Manufacturing Hubbub

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American manufacturing is in decline. It has been for decades, shrinking to half of what it was at its peak in 1979. During the 2000s alone, it lost one-third of its workforce — largely blue-collar workers who, without a college education, could still earn a middle-class wage — and, today, its output and employment remain below their pre-recession levels.

Who cares? We still make stuff. And we still have enough money to get the stuff we don't make — from countries such as China and Mexico, at cheaper prices. In an advanced, services-oriented economy like ours, so what if our trade balance (which was in surplus prior to the mid-1970s but has been in deficit since) has plummeted to -$508 billion (-$741 billion for manufactured goods) today? We can always borrow or print more money. Right?

By outsourcing critical engineering and manufacturing expertise, the US is frittering away its industrial leadership.

Indeed, politicians, especially liberal politicians, welcome the decline. America has the coolest companies (Facebook, Amazon, Google, Apple, etc.), run by cool, billionaire geniuses. President Obama, our coolest president, uses them to run his campaigns, promote his polices, tweet his followers (a twitterati of 63 million), and post his selfies. America's future lies with these energy-efficient, planet-friendly, high-tech giants. To the liberal elite, America can do with fewer factories, even ones making things that America invented. Besides, factories pollute and warm the planet.

Except that America is now losing its high-tech manufacturing dominance as well. By outsourcing critical engineering and manufacturing expertise, the US is frittering away its industrial leadership, eroding what once was the world's font of scientific discovery, technological advance, and product innovation, and guaranteeing future decay. In a 2009 Harvard Business Review article (“Restoring American Competitiveness”), it was noted that "Beginning in 2000, the country’s trade balance in high-technology products — historically a bastion of U.S. strength — began to decrease. By 2002, it turned negative for the first time and continued to decline through 2007," reaching -$53.6 billion. Today, it has dropped to -$81 billion.

This development has even alarmed the Center For American Progress (CAP), which attributed the deterioration to "the dramatic difference between U.S. innovation policies and those of our global competitors." The high-tech trade deficit "finds its roots in the negligence of our innovation policy," claimed CAP, which, after deep liberal think-tank thought, recommended "a strong policy response." Maybe, liberals suggested, a Department of Innovation is what this country has needed all along — one with strong policies, not those negligent ones.

In President Obama's first Hub, a handful of highly paid computer engineers diligently work to develop machines that will eliminate countless blue-collar jobs.

CAP's prescription may have been what caused President Obama to spring into action with his Manufacturing Innovation Hubs, to "create high-quality manufacturing jobs and enhance America’s global competitiveness." The idea is to bring industry, academia and, of course, government together into a joint effort to convert scientific knowledge into jobs — "a steady stream of good jobs into the 21st century," said Mr. Obama.

The first such hub, America Makes, opened for business in October 2012 in the Rust Belt city of Youngstown, Ohio. It focuses on 3D printing, and will be used as a model for subsequent hubs. As many as 45 hubs are planned, with projects that are intended to have a multiplier effect: each job created will support 1.6 other jobs, outside the factory. A Reuters article described the facility as "a sleek new laboratory" housing "a Silicon Valley-style workspace complete with open meeting areas and colorful stools." Inside, "Several 3-D printers hum in the background, while engineers type computer codes that tell the machines how to create objects by layering materials." That is, a handful of highly paid computer engineers diligently work to develop machines that will eliminate countless blue-collar jobs.

As of March 2014, when the Reuters article was published, none of the six businesses participating in America Moves had hired new workers. But the government component, the National Center for Defense Manufacturing and Machining (an organization funded by the US Army, i.e., funded by taxpayers), which manages the project, had hired ten. At this rate, 450 jobs will have been created when all 45 hubs are operational, soaring to 1170 jobs once the multiplier effect kicks in.

To be fair, it’s too early to tell how much of a dent, if any, Obama's struggling Hubs scheme will put in the 5.7 million manufacturing jobs that have been lost since 2000. For example, at a similar stage, the success of Obama's green economy scheme could not be determined. But after spending billions of dollars on green manufacturing companies such as Solyndra (solar panels), Nordic Windpower (windmills), and A123 (lithium batteries), all of the green jobs that were created ended up in China — which now manufactures all of our high-tech solar panels, windmills, and batteries. Whoops, bad example. But at least the Hub jobs have not left America, yet.

In 2011, Mr. Obama — the man who said that he wakes up every morning and goes to bed every night thinking about jobs — held a “town hall” meeting at Facebook, to discuss his economic policies. To Obama, Facebook is especially cool. Its young multi-billionaire CEO, Mark Zuckerberg, wears a hoodie to work. Its 500 million users (at the time) were available to watch Obama pal around with Zuckerberg, who "offered questions submitted online that gelled with Obama's key talking points and victories."

To Obama, factories are hulking, dilapidated buildings where glum Americans used to work, producing goods the world used to buy from us.

No one asked why — if Mr. Obama cared about creating jobs, in general, or manufacturing jobs, in particular — he didn't choose a company like Boeing, which, in 2011, was comparable in value (about $50 billion) to Facebook? Boeing — which is the only remaining American manufacturer of large jetliners in our declining Aerospace industry — employed 160,000 workers. Facebook, which apparently manufactures little more than narcissism and low self-esteem, only employed 2,000, all of whom, no doubt, gelled with Obama.

Factories, on the other hand, do not gel with Obama. To him, they are hulking, dilapidated buildings where glum Americans used to work, producing goods the world used to buy from us. That is why the regulatory policies he supports are designed to ensure fewer factories. The annual cost to comply with federal regulations for the average US manufacturing company is almost $20,000 per employee, twice that of the average US company (manufacturers included). For a small (<50 employees) manufacturing company, perhaps an innovative startup firm inspired by an Obama Hub, the cost is almost $35,000.$35,000! So much for global competitiveness.

Factories provide middle-class jobs for blue-collar workers. And, at $77,506 per year ($37.26 per hour), the average compensation for US manufacturing workers, millions of jobless Americans would like to see more of them — and may have wondered why Mr. Obama chose an Amazon fulfillment center as a venue to pitch middle-class jobs. Amazon is where middle-class jobs go to die.

Most of Amazon's 150,000 employees are seasonal workers — 80,000 of them hired just last year — who make $10 to $11.50 per hour, when there is work. Known as "pickers," they scurry about "the massive warehouses plucking item after item for shipment" and are paid no more than Walmart's "lumpers," who scurry about loading and unloading trucks all day. A smattering of Amazon employees, the ones with the good middle-class jobs ("the skilled direct-hire positions, like supervisor or forklift operator — the sort of gigs hyped during a high-profile visit by the president") shared Obama's stage. The pickers were offstage, scurrying. The slowest scurriers are discarded at season's end, or sooner; the fastest are rewarded with full-time employment, where they can earn as much as $27,000 per year, for as long as it takes Amazon to find robots that are faster.

Of Obama's visit, the White House asserted, “The Amazon facility in Chattanooga is a perfect example of the company that is investing in American workers and creating good, high-wage jobs.” No wonder he brags about the record-breaking number of fast-food and service jobs that his economic policies have created. He thinks they are high-paying, middle-class jobs.

Obama thinks that a steady stream of $27,000 service jobs is thrusting the economy in the right direction.

High-tech companies such as Amazon, Google, and Facebook, as important as they are to our economic power and prosperity, are not the places to go for middle class job creation. The American manufacturing industry is a much better bet. Existing US manufacturing companies would export more products if they were allowed to compete on a level playing field with foreign trading partners. Subsidies and tariffs are not needed. They would hire more workers, if they expected higher profits — profits now eroded by excessive taxes and regulations. A steady stream of $77,506 manufacturing jobs would stimulate the economy, increase tax revenues, reduce the trade deficit, and do many other substantial things.

Despite almost seven years of economic stagnation and the rise of a vast underclass of Americans stuck with lousy jobs, Obama thinks that a steady stream of $27,000 service jobs is thrusting the economy in the right direction. US manufacturing, hobbled by his trade, tax, and regulatory policies, needs only a nudge from his manufacturing hubs.

But it's not clear that Obama's Hub program is the place to go for good manufacturing jobs either. After all, it is a scheme whose principal objective is to invent and develop machines that will eliminate manufacturing jobs. Then there is his bizarre fascination with high-tech companies that either employ a very small number of the high-wage, high-skill elite or very large numbers of the low-wage, low-skill drudge.

His Hub scheme may indeed help US manufacturers. They would certainly welcome any technology that increases their productivity and profits — especially if it was paid for with taxpayer money instead of company R&D funds. Companies such as Amazon may already have agents salivating in the demonstration areas of the robotics hubs, looking for faster pickers. But peering inside a future factory spawned by Obama Hub technology may surprise even Mr. Obama.

These factories will not create the "steady stream of good jobs into the 21st century" that he had hoped for. Rather, they will create a flood of lousy, underclass jobs — the scurrying human labor needed to feed parts and raw materials to Obama's deft, voracious machines, and relieve them of their prodigious yield. All the jobs in such a factory will be held by these pickers and lumpers, except for one: the cool job held by a geeky-looking guy from an elite engineering school, who runs the factory computer system and earns a six-figure salary. He wears a hoodie and fastidiously controls every function performed (by both scurriers and machines) for the entire operation, from his colorful stool. He gels with Mr. Obama.




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Comments

Fred Mora

Interesting article. Obama's hubs are a thowback to the French Revolution of 1848, which was less violent than the 1789 one where the king, nobles, scientists, bourgeois, and random civilians were exterminated.

The 1848 provisional government was concerned with the high unemployment rate and created the National Workshops, a set of government-subsidized workshops created in February 1848 to employ idle workers of many trades, mainly in Paris.

By May, as many as 100,000 workers were employed in these state-run workshops, at great expense, producing little of value (and also building some roads of dubious usefulness). The few marketable goods produced by the Workshops competed against privately produced goods, at a time when unemployment was very high and money scarce. All of this was financed by new taxes, especially on land, which hit farmers hard.

In June 1848, the cash-strapped government lost the elections. The new government closed the National Workshops, and of course faced a riot from the beneficiaries of these cushy jobs.

I'm curious to see what will happen when the last of Obama's hubs closes.

Meanwhile, City Journal reports a small manufacturing rebirth in Brooklyn, New York: http://www.city-journal.org/2015/25_2_brooklyn-industry.html. Under Giuliani, NYC renovated the old Navy Yards where new companies are opening, but the Federal gummint is not part of the picture.

Jacques Delacroix

I am puzzled by the opening paragraph: "...today, its output... recession..."

Do you mean that manufacturing output is below pre-2008 level or what do you mean?

I don't think the value of US manufacturing is below 2008 level. If you don't mean value, what do you mean?

If the value of US manufacturing is, in fact, below 2008 level, what implications does this have? You seem to be speaking about de-industrialization. (Correct me if I am wrong.) But a decline lasting 6 years would not speak to that issue if it were an issue.

It seems to me that you are conflating different things: number of manufacturing jobs, value of manufactures. It's wrong to do this because the two don't move together. Fewer jobs and greater value are completely compatible with each other.

You also seem to treat in a deprecating manner "service jobs": brain surgery, music, engineering consulting?

Did I mistake your meaning?

Steve Murphy

Don't be puzzled. The first paragraph simply introduces the fact that US manufacturing has been in decline for decades. The rest of the essay is a satirical treatment of the Obama administration's feckless attempt to reverse the trend, by helping manufacturers with innovation that Mr. Obama believes will create a steady stream of high-wage, 21st century jobs.

But your questions are important.

Regarding value, US manufacturing output, as a percentage of GDP, has declined from 21.3% in 1979 to 15% in 2000 to 12.1% in 2007 (just before the recession began) to about 11% today. And manufacturing employment has experienced a similar decline.

I agree with your comment, "Fewer jobs and greater value are completely compatible with each other," and did not state otherwise. Productivity gains, which have been the hallmark of American manufacturing, allow a smaller number of workers to produce the same, or a larger, quantity of output.

But if manufacturing output growth keeps up with GDP growth, then, even with productivity gains, more workers will be required. That is, more manufacturing jobs and greater value are also compatible. And this was the case until 1979. After 1979, total manufacturing output continued to increase, along with productivity gains, but, as a share of GDP, decreased.

A theme of the essay is that more manufacturing value with more manufacturing jobs is possible, and preferrable. For example, in Germany, a country that specializes in the production of high-value goods, manufacturing is 20% the labor force. In the US, it is only 10%. Further, at $77,506 per year, more manufacturing jobs is certainly preferrable to more lousy jobs -- the low-wage jobs (burger flippers, pickers, lumpers, etc.) that Obama's policies are creating.

As to your service jobs comment, I could not find where the essay deprecated them. But, if there are brain surgeons, musicians, engineers, etc. who are working for $27,000 per year, I would be delighted to do so.

Thanks for your interest,
Steve

Jacques Delacroix

Steve: Thanks for the elaboration but I think it's not enough.

You did make a deprecating comment about "services jobs." I just drew the readers' attention to the fact that "Services" is such a heterogeneous category that it has become useless. Yes, burger flippers, but also software architects and, by the way, well-paid welders who are in much demand.

Your correction using "US manufacturing output, as a percentage of GDP," is also misleading. If manufacturing output quadrupled, while services output quintupled, the manufacturing % would decline but we would all be very happy.

I don't know why you used this measure but it does not help. It also gives new life to the widespread fallacy of a de-industralizing USA. The simple truth is that the value of US manufacturing goes up year by year, or nearly so. Will you say it?

Anyone would like to see more manufacturing jobs paying $77,506 per year. There are reasons lodged in international trade and investment that explain why we don't have much of a rise in those.

I don't know if you know it or not, but your essay is a good introduction to a call for a new national protectionism.

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