June 8, 2010
-- by Dave Johnson
This is semi-live blogging (notes corrected later) and there is a lot, so I will highlight the most important points.
I attended the Making It In America breakout session at the America’s Future Now conference this morning. Scott Paul of the Alliance for American Manufacturing moderated the session and panelists were Mark Melman pollster Kate Gordon Vice President for Energy Policy at Center for American Progress and Clyde Prestowitz of founder and President of the Economic Strategy Institute.
Scott Paul: America's manufacturing base as a percentage of our economy has declined since the 50s and 60s but factors in last decade have turbocharged this trend. People think we are losing manufacturing jobs in cars, shoes, textiles, but we are losing jobs in high tech at an even faster rate. We have broken the connection between public investment, innovation and producing things here.
One problem is that we have tended to view trade as a foreign policy tool instead of an economic policy, so we give away economic benefits in hopes that other countries will be more friendly with non-economic policies.
Changes like NAFTA, and the biggest impact from China entering into the World Trade Organization in 2000, have led to challenges for American workers and businesses who want to make things here,
A surprising amount of our disadvantage is because of government policies of other countries that support their own manufacturing, vs our own anti-industrial government policies.
China, for example. Their advantage is not just wages, but many other challenges like currency, government subsidies, and their protectionism.
Add it all up and it is hard to make stuff here.
Add another factor, that Wall Street has placed bet against American manufacturing. You cant get investment, venture capital, etc, to make things here, but if you want to do it in China you can get VC money, etc. Because Wall Street looks at quarterly profits and not long-term benefits.
Manufacturing can require a sizable capital investment . Generally government should provide public capital as they do in other countries but ours is only that doesn't. So look at the results. Cell phones, we invented, had biggest share of manufacturing, Phoenix had 10,000 people making Motorola cell phones. Now not a single cell phone is made here, all are made in Taiwan or China with parts from Asian countries. Along with cell phones, battery production went also. And now we need to produce alternative energy autos, but battery technology went abroad to Korea, China, Taiwan, Japan so we can’t make them here, or hybrid fuel cells. And the result of this loss is that the first generation of all electric cars will have batteries from Asia.
The only thing stemming this tide is public investment and having a manufacturing strategy. The 2008 energy bill has a clean energy battery fund, and we will be making them in Livonia, in Delaware.
We are slow on the uptake and need to be faster if we want a manufacturing strategy. It is good for the economy, for local communities. California had a share of manufacturing jobs and if kept CA had kept that share they would need no spending cuts, no tax increases, because of the wealth generated by manufacturing.
And there is a conservative argument: we don’t want to be dependent on other countries for defense.
Mark Mellman will kick off the panel.
Here are the results of a nationwide survey, April, 1000 voters, and quotes form focus groups.
Voters are anxious about the economy, our debt to China, government spending and loss of manufacturing jobs. Voters want DC to focus on manufacturing.
Manufacturing is seen as a central component of economic strength and the result of manufacturing's decline is Americans believe we are no longer the strongest economy.
People prefer American-made goods, distaste for Chinese made. Majority favor a national manufacturing strategy.
Problems listed by the voters polled: most is debt to China, deficit, tax dollars wasted, too many manufacturing jobs lost, dependent on foreigh oil, jobs shipped overseas.
Among independents loss of manufacturing jobs is #1
Jobs shipped overseas is #1 among others
If asked to list MOST important:
Voters want DC to focus on manufacturing. #1 is create jobs, #2 is manufacturing jobs specifically,
People don’t think this is what is happening, only a third see administration focus on creating jobs, the rest say too much time bailing out banks, not worrying about working people making a living. Only 53% of dems say congress and President are working on jobs
People don’t think anyone is doing a lot on helping manufacturing or enforcing fair trade. Voters see republicans not at all interested in these isses
Focus group quotes:
“If mfg not successful, economy not successful”
“If no mfg here, we are last car in the race”
Strong statements in focus groups born out by quantitiaive data
List of most important industry in terms of economy strength, #1 is manufacturing. Same as for national security.
People believe nothing can substitute for manufacturing . Not innovation, competition, services, only 30% agree, 2/3 say manufacturing is critical, need manufacturing base if we are to thrive in the future. 2/3 of dems AND Reps believe this.
Young and old, regions, lowest support is in the west but even there it is 55/42 say manufacturing is central to economic strength.
People see manufacturing in decline and see manufacturing as central ot our strength so they see us as no longer strongest. Dependent on others to exist. We are losing our wealth.
Only 36% say US is the strongest economy, 58% say not. People likely to identify China unprompted as strongest.
BUT 85%of public say we can become strongest again, is possible. Only 11% say not possible.
2/3 say very important for US to become #1 economy again. 95% say it is important.
People say American goods are better than Chinese.
People’s attitudes toward companies that move to China is extraordinarily hostile,
People see manufacturing as central, in decline, so we are no longer strongest, people want that back.
86% want increased government support but there is debate about the role of government. 39% say use any means necessary. 47% say help but limited government role – incentives and trade policy. Only 10% say government should not be involved. 8% of dems, 12% of Republicans.
8 of ten voters want a national manufacturing strategy. The word is manufacturing not industrial. Even when given and anti-government-help argument, still 2 to 1 people agree with pro-national-government strategy side.
Adding a defense security argument doesn’t add much, just the idea of becoming too dependent on foreign countries for goods. It is a key component of national economy.
Cutting taxes on business at BOTTOM of list.
9 of 10 voters support all policies, infrastructure, r&d, tax credit, make new products here, reduce trade deficit, use tax dollars to buy American-made.
The role of clean energy manufacturing, sustainable development, sustainable economy.
Hearing that people are concerned that the way we do economic development is not sustainable. Too focused on services, financial sector. And that we need to bring back manufacturing so we will be more competitive in global economy.
There is a feeling we are falling behind. Wind, solar, almost everything in clean energy is imported. (Building materials largely done domestically.)
She accompanied Senate staffers on a trip toChina to see first hand. It was staggering. High skill workers are operating machines, allowed to stop the line. The lessons have been learned form advanced manufacturing countries in clean energy.
This is reflected in American companies moving to China not just for advanced manufacturing but also now for advanced r&d. It is becoming a place where the whole innovation cycle is happening. All of it is happening in China also in Europe, this is a global issue.
There is a Center for American Progress paper called Out of the Running? How Germany, Spain, and China Are Seizing the Energy Opportunity and Why the United States Risks Getting Left Behind, It has a cross section of countries, these are ahead of us in clean energy manufacturing, and looks at policy in depth. It asks "What leads to comprehensive strategy?" Three broad areas:
1) Creating markets, demand.
2) Financing and investment
3) Infrastructure investment to make sure products get to market.
All three, China, Germany, Spain have strong Renewable Energy Standards, strong efficiency standards and strong building codes.
Europe has a price on carbon, this changes the game, creates a market.
Countries that signed on to Kyoto in fact have 33% more new patents in clean energy technology than countries that didn’t.
All of these countries are creating markets and demand, China has an advantage because it is huge, passes laws giving solar installation incentives, instantly creates a massive market.
China way ahead, lowered cost of capital for R&D in clean manufacturing. Coda automotive, China gave them a factory for strategic partnership.
Investments in manufacturing infrastructure – includes investing in workforce. They are spending far more than we are on roads, transit, power grids, all the systems that lead to getting stutff to market and moving for export.
See the market, finance, infrastructure chart at CAP site.
All of ours are short term or temporary. Or tiny, state-by state. There is no energy standard in 29 states. No federal renewable energy standard. No federal efficiency standard. We have short-term finance strategies, which are about to run out from stimulus package. All short term investing in clean energy, 2 year programs, and we are asking companies to make business decisions that look over many years. Our infrastructure has received a d- grade from organizations that evaluate this. Everything falling apart, from bridges to the grid losing up to 80% of the power. The difference in quality of broadband here to China is amazing. We are falling behind on each area.
What we need to do:
We don’t have an economic development policy, industrial strategy, no overarching view of competitiveness. They call this "industrial policy," we aren’t even allowed to say that here.
A national policy has to include investing in all 3 areas, finance: price of carbon will change environment for investing in clean energy. Invest directly in small and medium manufacturing, to making new economy stuff, for example from making windos to making efficient windows.
Programs to invest in other stages of the value chain, cant just do production, we have to do inventing. Next stage of inventing loop, we have advantages but we are losing them.
Need more efficient manufacturing facilities, buy more efficient technologies. Need big investment in infrastructure. This is a cost and weed to make decision as a country to look ahead, not just at today’s deficit.
Today we invent and buy stuff from others, but we are losing inventing, too.
I came to DC in 81 to work in Commerce Department. My job was to reduce the trade deficit. In 81 that deficit was $27B. 5 years later it was $150B. Now it is about $700B
Obama just made a deal to help China make airplanes. He says he wants to create jobs so why is he helping China build airplanes. It's one of the only things we make and sell to them.
Three is a huge issue that has run through our trade policies for a long time – he wanted China to help with Korea, Iran, geopolicital things so he makes an economic concession. The rationale of Anglo-American neoclassical economics is that trade is always a win-win proposition, so it doesn't hurt us to do this. Helping China build airplanes is good for America so not a contradiction in his mind.
But is in reality a huge contradiction.
Recently I was speaking to association of wood furniture manufacturers. I was making small talk with a CEO, asked how’s business, he says it's great, they have a line of cherry office furniture, cherry trees are cut in W VA, we ship the logs to Germany where they peel the veneer, then that is shipped to China where they glue it on the frame and the furniture comes back here and we sell it.
Germany is not a low cost wage country but they export veneer. They have better technique. They have maintained the skills to do that, niche that no one else can do despite high cost. What they do is they have "short work compensation" so when the economy goes into a downturn, sales are down, company is running at half capacity, they do not lay off workers. If you lay off workers, the skilled workers have gone somewhere else, skill sets are dying. Germany's deal is on downturn government pays half the salary of workers in order to keep the team together. Company gets tax break on R&D so they can develop new products, techniques, so when economy comes back they know how to do it even better
What should we do?
Polls reflect people calling for enforcing trade agreements, feeling we are losing because others are cheating.
Actually they aren’t cheating that much, it's more that they are playing a different game. They are playing football fair and square. Americans are playing baseball, but no pads and helmets, and football is a rougher game, Americans keep telling Chinese “Play Baseball” but the Chinese don’t play baseball.
Geithner tells the Chinese and Germans to consume more, export less. No chance they will, they say go fly a kite, we are all going to save and export. Also Chinese view. Save and Export.
Enforcement is low on list of what we should spend a lot of time doing. Big factors of what we can do are stop major incentives to move production out of US. US corporate taxes are highest. Lower to 15%. Corps aren’t paying a lot of taxes anyway. The thing is the reason they are not is because they go to maneuvers to avoid taxes and this is detrimental to domestic production.
Currencies in most of the world are being managed. China, Taiwan, Korea, Singapore, Malaysia, dollar is overvalued. 25% needed fast against China. So we need to think hard about taking action, invoke emergency clauses to address this.
Next, for some time was on Intel’s advisory board, watched the story develop. They make chips in Arizona, NM, lowest cost locations in world. We have a comparative advantage in those chips. Under laws of economics you would think that would be an export. But Intel just announced a major factory in China. Labor doesn’t matter in chips. Not about quality. The reason is that Intel execs only hear from top down in China is you have to have a “high image” in China, demonstrate that you are committed to China’s future, help to build China. Chinese see you as contributing by building factories there. Undertone is if you don’t, bad things can happen to you. Factory costs about $6 billion, big investment, China is putting up about half of that. So Intel does cash flow analysis, operating cost is higher in China but total cost because of capital subsidy is much lower. Israel, many other countries offering these capital incentives, so US should have a war chest that matches them. We did this before on export subsidies, ended up with deal in WTO. We ought to do this on investment subsidies.
Q overvalued dollar
Prestowitz: A Hard to do, now that we have WTO agreements. Martin Wolf said maybe US needs capital controls, cap capital coming in as a way to get dollar under control.
Q single payer, costs
Scott: if GM has to pay health care cost… reducing health care costs on employers is part of a national strategy.
Kate: manufacturing strategy focuses on magic bullet. China currency, made in America, but other countries have comprehensive strategy. Investing, lowering costs, improve education, workforce development, steady decline in US for decades now. A group of things we don’t do that would make us competitive.
Posted by Dave Johnson at June 8, 2010 11:18 AM
To help America's manufacturing, we need to support the R&D Tax Credit extention. However, there are two significant issues with the existing R&D Tax Credit regs. First, it’s a Tier 1 Issue, which means higher chance of audit. Second, the IRS requires contemporaneous documentation to support a claim for Credit. To address these issues, we built Titan Armor – a low-cost software solution that meets the IRS requirements for the R&D Tax Credit. You can get more information at www.titanarmor.com.
Posted by: Brian Lefever at June 9, 2010 5:19 AM
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