Executive Summary...
The Hollow American Economy -
A Clarion Call for
Leadership
By Bill Waddell
The
path we have followed for almost 30 years to replace our
manufacturing economy with a service economy has failed
by every significant measure. The trade imbalance
documents the transfer of wealth from United States to
China and other countries at an alarming rate. Ten
million manufacturing jobs have been lost and replaced
overwhelmingly with lower paying service jobs in areas
such as food service, hotel and janitorial work, eroding
the middle class and widening the income gap between us.
The only higher end service jobs to show substantial
growth have been in government and in the financial
services area. The financial service jobs have actually
led to even greater problems as the glut of people in
those jobs have created ever more dangerous financial
mechanisms that contributed quite a bit to our current
economic crisis.
The
loss of manufacturing jobs would not be problematic if
the widespread myth of higher productivity were true –
but is not. The Bureau of Labor Statistics acknowledges
(but does not widely publicize) the fact that they
cannot discern the difference between productivity and
the effect of outsourcing components to low cost
countries. In fact, most of the ten million job loss is
attributable to outsourcing to China, rather than
productivity.
The
push to boost the economy through an emphasis on
innovation has merit, but only if it is coupled with a
strong manufacturing base. Ideas have value only when
they become reality. If we generate a steady stream of
ideas, but allow everyone else to reap the rewards of
turning those ideas into tangible products, our
innovation will only build the wealth of other
countries. It was the one-two punch of innovation and
manufacturing that created our great economy and it is
that combination that will restore it.
Service
jobs have proven to contribute little to our trade
imbalance. Foreign students matriculating at American
universities, foreign tourists visiting Disney World,
and foreigners watching our movies and listening to our
pop music do not even offset the loss of call center and
technical support jobs to India, let alone the transfer
of nearly half of our manufacturing base to other
countries. The explosion in our trade imbalance is proof
enough that there is no great global demand for our
services to offset our transition from exporting to
importing goods.
The
theories used to justify global manufacturing were
originated on the availability of natural resources, but
we have fallen victim to the allure of cheap prices and
used them to justify pursuit of cheap labor, without
understanding the inevitable erosion of our national
wealth it is causing. There is no economic justification
in the long term for giving away our grandchildren’s
standard of living in the name of globalization. We are
merely taking short term advantage of the poverty that
exists in many countries, and giving our economy away in
the process.
The
only solution is to re-energize our manufacturing
capability. Such a national priority does not mean
throwing public money at manufacturing, settling for
high prices, or promoting a “Buy American” obligation.
Companies like Honda, Toyota, Pella and Wahl have
recognized a fundamental change in the nature of
manufacturing over the last thirty years, and have
changed their management processes accordingly. They and
many others are succeeding with American labor costs,
taxes, and paying American energy and health care costs.
Those things present difficulties for American
manufacturers, but they are not the major obstacle. The
larger problem is that our regulatory and financial
institutions have not changed. They still mandate
management practices that are destructive to
manufacturing, and the more closely tied a company is to
Wall Street, the more likely it is to transfer
manufacturing to China. Privately held, and foreign
owned companies such as those mentioned succeed without
outsourcing because they have no obligation to satisfy
Wall Street.
We need
a very high level, bi-partisan effort to thoroughly
examine manufacturing, the obstacles we have placed in
front of it, and the actions needed to rebuild it. It is
important to acknowledge that the manufacturing decline
has been steady and steep across every administration
from Reagan through today – and the actions of the Obama
administration are only worsening the problem. Both
parties contributed, and neither has the solution.
Cutting taxes, creating new government agencies, and the
other boilerplate solutions the parties advocate for
every problem are not the solution. It is also important
to realize that Wall Street and the labor unions are
self-serving fringe groups and neither plays a
productive role in manufacturing. The unions represent
just 13% of manufacturing labor, and most of those
people are in failing companies; and, as stated, Wall
Street is a big part of the problem. Furthering their
narrow interests will only make matters worse.
The
inability of the BLS to accurately discern productivity
versus outsourcing must be remedied immediately. Hiding
the rampant erosion of our nation’s wealth with false
information cannot continue.
Wall
Street must be examined with a skeptical view, and the
rules rewritten to eliminate their short term focus, and
self-serving and destructive practices. They must be
returned to their primary purpose – to facilitate the
lasting value of American companies and their serious
investors. We must get away from using daily
fluctuations in the Dow Jones Average as our primary
measure of the economy, and replace it by measuring the
number of true value creating jobs.
A
complete overhaul of accounting standards must be made.
The world’s leading manufacturers view inventory as
waste, while our laws define it as an asset. The best
manufacturers provide lifetime employment for their
workers, while our accounting systems center on driving
labor spending to its lowest possible level. With all of
the focus on auto worker wages and benefits, few people
realize the cost of a GM car includes much more for
sales, marketing and advertising expenses than for
factory labor. We cannot continue to mandate accounting
regulations set in place in 1952 and expect
manufacturing to manage effectively with those numbers
in 2009.
Perhaps
most important we need fresh thinking and a clearer
understanding of Main Street American manufacturing, and
its problems and its potential. At the end of the
current administration we will have had 28 consecutive
years of Ivy League (the bastion of globalization and
service economy thinking) leadership that, regardless of
party, has drawn from the same small circle of thinkers
to create every regulation, and to sit at the head of
every financial and regulatory institution. Few, if any,
of these people, have any direct knowledge of
manufacturing, and few, if any, have any direct
knowledge of the disaster their theories have brought to
Main Street America.
Manufacturing in America can still come back. There are
thousands of men and women in this country who compete
toe to toe every day with the best in the world – and
succeed. They do so, however, in spite of their
government and the financial institutions. They can
restore our economy, but they are issuing a clarion call
for leadership, and are running out of time.
This is a summary of the full article. For supporting
data and a full explanation of the issues, and the
solutions, please read “The
Hollow American Economy – A Clarion Call for Leadership”
in its entirety.
