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Seeking a Trade Rule Enforcer

8:38 am in Uncategorized by Leo W. Gerard

"10 Yuan Note" by upton on flickr

"10 Yuan Note" by upton on flickr

America is being played.

The U.S. allowed China to join the club of trading partners in the World Trade Organization (WTO) in 2001 under the condition that China observe club rules.

Over the past decade, however, China has profited immeasurably by ignoring, flouting and circumventing the rules barring market-distorting practices. Among the most destructive of these violations is China’s deliberate undervaluing of its currency, which makes Chinese exports to the United States artificially cheap and U.S. exports to China artificially expensive.

This nurtures Chinese industry and poisons American manufacturing.

In the trade contest with China, the referees have been absent or silent or completely craven on the issue of currency undervaluation, even as it kills U.S. factories and jobs. American workers need a trade rule enforcer. With unemployment above 9 percent, the situation is desperate. American workers can’t be played anymore.

Just last week, the Economic Policy Institute (EPI), a non-partisan think tank, issued a report showing that the trade deficit with China cost the United States 2.8 million jobs since the WTO allowed China into the trading club. Every congressional district in the U.S. lost jobs as Chinese exports to the United States overwhelmed U.S. exports to China.

The trade deficit is the difference between the value of Chinese exports to the United States and U.S. exports to China. It was $84 billion the year China entered the WTO. Last year it grew to $278 billion – a 230 percent increase. Read the rest of this entry →

Making America the Best Place on Earth to Work

8:09 am in Uncategorized by Leo W. Gerard

Not the wars. Not greenhouse gasses. Not even the deficit. The issue most important to Americans is jobs.

Despite that, jobs failed to make an appearance in the State of the Union address.

The talk was all about business. Business was doing better. Business needed taxpayers to help pay for research and innovation. Business will get government help to eliminate pesky regulations. Business must have lower taxes.

The most telling statement was this:

“We have to make America the best place on Earth to do business.”

Especially because it wasn’t matched by a companion:

“We have to make America the best place on Earth to work.”

The speech expressed a policy in which business is the focus of government, taking precedence over workers. The American colonists created a government for their own benefit; they did not constitute an agent to serve business. A policy giving corporations primacy is risky for American workers.

The state of the union noted that happy days are here again for corporations and banks:

“Two years after the worst recession most of us have ever known, the stock market has come roaring back. Corporate profits are up. The economy is growing again.”

Never mentioned, however, were the 14.5 million unemployed Americans, the sustained record rate of foreclosure, and the increasing poverty and food bank reliance among citizens of the richest nation in the world.

The state of the union outlined a plan under which the government will coddle corporations, essentially proving companies government welfare using American workers’ tax dollars. If businesses create jobs for workers as a result, fine. If they don’t, there’s no plan to exact a penalty.

For example, under the policy described in the speech, American workers will fork over tax dollars to pay for research and development for businesses that are sitting on a record $1.8 trillion in cash reserves — hoarding it rather than creating jobs.

The president said:

“Two years ago, I said that we needed to reach a level of research and development we haven’t seen since the height of the Space Race. And in a few weeks, I will be sending a budget to Congress that helps us meet that goal. We’ll invest in biomedical research, information technology, and especially clean energy technology — an investment that will strengthen our security, protect our planet, and create countless new jobs for our people.”

Maybe it will create new jobs. Hopefully. But no guarantees were offered. Mentioned as a business success story in the speech was a Michigan company, Luma Resources, which began manufacturing solar shingles with the help of a $500,000 government grant. It created 20 jobs, $25,000 a job. American taxpayers might think that’s a little pricey, but what’s worse is the potential for Luma Resources to go the way of Evergreen Solar, squandering the corporate welfare.

Evergreen, the third largest maker of solar panels in the U.S. and recipient of at least $43 million in corporate welfare, announced earlier this month it would close its main American factory in Massachusetts and move manufacturing to China. Eight hundred Americans will lose their Evergreen jobs by April.

Evergreen officials said China will give the company even higher amounts of corporate welfare, which, of course, makes sense since China is not a capitalist country. Its economy is government controlled. And that government routinely violates international trade regulations – by providing banned subsidies to industries and by deliberately devaluing its currency.

No matter how better educated American workers get. No matter how much more innovative. No matter how much more productive. No matter how many tax dollars the government spends on research and development, if the corporations that benefit move manufacturing overseas, the American workers who paid for it will suffer.

In fact, it’s more than suffering; it’s betrayal by their government that provided tax benefits to companies for off-shoring jobs. It is betrayal by their government that fails to stop violations of trade laws by countries like China that lure away firms like Evergreen.

At the end of the State of the Union speech, the president said:

“From the earliest days of our founding, America has been the story of ordinary people who dare to dream.”

An ordinary American dreams of a family-supporting job, owning a home, saving enough to pay for a child’s college education, helping to build a safe community. Corporations aren’t Americans, no matter how often the U.S. Supreme Court grants them rights that the U.S. Constitution guarantees to human beings. Businesses aren’t citizens. Their allegiance isn’t to America. It’s to profits. They dream only of dollars. They concede no responsibility to family, community or country.

They were not included when the president said:

“Tucson reminded us that no matter who we are or where we come from, each of us is a part of something greater — something more consequential than party or political preference. We are part of the American family.”

The top priority of the American government must be making America the best place on Earth for Americans. If that’s good for corporations, great. The government must never place American citizens second.

We are No. 2; We are No. 2!

9:00 am in Uncategorized by Leo W. Gerard

For 110 years America has reigned as the world’s number one manufacturing nation. Next year, China is expected to wrest that title from the United States.

Last year, the U.S. manufactured $1.7 trillion worth of goods; China fell second at $1.6 trillion. Next year, China is expected to edge out America with production worth $1.87 trillion.

America will be Number 2. And unlike the Dutch at the world cup, America is losing the crown it held for a century, not seeking a first-time anointment.

It doesn’t have to be this way. China’s manufacturing sector is using the equivalent of steroids to attain the title. It deliberately devalues its currency, an outlawed practice on international markets. Devaluation means China’s exports are artificially cheap in the U.S. and American exports to China are falsely expensive. It’s no puny sum either. The discount for Chinese products sold in America is as much as 40 percent. – 40 cents on the dollar.

Allowing China to devalue its currency devalues American workers and businesses. Chinese currency manipulation is driving American manufacturers out of business and America workers into unemployment. For 110 years, American factories and workers have proved they can compete and win against all comers in the world. They can continue to do that if Congress places tariffs on Chinese exports to the U.S. or taxes them to compensate for the 40 percent price break the Chinese government arranges for its manufacturers.

Inaction means the U.S. government disrespects American workers and manufacturing in a way that the Chinese government does not. China deliberately manipulated its currency value to protect and preserve Chinese manufacturing jobs as the worldwide recession deepened in 2008.

Read the rest of this entry →

Q&A with Manufacturing Business Expert Richard McCormack

9:53 am in Business by Leo W. Gerard


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.”

The Message of Massachusetts: Jobs

7:07 pm in Uncategorized by Leo W. Gerard

Bill Clinton saw it clearly when he was running for President against Bush I. It became his mantra: “It’s the economy, stupid.”

Clinton wanted to reform health insurance too. But he understood that during a recession, the first priority is jobs.

Politicians and commentators continue to blather obtusely about the meaning of Massachusetts Senate candidate Martha Coakley’s loss to a Republican in a heavily Democratic state. Like Coakley and her advisors, they’ve failed to see the obvious, failed to learn from Clinton’s victory:

It’s the economy, stupid.

Poll results show that Massachusetts voters punished Coakley – and Democrats — for neglecting the issue most vital to them: jobs. If politicians had studied earlier polls or attempted to actually get in touch with mainstream, Main Street Americans, or just listened to AFL-CIO President Richard Trumka’s Jan. 11 address at the Washington Press Club, they’d have known to focus on jobs. The message of Massachusetts should be clear: If Democrats want to save their own jobs in the mid-term elections this fall, they must create jobs now.

A poll taken as far back as the first week in December exposed voters’ anger over the economy. The bipartisan Battleground Poll showed this: A huge majority of those surveyed ranked improving the economy and jobs as the most important tasks for Congress. It was 40 percent, compared to healthcare reform, at just 15 percent.

Here’s what pollster Celinda Lake said about the results:

“The number one thing Democrats have to do is prove they really have a jobs program and an economic program that is going to sell on Main Street.”

That was a month before the Massachusetts vote. In the meantime, the U.S. Bureau of Labor Statistics announced unemployment numbers for December – and they were worse in 43 states than they had been in November. Joblessness in Michigan, a high population heartland state, was the highest in the country at 14.6 percent. Only the rates in two other states, Rhode Island – 12.9 percent — and South Carolina — 12.6 percent, beat that in one of the dozen largest economies in the world – California. There it was 12.4, significantly higher than the U.S. average of 10 percent.

People are hurting. Pay attention, politicians. Pay attention.

They didn’t. In the Massachusetts race, they were talking about terrorism and baseball.

In a Research 2000 poll done for MoveOn.org, 95 percent of Massachusetts residents surveyed ranked the economy as either important or very important to their candidate choice. Research 2000 questioned 1,000 registered voters – half of whom voted for Republican Scott Brown and half of whom did not vote at all.

Among those who voted for Obama in 2008 but Brown in 2010, 51 percent said they believed Democratic policies helped Wall Street more than Main Street.

It’s the economy, stupid. The Main Street economy.

Similary, in a Hart Research Associates poll conducted on election night in Massachusetts, 79 percent of voters said electing a candidate who would strengthen the economy and create more good jobs was the single most important factor in their decision. The most crucial quality for a candidate, they said: Someone who would fix the economy.

The Bush II Great Recession is more than two years old now. Workers are frightened and angry. They see bailouts for Wall Street, big bonuses for bankers and unemployment continuing to rise.

They will vent their frustration on politicians. Massachusetts showed it. Trumka warned about it earlier this month in his talk at the Press Club:

“At this moment, the voices of America’s working women and men must be heard in Washington – not the voices of bankers and speculators for whom it always seems to be the best of times, but the voices of those for whom the New Year brings pink slips and givebacks, hollowed-out health care, foreclosures and pension freezes – the roll call of an economy that long ago stopped working for most of us.”

He went on: “Working people want an American economy that works for them – that creates good jobs, where wealth is fairly shared. . .”

He recommended immediate implementation of the AFL-CIO’s five-point jobs creation program – a plan that would produce 4 million jobs and includes dramatically increasing federal infrastructure and green jobs investments and direct lending of the refunded bank bailout money to small and medium sized businesses that can’t get credit because of the financial crisis.

Just as important is implementation of the recommendations in the Framework for Revitalizing American Manufacturing report issued by the White House manufacturing task force in December. That report contains concrete measures to revive manufacturing in the U.S. to generate real wealth, not the illusory paper assets counterfeited on Wall Street.

Trumka called for immediate action, not going slow, not taking half steps. Those who seek delay are “harming millions of unemployed Americans and their families,” he said, and jeopardizing economic recovery.

He ended with this warning:

“the reality is that when unemployment is 10 percent and rising, working people will not stand for tokenism. We will not vote for politicians who think they can push a few crumbs our way and then continue the failed economic policies of the last 30 years.”

Workers executed that warning in Massachusetts.

What Americans want is jobs.