Problems of Made in USA

Paul Krugman of the NYTimes gives the almost sordid history of manufacturing jobs in the US over the past decade. Making Things In America, manufacturing, used to be one of the strengths of America. Here are the current trends:

The story so far: In the 1990s, U.S. manufacturing employment was more or less steady. After 2000, however, it entered a steep decline. The 2001 recession hit industry hard, while the bubble-fueled expansion of the decade’s middle years — an expansion marked by a huge rise in the trade deficit — left manufacturing behind. By December 2007, there were 3.5 million fewer U.S. manufacturing workers than there had been in 2000; millions more jobs disappeared in the slump that followed….

The Boston Consulting Group, which is now predicting a U.S. “manufacturing renaissance,” points to major U.S. firms like Caterpillar that once shifted production abroad but are now moving it back. At the same time, companies from other countries, especially European firms, are moving production to America.

There are two problems associated with this manufacturing renaissance. First as David Olive notes in the Toronto Star, America is becoming the World’s Latest Sweatshop. The details are startling.

…. the U.S. South is becoming the world’s sweatshop of choice.U.S. and a few Canadian manufacturers have long been relocating in the low-wage U.S. South. They’ve now been joined by European multinationals, most of which also operate in Canada. The Euros leave behind the social-justice practices of their homelands, as keen to squeeze blood from a stone as the most avaricious business operator.A stunning Human Rights Watch report from last September describes systematic exploitation of U.S. workers by such familiar European names as Ikea, Sodexo, BMW, Siemens, Daimler and Volkswagen.

“Even self-proclaimed ‘progressive’ companies can and do take full advantage of weak U.S. laws,” says Arvind Ganesan, HRW’s human rights program director. “The U.S. needs to close the loopholes in the country’s woefully inadequate laws to protect workers.”

The hypocrisy here stinks to the heavens. In Europe, minimum wages average $19 an hour. Governments mandate five-week paid vacations. Norway just introduced paid paternity leave. And most European multinationals not only are unionized, but union reps fall just short of a majority on many European corporate boards.

Many top European firms have joined “the race to the bottom” in employee costs.

So China is no longer the “off-shoring” jurisdiction of choice. With annual wage gains now averaging 15 per cent to 20 per cent, combined with stagnant wages in North America, China will lose its labour-cost advantage over North America in just four years time, according to a report this month by the Boston Consulting Group.

From Hamburg to Lyon to Stockholm, the question is why aren’t we serving the North American market from lower-cost facilities there? Which means that “guilt-free shopping” will soon mean avoiding “Made in USA” labels on products made by workers denied a decent living wage.The Euro-exploiters are especially drawn to the U.S. South, which for three decades have lured employers with so-called “right to work” laws. That’s an Orwellian term for government-sanctioned hostility to workers’ rights, including the right to organize.

In small-town Virginia, Ikea gets away with paying workers to make the components of its trademark bookcases just $8 an hour, and granting only 12 paid vacation days.In North American culture, jobs are dispensable. In Peoria, Ill., Caterpillar laid off 25,000 workers on one day in 2009. Try that in France or Italy and you’re inviting a national general strike.

U.S. officialdom has for years hectored other nations to upgrade their labour-rights standards. But as the HRW report shows, the issue is retrograde U.S. labour standards.

The irony here is that employee denigration does not work. German manufacturing pay averages 50 per cent higher than that of the U.S. Yet Germany enjoys a massive trade surplus. And America suffers a ruinous trade deficit, for all its disdain of European-style full-employment practices.

My local Staples manager complains he can’t keep employees “because we don’t pay much. I can’t blame them for leaving.” High turnover hikes training costs and annoys customers dealing with staff who lack product knowledge.

This a social-justice issue, no mistake. But really it’s the hard-headed business strategy of a Henry Ford, who paid above-average wages to spur consumption.It’s the reason today that Costco, with its outsized employee benefits, outperforms Wal-Mart. (Costco shares have increased 133 per cent over the past decade, to Wal-Mart’s measly gain of just 6 per cent.)

So manufacturing in America comes at a price – low wages, benefits and no union protection on working conditions and treatment seems to be a major requirement for jobs. But there is a consequence to the long slow comeback in manufacturing jobs. And fellow NYTimes David Brooks catches the tough problem there. Manufacturing jobs tend to be predominately male employement. But as already seen, manufacturing jobs just have not comeback to the tune of 4-7 million. The result is described by Brooks:

… Americans have always been known for their manic dynamism. Some condemned this ambition as a grubby scrambling after money. Others saw it in loftier terms. But energy has always been the country’s saving feature.

So Americans should be especially alert to signs that the country is becoming less vital and industrious. One of those signs comes to us from the labor market. As my colleague David Leonhardt pointed out recently, in 1954, about 96 percent of American men between the ages of 25 and 54 worked. Today that number is around 80 percent. One-fifth of all men in their prime working ages are not getting up and going to work.

According to figures from the Organization for Economic Cooperation and Development, the United States has a smaller share of prime age men in the work force than any other G-7 nation.

So the US should be doinng what China is doing in defiance of the WTO rules – identifying leap ahead industries and providing incentives to encourage hiring in those industries. And following the Pay-As-You-Go dictum the moneys should come not from spending cuts elsewhere but  from higher capital gains taxes for finacial hedge funds and banks. These firms are hoarding capital, extremely generous with their own pay,  and being stingy on small business loans – so raise  their current very low capital gains taxrates to finance the startups and investors that bring new and well paying manufacturing jobs to the US. Yet don’t do a blind giveaway. Instead reward companies preferentially that are environmental, energy-saving, and labor wage and working conditions  good citizens. In sum, its ast time to recognize that US propsperity for a hundred years has been built ondomestic consumption [to the tune of 70-80%].  Racing to the bottom in labor costs is just killing the golden goose, a broad middle class with good working wages, that brought continuing economic prosperity to America. The first political party that grasps and implements  this basic economic tenet will do very well indeed.

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