Leo W. Gerard: Richard, when you appeared recently at Youngstown State University as a guest of the Center for Working-Class Lecture Series, you talked about how essential manufacturing is to the U.S. economy and how politicians seem clueless about that. In fact, you said, “Politicians don’t get it.” When did that happen because clearly politicians in the 1950s understood that a solid economy rests on manufacturing products of real value?
Richard McCormack: It happened imperceptibly over the past three decades, but perhaps the defining (though little observed) event was when Wal-Mart overtook General Motors as the country’s largest employer. When that happened, the retail industry became one of the most powerful political entities in the country, replacing the manufacturing industry.
The crossover from GM to Wal-Mart is important because retail started setting the terms of the debate not only with politicians, but also with manufacturers. Retailers are driven by increasing profits by pennies on the dollar by paying workers low wages with no benefits and buying cheap imports.
The loss of the manufacturing sector’s political influence also occurred with the rise of the finance sector, which became the dominant force in political gift-giving. The Wall Street financial sector does not give one-half hoot about American jobs.
The loss of America’s industrial capability also coincided with the persistent selling of economic ideology to the American public and its politicians that the country would be a lot more prosperous getting rid of crappy manufacturing jobs and creating jobs in the service and “knowledge” sectors. That grand experiment in creating a “post-industrial economy” just suffered a monumental collapse.
Americans have allowed the big corporate multinational companies and their agents to take control of their political system. It remains to this day a system that is stacked against American workers and American taxpayers. Americans have not entered the fight to save American jobs. I wonder if the middle class is drugged up on Britney Spears, Michael Jackson and Tiger Woods; addicted to sugar, salt and fat; fake “news” shows on television; and Prozac to deal with depression and lull them into thinking that their condition is beyond control. Something is stopping Americans from getting off their couches and demanding a voice in America’s economic future. Americans have lost their country to a few people who make a lot of money off outsourcing, off-shoring and importing everything Americans used to make and continue to buy. Americans must take their country back before it is too late.
Gerard: You have written about this problem in the book, “Manufacturing A Better Future for America,” and elsewhere. How do we make politicians understand how vital manufacturing is?
McCormack: Politicians need to be hit over their heads with a baseball bat as forcefully as is possible, with Americans insisting that they at least acknowledge that a country that doesn’t make what is consumes is going to fail. It is a simple concept. There are many historical precedents of countries and empires failingafter having lost their productive capacity. It is an ancient concept: a country that does not have industry cannot support an army.
The United States has just gone through a period of unprecedented loss of wealth. Its citizens have taken a collective economic step down. Yet politicians are sitting smug in the belief that they can borrow more money. They work in Washington, D.C., where I live. This place is humming. Most of them have no idea what the country looks like. Have they been to Detroit, Saginaw, Youngstown – America’s heartland? America’s heartland is dead. That means its heart has stopped beating. What happens to a person when their heart stops beating?
The financial meltdown wasn’t caused by the housing bubble or the financial bubble or the dot-com bubble, although all of those things contributed. It was caused by the simple fact that American consumers have sent all of their wealth to China, Korea, Japan, Germany and Mexico buying all of the things they once made. Tell that to the politicians. They don’t get it. They don’t get it and they don’t get it, which means they have to be hit over the head and be hit over the head and be hit over the head as hard as is possible to hit them with the simple message, over and again: the country cannot survive if it sends all of its wealth offshore. The country has to produce what it consumes. Our politicians do not understand this basic FACT. Have they looked at why China is becoming a superpower? It’s not because China exports its sports heroes and pop culture. It’s because China has embraced manufacturing as THE means to economic superiority. It is the same path the United States took to reach global dominance. Inexplicably, the United States abandoned that path.
Gerard: In Youngstown, you quoted Ralph E. Gomory, the retired IBM senior vice president for Science and Technology and a winner of the Heinz Award for Technology, the Economy and Employment, as saying the interests of American corporations have diverged from the interests of America, yet politicians act as if they’re still the same. Can you explain what that means both in terms of the economy and employment?
McCormack: Ralph Gomory has made one of the most profound and important observations on the current global economic situation. He says that outsourcing is not free trade. Yet the federal government still represents the interests of the powerful companies that are firing millions of American workers and shifting those jobs offshore.
Domestic manufacturers have told me repeatedly that the greatest protectionists in our country are the corporate and financial companies that are doing everything in their power to protect their assets in China. To influence policy in their favor, the multinationals, retailers, importers and foreign producers fund think tanks, trade associations, lobbyists, lawyers and public relations firms. These are the real protectionists, not American businessmen who want to save American jobs and the American middle class.
The U.S. government continues to craft policies that are beneficial for companies that outsource jobs. For instance, the U.S. government refuses to confront China over its currency manipulation because the companies that benefit most from China’s undervalued currency are the American companies that have shifted their production there. Who does the U.S. government represent? The tens of millions of American workers who get the ax due to China’s blatant cheating, or the few CEOs at multinational companies and the financial class who make more and more money?
It was no coincidence that the stock market had its best year ever in 2009 – the same year millions of Americans were losing their jobs. The dynamic still hasn’t changed, despite the financial sector’s meltdown: Every time a company announces American worker layoffs, its stock price goes up. Yet policymakers equate the stock market with a healthy economy. They are as wrong on that as they are on the belief that the world is flat.
Gerard: You have also said that politicians’ decision to implement the concept of free trade – which is not fair trade – has largely contributed to the nation’s problems. Would you talk about how something as positive-sounding as free trade devastated American industry?
McCormack: A friend of mine works at the Commerce Department. He says that free trade is a farce. The United States has tariffs of 2 percent or 3 percent on incoming products. Yet the United States trades with countries with tariffs that are 10 times higher. Is that free trade? He has a simple solution to the U.S. trade crisis: hold up a mirror to any nation trading with the United States. Whatever their tariffs are on U.S. products entering their country, that is what the U.S. tariff should be on their products entering America.
How can U.S. producers compete when they must pay for all of the costs that foreign producers don’t have to add to the price of their product? These costs include things like scrubbers and baghouses on coal plants. Not requiring the generation of clean power is a Chinese subsidy offered to all manufacturers setting up shop in China. It is an unfair subsidy that U.S. companies cannot counter without the U.S. government saying that it is unfair. Even worse, 75 percent of the mercury pollution in the United States can be attributed to Asian coal-fired plants that do not have emissions controls. The majority of these plants are located in China. China is poisoning America. If it was happening in the United States, the federal government would take the American utility or industrial company to court and impose fines of millions of dollars. What does the U.S. government do about China’s toxic emissions drifting over U.S. airspace? Nothing.
U.S. manufacturers have to abide by a thousand EPA rules and OSHA standards. Not so in China. That is a huge advantage. The United States government lets American companies that have set up shop in China get away with not having to abide by American standards – even though their products are being sold in the United States.
It is morally wrong.
Any foreign product sold in the United States should be required to be produced under the same conditions as is required for producers of the same product in the United States. If these requirements are not going to be enforced on overseas competitors, as they are here so vigorously by our federal government, then those cost advantages should be calculated and tacked onto the price of the product entering the United States.
Foreign producers should NOT have this unfair advantage. It is an outrage that the United States has allowed this to occur.
It is time for the country to stop listening to importers, their agents in Washington, including foreign governments, retailers and the financial industry. The U.S. government has to start representing the interest of American manufacturers, workers and business owners. It does not now. This is not a conspiracy theory. This is reality.
Gerard: In the chapter you wrote for the book, “Manufacturing A Better Future for America,” you said something that every American should find frightening. You said that when Congress cuts the taxes of individuals or gives them tax rebates in an attempt to stimulate the economy, the actual effect is to create jobs in foreign countries. Can you explain that?
McCormack: The U.S. government has just spent the past 10 years trying DESPERATELY to stimulate the U.S. economy, with trillion-dollar tax cuts, tax giveaways, low interest rates and even two wars that have lasted for nine years. Then the Democrats took office in 2009 and enacted their own $787 billion “stimulus.” Every time Americans have had a few extra bucks in their pocket (from tax cuts to direct government payments to home equity loans) they have spent that money on products that are now made somewhere else in the world. Is it any wonder why China’s economy was growing by 10 percent per year during the past 10 years, as U.S. consumers shipped more and more of their hard-earned dollars there to buy everything?
Gerard: You have been critical of the second economic stimulus bill – called a jobs bill – that Congress is now talking about. You contend that the proposed bill won’t create new jobs. Here’s what you actually said, “I don’t see any jobs there. I just see more money being spent.” What’s wrong with that bill?
McCormack: It is more of the same. Only a very small percentage of the bill encourages investment in U.S. production. There is not a single program aimed at countering the incentives that foreign countries are providing their companies and U.S. producers to set up operations in their country. The United States has to start competing – to start countering those incentives with its own incentives to manufacturing companies. It doesn’t matter if these companies are American companies or foreign companies. To create lasting, decent jobs, the United States needs global companies to open production in the United States to serve the U.S. market.
Small American companies do not need a $30-billion tax cut to hire workers. They need CUSTOMERS. They won’t hire a soul unless they have a customer to sell them a product. Yet the country continues to lose manufacturing plants to China.
Gerard: If you could actually get Congress to listen to you, what would you tell them is necessary to create good new jobs?
McCormick: Ask the 50 economic development officers from each of the states to form a U.S. Economic Development Council. These people and their offices know what is being planned in terms of company expansions. Give them a war chest, some of the TARP money or funding from the proposed “jobs” bill, and tell them to deploy the same tactics they use in their states to attract industry to America. All of the states are competing against each other to attract industrial investment. They should be working together, especially since supply chains cross state borders.
Gerard: When I go to Washington, what I hear is that we don’t need manufacturing. That’s old and dirty. So many politicians say the U.S. can move to a financial and service economy. You disagree with that. Why?
McCormick: I hear it too, though a little less often, thank goodness. This argument is what has led to the demise of the United States. People are just starting to realize that as manufacturing goes offshore, high-end jobs in design and research and development go with it. When a plant closes, the supply chain disappears. This supply chain includes materials and parts producers, software providers, like CAD (computer-aided design), ERP (enterprise resource planning) and dozens of other high-tech equipment providers, machine tool companies, maintenance, accounting, packaging – the list goes on to include such things as the local restaurants, janitorial services and those dependent on the plant’s tax revenues, like librarians, county clerks, police officers and teachers. These are service jobs, all of which depend on manufacturing. One manufacturing job supports 15 other jobs. No other category of job has such a high multiplier. The United State must do whatever it can to start creating manufacturing jobs.
Gerard: We are losing at the international trade game with imports far exceeding exports and creating a massive trade deficit. Is it over for the U.S., or can Washington actually do something to reverse this situation?
McCormick: The game is not over. Not yet. But the country is perilously close to a period of sustained pain caused by continuing huge trade and budget deficits. The United States is assuming greater and greater debt. The country cannot borrow its way to prosperity. At some point very soon, the United States has to stop accumulating debt and start the process of paying it down. The only way to do this is by producing the products Americans consume – like cellphones, televisions, digital cameras, computers, semiconductors, printed circuit boards, autos, steel, household items, appliances, luggage, clothes – everything – and to start producing a new generation of radical and revolutionary products that the rest of the world needs to buy.
Richard McCormack is editor and publisher of Manufacturing & Technology News, a publication he created in 1994. It is read by industry executives, government officials and academics on five continents. McCormack has reported on science and technology, industry and government in Washington, D.C. for 26 years specializing in economic competitiveness and globalization. He has won numerous journalism awards for investigative, analytical and interpretative reporting. He is author of the book, “Lean Machines: Learning from the Leaders of the Next Industrial Revolution.” And he is the editor of the new book, “Manufacturing A Better Future for America,” for which he wrote the first chapter, “The Plight of American Manufacturing.”