blue” describing how corporations offshored their manufacturing to reduce costs and increase profits.  I agree with their sentiment that there seems to be “no patriotism among American corporations” as judged by the examples of General Electric, Caterpillar, Apple, and many, many others.  Their original motives may have been fear of losing market share, greed or following “herd mentality.”  However, the loss of our manufacturing base is now compounded by China’s new demand mandating “forced technology transfer” wherein “American companies must surrender their intellectual property to their Chinese partners as a condition of market entry.”   The authors point out this facilitates “the dissemination of various technologies not just to the Chinese partner directly involved but also to the Chinese government and other potential Chinese competitors” … so that “Western companies, in effect, create their own Chinese competitors virtually overnight.”

If you aren’t outraged and concerned enough by the previous chapters, chapter 8 will do the trick.  In chapter 8, “Death by Blue Water Navy,” the authors document what China has been doing with the wealth they’ve accumulated from more than a decade of huge trade deficits ? building up their military might.  Consider this:  China’s army of 2.3 million “outnumbers the combined forces of Canada, Germany, the United States, and the United Kingdom.”    China’s 6,700 tanks “dwarf Taiwan’s 1,100, South Korea’s 2,300, and Vietnam’s 1,000 or so,” and even the U. S. only has “about 5,000 tanks.”  Navarro and Autry label China’s Air Force as the “best that the Chinese can buy with our ‘Walmart dollars’ or that its spies can steal.”  For example, the Shenyang J-11B “is a carbon copy knockoff of the Russion Sukhoi Su-27 and the J-15 “is the equally counterfeit twin of the Russian Su-33.”

China’s build up of its Navy to challenge the U. S. Navy is even more disturbing.  The dominance of the U. S. Navy in the Pacific has been the only thing keeping Taiwan safe from being subjugated by mainland China.  Navarro and Autry write that China’s “first goal is to push U. S. aircraft carrier fleets out of the Western Pacific ? and perhaps finally take Taiwan ?  and then to ultimately project hard power across the globe.”   The Chinese even have a new missile, the Dongfeng-21D, capable of hitting “a powerfully defended moving target with pinpoint precision,” meaning that it could destroy an American aircraft carrier.

The American manufacturing industry was responsible for producing the goods and equipment that enabled the U. S. to win WWII and defeat the Soviet Empire in the Cold War.  But, now the “factory floor” of the world is in China, and the U. S. no longer has the capacity to ramp up to produce enough of the goods and equipment that would be needed to defend our country in a war against China.

After defining the challenges America faces in competing in the “Century of the Dragon,” Navarro and Autry conclude with an outline of a clear and achievable path for America to tame the Dragon’s onslaught.  There are recommendations for everyone from government and business leaders down to individual Americans.  In my meeting with Mr. Autry after reading his book, he told me that he believes boycotting 10% or more of Chinese products may be enough to destabilize the economy enough to topple the Communist regime. Peter Navarro is a professor at the University of California, Irvine and Greg Autry is an instructor and doctoral student at the university.  Mr. Autry also serves as Senior Economist for the American Jobs Alliance, a non-partisan, non-profit organization formed in 2011 to create and support American jobs.  The mission of AJA is:

  • To encourage and facilitate an educational curriculum that cultivates and maximizes the innate creativity that resides within every human being to ensure the United States of America perpetuates its traditional “Innovative Spirit.”
  • To encourage and facilitate a better understanding of the history and functioning of the American or National System of free enterprise and the activities necessary for its preservation.
  • To, once again, MAKE, GROW and INVENT all items that are vital for the survival of this and future generations. American firms, individuals and our government must renew our dedication to investing in, as well as, protecting our “Engine of Innovation.”  We must boldly reclaim the title of “shop floor of the world” so that all Americans can share in our increased national wealth and have better paying jobs for generations to come.

You can join me in pledging to create and support American jobs and buy a “Boycott China, Buy American” bumper sticker at http://www.americanjobsalliance.com

Death by China is a book that everyone interested in securing the future of America must read.   Sign up to keep apprised of issues/events at http://www.deathbychina.com/updates and check out the Death by China Facebook page.

Posted in Economy, Manufacturing, National security, Outsourcing | 3 Comments »

“Reshoring” Opportunities Abound at Del Mar Electronics & Design Show

April 24th, 2012

If your company is considering ”reshoring” manufacturing of some parts, assemblies, or products to the U. S., then you should attend the 18th annual Del Mar Electronics & Design Show, which will be held at the Del Mar Fairgrounds (Map) Wednesday May 2nd, 10am – 5pm and Thursday May 3rd 10am – 3pm.  Admission to the show, the seminars, and parking at the show are ALL FREE.

This is the only industrial trade show for manufacturers held annually in the San Diego region so this is the best opportunity for companies to find local and regional suppliers to “reshore” manufacturing to the U. S.

To help your company analyze the true Total Cost of Ownership to determine whether or not you should be returning manufacturing to America, I will be giving a presentation on “Returning Manufacturing to America” at 10 AM on Wednesday May 2nd.    I will be considering:

  • Hidden costs of doing business offshore that comprise a true understanding of the “Total Cost of Ownership”
  • How you can calculate these costs utilizing the Total Cost of Ownership worksheet calculator developed by Harry Moser of the Reshoring Initiative
  • Case stories reviewing some of the problems companies have experienced in outsourcing offshore
  • Reasons why some companies are choosing to “reshore” manufacturing to the U.S.

For the past 15 years, manufacturers have outsourced their manufacturing offshore in Asia, especially in China, to reduce costs to keep or increase market share.  However, the supply chain dynamics are changing, and the cost savings of outsourcing to China are eroding due to higher labor rates and shipping costs.  In the last few years, there have also been many news reports about outsourcing horror stories regarding poison or tainted Chinese products, Chinese counterfeit parts, intellectual property infringement, quality problems, and lawsuits so many companies are rethinking their decision about manufacturing in China.

In August 2011, the Boston Consulting Group’s released their first report “Made in America, Again: Why Manufacturing Will Return to the U.S.,” explaining how rising wages and other forces are steadily eroding China’s once-overwhelming cost advantage as an export platform for North America.  By around 2015, BCG concluded that when higher U.S. worker productivity, supply chain and logistical advantages, and other factors are taken fully into account, it may start to be more economical to manufacture many goods in the U.S.

Now, a new BCG report, “U.S. Manufacturing Nears the Tipping Point, Which Industries, Why, and How Much?” released on March 22, 2012 by Harold L. Sirkin, Michael Zinser, Douglas Hohner, and Justin Rose has identified “seven industry groups that account for $200 billion in goods imported from China for which rising costs in China will likely prompt manufacturing of goods consumed in the U.S. to return to the U.S.”

The report predicts that production of 10 to 30 percent of U.S. imports from China in these industries, which account for approximately 70 percent of goods that the U.S. imports from that nation, could shift to the U.S. before the end of the decade, adding $20 billion to $55 billion in output annually to the domestic economy.”  The tipping-point sectors are transportation goods, appliances and electrical equipment, furniture, plastic and rubber products, machinery, fabricated metal products, and computers and electronics.

BCG predicts that improved U.S. competitiveness and rising costs in China will put the U.S. in a strong position to add 2 million to 3 million jobs in a range of industries and an estimated $100 billion in annual output by the end of the decade which would reduce unemployment by 1.5 to 2 percentage points, and lower the nonoil-related merchandise deficit by 25 to 35 percent.

According to a new survey which BCG conducted in late February, “More than a third of U.S.-based manufacturing executives at companies with sales greater than $1 billion are planning to bring back production to the United States from China or are considering it.”

The top factors cited as driving future decisions on production locations:  labor costs (57 percent), product quality (41 percent), ease of doing business (29 percent), and proximity to customers (28 percent).  In addition, 92 percent said they believe that labor costs in China “will continue to escalate,” and 70 percent agreed that “sourcing in China is more costly than it looks on paper.”

In the new survey, “67 percent of respondents in rubber and plastic products, 42 percent in machinery, 41 percent in electronics, 40 percent in computers, and 35 percent in fabricated metal products said they expect that their companies will reshore production from China to the U.S.”

“Not long ago, many companies regarded China as the low-cost default option for manufacturing,” observed Michael Zinser, a BCG partner who leads the firm’s manufacturing work in the Americas. “This survey shows that companies are coming to the conclusion surprisingly fast that the U.S. is becoming more competitive when the total costs of manufacturing are accounted for.”  To request a summary of the survey findings, please contact David Fondiller at fondiller.david@bcg.com.

The Del Mar show will also feature a number of other free technical seminars.  A few of the topics are:  “Using LinkedIn as a Business Development Tool,” “New Energy Storage Options for the Transportation Sector,” “Best of SolidWorks Tips and Tricks,” and “Counterfeit Electronic Components Are No Longer a Threat; They are a Reality.”  For the full seminar schedule, go to www.vts.com.  In addition, all attendees are invited to the Post Time Party, Wednesday, May 2nd, from 5 – 7pm, with free refreshments provided thanks to sponsorship by Quality Systems Integrated Systems, Luscombe Engineering, Concisys Electronic Manufacturing Services, and National Test Equipment.

My company will be exhibiting products for the companies we represent at Booths 207 – 209 in the Bing Crosby Hall, which is to the left of the main entrance to the show.   We look forward to seeing you at the show!

 

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Posted in Manufacturing, Outsourcing, Reshoring | No Comments »

Smart Trade Conference Initiates Efforts to Fix California’s Economy

April 17th, 2012

On March 28th the Smart Trade Conference sponsored by the Coalition for a Prosperous America brought together a broad spectrum of local business executives to discuss CPA’s strategic agenda to fix America’s economy by reforming U. S. international economic policies to enhance the global competitiveness of domestic manufacturers and farmers to promote genuine economic recovery and create family-sustaining private sector jobs.

Ian Fletcher, CPA’s Senior Economist, began with the following chart showing that the     U. S. trade deficit from 1960 to 2010 has resulted in a total $5.85 Trillion in U. S. global losses requiring net U. S. foreign borrowing/asset sales of $1.6 Billion per day.

He emphasized that trade deficits are real money, saying that when America receives goods from abroad, we must pay with:  a) goods we produce today, b) goods we produced yesterday, or c) goods we will produce tomorrow.  We are going more and more into debt because we are losing the manufacturing capability to produce goods today that we can use to pay for goods we receive from abroad.  America has already lost the following industries:  Fabless chips, Compact fluorescent lighting, LCDs for monitors, TVs, and handheld devices like mobile phones, electrophoretic displays, Lithium, ion, lithium polymer and NiMH batteries, Advanced rechargeable batteries for hybrid vehicles, Crystalline and polycrystalline silicon solar cells, Inverters and power semiconductors for solar panels, Desktop, notebook and netbook PCs, Low-end servers, Hard-disk drives, Consumer Networking gear such as routers, access points, and home set-top boxes, Advanced Composites used in sporting goods and other consumer gear, Advanced ceramics and Integrated circuit packaging.

Mr. Fletcher said that from the early 1800s until after WW II, the Untied Stated was a protectionist nation in order to protect and grow its domestic manufacturing industry, as initially recommended by our first Secretary of Treasury, Alexander Hamilton.  As a free-market capitalist country, the United States is competing against the state-controlled capitalism of China and Japan.  He concluded by pointing out that it’s not just cheap labor that is the problem.  The U.S. is actually now a laggard in manufacturing wages among developed nations.   Germany has much higher wages than the U. S. and doesn’t have a trade deficit problem with China as we do.

Next, CPA’s President Michael Stumo went into more detail on the trade deficit problem stating that our trade deficit set records in the last decade.  Net imports hollow the U.S. economy and slow growth.   He explained that GDP is the sum of “consumption,” “investment,” “government spending,” and “net exports.”  Thus, our net imports subtract from our GDP.

The trade deficit equals lost jobs– ten thousand jobs are lost for every one billion in trade deficits.   In February 2011, the real unemployment, that is, the U-6 measure, which also includes marginally attached workers and involuntary part-time workers, totaled 24.7 million Americans.

The trade deficit equals low quality jobs because we have trade deficits in virtually all industrial sectors, from low tech to high tech to green tech.   Agriculture has also ceded domestic market share to imports.  We are creating low wage, low benefit jobs. Our loss of manufacturing means that workers move from manufacturing to service jobs for an average 40% pay cut.

Mr. Stumo said that the primary problem is our failure to recognize and neutralize foreign state capitalism. The Chinese government owns over 50% of its economy, using currency manipulation, value added taxes, strategic subsidies, indigenous innovation, and other means to maintain trade imbalances.  Japan, Germany, South Korea and others have versions of state-managed capitalism to maintain net exports.  Tariffs are a very small part of the issue.  The “Washington Consensus” version of free trade focuses upon lower tariffs.  But, lower tariffs do not address the many ways state-managed capitalism causes our trade deficit.  State-managed capitalism is the 21st Century problem.  The U.S. has failed to even articulate this problem, even as we lose jobs, wealth and innovation.  We need a national trade and economic strategy designed to produce more of what we consume, balance trade, and neutralize state capitalism.

Then, he explained that border adjustable taxes (BAT) are a hidden foreign export subsidy whenever exporters receive a government tax rebate upon export.   BATs are hidden tariffs because the U.S. goods pay the tax when entering the foreign country.  A Value Added Tax (VAT) is a tax on consumption – as opposed to income, wealth, property or wages.  It is s a tax only on the “value added” to a product, material or service, from an accounting view, at every stage of its manufacture or distribution.  Over 150 countries have a VAT but the U.S. does not.  VATs are “border adjustable” and average about 17%.  He said this means that virtually all foreign countries tax our exports with their VATs, when our goods cross into their country.  While those countries tax their domestic production as well, they rebate their 17% VAT when their companies export.

Mr. Stumo said that VATs are the biggest trade problem for the U.S. globally. They are an essentially a tariff on U.S. exports, and foreign VAT rebates are also a subsidy facilitating foreign exports to us.  Trade agreements do not address VATs when tariffs are lowered.  The World Trade Organization allows VATs.  During the last 40 years, the U.S. has lowered tariffs and other countries lowered tariffs.  However, other countries implemented and raised their VATs. The net result is that other countries replaced tariffs with VATs but the U.S. did not.  No trade barrier costs us more money.  No other foreign trade tactic costs the U.S. economy more.  Our exports are double taxed – once in the U.S. and once upon arrival at a foreign country’s shores.  Foreign sales to us are partially tax free.  Foreign countries rebate the VAT upon export, and the U.S. does not apply the tax at our border.

Mr. Stumo concluded his remarks with a brief discussion of the currency manipulation problem.  Foreign currency manipulation is trade cheating because it is both a tariff and a subsidy.  The U.S. economy cannot produce jobs and wealth without addressing this problem.  China’s state managed economy, poses the biggest problem to the U.S., making up 1/3 of our trade deficit.  China’s currency is at least 35% undervalued.  Our exports cost 35% more than they should to the Chinese.  Their sales to us are 35% less than free market value.  China, South Korea, Japan, Taiwan and Singapore have manipulated their currency values.  Our government has not protected U.S. economic and national security interests by neutralizing this practice.

He said that the U. S. has the discretion, under WTO rules, to apply its trade laws to offset the injurious effect of any subsidy, but the U. S. Trade Representative has refused to include trade agreement provisions that neutralize currency manipulation or other massive non-tariff barriers.  Reciprocal tariff cuts matter very little when state-managed economies have many other modern tools to game the system, including currency cheating, border taxes, free credit, indigenous innovation requirements, and other tactics to hobble U. S. producers.  The persistent failure of high level diplomatic efforts to solve this problem underscores the futility of negotiating without leverage.  CPA is urging Congress to act to address this problem.

Mr. Dave Frengel, Director of Government Affairs at Penn United Technologies, Inc. was the last speaker.  He told the story of how CPA was founded in 2007.  At that time a group of domestic manufacturing members of the National Association of Manufacturers successfully pushed for a controversial vote on NAM’s International Economic Policy Committee endorsing congressional legislation that would hold China and other nations accountable for currency manipulation.  The vote was eventually overturned by NAM’s Executive Committee and Board of Directors because the Executive Committee and Board of Directors is dominated by the large multinational corporations, many of which have manufacturing operations in China and other foreign countries.  The overturn of the vote led to a confrontation between a group of NAM’s domestic manufacturing members that supported the vote and NAM’s president.  Some of these companies subsequently left NAM.  He said that when some agricultural and labor leaders heard about his group of domestic manufacturers who were battling the multinationals in the NAM, they invited his group to join them for a “Globalization” conference in Colorado Springs to see if there was common ground for all of them to work together on trade reform.  It turned out that there was a huge amount of high middle ground.  As a result, his company was part of the group that founded CPA to address currency manipulation and other trade issues hurting American manufacturers.  If you would like to receive CPA’s Trade reform blog, you may sign up at www.prosperousamerica.org

During the Q & A session, Senator Mark Wyland’s field rep, Donna Cleary, suggested that CPA schedule a follow-up summit to address other problems to fix California’s economy.  The response was positive, and several people volunteered to help plan the summit.  All of the San Diego County Supervisors, California legislators, and Congressional representatives had been invited to attend or send a representative, but only Donna Cleary showed up.  In subsequent conference calls, a tentative date of October 10, 2012 has been set.  Persons interested in sponsoring and planning this summit, may contact CPA’s State Chair, Michele Nash-Hoff at michele@savingusmanufacturing.com or Sara Haimowitz, Program Development Director, at sara@prosperousamerica.org

 

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American Manufacturing Has Declined More Than Most Experts Have Thought

March 27th, 2012

A new report released by the Information Technology & Innovation Foundation (ITIF) presents a strong case that manufacturing has declined more during the last decade than it did during the Great Depression of the 1930s.  It’s gratifying to finally see a well-respected non-partisan “think tank” release a report based on empirical data that corroborates what those of working in the manufacturing industry have experienced, about which I have been speaking and writing since 2003.

One of the main points of the report is that during the Great Depression, we lost 30.9% of manufacturing jobs, but in the decade of 2000-2010, we lost 33.1% of manufacturing jobs.  It becomes more serious when you realize that in the Great Depression, manufacturing accounted for 43% of jobs lost and 34% of all jobs at the time, but now manufacturing only represents about 11% of all jobs, but nearly one-third of the job loss.  This percentage loss represents 5.7 million manufacturing jobs. The report states, “On average, 1,276 manufacturing jobs were lost every day for the past 12 years.   A net of 66,486 manufacturing establishments closed, from 404,758 in 2000 down to 338,273 in 2011. In other words, on each day since the year 2000, America had, on average, 17 fewer manufacturing establishments than it had the previous day.”

When you understand the multiplier effect of manufacturing jobs, creating 2-3 supporting jobs, this loss of manufacturing jobs represents 11 to 17 million jobs.  The report states, “In fact, in January 2012 there were more unemployed Americans (12.8 million) than there were Americans who worked in manufacturing (just under 12 million).”  No wonder we have the high local, state, and federal deficits that we are experiencing ? there are fewer taxpayers and more benefit collectors.

The two million manufacturing jobs we lost during the Great Recession was added to the over 3.7 million we had already lost.  After the recession ended, the report states “just 166,000, or 8.2 percent, returned. That leaves 91.8 percent of jobs to be recovered.  At the rate of growth in manufacturing jobs in 2011, it would take until at least 2020 for employment to return to where the economy was in terms of manufacturing jobs at the end of 2007.   In reality…U.S. manufacturing has been in a state of structural decline due to loss of U.S. competitiveness, not temporary decline based on the business cycle.”

It’s obvious that with unemployment at 8.3 percent, “all those jobs have not been recreated in other industries.”  If manufacturing declines further, there are no guarantees that other jobs will appear to replace those lost in manufacturing.  The authors validate what I’ve written in my book and previous articles:  “manufacturing jobs pay more; manufacturing is a source of good jobs for non-college-educated workers; and manufacturing is the key driver of innovation—without manufacturing, non-manufacturing innovation jobs (for example, research and design) will not thrive.”

For years, most economists, experts, and government officials have said that the decline in manufacturing is a natural outcome of our transformation from an industrial society to a post-industrial society. “This decline is often cited by defenders as “normal” and in line with what is happening in other countries. In this “post-industrial” view, advanced nations are transitioning from factories to services; the greater and faster the loss of manufacturing, the more successful nations are in mastering the transition.”

The authors concede that there is “some truth to the post-industrialists’ view.  Advanced economies naturally see manufacturing jobs contribute to a smaller share of total employment, since manufacturing productivity is typically higher than non-manufacturing productivity.  But normally the loss is modest and gradual, in contrast to the United States where in the last decade it was sudden and steep.”  In addition, “advanced nations do lose some lower-value-added, lower-skill, commodity-based manufacturing to lower-wage nations.   But …they also increase their demand for the higher-value-added products that developed nations should naturally produce…the process of global integration does not and should not naturally lead to the deindustrialization of developed economies, but rather to the transformation of their industrial bases toward more complex, higher-value-added production.”

These same experts have denied that manufacturing has been in decline, arguing that manufacturing became incredibly productive just like agriculture did a century earlier so that fewer workers are needed in the industry.  The authors state that “Virtually everyone makes the argument that massive manufacturing job decline is a sign of success: manufacturers are using technology to automate work and to become more efficient…Manufacturing is like agriculture” has been the dominant story.  The United States produces more food than ever, but because farming has become so efficient, it requires a very small share of U.S. workers to grow and harvest the food. So while manufacturing productivity growth may be tough on workers, job loss is seen as a sign of strength, not weakness.”

It’s true that job loss could be result of increased productivity, but what these experts have ignored is that manufacturing’s share of the Gross Domestic Product (GD) declined from 15% in 2000 to 11.0% in 2009.   While manufacturing has declined as a share of GDP in the United States and some other nations, such as Canada, Italy, Spain, and the United Kingdom,” it is stable or even growing in many others (including Austria, China, Finland, Germany, Japan, Korea, the Netherlands, and Switzerland.)”

The ITIF report dispels the myth that increased productivity is the reason for the job loss with a review of the productivity of various manufacturing industry sectors, showing that in 2010, “13 of the 19 manufacturing sectors (employing 55 percent of manufacturing workers) were producing less than they there were in 2000 in terms of inflation-adjusted output.”

In addition, the authors assert that “the government’s official calculation of manufacturing output growth, and by definition productivity, is significantly overstated.  ” Correcting for biases in the official data, ITIF finds that from 2000 to 2010, U.S. manufacturing labor productivity growth was overstated by a remarkable 122 percent. Moreover, manufacturing output, instead of increasing at the reported 16 percent rate, in fact fell by 11 percent over the period.”  This was during a period when the U. S. GDP increased by 17 percent.

Besides, the report states that “it is not clear how productivity could be the culprit behind the large share of job loss in the 2000s when manufacturing labor productivity (as measured by the official value added data) was not substantially different in the 1990s than it was in the 2000s.  During the 1990s, manufacturing jobs fell by one percent, while labor productivity increased by 53 percent. In the 2000s, manufacturing jobs fell by 33 percent while productivity increased by 66 percent…the 2000s productivity number is actually significantly overstated, even more so than the 1990s figure. Adjusting for bias in the data, the actual productivity growth in the 2000s was just 32 percent.”

The authors provide evidence that “there are serious problems with how the U.S. government measures manufacturing output that cause it to significantly overstate output and, by extension, productivity.   In order to see how productivity and output are overstated, it is necessary to understand both concepts.”

Their explanation is too complicated to consider in this short article, but is well worth reading in the report.  They conclude “that there are substantial upward biases in the U.S. government’s official statistics and that real manufacturing output and productivity growth is significantly overstated. The most serious bias relates to the computers and electronics industry (NAICS 334)—its output is vastly overstated. Correcting for these statistical biases, we see that the base of U.S. manufacturing has eroded faster over the past decade than at any time since WWII, when the United States began compiling the statistics.”

I can substantiate this conclusion from my experience as a manufacturers’ representative for American companies who perform fabrication services, such as plastic and rubber molding, metal stamping and casting, machining, and sheet metal fabrication for other American manufacturers.  While many of the manufacturers in my sales territory of southern California may still be assembling their products in the U. S., many of the components and subassemblies they are using have been produced offshore.  Obviously, it takes fewer American workers to produce the end product because part of the work was actually done by foreign workers.

The problem is that there is no way for the government to track the value of the components and subassemblies that have been produced elsewhere from the value of the product that is sold by the American company. Therefore, the value of the whole product is counted as American productivity without deducting the value of the parts produced outside of the U. S.  You can see how American productivity becomes inflated.

I hope this report will convince the majority of economists, experts, and government officials recognize that manufacturing is truly in serious decline so that they will look at what are the main reasons:  outsourcing manufacturing offshore and the economic warfare being waged by China against the U. S.

 

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“What does the economy have to do with national security?”

March 20th, 2012

Most people in the United States would define national security as military readiness, homeland defense, and generally protecting American interests at home and abroad.  They don’t recognize that the economy has an effect on our national security.  This is the main purpose of the book “Economic Security:  Neglected Dimension of National Security?” edited by Dr. Sheila Ronis for the Center for Strategic Conferencing, Institute for National Strategic Studies and published by the National Defense University Press in the fall of  2011.

Other questions she considered are:  “But how does the United States remain strong? What does that mean in a world of globalization? How do we even define what national security is in such a complex and interdependent world?  Can we survive, let alone remain a superpower, if we no longer control any means of production?  If we remain a major debtor nation?  If we continue our dependence on unstable countries for our energy supplies?  If we invest insufficient amounts of our resources in research and development, science and technology?  Or if we perceive the training and education of people as a cost as opposed to an investment?”

This report was the result of a conference held on August 24–25, 2010, by the National Defense University.  The conference explored the economic element of national power.  Over two days, several keynote speakers and participants in six panel discussions explored the complexity of this subject and examined the major elements that define the economic component of national security.

The panels and keynote presentations looked at the economic element of national power from different system views, including the role of debt, the government, industrial capability, energy, science, technology, and human capital—create a systemic view of what could be done to improve an understanding of the economic element of national power. Selected papers from the conference that represent these views comprise this volume, edited by Dr. Sheila Ronis, Director of the Master of Business Administration/Master of Management Programs at Walsh College and President of The University Group, Inc., a management consulting firm and think tank specializing in strategic management, visioning, national security, and public policy.  Dr. Ronis has chaired the Vision Working Group of the Project on National Security Reform (PNSR) in Washington, DC, which has been tasked by Congress to rewrite the National Security Act of 1947. As a Distinguished Fellow at PNSR, Dr. Ronis is responsible for the plan and processes to develop the Center for Strategic Analysis and Assessment, to provide the mechanism to conduct foresight studies and the development of the grand strategies that would follow—the kind of studies that would look at an entire system, such as the economy and its relationship to national security.

Dr. Ronis begins with a definition of national security that “can include anything that adds to the strength of the Nation,” such as “the strength of our nation’s infrastructure, our strong societal and moral codes, the rule of law, stable government, social, political, and economic institutions, and leadership.”  It also includes “our nation’s schools and educational programs to ensure a knowledgeable citizenry and lifelong learning—a must for a democracy.”  Then, it also “requires investments in science, engineering, research and development, and technological leadership. We cannot be strong without a viable way to power our cities, feed ourselves, and move from one place to another. Most of all, a strong economy is an essential ingredient of a global superpower.”  Without a strong market-based economy we would quickly lose our superpower status.  We need to have a strong base of globally competitive products and services that produce jobs. The “economy must include sound government policies to promote responsible choices and reduce our debt, and grand strategies for energy and environmental sustainability, science and technology leadership (at least in some areas), human capital capabilities, manufacturing, and the industrial base.”   “And…National security goes to the very core of how we define who we are as a people and a free society. It concerns how we view our world responsibilities.”

Dr. Ronis states that there can be no question of the need to include the economic viability of our nation as a major element of national security because “without capital, there is no business; without business, there is no profit; without profit, there are no jobs.  And without jobs, there are no taxes, and there is no military capability.  The viability of a nation’s industrial infrastructure, which provides jobs for its people, creates and distributes wealth, and leverages profits, is essential. Without jobs, the quality of peoples’ lives deteriorates to a point where society itself can disintegrate.”

Chapter one is a transcript of the comments made by opening keynote speaker David Walker, U. S. Comptroller General and head of the Government Accountability Office (GAO) from 1998 to 2008, and  Founder and CEO of the Comeback America Initiative.  When he started at the GAO, it didn’t have “a strategic, integrated, forward-looking, and outcome-based strategic plan.”  They put such a plan in place at GAO during his tenure, and he said, “It is the closest thing that exists to a strategic plan for the Federal Government, but the GAO is in the legislative branch. So we need one for the executive branch. It needs to be led by the OMB (Office of Management and Budget), and hopefully, eventually it will be.”

He stated, “Things like savings, critical infrastructure, investments in basic research, educational outcomes, and healthcare outcomes are key leading indicators, and in all of these areas, we are below average for an industrialized nation.”  He contends that if the economic element of national power is neglected and misunderstood, nothing will be more dangerous to the Nation than the national debt and its unintended consequences for generations to come.  Last year government represented 25 percent of the economy, above the recent average of 21 percent. “But if we do not reform our existing entitlement programs and other aspects of government, it will represent about 40 percent of the economy by 2040, and that does not count state and local governments.”

He stated that the composition of the budget has changed dramatically in the last four decades.  “Forty years ago, it was dominated by defense at 42 percent.  Today, it is dominated by social insurance programs, which grow faster than inflation and grow faster than the economy even when the economy is growing. Forty years ago, when Congress came to town, they got to decide how 62 percent of the budget would be spent, of which today defense is about half of the discretionary budget.  Now they decide how about 38 percent gets spent, and if we continue on our status quo, do nothing, let-it-ride policy, it will go down to 18 percent by 2040.  This obviously is an imprudent and unsustainable course.”  He points out that if you count our unfunded Social Security and Medicare debt, our total debt is $62 trillion, not the $14 trillion we hear about.  He states that if the total debt is taken into consideration, we are worse off than Spain,    and only three years away from becoming like Greece.  His arguments are alarming and are critical for policymakers and every citizen to understand.   In conclusion, he provides a common-sense approach to making the tough choices and changes we need to make before it’s too late to get our financial house in order.

In chapter two, John Morton traces the historical roots of the economy and its role in enabling the superpower status of the Nation.  Mr. Morton is a Distinguished Fellow and the Homeland Security Lead for the Project on National Security Reform. He is also the Strategic Advisor to DomesticPreparedness.com and a consultant to Gryphon Technologies. He states, “Today, America sustains that position primarily through two elements of its national power: its peerless military and its dollar currency, upon which the international monetary and economic system is largely based. A third element initially enabled that hegemony in the 1940s: the national economy—that is, the Nation’s industrial might. Much of that element is no longer present today.”  He presents a brilliant analysis of how American industry was the foundation of America’s becoming a superpower from the Civil War to the present day and how the alliance of government, science, industry, academe, and the military forged the national security establishment, later called the defense industrial base.  He proposes that the United States needs an economic grand strategy in order to continue America’s role in the world, which is based on its military and economic prowess and capability.

In chapter three, Keith Cooley explains his approach to an energy plan, which includes a grand strategy that, if enacted, will support the Nation’s future.  Mr. Cooley is Chief Executive Officer (CEO) of the advisory firm Principia, LLC.  He previously was President and CEO of NextEnergy, an accelerator for alternative energy businesses and technologies. He paraphrases the International Energy Association definition of energy security as simply “the assurance of the uninterrupted supply of energy at an affordable price, while respecting environmental concerns.” His chapter addresses the notion of energy security as national security from four points of view that are, in his opinion, strategic priorities:

  • Priority 1: creating strong civic, business, and political leadership to quickly implement needed changes that assure energy and national security for this country.
  • Priority 2: developing and sustaining an alternative energy capability
  • Priority 3: migrating to alternative (sometimes called “clean”) energy sources
  • Priority 4: widespread increased dependence on domestic energy efficiency

He states, that “no 21st-century economy can be secured without a steady supply of energy. Without adequate energy to power contemporary civilization, there is no security at all.”  He concludes by urging “action on energy security issues at the highest levels of government, industry, and civic engagement. We have many examples to draw lessons from both here and abroad that can inform our actions. But we must act; we must engage. It is the only path available for our survival.”

In chapter four, Louis Infante offers his approach to energy security.  Mr. Infante is the Executive Director, Government and Military, for Ricardo, Inc., an independent automotive engineering consulting company, where he is responsible for strategy development and enactment in the military and government markets.  He advocates a National Energy Security Initiative administered by the Department of Energy (DOE) and joined by every government department with responsibilities that will be affected by energy—in essence, practically all departments.”  He describes a specific model that the U. S. could use to manage the complexities of its entire energy system. “This initiative would include mechanisms to improve the research and development policymaking decisions and strategies to make them real.”  He recommends that “U.S. leadership must overcome barriers to establishment of a national policy on energy that prescribes an endgame and the plan to achieve it.”  He concludes that “the National Energy Security Initiative will provide the coordinating efforts in planning and technology R&D that can assure success in the redevelopment of the U.S. energy system. And it can start within DOD as a first application of success.”

In chapter five, Myra Howze Shiplett, Wendy Russell, Anne M. Khademian, and Lenora Peters Gant address the complex set of issues of whether a nation can be an economic or military superpower without a plan to ensure it has people with the right knowledge and capabilities throughout its society.  They point out, “In 2010, America was “ranked 12th in the number of 24- to 35-year-olds with college degrees . . . among 36 developed nations” compared to “sixth in post-secondary educational attainment in the world among 25- to 60-year-olds.” Also, a major problem is that “Nationwide, only about 70 percent of students earn their high school diplomas” with lower rates for minority students ? “only 57.8 percent of Hispanic, 53.4 percent of African American, and 49.3 percent of American Indian and Alaska Native students.”  They discuss the five steps needed for the “Architecture of the High School Educational Future” and a new kind of graduate education that will produce “practitioners/scholars” with the skill sets needed for public service.  They conclude that “A vibrant, growing economy that provides jobs for America’s citizens is an essential component of our national security. A critical success factor for such an economy is a well-educated workforce, equipped to deal with the complexities of the 21st century…The security of our nation demands this commitment.”

In chapter six, Carmen Medina explores the many issues that surround what it means to have innovation as a major element of a nation’s economy.  Carmen Medina retired from the Central Intelligence Agency (CIA) in February 2010 after over 30 years of service. Her last assignment was as Director of the Center for the Study of Intelligence (CSI), where she developed and managed CIA’s first agency-wide Lessons Learned Program. First, she explores some definitions of innovation: “technology-based that leads to new industries”, as opposed to “social innovation, which refers to changes in the way people behave,” as well as agricultural innovation, “defined as the application of knowledge of all types to achieve desired social and economic outcomes.”  She states that “The capacity for innovation has been the primary catalyst of U.S. economic growth. Indeed, capitalism essentially is built on innovation and the concept of creative destruction. Going forward, innovation will be even more critical to U.S. economic prosperity.”

She identifies a problem, stating “There is, however, no doubt that the U.S. capacity for innovation has declined in relative and absolute terms over the last 20 years or so.  Our standing has consistently declined.”  In addition, “the emergence of the BRIC economies—those of Brazil, Russia, India, and China—will fundamentally alter the world economic map by 2020.”  The conclusion of this chapter is that “It is probably impossible for the United States to have a robust economy and remain a superpower if its companies lose their ability to be innovative.

Very often, important White Papers, reports, and books are ignored by the mass news media, but this is one book that every elected official from the president down to local legislators should read.  The current situation is alarming, and we have a limited amount of time to address these issues if we want to stop our slide into becoming a third-world nation.  Manufacturing, innovation, energy security, and an educated citizenry are necessary to maintain freedom as a democratic republic.   As the report concludes, “To be successful in addressing a complex system, we need to integrate all major elements of national power: diplomatic, informational, military, economic, and so on… The entire world expects the United States to remain a leader. We cannot do this unless we are strong. And we cannot be strong unless we plan for and shape our future as a Nation with a sound economy.”

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