The Big Cover-Up About Lost U.S. Manufacturing Jobs (Demo)

Paul Sancya/APAn assembly line worker builds a 2015 Chrysler 200 automobile at plant in Sterling Heights, Mich.

Since 2007 the sector is down 3.2 percent and 2 million jobs have been lost.

On June 10, 2015, Bob Woods reports onCNBC.com

When it comes to the manufacturing sector in the U.S., it’s not quite “Happy Days Are Here Again,” as some have been singing for the past few years. Once you look closely at the data, it’s more like “Those Were the Days.”

That’s because since the Great Recession, manufacturing is down 3.2 percent, according to an eye-opening report by the nonpartisan Information Technology and Innovation Foundation. It notes there are now 15,000 fewer production facilities in the U.S. than in 2007 — and 2 million fewer jobs.

A look at the numbers suggests that the rallying cry about a manufacturing renaissance has been wishful thinking among many industry trade groups and economists. Even favorable shifts in a host of factors, including labor costs, the shale gas boom, transportation costs and the weak U.S. dollar, hasn’t revitalized the sector to its post glory days.

According to the National Association of Manufacturers, the industry trade group, federal policies on taxes, energy, regulations and competitiveness are what’s holding back further growth. Right now the sector accounts for 12 percent of GDP and supports an estimated 17.6 million jobs.

“We’re concerned about the overall decline of the manufacturing industry since around the turn of the century,” said Adams Nager, an economic research analyst at ITIF and co-author with Robert Atkinson of “The Myth of America’s Manufacturing Renaissance: The Real State of U.S. Manufacturing.”

Much of the renaissance hype is tied to growth over the last four to five years since the Great Recession, which can be misleading, he added, because the trough was so deep. “We’re seeing stable and slow recovery in demand, and that explains the growth in manufacturing, but that doesn’t necessarily mean that growth will continue or that we’re in a state of renaissance,” Nager said.

The best measure of the health of manufacturing is real value added, Nager said. Since 2013, the most recent year data is available, that number was down 3.2 percent from 2007 levels — just prior to the recession — despite 5.6 percent GDP growth, he noted. “If you take out computers,” a particularly strong sector, “we shrank 7.7 percent.” What’s more, the report said, there are still 2 million fewer jobs and 15,000 fewer manufacturing establishments than there were in 2007.

In February 2012, PricewaterhouseCoopers released a study entitled, “Shale Gas: A Renaissance in U.S. Manufacturing?” It was among similar widely touted analyses of how the ongoing boom in natural gas — largely prompted by hydraulic fracturing, or fracking — was one of several key components that might lead to a surge in U.S. manufacturing and employment. Others were the low rate of the dollar, the high price of oil (then around $100 a barrel) and rising labor costs in China.

During the intervening three years, however, those trends haven’t exactly panned out, as the ITIF’s myth-busting report laid out:

• On Chinese labor: Chinese wages, while rising rapidly, are still estimated to be just 12 percent of average U.S. wages in 2015.
• On high global shipping costs: They’re back to normal after falling by 93 percent in a six-month period in 2009.
• On the shale gas boom: That low-cost alternative to oil and coal has had a minor impact only on energy-intensive industries, such as petrochemicals and drilling operations.
• On currency valuation fixing the trade deficit: The dollar has risen sharply, yet our trade deficit persists. “We’ve consistently run a deficit since 1975, and we’re no closer to seeing exports get anywhere near our imports,” Nager said. “The idea that we can just wait it out is pretty dangerous.”
• On U.S. productivity restoring jobs: Productivity isn’t increasing faster than that of other industrialized countries, and it is growing much slower than China and South Korea.

“There certainly have been some headwinds in the last few years, but the fundamentals are still in place,” said Bob McCutcheon, PwC’s Industrial Products leader. For instance, the strength of the dollar bares both good and bad news. It’s a sign of continuing economic growth in the U.S., despite the lingering trade deficit, McCutcheon offered. Likewise, the precipitous decline in oil prices “is a direct reflection of what’s been going on in shale gas. It’s the global response to our strengthening position in the energy sector.”

The resurgence in U.S. manufacturing is in fact a long-term prospect, McCutcheon clarified, and regardless of headwinds, certain sub-sectors, like energy, are doing better than others. Heavy-equipment, metals and chemicals, which benefit from being less labor-intensive, and lower energy costs, are relatively robust. He also points to advanced, disruptive technology — robotics, 3-D printing, the Internet of Things — as American strengths.

“The global economy is evolving, and the U.S. is right in the epicenter of it all,” opined Dave Blanchard, a senior editor at IndustryWeek, in sizing up America’s current manufacturing stature. He addressed the ballyhooed promise of reshoring or near-shoring of jobs back to the U.S. from foreign sites. Reports of Apple (AAPL), GE (GE), Caterpillar (CAT) and other major players reshoring some operations are feel-good anecdotes, he said.

And manufacturers could reduce supply-chain costs, like logistics, transportation and warehousing, by setting up shop in close-by, low-wage countries such as Mexico. But that’s not going to make a dent in the nearly 5 million U.S. manufacturing jobs lost since 2000, he said.

The National Skills Shortage

Blanchard said that “the state of U.S. manufacturing in 2015 is relatively robust compared to where it had been over the previous decade,” referring to the rebounded auto industry and the energy sector, and that increased use of robotics and other next-generation manufacturing technologies hold promise. In that latter vein, he joins a rising chorus of observers who insist that although the U.S. remains the world leader in R&D, training workers to use the technology is one of the greatest challenges for manufacturers.

Sridhar Kota is a professor of mechanical engineering at the University of Michigan and a board member of the coincidentally named Manufacturing Renaissance, a Chicago-based nonprofit champion of advanced manufacturing. He also served from 2009–12 in the White House Office of Science and Technology Policy, where he helped establish the Advanced Manufacturing Partnership and its signature Manufacturing Innovation Institutes.

“We need a plan for what to do with good ideas and how to mature them,” he said, “to create the infrastructure, knowledge and skills so that ideas turn into products and the manufacturing sticks here, rather than invent it here and make it ‘over there.'”

He bemoaned the fact that R&D in the U.S. was responsible for the technology behind solar cells, lithium-ion batteries and flat-panel TVs, though we ceded production of those lucrative markets to overseas manufacturers.

Getting Back Our Mojo

“Those ships have sailed, and they’re not coming back,” he said. But what about next-generation technologies we’re working on now, such as flexible electronics, nanocellulose and self-driving cars? “We can’t let Asia pick them up,” he said, advocating for more public-private R&D partnerships. “When new technology is emerging, you want R&D and manufacturing to be co-located.”

Kota agrees with NAM and other manufacturing boosters that to spur existing industries, the U.S. needs to make them more competitive through reforms of the tax code, free trade and regulations. Echoing that sentiment is Deborah Wince-Smith, president and CEO of the Council on Competitiveness in Washington, D.C. The non-partisan council supports manufacturing competitiveness through innovation, but is critical of what Wince-Smith said is “our very innovation-hostile capital cost structure and regulatory environment in the U.S. that’s impeding many of these things,” especially advanced manufacturing.

She, too, calls for new models of public-private partnerships to foster R&D. Toward that effort, this week the council will announce a new initiative, Exploring Innovation Frontiers, a 10-year program integrating energy and manufacturing productivity.

“We continue to be an innovation game-changer in many areas,” Wince-Smith said, “but it can’t just be in software and communications. We still have to make things, because we live in a physical world.”

http://www.dailyfinance.com/2015/06/10/lost-manufacturing-jobs-cover-up/

This is an excellent piece. There is a need for clarification for some of the analysis offered.

Unfortunately, less-than-loyal to America OWNERS of corporations that manufacture products that require sizable labor input, have relocated their manufacturing to extremely low-cost countries such as China, India, Mexico and other parts of the globe, in order to produce for less and thus offer their products on the market for less. This has resulted in all competitors having to do the same and relocate their manufacturing in order to sell back to the American public at competitive prices. This competitive drive has led to a frantic national and international chase for more efficient methods of production and distribution. Its a near endless reaction, though eventually there will be no “customers with money” in America to buy these off-shore-made products as the primary source of their income––a job––will no longer exist.

At the same time, these manufacturing corporations are narrowly owned, with the employees simply paid as wage slaves, dependent on employment to earn an income. Basically, employees are not OWNERS and thus are not entitled to the income produced from profits––the money left after ALL expenses are paid, including labor costs (which is often the greatest cost). What we end up with instead is a tiny wealthy ownership class which the system empowers to always accumulate more and more productive capital asset OWNERSHIP.

Unfortunately also is the fact that economists measure productivity gains in terms of labor input rather than recognizing that there are two independent factors of production and that productivity gains are due to technological invention and innovation and the utilization of the non-human factor in production. Fundamentally, economic value is created through human and non-human contributions.  Most changes in the productive capacity of the world since the beginning of the Industrial Revolution can be attributed to technological improvements in our capital assets, and a relatively diminishing proportion to human labor. Because technology increases the profitability of companies throughout the world, technology always has the advantage over human labor when the costs of them are the same. The rush to globalization is due to exploiting low, slave-labor costs in China, India, and Mexico and other parts of the globe, where the cost of manufacturing can be kept low without having to substitute “machines” for people.

Non-human capital does not “enhance” labor productivity (labor’s ability to produce economic goods). In fact, the opposite is true. It makes many forms of labor unnecessary.

Technological change makes tools, machines, structures, and processes ever more productive while leaving human productiveness largely unchanged (our human abilities are limited by physical strength and brain power––and relatively constant). The technology industry is always changing, evolving and innovating. The result is that primary distribution through the free market economy, whose distributive principle is “to each according to his production,” delivers progressively more market-sourced income to capital owners and progressively less to workers who make their contribution through labor. This is why the rich, who OWN capital assets, become richer and richer with the growth of the economy.

Therefore, if both labor and capital are independent factors of production, and if capital’s proportionate contributions are increasing relative to that of labor, then equality of opportunity and economic justice demands that the right to property (and access to the means of acquiring and possessing property) must in justice be extended to all.

One of the results of product manufacturing shifting to low-wage countries as globalization of production seeks the lowest cost operations, is that America will be completely abandoned for product production, except for those enterprises that are narrowly focused on the American market and required to stay put in order to service the market. Such enterprises are unaffected by global competition. But otherwise, the race to globalization is on, and the ONLY way America will be able to counter anemic growth or steady economic decline is to fully embrace technological invention and innovation, build a new future, highly efficient productive economy, and simultaneously finance this new economy’s creation using financial mechanisms in which EVERY child, woman, and man can acquire personal OWNERSHIP of the resulting wealth-creating, income-producing capital assets on the basis that the investments will generate earnings to pay for themselves––the very essential principle of corporate finance logic.

As technological invention and innovation substitutes “machines” for people, the result is frightening for our future and our youth. This will give cause for uprising around the globe. Already 75 percent of workers worldwide do not have a permanent job, according to the International Labor Organization. Global unemployment reached an estimated 201 million in 2014; most people work without a contract or are self-employed.

Increased population and ever advancing technology will reduce the very existence of “jobs” and “employment” and severely increase unemployment. And competitive labor costs will continue to drop, causing more industries to relocate. In the long term I don’t see any alternative but a radical shift in the way we do things.

At Agenda 2000, the advocacy firm I founded with binary economist Louis Kelso, we used 90 percent, while the Rand Corporation statistic was 98 percent, to represent the productive capital factor input to creating products and services. In concentrated capital ownership terms, roughly 1 percent own 50 percent of the corporate wealth with 10 percent owning 90 percent. This leaves 90 percent of the people scrambling for the last 10 percent, with them dependent on their labor worker wages to purchase capital assets. Thus, we have the great bulk of the people providing a mere 10 percent or less of the productive input. Contrast that to the less than 5 percent who own all the productive capital providing 90 percent or more of the productive input, and who initiate and oversee most of the technological advances that replace labor work by workers with capital work by the owners of productive capital assets. As a result, the trend has been to diminish the importance of employment with productive capital ownership concentrating faster than ever, while technological change makes physical capital ever more productive. Corporate decision makers know this, whether in the United States or China, or anywhere organized assemblies of people engage in production. Technology is an easier and faster way to get a job done. Because technology increases the profitability of companies throughout the world, technology always has the advantage over human labor when the costs of them are the same. But because this is not well understood, what we as a society have been doing is to continually shift the work burden from people labor to real physical capital while distributing the earning capacity of physical capital’s work (via capital ownership of stock in corporations) to non-owners through make-work job creation, minimum wage requirements, and welfare programs. Such policies do not function effectively.

I am not the only one that has arrived at the viewpoint that we are in great trouble. The Federal Reserve’s Lael Brained says the U.S. economic slowdown may be more than temporary. This is, of course, news to all the people who lost their jobs in 2008, are losing them now, and when new minimum wage laws are making employers look to robotics as a source of uncomplaining, non-human, and less expensive labor. As Brainard has put it, “The U.S. economy’s recent poor performance may be more than transitory, as the full impact of weak consumer spending, low investment and a strong dollar become apparent.”

As readers of Dr. Harold G. Moulton’s 1935 classic The Formation of Capital should be aware, the demand for new capital investment is a “derived demand.” Derived from what? From consumer demand, or (as Brained put it), “weak consumer spending.”

And why aren’t consumers spending? Because they don’t have money. Why don’t they have money? Because they’re not paid enough? No, it’s because they don’t OWN enough.

If you want people to spend money, you need to make it possible for people to make money. And what is doing most of the production in the world today? Human labor? No, it’s technology. And the proportion of technology just gets bigger every time you make human labor more expensive. It means that technology just became less expensive. This is the reason that millions have no jobs or are willing to work as wage slaves in China earning just 12 percent of average U.S. wages (or about $3,000 annually based on the medium wage in the U.S.).

There is nothing new to the realization that advancing technology has always eliminated jobs. It’s the nature of technology to do so. Technology replaces human labor in the production process, or no rational producer would purchase the technology. It is simply untrue that “technology creates jobs,” but instead advancing technology eliminates jobs.

So what does create jobs? As Dr. Harold G. Moulton demonstrated in The Formation ofCapital, increases in consumer demand create jobs by increasing the demand for machinery that requires human operators. Not the same jobs that technology eliminates, of course, but different jobs. And this is what the CNBC piece refers to: “training workers to use the technology is one of the greatest challenges for manufacturers.” Thus, the norm is that far fewer new jobs are created relative to a far greater number that are eliminated––but the new jobs are not the same jobs as eliminated. They are always new, different jobs. Further, it is never due to the introduction of machinery per se, but because of an increase in consumer demand.

Because of this fact, increasingly, new technologies are enabling companies to achieve near-zero cost growth without having to hire people. Thus, private sector job creation in numbers that match the pool of people willing and able to work is constantly being eroded by physical productive capital’s ever increasing role.

In America, as demands for increasing the minimum wage gain political favoritism, no one should be surprised that as a result raising the minimum wage will make robotic labor relatively less expensive and reduce consumer spending. All other things being equal, if you raise the price of something, people buy less of it. If you price something higher than a substitute, people will buy the substitute, especially when it turns out that the substitute does what you want done better and cheaper.

The only thing that’s going to increase consumer spending is empowering consumers to produce marketable products and services, either with labor or capital, the non-human factor of production. With labor jobs disappearing, that leaves capital, and ownership of capital is the only thing that gives someone the right to receive the income generated by productive capital assets. Thus, if we want to “strengthen” consumer spending, make people producers as well as consumers.

If we are to increase present-day low investment we need to make people producers with capital as well as with labor. This will increase the demand for productive capital, stimulating investment.

Unfortunately our taxpayer-supported R&D, which has been responsible for numerous new industries, has benefited a tiny group of OWNERS of the enterprises who have been able to game the system and be awarded the government contracts. Worse, we have allowed them to cede production of those lucrative markets to overseas manufacturers who employ slave wage labors rather than bolster U.S. manufacturing.

While we certainly need more public-private R&D partnerships, we need to ensure that  the R&D and manufacturing is co-located, and most importantly, we need to ensure that our government puts stipulations on awarding contracts dependent on full employee and other broad-based citizen ownership. We need to STOP the further concentration of new taxpayer-supported capital formation among the already wealthy OWNERSHIP class.

As for the reference to a strong dollar, this is only “bad” if exports are more important to domestic consumers than imports––and imports are only important if the domestic economy isn’t producing sufficient consumer products and services of the highest quality at the lowest price. A strong dollar actually increases domestic consumption by empowering consumers to buy more for less . . . IF consumers have buying power because they are OWNERS of capital assets getting increasing profits instead of laborers getting decreasing wages.

In summary, we require new economic policies which ensure that the ownership of productive capital assets be spread more broadly as the economy grows, without taking anything away from the 1 to 10 percent who now own 50 to 90 percent of the corporate wealth. Instead, the ownership pie would desirably get much bigger and their percentage of the total ownership would decrease, as ownership gets broader and broader, benefiting EVERY citizen, including the traditionally disenfranchised poor and working and middle class. Thus, productive capital income, from full earnings dividend payouts, would be distributed more broadly and the demand for products and services would be distributed more broadly from the earnings of capital and result in the sustentation of consumer demand, which will promote economic growth and more profitable enterprise. That also means that society can profitably employ unused productive capacity and invest in more productive capacity to service the demands of a growth economy. As a result, our business corporations would be enabled to operate more efficiency and competitively, while broadening wealth-creating ownership participation, creating new capitalists and “customers with money” to support the products and services being produced.

This is probably a lot of information to digest and it certainly requires that the reader “think.” To further explore the solutions, start with digesting the proposed the Capital Homestead Act at http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/ and http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/. See http://cesj.org/learn/capital-homesteading/ and http://cesj.org/…/uploads/Free/capitalhomesteading-s.pdf.

Also follow my blog at www.foreconomicjustice.org.

As well, support the Agenda of The Just Third Way Movement at http://foreconomicjustice.org/?p=5797, http://www.cesj.org/resources/articles-index/the-just-third-way-basic-principles-of-economic-and-social-justice-by-norman-g-kurland/, http://www.cesj.org/wp-content/uploads/2014/02/jtw-graphicoverview-2013.pdf and http://www.cesj.org/resources/articles-index/the-just-third-way-a-new-vision-for-providing-hope-justice-and-economic-empowerment/.