House Judiciary Committee Passes America Invents Act

April 26th, 2011

The House Judiciary Committee approved H.R. 1249, on Thursday, April 14, 2011, by a vote of 32-3, and the bill is expected to reach the House floor in May or June.

Like S. 23, the America Invents Act of 2011, which passed the Senate in March, this bill switches the United States to a first-to-file patent system and allows the U.S. Patent and Trademark Office to keep the fees it collects in order to address the backlog of hundreds of thousands of patents.  Amendments to strike the first-to-file provision and strengthen the grace period failed to pass in committee.

“Patent reform is an important key to our economic recovery and will help America invent its way back to prosperity,” Leahy said.  “Patent reform is supported by Democrats and Republicans alike, by the Obama administration and by businesses, industries and manufacturers across the spectrum.”

A large range of tech firms support the bill, including IBM, Microsoft and GE, as well as several large pharmaceutical companies.  Many small companies and independent inventors have complained the changes will reduce their incentives for innovation by favoring large corporations.

In his April issue of The Inventor’s Mentor, “First to File – Impact on the Small Inventor,” George Levy wrote, “The new law will recognize the first person who files as the legal inventor. Many analysts disagree with director Kappos and believe that it will encourage a rush to the patent office with half-baked inventions and poorly drafted applications and that it will hurt small inventors not supported by the legal and technical resources of large corporations.

Currently an invention cannot be patented if the inventor has publicly disclosed it more than 1 year earlier.  Public disclosure can occur by a public use, public sale, a publication, or a patent (MPEP2133).  If the disclosure is within the year, the inventor can still patent it in the U.S.  In contrast, most countries disqualify inventions immediately after publication.  This time interval called the “grace period” is of great benefit to small inventors who often need to refine their prototypes and test the market before they file.

The new law provides a much weaker grace period protection than the current law.  While it recognizes the first to file, it also states that a public disclosure within one year of the filing date does not count as prior art to the invention.

This provision allows the inventor to lock in his rights to the invention by issuing a defensive publication.  In doing so, he bars anyone else from patenting his invention – except himself.

Unfortunately, such a publication will prevent him from obtaining a patent in most other countries.  In the US, it will start the clock ticking and commit him to file within one year or lose all his rights.

In summary the inventor will have to make a choice:

  • Either to publish early and thereby commit himself to file within a year, losing his international rights and possibly tipping his competitors at a crucial time,
  • Or not to publish and risk being preceded by someone else at the patent office.

It will still be possible for him however, to divulge his invention to others without starting the one year clock, if he does it on a confidential basis. To protect himself, he should have a non-disclosure agreement and record his invention with a time stamp service such as mycreativeregistry.com

The loss of the grace period will significantly impact the small inventor. It is extremely important for inventor associations to lobby their congressional representatives to maintain a strong grace period.”

After passage of the Senate bill, Adrian Pelkus, President of the San Diego Inventors Forum, emailed me the following comments, “This is a game changer for American inventors and the entire entrepreneurial system.  I accept Mr. Kappos reasoning that proving who was first to invent is hardly ever an issue.   I am glad to see the $ stay in the USPTO for much needed improvements! It is the one-year grace year period that is the deal killer.

Here is what I imagine, expect and worry about:  China will bring our ideas to market faster than we can, killing U. S. startups.  Investors leery of this new exposure risk will find safer bets depriving our country the chance to grow new jobs from new products and ideas.  Those that stay in the “Angel” investment game will demand much more (expensive) competitive research and FTO letters more than ever.  Universities may stop publishing research because someone can beat them to the Patent office.  Every student presenting a poster or paper will have to file for a patent to protect their idea?  Startups will have to fully develop their technologies before filing.  What’s the use of continuations if another company can see your path and jump to your next conclusion?  Or even filing if you know a company with more resources can see what you are doing and can out develop you.

Patent filing will become a corporate venture game to beat one another using software that auto generates patent filings based on mined information made public.  So, companies with big $ will have the advantage over startups.  Corporations will have an overwhelming advantage in the process over individuals.

Typically people invent an idea, put some private $ in to develop it to where it is presentable with minimal patents/pending to raise more $ to finish the Design for Manufacturing (DFM), patents, marketing, and launch the product.

Having to raise all the R&D and launch $ at once is an oxymoron.  Just like SBIR grants goes in phases, so does private R&D investment in startups.  Angels fund private R&D; the successes then go on to next round, DFM.   Great risks, great rewards.

Hindering this process because exposing the Intellectual Property too early gives away the opportunities that an investor comes aboard for in the first place is counterproductive to our countries goals of creating jobs. ”

I also received the following email from Gary F. Witting, a Registered Patent Attorney in Scottsdale, Arizona.  “I am writing this note in response to your article that came across my desk this morning.

I am very concerned about the state and future state of the manufacturing and research and development in the United States.  It truly bothers me watching our patent system, which was the best in the world, getting moved around by large powers in the name of harmonization with Europe.  One needs to consider how many sole, small inventors, and small businesses there are in Europe as compared with the United States.  Typically, there are very few sole and small inventors in Europe.  Also, one needs to consider, whether our recent business successes such as Apple, Google, Motorola, and the like would have been able to survive in the proposed intellectual property climate.”

In addition, Newton Ball, emailed me saying, “I am an inventor with more than twenty U.S. issued patents, and several active provisional applications. There is an element of U.S. Patent Law that is even more important to me, than “first to invent”.  Since 1984, Chinese patent law has imposed an obligation to manufacture on patent holders.  A “duty to manufacture” was part of the English law that was the basis for the U. S. early patent law.  Sadly, to the detriment of small U.S. manufacturers, this duty has never been a part of U. S. patent law.  This means that large U. S. corporations are free to patent and shelve inventions, preventing U.S. manufacture and sale.  Several of my own inventions are in this “shelved” state.  I urge savingusmanufacturing.com to join me and my non-profit, Orbic Institute, in bringing this to the attention of the public and congress.  A simple no-cost change to patent law could bring a surge of new manufacturing in the U.S. of innovations, presently shelved.”

Sandy Rios, Vice President of Family-Pac Federal and a Fox News Contributor, commented in The Daily Caller Opinion, “America has always been a country of innovators. Within thirteen years of its first patent law, America had surpassed Great Britain in its number of annual inventions, even though Great Britain had a population twice as large. By 1865, the U.S. was churning out three times as many inventions as Great Britain… According to historians, it was no accident. As the Founding Fathers studied existing patent law, they discovered statutes that gave advantage only to the wealthy, not to the small entrepreneur. So they created a unique system that inventors have enjoyed for 250 years. It’s a first-to-invent system, not a first-to-file one. The first person to invent something gets the credit, not the first one to rush to a bureaucratic office and file a piece of paper.

Now Senator Patrick Leahy and the Obama administration, along with multi-national corporations, have a better idea. They want to change our system from a first-to-invent system to a first-to-file system. Under such a system, anyone who can co-opt the ideas of an inventor and pay the cash would be able to take the credit and reap the rewards. This would hurt inventors and give large corporations — and China — a leg up.

Currently, inventors are given a grace period to perfect their inventions and try to obtain financial backing. The new bill would replace that with a European-style post-grant challenge, which would force inventors to pay $20,000-30,000 every time they modify an invention.

The voices of Edison and Bell, Wright and Ford are crying out. Don’t put a stake in the heart of American innovation and job creation. Say “no!” to this patent reform bill.”

It’s not too late to contact your representative in Congress and urge them to vote no on this bill without amending it to strengthen the grace period to protect individual inventors and small businesses.

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Korea Free Trade Agreement – Beneficial or Harmful?

April 19th, 2011

The Korea Free Trade Agreement (KORUS), originally signed on June 30, 2007 is one of three FTAs that have been concluded but not yet implemented by Congress.  The other two are the Colombia FTA, signed on November 22, 2006 and the Panama FTA, signed on June 28, 2007.

Because of shared authorities on trade and differences of views between successive Congresses and presidents, these FTAs, struck with countries that the United States counts as friends and allies, have been stuck in a procedural no-man’s land between the White House and Congress.

On December 4, 2010, President Obama announced that he had obtained supplemental concessions from the South Korean government on autos significant enough to justify his decision to transmit an implementing bill to Congress. This gave KORUS renewed political life.

As the 112th Congress began, the new Speaker, John Boehner, said that the House intends to move on all three trade pacts.  On January 25, the House Ways and Means Committee held a hearing to consider all three FTAs, setting the stage for consideration of these agreements by Congress in the coming months.

The agreement is an integral part of the President Obama’s efforts to increase opportunities for U.S. businesses, farmers and workers through improved access for their products and services in foreign markets and supports the President’s National Export Initiative goal of doubling of U.S. exports in five years.

According to the Fact Sheet by the U.S. International Trade Commission (ITC), the agreement will promote the further integration of the U.S. and Korean economies and enhance the competitiveness of U.S. businesses in the world’s 12th largest economy.  The agreement is an important demonstration of the Administration’s advancement of free and fair trade and will complement the Obama Administration’s efforts to expand business opportunities for the United States in Asia, including through such initiatives as the Trans Pacific Partnership.  The estimated tariff cuts alone in the U.S.-Korea trade agreement will increase exports of American goods by $10 billion to $11 billion.  The Agreement would eliminate tariffs on over 95 percent of industrial and consumer goods within five years.

The U.S.-Korea trade agreement will open Korea’s $560 billion services market to highly competitive American companies – supporting jobs for American workers in sectors ranging from delivery and telecommunications services to education and health care services.

The U.S-Korea trade agreement creates new opportunities for U.S. manufacturers seeking to export to Korea in two ways: first, it eliminates tariffs, or duties, charged when U.S. exports come into Korea; and it addresses non-tariff barriers to U.S. exports – whether by eliminating barriers that are in place today, or by establishing a framework to prevent non-tariff barriers from arising in the future.  Under the agreement, U.S. exports of aerospace, automotive, consumer goods, electrical/electronic goods, metals, scientific equipment, and shipping and transportation equipment will gain duty-free access to the Korean market.  Beyond tariffs, the agreement establishes strong new rules on how Korea will develop regulations applied to U.S. exports, and contains state-of-the-art protections on intellectual property rights (IPRs).

The U.S.-Korea trade agreement creates new opportunities for U.S. farmers, ranchers and food processors seeking to export to Korea’s 49 million consumers, giving American agricultural producers more market access in two ways – by getting rid of tariffs charged when U.S. exports come into Korea, and by laying out a framework to tackle other barriers to U.S. exports –even those that might arise in the future.  Tariff eliminations on Korea’s existing 40 percent tariff will further boost beef exports, saving an estimated $1,300 per ton of beef imported to Korea – savings that would total $90 million annually for U.S. beef producers at current sales levels.

The U.S.-Korea agreement expands U.S. firms’ access to the $100 billion Korean government procurement market, creating new opportunities for exporters, and ensuring that U.S. firms will get to bid on contracts on a level playing field with Korean firms. At the same time, the agreement’s government procurement rules ensure that certain American business sectors – such as small businesses or textile companies bidding on Department of Defense procurement – do not face foreign competition for key government contracts here at home.

The agreement’s procurement obligations also maintain American environmental and labor safeguards.  The Korean government will be held to the same level of accountability for meeting labor commitments as it is for meeting other commitments in the agreement.  Under the agreement, the Korean government – which has already demonstrated a significant commitment to environmental protections – will be held to the same level of accountability for meeting environmental commitments as it is for meeting other commitments in the agreement.

This all sounds great, but the “devil is in the details.”  In the February 18, 2011 issue, Richard McCormack, publisher of the Manufacturing & Technology News, wrote, “If American are interested in determining on their own if the Korea Free Trade Agreement will benefit he U. S. economy (and their own job prospects) good luck!   He quoted a few paragraphs from the six-page addendum released by U. S. Trade Representative Ron Kirk on February 10, 2011 as an example of how incomprehensibly worded this agreement is written.  Check it out for yourself at http:www.ustr.gov/webtm_send/2557.

According to research by the Economic Policy Institute, KORUS  “will increase the U. S. trade deficit by about $16.7 billion and displace about 159,000 American jobs within the first seven after it takes effect.”  Robert E. Scott noted, “The USIT has a history of vastly underestimating the negative impacts that free trade agreements have on the U. S. economy.  In 1999, it estimated that China’s entry into the World Trade Organization would increase the U. S. trade deficit with Chin by only $1.0 billion, and have no significant impact on U. S. employment.  In fact, the U. S. trade deficit with China increased by $185 billion between 2001 (when China entered the WTO) and 2008, and 2.4 million U. S. jobs have been displaced or lost.”

The following list details the reasons why the publisher and staff writers of the Economy in Crisis website opine that this trade agreement would be disastrous for America:

  • It will dramatically export more American jobs and increase our trade deficit.
  • Korea will gain unhindered liberties to change U.S. laws; even prevailing wage laws can be challenged.
  • The U.S. government will lose the ability to regulate the American banking industry as the agreement was negotiated before the financial collapse of 2008.
  • The Korean FTA will allow foreign monopolies to take over U.S. industries, making any laws ore regulations that would stop companies from becoming monopolies illegal. This will make preventing foreign takeovers impossible.
  • Korea will be able to insource low-wage jobs to the U.S., but American companies will NOT get the same access to South Korea.
  • American textile industry will be rendered uncompetitive.
  • The U.S. beef industry will continue to diminish as Korea will not accept our beef, but will have unrestricted access to ship their beef to us.
  • More unchecked contaminated food will legally enter the U.S. – and we won’t be able to stop it.  Korus will put limits on our ability to check food imports.
  • ”Buy American” food support will become illegal. .
  • South Korea will still use barriers that the U.S. does not, continuing their Value-added Tax of 10 percent that will act as a tariff.
  • Korean companies will have right to sue the United States for lost profits, but U. S. companies will not have their right.
  • There is nothing in the Korean FTA to stop South Korea’s currency manipulating practices, which are presently prevalent.

The Coalition for a Prosperous America concurs with the above reasons and outlines a few more reasons for opposing KORUS:

1.      Currency:  South Korea has a history as a currency manipulator.  The trade deal does nothing to prevent a return to massive undervaluation of the “won” which taxes our exports and subsidizes their imports.

2.      Trans-shipping from China/35% Rule of Origin:  Korus requires only 35% of a product to be made in South Korea to be allowed into the U. S. with lower tariffs.  China is Korea’s biggest trading partner.  We will see tremendous volumes of Chinese goods shipped through Korea to the U.S. with nearly two-thirds made in China.

3.      Eroding U.S. Trade Laws:  The KORUS FTA slows the Korean government several avenues to weaken U. S. trade law enforcement when domestic industries seek a remedy for foreign unfair trade practices, including countervailing duties and anti-dumping duties.

“The nine members of the House Trade Working Group released a statement condemning the South Korea Free Trade Agreement (KORUS), in opposition to Republican and presidential support for the disastrous deal.  Rep. Mike Michaud (D-ME) called the proposed deal a “fundamentally flawed trade agreement that will cost us jobs in the United States.”  “The war on the middle class continues. Its greatest battle of 2011 will be the Korea free trade agreement,” said Rep. Brad Sherman (D-CA).  Sens. Susan Collins and Olympia Snowe, both Republicans from Maine, have also refused to sign on to a letter demanding the USTR present Congress with a treaty to vote upon, citing various concerns.”

As bipartisan opposition begins to coalesce against this failed trade deal, other Senate Republicans have threatened to block the nomination of a new Commerce Secretary until KORUS is approved.  Members of the House Working Trade Group have pledged to begin an education campaign to sway their colleagues, but this alone may not be enough.

Staff writer Sam Williford, wrote “We need fair trade agreements that correct America’s trade imbalance as well as protecting the rights of workers and the environment. This agreement is clearly unfair, especially with respect to automobiles.  The U.S. would be allowed to export up to 75,000 a year to South Korea compared to the more than half a million South Korea exports here.  By way of comparison, in 2007, the U.S. sold 7,000 American vehicles in South Korea, or less than one percent of the entire market.  South Korean automakers, on the other hand, sold 615,000 vehicles in the U.S. that same year.  Korea has only 48 million people – the U.S. has over 300 million.  It would not be possible to have anything but a massive trade imbalance with this country.  In addition, KORUS does nothing about South Korea’s value-added tax, or government policy to audit anyone who buys an American vehicle.”

Free trade agreements that increase exports for certain industries and increase imports far more for other industries are not the answer.  Instead of another trade agreement that makes no sense for America, we need a national trade and economy strategy.

In his book, Free Trade Doesn’t Work, What Should Replace It and Why, Ian Fletcher stated, “It has been estimated that every billion dollars of trade deficit costs American about 9,000 jobs.  After losing 5.5 million manufacturing jobs since the year 2000, we can’t afford to lose that many more through another bad trade agreement.

Take action against the U. S.- Korea Free Trade Agreement today!  Our elected representatives need to be held accountable for how they vote. Contact your representative in Congress and let them know they can’t count on your vote if they continue to approve job-killing “free” trade deals!

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The Importance and Promise of American Manufacturing

April 12th, 2011

At a time when most economic news articles are on the negative side, it’s refreshing to read a report that corroborates the “why” portion of my book, Can American Manufacturing be saved?  Why we should and how we can.  Last week, the Center for American Progress released a report titled, “The Importance and Promise of American Manufacturing, Why It Matters if We Make It in America and Where We Stand Today,” co-authored by Michael Ettlinger and Kate Gordon.   The 41 page report is filled with interesting charts and graphs and can be downloaded at www.americanprogress.org.   The Center for American Progress is a nonpartisan research and educational institute dedicated to promoting a strong, just and free America that ensures opportunity for all.

The authors echo what I have been saying – “Manufacturing is critically important to the American economy.  For generations, the strength of our country rested on the power of our factory floors—both the machines and the men and women who worked them.  We need manufacturing to continue to be bedrock of strength for generations to come … The strength or weakness of American manufacturing carries implications for the entire economy, our national security, and the well-being of all Americans.”

The Executive Summary states that supplying our own needs through a strong domestic manufacturing sector protects us from international economic and political disruptions, but most importantly our national security where the risk of a weak manufacturing capability is obvious.   Over reliance on imports and high manufacturing trade deficits make us vulnerable to everything from exchange rate fluctuations to trade embargoes to natural disasters.   The authors conclude that American manufacturing is not too far gone to save, and  that while manufacturing in the United States is under threat, and faces serious challenges, it is by no means a mere relic of the past.  It is a vibrant, large sector of our economy—even if sometimes it’s hard to see that as manufacturing jobs are lost, as factories close, and as sections of the country deindustrialize.

The purpose of the report is to examine where the United States remains competitive in manufacturing at home and abroad.   The authors began by detailing why manufacturing remains so important to our economy, our society, our national security, and our ability to remain the world’s science and innovation leader in the 21st century.  Then it looks at our domestic manufacturing base and our top manufacturing export sectors to gauge where U.S. manufacturing remains competitive.  The report does not outline a manufacturing policy agenda.

The authors state that the health and future of manufacturing in the United States matters, representing 12 percent of the U.S. economy, and put that in perspective by commenting that when the United States recently lost less than 4 percent of its gross domestic product, or national income, the result was labeled the “Great Recession.”  They note that “the manufacturing sector also boasts an outsized importance that is understated by even that 12 percent.”  While the United States will never again dominate world manufacturing the way it did in the decades immediately following World War II and no country is likely to ever do so again, manufacturing is, can, and should remain an important part of our economic future.

The report states that one key reason manufacturing is so important is its position as the cornerstone of the success of many other economically important activities.  This role has been the subject of a longstanding debate as to whether the United States should hold onto its manufacturing sector or instead become a ‘postindustrial’ society.”  This debate started in the 1980s when Japanese goods started flooding the U.S. market.  Some economists argued then that America should move beyond competition for manufacturing jobs and adopt a new economic growth pattern based on service jobs in knowledge-based industries.  These economists argued that just as the United States shifted away from agriculture and into industry, so should it shift from industry into services as the primary source of economic activity for the future.

The authors point out that a strong manufacturing sector does not come at the cost of a strong service sector—each manufacturing job actually supports multiple jobs in other sectors.  “As economists Stephen Cohen and John Zysman wrote in the late 1980s, the manufacturing sector does not just include the group of employees who work  n the factory floor. Instead, the manufacturing sector has “direct linkages” to high-level service jobs throughout the economy: product and process engineering, design, operations and maintenance, transportation, testing, and lab work, as well as sector-specific payroll, accounting, and legal work.”

As an example, they note that motor vehicle manufacturing now creates 8.6 indirect jobs for each direct job. Computer manufacturing creates 5.6 indirect jobs and steel product manufacturing creates 10.3 indirect jobs for each direct job (Authors’ calculation of Bureau of Labor Statistics, “Employment Requirements Matrix: Chain-Weighted Real Domestic Employment Requirements Table, 2008.” Downloaded March 2, 2011)

They conclude that when shop floor manufacturing jobs depart, other jobs go with them—and with those jobs go the ability to create and innovate.  Declines in the U.S. manufacturing sector mean declines in our nation’s overall “industrial commons”—a set of related industries and activities including those in the highly prized knowledge-based economy.  According to Harvard economist Gary Pisano, when manufacturing moves overseas so does this industrial commons, meaning that we lose not only production prowess but also the process innovation that comes from collocating research and development, design, engineering, and manufacturing.

“In addition to undermining the ability of the United States to manufacture high tech products, the erosion of the industrial commons has seriously damaged the country’s ability to invent new ones,” writes Pisano in a recent Harvard Business Journal online debate.  With the loss of the commons and the jobs comes a decline in U.S. workforce skills and the ability to invent and innovate that can only come from the hands-on experience of working in an industry.  The upshot: If we lose our ability to make things, we may well lose our ability to invent them.  (Robert H. Hayes, “Outsourcing Is High Tech’s Subprime-Mortgage Fiasco,” Harvard Business Review, October 7, 2009,  http://blogs.hbr.org/hbr/restoring-american-competitiveness/2009/10/outsourcing-is-high-techs-subprime.html.)

The authors state that there is strong anecdotal evidence that if we cede production on a process invented in the United States then we may lose future iterations of innovation of that process.   They cite solar panels as one example.  Invented in New Jersey at Bell Laboratories in 1954, the production of solar photovoltaic panels has largely moved overseas (China is currently the world’s largest producer), and most new innovations in panel production, such as process improvements that make the panels far more powerful by altering their electrical properties, are happening outside of our nation.  (Kevin Bullis, “Solar’s Great Leap Forward,” MIT Technology Review, July/August 2010, available at http://www.technologyreview.com/energy/25565/5)

They cite a recent set of studies by Carnegie Mellon University engineering professor Erica Fuch, who examined the impact of offshoring production on technological innovation. Her key finding:  When optoelectronics companies offshored production of their original designs to, for instance, Asia, they tended to produce those initial designs cheaply and efficiently.  When these firms then began work on new and improved designs, however, they tended to lose valuable time and knowledge if their operations were off shore.  (Erica Fuchs and Randolph Kirchain, “Design for Location? The Impact of Manufacturing Offshore on Technology Competitiveness in the Optoelectronics Industry,” Management Science 56 (12) (2010):2323–2349, available at http://mansci.journal.informs.org/cgi/content/abstract/56/12/2323

They conclude that “moving manufacturing overseas impeded the companies’ ability to compete and keep at the forefront of design and production and to efficiently push forward new technologies.  These companies will follow other manufacturers who have shifted design and innovation closer to their physical operations— witness the photovoltaic manufacturing industry.”  They note that “Fuchs’s findings are critical not only to the question of why basing manufacturing in the United States matters but also to the analysis of what kinds of policies might best support the types of manufacturing that will ultimately put our nation in the best economic position.  Fuchs’s research shows that when you’re talking about the United States, manufacturing does matter, but advanced and cutting-edge manufacturing matters even more.  When such manufacturing leaves, it takes much more than the factory floor jobs—as important as those may be—it takes technology, innovation, and the next generation of products with it.”

The authors point out that offshoring and outsourcing can grow as parts of different manufacturing supply chains develop elsewhere.  U.S. companies that supply these manufacturing operations offshore find it more and more advantageous to go where their factories are, which is why industries can get slowly hollowed out as other countries become the central places of production.  “The United States risks being relegated to the periphery, which in turn would hurt our capacities at innovation and thus threaten our innovation and technology leadership.  Remaining capacity can hang on for a while but the leadership, the concentration of wisdom, and skill slips away—and once gone is hard to recapture.”

They note that whether the United States still dominates manufacturing as it once did is a different question than whether U.S. manufacturing can compete.  U.S. manufacturers are successfully making and selling their goods on a massive scale.  One reason is that we are the biggest-consuming country in the world, and “one could argue that as a result we cannot avoid being a large manufacturer.  There are enough products that are expensive or difficult enough to ship that it’s hard to avoid making them here.  There’s certainly truth to the story that some U.S. manufacturing succeeds because of this advantage.”

Part of how a business competes is being close to its customers so selling goods in a home market is nothing to be ashamed of.  However, there’s clearly more to U.S. manufacturing success than a captive market.  U.S. manufacturing is also a top exporter.  Proximity is a factor to the extent those exports are to Canada and Mexico as these two countries account for about a third of U.S. manufacturing exports.  But the United States was the third-largest exporter of manufactured goods in the world in 2009 and 2010, behind China and Germany.

The report shows that manufacturing in the U. S. covers a broad range of activities, but there are six large,  subsectors that account for the bulk of U.S. manufacturing.   The top six subsectors by value added are:

• Chemicals, including pharmaceuticals and other chemical products

• Transportation equipment, including, most prominently, automobiles and aircraft
• Food, which includes everything from steaks to potato chips
• Computer and electronic products, including semiconductors, lab equipment, and a host of other products
• Fabricated metal products, including a range of products from pre-fab sheds to I-beams
• Machinery, which includes goods such as air conditioning units and farm equipment

The report does not contain a detailed analysis of the competitiveness of U.S.-based manufacturing, but notes:

• Wage differences aren’t everything
• The overall cost differences between countries aren’t as large as they are sometimes made out to be
• Different industries care about different costs differently29
• Proximity to markets matters
• Proximity to research and management and resources also matters
• Skills matter

They conclude by stating that as “long as there is demand in the United States for manufactured goods as well as the innovators, manufacturing workers, and available capital necessary to remain competitive, manufacturing can continue to be important in the U.S. economy.  U.S. workers are nervous about taking jobs in industries that have seen declining employment.  Other countries offer enormous subsidies in a variety of ways. And we are not alone in being innovators—and have become much less welcoming to innovators from abroad who wish to live in the United States… President Obama’s focus on manufacturing and exports are welcome signs, as is the introduction of a new “Make It in America” agenda in Congress.  But this is an effort that’s going to take more than setting goals and one president’s focus…The United States needs to get into the game and find the right steps for us that will create an environment where a nation’s manufacturing sector can flourish and succeed—not just in selling here, but to the world.”  I heartily concur and have proposed many suggestions for steps to take to preserve American manufacturing in my book.

 

Posted in General, Outsourcing, Reshoring | No Comments »

Innovative Strategies — The Key to Success

March 29th, 2011

While the United States still leads world in innovation, American manufacturers are faced with doing more with less to compete in the global economy.  They must achieve higher productivity with fewer people and lower profits.  What can manufacturers do to survive, succeed and thrive in the intense global economy?

There are hundreds of books and articles with recommendations on how manufacturers can succeed and grow in the global economy.  Innovative strategies are key to success.  Let’s focus on the following three strategies:  purpose, process, and promotion.

Purpose – a clear vision of the reason for the existence of your company, an understanding of the need you are looking to fulfill and the solution, the Distinct Competitive Advantage (DCA) of company’s products or services, the target audience you are serving, and the internal business model and guiding principles of the company.

Process – adoption of Lean Manufacturing and Six Sigma principles that seek to eliminate waste through all aspects of the organization and process and focus on the production and delivery of products directly associated with customer orders.

Promotion  – use of most cost-effective and productive marketing and sales methods and channels to market

According to Michael Treacy’s book, “The Discipline of Market Leaders,” best in class companies must choose one of the three following types in order to be able to fully optimize key company support systems:

  1. Process Excellence Company – companies like McDonalds make their processes very efficient and consistent to survive or thrive.
  2. Innovative Leader Company (product leadership) – companies like Apple create innovative products like the iPhone and iPOD at a much faster rate than their competition in order to survive or thrive
  3. Customer Intimacy Company – companies that focus on being flexible to cultivate long time relationships with customers

How well a company performs, or even survives, depends upon how that company focuses on meeting the markets to which it is trying to sell.  As a manufacturers’ sales representative for over 25 years, I know how important marketing is to the growth and success of a company.  Businesses cannot succeed if they don’t meet the needs of the market.  Manufacturers often fail because they embrace a product-driven strategy instead of a market-driven strategy.  There’s an old story that if you build a better mousetrap, the world will beat a path to your door.  This isn’t true!  You first have to let the world know you have built a better mousetrap through marketing, and you have to make the product easily available to them through the right sales channels.

Most small to medium-sized manufacturers don’t put enough emphasis on marketing because they don’t really understand what marketing is and don’t have any marketing experience.  Most small to medium-sized companies can’t afford to have a marketing or sales manager.  The owner of the company tries to do sales at the same time he/she is managing the day-to-day activities of the company.

So what is marketing?  It is everything a business does to create customers for their product/services.  Everyone in the company is part of marketing, and marketing begins in the mind of customer.  A business should never stop marketing.  What’s in it For Me (WIFM) is a universal law of marketing.   There are no marketing rules that apply to every type of company, and there are no quick fixes or “magic pill” that will work for every company.  All marketing is a gamble – you can’t accurately predict the results.  There are three basic steps to effective marketing

  • Know your market
  • Know each possible way to reach market with persuasive message
  • Use methods that provide maximum results with minimum effort

Every company needs to address these three areas in some way, but any given company will need to focus on one or more of these methods in order to survive or thrive.   As Brian Tracy’s said in his book “The Discipline of Market Leaders” “No company can succeed today by trying to be all things to all people.”

You and your sales team need to be able to describe what it is about your product or service that is unique or different.  This is called your Differential or Unique Competitive Advantage (DCA).  In other words, the reasons why customers would want to buy or use your products or service.

You need to be able to describe your “business identity” in 25 words or less (called an  “Elevator speech”).   For example, my business is ElectroFab Sales, a manufacturers’ sales rep agency, and my business identity elevator speech is:  “We help companies select the right manufacturing processes to make parts for their products from the companies we represent.”  The key is to find a market in which your product and/or service can be a leader.

An effective DCA always develops out of an under filled or unfulfilled market need.  Examples of DCA thrusts are:

  • Cutting edge technology
  • Fills wide range of needs
  • Specialized know-how
  • Wide selection
  • Exclusive selection
  • Customization
  • Convenience
  • Speed (of service or product delivery)
  • On-going customer education
  • Service follow-up

If you are having trouble determining the DCA for your business, ask your customers questions about what they like best about you company’s products and/or services.  Ask them what they look for in a vendor/supplier and how they decide which company to choose.   Compare your products or services with those of your major competitors.   It would be helpful to have a consultant or someone outside of your company do a comparative matrix of your products or services.

If you still can’t determine your company’s DCA, you would be wise to hire a marketing consultant to help you identify what is unique about your company and its products and/or services.  You may even need help restructuring your company or redesigning your products to create a competitive advantage.  If you do not have a competitive advantage your sales people can easily describe, you are dead.

Once you have an accurate understanding of your target markets and have determined your DCA, then you can choose the best marketing methods to use.  The following are some of the best low-cost marketing methods:

  • Direct Mail Marketing  – flyers, letters, brochures, catalogs, CDs/DVDs
  • Internet Marketing (website, e brochures, e newsletters, videos, webinars)
  • Distributors
  • Sales Representatives
  • Strategic Partnerships – non-competing companies promote each other for percent of the action
  • Social networking (Linkedin, Facebook, Twitter)
  • Telemarketing
  • Trade Shows

The direct mail marketing methods of flyers, letters, brochures, and catalogs don’t work as well as they once did, and people don’t often take the time to view the newer CDs and DVDs.  A two to four minute video on a website has become more effective.

An Internet presence via a website has become crucial way to establish credibility as a company.  I am surprised I still meet entrepreneurs that don’t have a website and have a gmail mail or yahoo email address instead of one connected to a company website.  It’s well worth the money to have a website, even for very small companies or professional consultants.  Electronic brochures and newsletters can become effective tools to use if they are concise, easy to read, and contain useful information.  Even though attendance at trade shows has dropped in the last few years, there is no substitute for the opportunity to meet face-to-face with a prospective customer and have them see and touch your products or even see a live demonstration of how it works.  Telemarketing is most effective when it is used to make “warm” calls to follow up on show leads or keep in regular contact with regular customers and key prospects.  If you don’t have any idea how to utilize social networking for your company, there is an abundance of training available now to fit everyone’s schedule.

Today’s manufacturers must utilize innovative strategies to succeed and grow.  The days are gone when manufacturers could have equipment and people sitting idle.  American companies who provide the level of delivery, or quality, or customer service that got them by in the past will not survive, because customers can get that from Chinese vendors for a far lower price.  American manufactures are now in a struggle for their very survival.  The strategies covered in this article are based on an excerpt of the chapter in my book, Can American Manufacturing be Saved?  Why we should and how we can, on what manufacturers can do to not only “save themselves,” but also prosper and grow in the competitive global economy.

 

Michele Nash-Hoff is President of ElectroFab Sales and can be reached at michele@savingusmanufacturing.com

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Unintended Consequences of U. S. Environmental Protection Laws

March 22nd, 2011

One of the most difficult problems in bringing back manufacturing from offshore to “Reshoring” in the United States is the increasingly stringent environmental regulations being imposed at Federal and State level that adversely affect various sectors of the manufacturing industry.   The following describes some of the more stringent environmental regulations.

Clean Water:  As authorized by the Clean Water Act in 1972, the federal Environmental Protection Agency (EPA) oversees the National Pollutant Discharge Elimination System (NPDES) Regulations for Storm Water Discharges.  In most cases, the NPDES program is administered by authorized states.  Many states, such as California, have set up multiple water quality control regional boards that develop and administer specific regulations for their region.  The San Diego regional board issued 62 pages of new regulations in August 2002, for which compliance has been very onerous and expensive for manufacturers.  For example, rain water falling on a manufacturer’s parking lot must be monitored so that toxic pollutants, oil grease, waxes, chemicals, and visible floating materials are prevented from entering the storm drains on the property connecting to the municipal sewer system.

Hazardous Air Pollutants:  In 2005, the Federal Occupational Safety and Health Administration (OSHA) proposed standards to go in effect January 1st 2006, but Congress didn’t approve the new standards as stringently written.  The proposed standards would have reduced the allowed emissions for hexavalent chromium (a chemical compound used in the chrome plating process) to less than 1/50th of the allowable level (52 mg. of chromium per meter of air down to 1mg.)  The emission standard of 52 mg. that went into effect in 1998 was already a 97 percent reduction in hexavalent chromium emissions.  In May 2006, Congress finally approved slightly less stringent regulation of 5 mg. per cubic meter of air, which went in effect January 2007.

Metal plating, including chrome plating, is important to the electronics, machine equipment, defense, and automotive after-market sectors of manufacturing because every metal part that could corrode is nickel or chrome plated to keep it from corroding.  These new standards required existing chrome plating facilities to purchase new environmental control equipment in order to maintain compliance status.  Many large plating facilities converted to the more expensive, but less toxic trivalent chromium, which is suitable for some applications and certain thicknesses of plating.  The trivalent chromium process requires more careful control than the hexavalent chromium process and is more difficult to do in some applications such as barrel plating.

On June 12, 2008, the EPA issued final national air toxics standard for smaller-emitting sources in the plating and polishing industry applicable to cadmium, nickel, lead, manganese, and chromium.  The final rule affected an estimated 2,900 existing planting and polishing facilities.  These standards seriously affected the chrome plating industry nationwide and have accelerated the offshore outsourcing of products requiring chrome plating.

In San Diego County, six metal processors went out of business between 2007 and 2008, and one company closed down its chrome plating line prior to the stricter regulations going into effect.  Two companies moved their chrome plating across the border to Tijuana, Mexico so that there are now only two metal processors that do chrome plating, which has stretched lead times for locally fabricated metal parts that require chrome plating.  Of course, there is no border control for the flow of air so emissions in Tijuana affect the air quality in San Diego County.

Clean Air:  In September 2006, the federal EPA approved new national air quality standards that reduced the previous daily particulate matter standard by nearly 50 percent.  Particulate matter is fine particles such as soot, dust, and liquid droplets that are too small to see.  A new Maximum Achievable Control Technology (MACT) for hazardous waste combustors (boilers and incinerators) followed in 2008.  EPA will soon announce new draft rules aimed at slashing toxic air pollution emitted by power plants.

Electric utilities and manufacturers have objected to these new air quality regulations, saying that the new rules cost billions of dollars to implement.  William O’Keefe, CEO, George Marshall Institute, wrote “…the utility MACT will impose costs on utilities that far exceed air quality benefits…Forcing the utility industry to install the most expensive emissions reduction technologies will simply drive up the cost of electric power when it can least be afforded…That is not what we need as our economy struggles to recover from the worst recession in decades.”

A report released in 2007 by the National Association of Manufacturers  (NAM) stated “the domestic environment for manufacturers is dominated by concerns about rising external costs that make manufacturing from a U. S. base difficult.  These costs for corporate taxes, health care and pensions, regulation, natural gas, and tort litigation add more than 30 percent to manufacturers’ costs.”

In addition, the NAM report stated that the annual cost of complying with federal regulations is more than $10,000 per employee for manufacturers, while the cost is half that for non-manufacturers.  When companies are spending more money on regulatory compliance, materials, fuel and energy, they have less money for R & D, new product development, and purchase of capital equipment and systems.  This puts U. S. manufacturers at a substantial disadvantage compared to manufacturers in countries that aren’t subject to this degree of regulation.

On October 14, 2010, Joe Barton, Ranking Member of the Committee on Energy and Commerce and Michael Burgess, Ranking Member of the Subcommittee on Oversight and Investigations, wrote a letter to Lisa Jackson, Administrator of the U. S. Environment Protection Agency, expressing their concern over the cumulative impacts of new regulations being proposed by the EPA under the Clean Air Act (CAA).  The letter included a chart (51 pages), which identified approximately 40 proposed or final CAA regulations, including greenhouse gas regulations, revised air quality standards, and other regulator proposals under the CAA, as well as many regulations in the pre-proposal stages.   The letter stated, “At least eight of the proposed or final rules included have compliance costs estimated by EPA to exceed $1 billion each.  It appears that collectively the Administration’s new or proposed CAA regulations could impose billions of dollars of additional new costs annually on U. S. business as the new rules are implemented by your agency.”  A response was requested with regard to the accuracy of the compliance costs estimated included in the chart and if there were any other pending or proposed CAA regulations not included in the chart.

One of the unintended consequences of strict environmental protection laws and regulations in the United States that drives manufacturing offshore is the increased environmental pollution in other countries, such as China and India.  India and China have been getting more polluted in the last 30 years, as more and more U.S. manufacturing companies have outsourced to these countries.  Four cities in India and six cities in China are listed in the “Dirty 30” list of the worst polluted sites in the world, according to a 2007 report by the New York-based Blacksmith Institute.  The Institute’s “Top 10” list now includes four cities in China and two in India.  The Institute’s list is based on scoring criteria devised by an international panel that includes researchers from Johns Hopkins University, Harvard University, and Mt. Sinai Hospital in assessments of more than 400 polluted sites.  “Children are sick and dying in these polluted places, and it’s not rocket science to fix them,” said Richard Fuller, Blacksmith Institute’s founder and director.  The Institute highlights the health threats to children from industrial pollution, such as the stunting effect of lead poisoning on intellectual development.  Some 12 million people are affected in the top ten sites, according to the report.

One of the worst examples is Wanshan, China, termed the “Mercury Capital” of China, because more than the 60 percent of the country’s mercury deposits were discovered there.  Mercury contamination extends through the city’s air, surface water systems, and soils.  Concentrations in the soil range from 16 to 232 times the maximum national standard for mercury contamination. To put this into perspective, the mercury from one fluorescent bulb can pollute 6,000 gallons of water beyond safe levels for drinking, and it only takes one teaspoon of mercury to contaminate a 20-acre lake – forever.  The health hazards of mercury exposure include kidney and gastrointestinal damage, neurological damage, and birth defects.  Chronic exposure is fatal.

On June 19, 2007, the Netherlands Environment Assessment Agency announced that China’s carbon dioxide (CO2) emissions were seven percent higher by volume than the United States in 2006.  Many experts were skeptical, but on June 13, 2008, the same agency announced that a new study found that China’s emissions were 14 percent higher than those of the United States in 2007.  “The Chinese increase accounted for two-thirds of the growth in the year’s global greenhouse gas emissions, the study found.”  In addition, China is now the largest source of SO2 emissions in the world (SO2 causes acid rain), and.  Japan and South Korea suffer from acid rain produced by China’s coal-fired power plants and yellow dust storms that originate in the Gobi desert.

An article titled “Scientists Track Asian Pollution” in the September 4, 2008 issue of The News Tribune of Tacoma, Washington reported that the Journal of Geophysical Research that stated “East Asia pollution aerosols could impose far-reaching environmental impacts at continental, hemispheric and global scales because of long-range transport,” and “a warm conveyer belt lifts the pollutants into the upper troposphere over Asia, where winds can wing it to the United States in a week or less.”

Dan Jaffe, a professor of environment science at the University of Washington and a member of the National Academies of Science panel studying the issue, said,  “This pollution is distributed on average equally from Northern California to British Columbia.”  He added that “up to 30 percent of the mercury deposited in the United States from airborne sources comes from Asia, with the highest concentrations in Alaska and the Western states.”

What good does it do to control the quality of our air and water in the United States so strictly that we drive our manufacturing industry south of the border to Mexico or offshore to Asia where environmental regulations are either lax or nonexistent?  If people want strong environmental protection while retaining American jobs, we are going to have to analyze the cost of the environmental impact on American manufacturers and accept a reasonable compromise that doesn’t go overboard on environmental regulations that drive more and more manufacturing offshore.  Another option would be to assess an environmental impact fee on products imported based on the level of pollution in the country of origin as compared to that of the U. S.  The natural disasters of the past year, such as the Icelandic volcano, and the recent earthquake/tsunami in Japan have shown us that what happens to the environment in one part of the world affects the environment of other parts of the world.  While government takes the time to come to grips with this problem, you can prevent yourself from contributing to the world’s pollution by buying products made in America.  Remember, every product you buy made in China or India contributes to the world’s pollution.

Posted in General, Outsourcing, Taxes/Regulations | 2 Comments »

Is First to File Patent Reform Bill Right for America?

March 15th, 2011

The America Invents Act (S. 23), originally titled the Patent Reform Act of 2011, passed the Senate by a vote of 95 to five.  The bill’s author was Judiciary Committee Chairman Patrick Leahy (D-Vt.), and Chuck Grassley (Iowa) the Ranking Republican on the Judiciary Committee, and Orrin Hatch (R-Utah) were original co-sponsors of the bill.  An amendment to strip S. 23 of its troubling grace-period provision by striking the section of the bill containing the conversion of America’s first to invent patent priority system to a first to file patent system introduced by Sen. Diane Feinstein (D-Calif.) was defeated 87-13.

The first to file (FTF) provision eliminates the current first to invent filing system that goes back to the earliest beginnings of our nation.  The FTF transition would eliminate the current one-year grace period that allows inventors to prove they were first to invent within one year from the date of their invention. Retaining the current grace period and filing system received little attention as small inventors were largely left out of the previous Congressional hearings on patent reform in 2009 and 2010, and no hearings were held by the Judiciary Committee of the new Congress prior to vote on the Senate floor.

According to Patent and Trademark Office Director, David Kappos, the U. S. is already operating as a “first to file” patent system because in 2007, the total number of interference cases for all applications was seven, and only one interference claim involving a small or medium sized entity was decided based on priority alone – out of 441,637 patent granting decisions.  Interference cases are where two inventors file their patents nearly simultaneously and rely on the first to invent criteria during interference proceedings.

“Reforming the nation’s antiquated patent system will promote American innovation, create American jobs.  It will grow our economy,” Leahy said on the Senate floor.  President Obama praised the Senate action, saying “This long-overdue reform is vital to our ongoing efforts to modernize America’s patent laws and reduce the backlog of 700,000 patent applications – which won’t just increase transparency and certainty for inventors, entrepreneurs and businesses, but help grow our economy and create good jobs.”

The bill allows the Patent and Trademark Office (PTO) to determine fees and stops the practice of Congress diverting patent fees to the general Treasury to ensure that the office has the resources to hire more qualified examiners and modernize its computer systems.  Like a thief in the night, Congress raided the PTO fund and diverted $53 million of fees to other Congressional programs.  The new Congress hasn’t made any attempt to refund that amount to the PTO.  PTO funding is completely dependent on user fees paid to the PTO for patent and trademark applications, examinations, and maintenance.  Zero taxpayer dollars are used to fund the PTO, which means Congress is using resources paid by inventors and innovators on programs not related to the patent or trademark applications those inventors and innovators filed.  In addition to the $53 million stolen last year, over $750 million was stolen by Congress over the last 15 years.  (CONNECT Policy eNews 1.31.11)

When Director Kappos was in San Diego in May 2010, he told the San Diego Inventors Forum that they were hiring 300 more patent examiners in 2010 and planned to hire 1,000 more in the next two years to help reduce the backlog of 750,000 patent applications.  He said they were also providing training to the current 7,000 patent examiners to accelerate the processing of patent applications.

The bill creates a new micro-entity category that would allow fees to be reduced by 75 percent for inventors with five or fewer employees and fewer than five prior patent applications.  The PTO currently offers a 50 percent discount for small entities (under 500 employees) in virtually every fee category, which is further reduced by another 50 percent for small entities and independent inventors who use the electronic filing system.

Under the bill, the PTO could set up an expedited review program under which, for a higher fee, it would guarantee a final decision on an application within a year.  It now takes about three years, on average, for a patent application to be approved, and the office has such a backlog that it takes two years for examiners to begin work on a new application.

The legislation garnered a broad spectrum of support from pharmaceutical companies, large corporations such as IBM and Motorola, academic groups such as the Association of American Universities, and labor groups, including the AFL-CIO.  The Coalition for 21st Century Patent Reform, a group whose 50 members includes Caterpillar, General Electric, Eli Lilly, and Procter & Gamble, said “this legislation will make our national more competitive in the global marketplace.”

Independent inventors (individuals who are not part of corporations) had been anxiously watching the outcome of the proposed Patent Reform Acts of 2009 and 2010, in which the new process would be a first to file system in contrast to the current first to invent system.  The concern of independent inventors was that this bill would favor large companies who can afford to file applications for patents before vetting the new technology because it would alter patent law to effectively kill the grace period by conditioning it on early disclosure.  In other words, an inventor would have to publicly disclose the invention in order to trigger a grace period.  Startups and small business inventors do not publicly disclose the details of their inventions right after they are conceived because it would tip off competitors to essential details of their new technology.   The ability to secure a patent is critical for an inventor or startup company to be able to obtain licensing agreements or early stage investment funding by angel investors or venture capitalists.

Several groups representing inventors and small business have long campaigned against any provision that would weaken the legal mechanisms available to their members to assert their patents.   In December 2009, a group of organizations announced that they banded together to form the Small Business Coalition on Patent Legislation.  The Coalition is a national consortium of non-profit organizations representing and assisting early-stage startup companies, small businesses, individual and academic inventors, researchers, and new innovative market entrants who depend on patent protection.  The Coalition included San Diego’s CONNECT organization, the National Small Business Association (NSBA), IP Advocate, the American Innovators for Patent Reform (APIR), the National Association of Patent Practitioners (NAPP), the Professional Inventors Alliance USA (PIAUSA), and the United Inventors Association (UIA)

Ed Black, president and CEO of the Computer and Communications Industry Association, a trade group whose members include Google, Microsoft and Oracle, warned that excluding the post-grant review provisions could make “the current situation even worse for the tech industry.”  Sen. Mark Udall (D-Col.) one of the co-sponsors of the amendment said he would seek to include it in the final version of the bill negotiated by the reconciliation committee with the House bill that passes.

The Coalition for Patent Fairness, which represents high-tech companies, such as Apple, Google, Intel, Cisco, and Oracle had been a leading voice of dissent on the legislation and announced they would continue to work with Congress to address the concerns of America’s top innovators.

When the bill was first introduced by the new Congress in January, Timothy Tardibono, CONNECT’S Washington D.C. Office Director said, “The bill makes it harder for inventors to perfect their invention before filing while ignoring a major Supreme Court case that will further exacerbate the patent application backlog and pendency time.  There is no need to rush this bill through until it fully protects innovation instead of hurting innovation and killing job creation.”  This legislation he mentioned is Microsoft v. i4i patent infringement case, in which Microsoft is petitioning the U. S. Supreme Court to lower the standard needed to prove a patent invalid from the current standard of clean and convincing to preponderance of the evidence.

In a February 2, 2011opinion article in The Hill’s Congress Blog, U. S. business & Industry Council President, Kevin Kearns, and Research Fellow, Alan Tonelson, wrote, “The principal advocates of the Leahy bill are the governments of Europe and Japan – along with boosters in China and India.  They want the United States to ‘harmonize down’ to their inferior systems.  They and the bill have it backwards.  Advocates also include a handful of Big Tech transnational corporations that want to make easier and less costly the infringement of other’s patent rights.  Their business model has a unique name, ‘efficient infringement.’”

They also pointed out that the reforms of the Clinton era “doubled from 18 to 36 months the time required to process a patent, required the Patent Office to publish full patent applications on the Internet 18 months after filing – encouraging theft of American IP worldwide, and created a new post-grant challenge process to patent validity that can consume three or more years in bureaucratic proceedings inside the Patent Office.  As a result, individual inventors who received 15 percent or more of all U. S. patents before the Clinton reforms got barely 5 percent last year.”

The action now moves to the House, where Judiciary Committee Chairman Lamar Smith (R-Texas) has indicated that he plans to introduce a companion bill in the near future..

As a member of the steering committee of the San Diego Inventors Forum, I stand on the side of the individual inventor and small business owner and oppose the conversion to the first to file system.  Each month, our meeting is packed with 60 to 80 inventors and entrepreneurs with innovative ideas for new products and technologies.   These inventors need the protection of the first to invent system to be able to fully vet their technology before publicly disclosing it after filing for a patent.

Now is the time to express your opinion.  Contact your Congressional representative and let them know how you stand on the America Invents Act, especially whether you support or oppose the conversion from a first to invent to a first to file system.

Posted in General | 2 Comments »

ABCs ‘Made in America’ Series

March 8th, 2011

On Monday, February 28th, ABC began a series on the World News with Diane Sawyer called “Made in America.” John and Ana Ursy of Dallas, Texas agreed to accept the challenge of working with the ABC team of David Muir and Sharyn Alfonsi to furnish three rooms of their home exclusively with products that are made in America.  When the team examined everything that existed in these three rooms and removed all foreign-made products, the result was a virtually empty house – no beds, no tables, no chairs, no couches, no lamps.  Only the kitchen sink, a vase, a candle, and some pottery remained.

The questions posed by the team were:  Is buying American-made more expensive?  What staples are no longer manufactured in the U.S.?  And what difference would it make if everyone promised to buy more American-made products?

The results were somewhat surprising.  The kitchen was the most difficult because there are only a couple of companies still making major appliances in America:  Viking Products provided the stove, and Sub-Zero and Wolf provided the refrigerator, microwave, and oven.  They couldn’t find any coffee makers made in the U.S.; Bun-a-Matic assembled a coffee maker out of parts made offshore.  There are no TVs made in America and no light bulbs.  General Electric closed the last plant making incandescent light bulbs in the U. S. in July 2010.  The team was able to furnish the bedroom with all American-made furniture, lamps, and bedding for less money:  $1,699 compared to $1,758.   All in all, the team found more than 100 manufacturers still making various consumer goods in America, and viewers submitted names of many more.  You can view the companies on an interactive map of the USA.

When one of the ABC reporters, Sharyn Alfonsi, examined the toy box of her own child, she didn’t find any American-made toys in it, so the interactive website provides the names of some U. S. toy makers, such as Green Toys in San Francisco that makes toys from recycled milk bottles. There are six other California companies shown on the interactive map:  Pure-Rest Organics, making organic bedding in San Diego, Harveys Handbags in Santa Ana, Maglite Flashlights in Ontario, Danmer Custom Shutters in Los Angeles, Glass Darma, making handmade drinking straws in Ft. Bragg, and Sergio Lub Jewelry in Martinez.

Why does it matter if we buy American-made products?   First, our addiction to imports has helped create our high trade deficit, especially with China, where most of the consumer goods we import are manufactured.  In 1960, imported foreign goods made up just 8 percent of Americans’ purchases.  Today, nearly 60 percent of everything we buy is made overseas.  In 2010, our overall trade deficit was $97.8 billion, up from $374.9 billion in 2009 but nearly 30 percent below our highest deficit in 2008 of $698.8 billion.  Our trade deficit with China has grown from $ $83.8 billion in 2000 when China was granted Most Favored Nation status to a record high of $273 billion in 2010.

Second, American-made products create American jobs.  Each time you choose to buy an American-made product, you help save or create an American job.  There is a ripple effect in that every manufacturing job creates three to four other jobs while service jobs create only one to two other jobs.  We’ve lost 5.5 million manufacturing jobs since the year 2000, and the number of manufacturing jobs dropped below 12 million in 2010, down from a high of nearly 20 million in 1979.

You may be thinking, would what I do make a difference? American activist and author, Sonia Johnson said, “We must remember that one determined person can make a significant difference, and that a small group of determined people can change the course of history.”   Eleanor Roosevelt echoed this sentiment saying, “Never doubt that a small group of thoughtful, committed citizens can change world; indeed, it’s the only thing that ever has.”  Remember that our country was founded by a small group of people that did indeed change the world by forming the United States of America.

Here are suggestions of what each one of us can do:  First, look at the country of origin labels of goods when you go shopping.  Most imported goods are required to have these labels.  Many manufacturers have tried to get the Federal Trade Commission (FTC) to relax the rules determining what’s “Made in USA.”  After two years of public hearings, studies, and reports, in December 1997, the FTC reaffirmed:  A product will be considered Made in U.S.A. if “all or virtually all made in the Unites States” only where “all significant parts and processing that go into the product are of U. S. origin.”

Buy the “Made in U.S.A.” even if it costs more than the imported product.  It is a small sacrifice to make to insure the well being of your fellow Americans.  The price difference you pay for “Made in USA” products keeps other Americans working.  If the product you are looking for is no longer made in America, then avoid countries such as China that has the goal of becoming the world’s “super power” in the 21st Century by winning either an economic war or a military war with the U. S.  When you take our trade deficits with China into consideration, it would not be an exaggeration to say that American consumers have paid for the bulk of China’s military buildup.  American service men and women could one day face weapons mostly paid for by American consumers. Instead, patronize impoverished countries such as Bangladesh or Nicaragua, which have no military ambitions.

In addition, you would be reducing your “carbon footprint” by buying a product made in America instead of a product that is made offshore that will use a great deal of fossil fuel just to ship it to the United States.

If you have a “Made in USA” appliance that needs repair and all the new ones are imported, try to get it repaired.  If it can’t be fixed, and it is a small appliance that you can live without, then don’t buy a new one.  We Americans buy many things that we really don’t need just because they are so cheap.  If a product that you are considering purchasing is an import, ask yourself, “Do I really need this?”  If you don’t need it, then don’t buy it.

If you are willing to step out of your comfort zone, ask to speak to the department or store manager of your favorite store.  Tell the person that you have been a regular customer for x amount of time, but if they want to keep you as a customer, they need to start carrying some (or more) “Made in USA.” products.  If you buy products on line or from catalogs, you could contact these companies via email with a similar message.   Your contacting a company does have an effect because there is a rule of thumb in sales and marketing that one reported customer complaint equals 100 unreported complaints.

Buying American has been made even easier by a new guide to buying American – “How Americans Can Buy American:  The Power of Consumer Patriotism” first released in March 2008 and updated in 2010.  Author Roger Simmermaker says, “Supporting American companies leads to a more independent America.  Ownership equals control, and control equals independence.  We cannot claim to be an independent country or control our own destiny if our manufacturing base is under foreign ownership or foreign control.  A nation that cannot supply its own needs is not an independent nation.  If we are to claim independence from the rest of the world and truly be a sovereign nation, we must begin supplying our own needs once again.”

According to Simmermaker, “buying American” is not just about buying “Made in USA.”  “Buying American, in the purest sense of the term, means we would buy an American-made product, made by an American-owned company, with as high a domestic parts content within that product as possible…’American-made’ is good. ‘Buying American’ is much better!”

One of our greatest statesmen, Thomas Jefferson, stated, “I have come to a resolution myself, as I hope every good citizen will, never again to purchase any article of foreign manufacture which can be had of American make, be the difference of price what it may” (pg. 9 of Simmermaker’s book).

Simmermaker has made it easy by listing companies and their nation of ownership and view his list of American owned companies at his website: www.howtobuyamerican.com.    In addition here are some other websites.

www.buyamericanmart.com

www.madeinusa.org

www.americansworking.com

www.shopunionmade.org

www.MadeInUSAForever.com

As American consumers, you now have more American choices so you can live safely and have more peace of mind.  It’s high time to stop sending China our American dollars while they send us all of their tainted, hazardous, and disposable products.  If 200 million Americans refused to buy just $20 each of Chinese goods, that’s would be a four billion dollar trade imbalance resolved in our favor – fast!  In the ABC World News program, Diane Sawyer said, “if every American spent an extra $3.33 on U. S. -made goods, it would create almost 10,000 new jobs in this country.”   The ABC World News series “Made in America” continues with a look at the garment industry the week of March 7th.

Manufacturing jobs are the foundation of our middle class, and we are losing our middle class in state after state.  From December 2000 to December 2010, 22 states have lost a third or more of their manufacturing jobs.  Massachusetts, New York, and Ohio have lost 38 percent of their manufacturing jobs, New Jersey 39 percent, North Carolina 42 percent, Rhode Island 44 percent, and Michigan 48 percent.

We cannot afford to export our wealth by buying imports from China and finance our more than 10 years of deficits by borrowing an average of $1.553 billion every day.  We cannot lose our manufacturing base and be able to remain the world’s “superpower.”  In fact, we may not be able to maintain our freedom as a country because it takes considerable wealth to protect our freedom.

Remember, the company you save or the job you save by your actions may be your own.  More importantly, you can play a role as an individual in saving our country’s sovereignty by following the suggestions in this article.

Posted in Outsourcing, Reshoring, Trade Policy | 3 Comments »

Bringing Back Jobs from Offshore to Revive American Manufacturing

March 1st, 2011

There have been many recommendations of how to revive American manufacturing and create the jobs Americans need, but most job creation programs proposed by commentators, politicians and economists involve either increased government spending or reductions in employment or income taxes at a time of soaring budget deficits and decreased government revenue.  Other recommendations would require legislation to change policies on taxation, regulation, or trade that would be difficult to accomplish.  Many of these solutions involve borrowing money now, largely from China, or taking money from one group of citizens or a future generation to give to another.  Other programs call for Chinese currency revaluation or tariffs, which would help the manufacturing industry, but would increase consumer prices.

In contrast, the move to bring back manufacturing production to the United States, called Reshoring, has grown increasingly popular over the last few years.  Reshoring brings jobs directly back from offshore, often from the LLCCs (Low Labor Cost Countries) that have grown so rapidly over the last decades at the expense of American workers, American manufacturing companies, and the overall U.S. economy.  Higher transportation and fuel costs, escalating wage rates in developing countries like China, and serious, sometimes life threatening, quality problems with products made in China are providing added impetus to this trend.

Reshoring breaks out of the waiting-for-policy-decisions problem, the economic zero-sum-game and the increases in consumer prices and assures that the pie grows to the advantage of all Americans.  Reshoring also focuses on the manufacturing sector that has suffered so many job losses for decades and the Small-to-Medium Enterprises (SMEs) that offer the best potential for job growth.

To help accelerate this trend, there is a new initiative with a plan to efficiently reduce our imports, increase our “net exports” and regain manufacturing jobs in a non-protectionist manner.  The Reshoring Initiative was founded by Harry Moser, retired president of Agie Chamille LLC, a leading machine tool supplier in Lincolnshire, Illinois.  The Initiative shows how outsourcing within the United States can reduce a company’s Total Cost of Ownership (TCO) of purchased parts and tooling and offer a host of other benefits while bringing U.S. manufacturing jobs home.

The Initiative documents the benefits of sourcing in the United States for large manufacturers and helps suppliers convince their U.S. customers to source local.  Archstone Consulting’s 2009 survey showed that 60% of manufacturers use “rudimentary total cost models” and ignore 20% of the cost of offshoring.   If a manufacturer is not accounting for 20% of their costs to offshore, offshoring may not be the most economical decision.  In tough economic times and stiff global competition, no company can afford this.  To help companies make better sourcing decisions the Reshoring Initiative provides:

  • A free Total Cost of Ownership (TCO) software that helps manufacturers calculate the real offshoring impact on their P&L
  • Publicity to drive the reshoring trend
  • An online Library of 98 articles about successful Reshorings
  • Access to NTMA/PMA Contract Manufacturing Purchasing Fairs to help manufacturers find competitive U.S. sources.

Manufacturing companies can reshore to:

  • Reduce pipeline and surge inventory impacts on Just-in-time operations
  • Improve the quality and consistency of products
  • Cluster manufacturing near R&D facilities, enhancing innovation
  • Reduce Intellectual Property and regulatory compliance risk
  • Reduce total Cost of Ownership (TCO)

The Initiative has received increasing visibility and influence: recognition by Industry Week magazine via its 2010 Manufacturing Hall of Fame, inclusion of the TCO concept in Cong. Wolf’s (R VA) “Bring Jobs Back to America Act” (H.R.516); numerous webinars; dozens of industry articles; presentations in major industry and government policy conferences in Chicago and Washington, DC; and coverage by CBS, CNBC, WSJ, USATODAY and the Lean Nation radio show.

The Initiative is succeeding in changing OEMs’ behavior. Companies have committed to reshore after reading Initiative articles.  Fifty-seven representatives from large manufacturers and 113 custom U.S. manufacturers attended the May 12, 2010 NTMA/PMA Contract Manufacturing Purchasing Fair, where OEMs found competitive domestic suppliers to manufacture parts and tooling.  Sixty-four percent of the OEMs brought back to the U. S. at least some work that was currently offshored.

On the February 4, 2011, the Illinois Reshoring Initiative announced its program to apply the principles of the national Reshoring Initiative to revitalize Illinois manufacturing by reshoring to bring back many of the most desirable jobs that have been lost to decades of offshoring.  This industry-led initiative will utilize an integrated, measurable, five-step program to help large manufacturers and their local suppliers recognize the total P & L impact of offshoring and the benefits that both will obtain from reshoring.   The program features keynote speakers, Peter M. Perez, Deputy Assistant Secretary for Manufacturing, U. S. Department of Commerce’s International Trade Administration, and Harry Moser, founder of the national Reshoring Initiative.

Mr. Moser commented, “In the past manufacturing conferences have presented good ideas but offered few tools and no follow-up.  The Illinois Reshoring Initiative’s year-long program provides the TCO Estimator free to attendees and has 5 integrated steps that will assure that the good ideas are implemented and the results measured.”  The Illinois Reshoring Initiative Conference will be held 7:45 AM to 11 AM, March 16, 2011 at Wojcik Center, Harper College, Palatine, IL 60067.  To register for the conference go to http://illinoisreshore.eventbrite.com/.

The Reshoring Initiative www.reshorenow.org is supported by: the Association for Manufacturing Technology (AMT) www.amtonline.org; Sescoi, , www.sescoi.com/ ; GF AgieCharmilles, www.gfac.com/us; the Association for Manufacturing Excellence (AME)  www.AME.org,; the National Tooling and Machining Association (NTMA) www.ntma.org and by the Swiss Machine Tool Society (SMTS) www.smts.org . Additional information on the NTMA/PMA Purchasing Fairs can be found at www.purchasingfair.com.

 

Posted in Reshoring | 1 Comment »

How Accurate is the Federal Unemployment Rate?

February 22nd, 2011

Each month, the Bureau of Labor Statistics (BLS) of the U. S. Department of Labor sends out a press release announcing the total number of employed and unemployed persons in the United States for the previous month, along with many characteristics of such persons.  Many people think that the federal unemployment rate is derived by adding the total of claims filed for unemployment insurance benefits under State or Federal Government programs.  This isn’t the case.  Let’s examine how the unemployment rate is generated to see how accurate it is.

The January 2011 official unemployment rate was 9.0%, down from 9.4% in December, and a high of 10.2% in November 2009 during the Great Recession.  Some people claim that if the unemployment rate were calculated as it was during the Great Depression, the current rate would be close to double what it is and nearly as high as the rates back in the 1930s.  The problem with this claim is that there was no official unemployment rate until the 1940s.  The rates we use today for this era were reconstructed after the fact based on the work of three economists:  Stanley Lebergott, Michael Darby, and G. H. Moore.  Libergott included those on work-relief as unemployed while Darby did not.  Libergott and Darby agreed on an unemployment rate of 3.2% in 1929 rising to a high of 23.6% and 22.9% respectively in 1932.  After the work-relief programs began in 1934, their rates diverged to a peak in 1936 of 16.9% compared to 9.9%.  If you compare the two series, it appears that between 1934 and 1941, WPA projects took two to 3.5 million workers off the unemployment roles, and shaved the rate by 4 to 7 percentage points.

During the Great Depression, a number of ad hoc attempts were made to calculate the rate using various sampling methods, which led to widely divergent results.  In 1940, the Work Projects Administration (WPA) began publishing statistics on those working, those looking for work, and those doing something else based on a survey of a sample population.

In 1962, high unemployment and two recessions in three years led to the formation of The President’s Committee to Appraise Employment and Unemployment Statistics to reassess the concepts used in gathering labor-market data by the BLS.  The Committee suggested some improvements, and the BLS tested new survey techniques for several years, before making a number of changes in 1967.  The Committee also recognized the need for more detailed data on persons outside the labor force, and the BLS began collecting information on those who wanted a job although they were not looking for work.

Among the most important changes was the requirement that workers must have actively sought employment in the last four weeks in order to be classified as unemployment.

In 1976, the BLS first published the original U1 to U7 tables to provide more information on the hidden unemployed, who would be part of the labor force in a full-employment scenario.   These tables were revised in the 1994 redesign (becoming U1 to U6) and added the requirement that discouraged workers must have sought work in the prior year.

U1:  Percentage of labor force unemployed 15 weeks or longer.

U2:  Percentage of labor force that lost jobs or completed temporary work.

U3:  Official unemployment rate that is the proportion of the civilian labor force that is unemployed but actively seeking employment.

U4:  U3 rate + “discouraged workers who have stopped looking for work.

U5:  U4 rate + other “marginally attached workers” who would like and are able to work, but have not looked for work recently.

U6:  U5 rate + part-time workers who want to work full time, but cannot due to economic reasons.

These unemployment rates are derived from a monthly survey of 60,000 households known as the Current Population Survey (CPS).  The CPS sample is selected to be representative of the entire population of the U. S.  All of the counties and county-equivalent cities in the country are grouped into 2,025 geographic areas (sampling units), and the Census Bureau then designs and selects a sample consisting of 824 of these geographic areas to represent each state and the District of Columbia.  The sample is a State-based design and reflects urban and rural areas, different types of industrial and farming areas, and the major geographic divisions of each state.  This mix of geographic areas to represent each state is important because there is a wide range of unemployment rates from state to state.  For example, North Dakota had the lowest rate for December 2010 at 3.8%, while Nevada had the highest rate at 14.5%, with California not far behind at 12.5%.

Every month, 25% of the households in the sample are changed, so that no household is interviewed more than four consecutive months.  After a household is interviewed for four consecutive months, it leaves the sample for eight months, and then is interviewed for the same four calendar months a year later, before leaving the sample for good.  This procedure results in approximately 75 percent of the sample remaining the same from month to month and 50 percent from year to year.

Each month, 2,200 Census Bureau employees pose questions regarding whether individuals in the home have a job or if they are laid off.  Other questions query whether the persons are available for work, and the techniques they have used to look for work in the preceding month.  At the time of the first household interview, the interviewer prepares a roster of the household members, including their personal characteristics, date of birth, sex, race, marital status, education, and so on, and their relationships to the head of household.  The interviewers don’t decide on the respondents’ labor force classification.  They simply ask the questions in the prescribed way and record the answers.  Based on information collected in the survey and definitions programmed into the computer, individuals are then classified as employed, unemployed, or not in the labor force.

This information is then compared as a percentage to the number of people in the labor force, which consists of all persons employed or unemployed over the age of 15 and not on active duty in the Armed Forces or in an institution (correctional facility, residential nursing, or mental health care facility.)

The information collected is adjusted to account for independent population estimates across the entire nation.  These adjustments take into account factors such as state of residence, sex, age, and race.  The rate is calculated by dividing the total of the civilian labor force by the number of unemployed to get the percentage of unemployed.  The BLS releases the data collected on the first Friday of each month as the national unemployment rate.

Is it possible to skew the numbers to make the unemployment rate look better than it really is?  Yes, and there are two main ways to do it:  (1) select the geographic areas that have the lowest rate of unemployment as your sample to come up with a lower number of unemployed persons or (2) lower the number representing the total of the civilian labor force so that you get a lower percentage when dividing that number by the number of unemployed.   In addition, methods one and two could be combined.

It’s widely understood that it takes about 200,000 new jobs each month to stay even with the workers entering the labor force.  Economists say that it takes the creation of about 3,000,000 jobs to lower the unemployment by a full percentage point.  They also say that you need 5% GDP growth to lower the rate by a full percentage point.  Neither of these occurred in 2010.  The national GDP growth was only 2.8% for 2010 and is predicted to grow by only 3.5% in 2011.  Less than a million new jobs were created last year.  Separate government data shows that only 36,000 net jobs were created in January, barely a quarter of the number needed to keep pace with population growth.  Taking this into consideration, does it seem real that the official U3 unemployment rate dropped by .4 percent this January from 9.4% to 9.0%?  Remember, this is the same administration that directed the BLS to stop producing the jobs in manufacturing chart last March when the number of manufacturing jobs dropped below twelve million.

What did happen was that 2.2 million left the labor force in the past year, meaning that there was a lower number to use as the numerator for dividing the number of unemployed to get the unemployment percentage.   These are people who have given up looking for a job.  The real unemployment rate is the U6 rate that includes the “discouraged workers” and workers with a part-time job that want a full-time job.  The U6 rate on the BLS website for January is 16.1%.

According to a Gallup poll released on February 12th, the U. S. unemployment rate is 10.2%, and the underemployed rate (equivalent to the U6 rate) is 19.7%, rounded off to 20% on the Gallup website.  Another recent Gallup poll shows that 35% of Americans feel unemployment is the biggest challenge facing the nation right now.

Involuntary unemployment has devastating effects on American workers and their families.  Long-term unemployment leads to depression and despair to illness.  Loss of American employment decreases household wealth, reducing consumption of locally manufactured goods, which further stifles job creation.  Joblessness, homelessness, and hopelessness are the end result.

We need a plan to rebuild America to create the jobs Americans need.  The Reshoring Initiative is a good start to bring manufacturing work back to the United States from offshore to create more higher paying jobs for Americans.  Only then will the unemployment rate truly drop, and local, state, and budget deficits will begin to diminish.

Posted in General | 2 Comments »

Why Isn’t Economic Upturn Leading to Job Gain?

February 15th, 2011

According to the National Bureau of Economic Research, and independent group of economists, the Great Recession ended in June 2009.  It was the longest and deepest downturn for the U. S. economy since the Great Depression.  Some 20 months later, the average American would be inclined to dispute this opinion based on the lack of job opportunities.  What is the reality?

The January 2011 “Report on Business,” by the Institute for Supply Management stated that the manufacturing sector expanded for the 18th consecutive month.  Norbert J. Orwe, CPSM, chair of the Manufacturing Business Survey Committee said, “The manufacturing sector grew at a faster rate in January as the PMI registered 60.8 percent, which is its highest level since May 2004 when the index registered 61.4 percent…New orders and production continue to be strong, and employment rose above 60 percent for the first time since May 2004.”  This wasn’t just an upturn in a few industries – 14 of the 18 manufacturing industries reported growth in the PMI in January.

The PMI is the Purchasing Management Index, based on data compiled from purchasing and supply executives nationwide.  A PMI reading above 50% indicates that the manufacturing economy is expanding and below 50% indicates that it is declining.  At the very worst of the Great Recession, it was 32.5% in December of 2008.  Lakshman Achuthan, managing director of Economic Cycle Research Institute said, “Gross domestic product has recovered about 70% of its pre-recession level.”

While the national unemployment rate finally dropped to 9.0% in January from 9.4% in December, many experts realize that this is because thousands of men and women dropped off the unemployment rolls when the last of the extensions of up to 99 months ended in December. The U6 unemployment rate that takes into account the people that have lost their unemployment benefits or taken part-time jobs while seeking full-time employment is 16.1%.  This reflects the growing difficulty of increasing jobs of any type in today’s competitive global economy.

Gregory Tassey, Sr. Economist at the National Institute of Standards and Technology commented in a paper titled Rationales and Mechanisms for Revitalizing U. S. Manufacturing R&D Strategies, “For the first seven recessions after World War II, the relatively closed status of the U. S. economy meant that average employment recovery was swift and substantial (about four months to positive employment levels relative to the recession trough).  In the late 1980s, however, the growing global competition began to promote greater investment in addition to accelerated outsourcing.  The result was the 19 months elapsed before a positive employment level was attained.  This significant slowing of the cyclical rebound in employment was dwarfed by the extremely slow recovery in employment from the 2000-2001 recession, which required 30 months to reach a positive employment level relative to the recession trough.”

Why have the last two recessions resulted in “jobless recoveries?”  What is keeping unemployment so high now?  One of the main reasons is the loss of manufacturing jobs.  Too many manufacturers are sourcing all or most of their manufacturing offshore.  An upturn in their business doesn’t mean more manufacturing jobs for Americans if they aren’t producing or buying everything for their products in the United States.  Since 2001, we have lost 63% of the U. S. textile industry and 74% of the U. S. printed circuit board industry.  We have lost 47% of communication equipment jobs and 43% of motor vehicle and parts industry jobs.

Since manufacturing jobs create three to four other jobs, the loss of each manufacturing job causes the loss of three to four other jobs.  Our nationwide loss of jobs in all sectors won’t reverse until we stop the hemorrhaging of manufacturing jobs out of the United States.

In addition, manufacturers are doing more with less for three main reasons.  First, the United States ranks highest in productivity as measured by Gross Domestic Product per employed person at 97.1 compared to China’s rate of 10.2 and India’s rate of 7.5.  James Vitak, a spokesman for specialty chemical maker Ashland Inc. said,  “You can add more capability, but it doesn’t mean you necessarily have to hire hundreds of people.”

Second, an increasing number of manufacturers are adopting “lean manufacturing” based on the principle of continual improvement (Kaizen) of the Toyota Production System.  The “lean manufacturing process was developed to produce smaller batch sizes and just-in-time delivery; that is, producing only necessary units in necessary quantities at precisely the right time.  This results in reducing inventory, increasing productivity, and significantly reducing costs.  It has evolved into a system-wide management process that continually seeks to increase profits by stripping out wasted time, material, and manpower from the manufacturing process.  Thus, fewer people are needed to produce products.  Manufacturers aren’t building up inventory to fill orders – they are ordering materials, components, parts, and assemblies as needed to fill orders as they receive them from their customers.

Third, existing salaried employees have been required to work harder and longer because manufacturers are fearful of hiring new people until they have more confidence that the upturn in business will continue, and we won’t have a double dip recession.  Manufacturers can get away with doing this because for every person employed, there are a hundred people willing to fill the job.

The fear of increased taxes with the expiration of the Bush tax cuts, the cost of changes due to the Health Care Act of 2010, and the possibility of a “cap and trade” bill added to the uncertainty about the economy for all businesses last year.  Passage of the bill that maintained the current tax rates without an increase just before the end of the year reduced fears somewhat, but the other two issues are still causing uncertainty about the future.

The number of manufacturing jobs is a better indicator of what’s really happening in the economy than the stock market.  Many of the companies on the Dow and Standard & Poor indexes of the stock exchange are no longer American-owned companies.  They are multinational globalist companies that don’t care about providing jobs for Americans.  They care about their bottom line of making as big a profit as possible.  These companies may be doing well based on their worldwide business and could post profits and have their stock prices go up without creating jobs for American workers and benefiting the U. S. economy as a whole.

I keep hearing that we won’t create enough jobs to lower the unemployment rate until consumer confidence is restored and consumer spending increases.  I disagree.  Consumer spending doesn’t create American jobs when most of the goods consumers buy are now made in offshore.  We won’t be able to create the jobs we need to lower the unemployment rate until business owners and consumers start “connecting the dots.”  We don’t create American jobs when companies outsource their manufacturing to other countries and consumers buy products made offshore.  To create jobs in America, we need to manufacture in America and then buy products made in America.

Posted in General, Outsourcing | No Comments »

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