Transcript Steel Production - Northeastern University

GLOBALIZATION AND THE US
MANUFACTURING SECTOR
Open Classroom Series
SHOULD THE UNITED STATES HAVE A
POLICY OF SUPPORTING A DOMESTIC
MANUFACTURING INDUSTRY?
QUIZ: WHAT COUNTRY HAS THE LARGEST
MANUFACTURING ECONOMY IN THE WORLD?
The United States
…for now
http://www.ihsglobalinsight.com/Perspective/PerspectiveDetail9537.htm
Copyright ©2009 IHS Global Insight
“By day the Ostia road was crowded
with carts and muleteers, carrying to
the great city the silks and spices of
the East, the marble of Asia Minor, the
timber of Atlas, the grain of Africa
and Egypt; and the carts brought
nothing out but loads of dung. That
was their return cargo.”
-- the economy of ancient Rome as chronicled by Winwood
Reade’s in his 1872 volume The Martyrdom of Man
Today, America’s biggest export via ocean container is waste paper.
Richard McCormack, “The Plight of American Manufacturing.” The American Prospect, January 2010.
IMPORTS TO THE U.S. BY RETAILER
Containers of sophisticated manufactured products
from overseas factories.




Wal-Mart
Target
Home Depot
Sears
720,000
435,000
365,200
248,600
Richard McCormack, “The Plight of American Manufacturing.” The American Prospect, January 2010.
U.S. SHARE OF GLOBAL MARKET
 Printed Circuit Boards
8%
 Solar Photovoltaics
5.6%
 Wind-energy equipment 18.6%
 Cell Phones
4.5%
 Semiconductors
17%
 Autos
12%
 Machine Tools
5.1%
Richard McCormack, “The Plight of American Manufacturing.” The American Prospect, January 2010.
Reviving American Manufacturing
Special Issue by The American Prospect
The Plight of American Manufacturing
By Richard McCormack
Something has gone radically wrong with the
American economy. A once robust system of
“traditional engineering” – the invention, design,
and manufacture of products – has been replaced
by financial engineering.
Without a vibrant manufacturing sector, Wall
Street created money it did not have and
Americans spend money they did not have.
STEEL PRODUCTION
14
 How 12many hours of labor does it take 12to produce a
ton of steel?


…10in the United States?
… 8in China?
6
4
2
2
0
US
China
Richard McCormack, “The Plight of American Manufacturing.” The American Prospect, January 2010.
AMERICAN COMPANIES HAVE DIFFICULTY COMPETING
AGAINST FOREIGN COUNTRIES THAT
 Undervalue their currency
 Pay healthcare for their workers
 Provide subsidies for energy, land, buildings, and
equipment
 Grant tax holidays and rebates
 Provide zero-interest financing
 Pay their workers poverty wages
 Don’t enforce safety or environmental regulations
Richard McCormack, “The Plight of American Manufacturing.” The American Prospect, January 2010.
PERHAPS THAT DOESN’T MATTER
 Perhaps it’s just natural that lower-end manufacturing
jobs will inevitably continue to shift to other parts of the
world with lower labor costs.
 The United States will just focus on the highest portion
of the value chain – research, design, innovation, highend manufacturing, etc.
. . . NOT SO FAST
CONNECTION BETWEEN MANUFACTURING AND
RESEARCH AND DEVELOPMENT
“That American technological supremacy has declined alongside its
manufacturing supremacy should come as no surprise.
“The proximity of research, development, and manufacturing is
very important to leading-edge manufacturers.”
Report from President George W. Bush’s Council of Advisers
on Science and Technology, 2004.
“The shift of manufacturing to lower-cost regions is beginning to pull
high-end design and R&D capabilities out of the United States.”
Richard McCormack, “The Plight of American Manufacturing.” The American Prospect, January 2010.
SHIFT OF R&D TO OTHER NATIONS
 Georgia Tech’s biennial “High-Tech Indicators”
 From 2005 to 2007, China increased 9 points moving ahead of
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

the U.S. for the first time.
America’s technological standing peaked in 1999 at 95.4;
declining to 76.1 by 2007.
China is now at 82.8.
South Korea, Singapore, Taiwan, Brazil, and India all increasing
their technological capacity.
Richard McCormack, “The Plight of American Manufacturing.” The American Prospect, January 2010.
FEDERAL POLICY ON R&D
 The U.S. research and development tax credit is now
lower than those of 17 other nations.
 “Decoupled from domestic manufacturing, the tax
credit no longer pays for itself as it once did.”
Richard McCormack, “The Plight of American Manufacturing.” The American Prospect, January 2010.
 The United States is the only nation among the G-20 not to have
a significant “buy domestic” procurement program, yet no single
economic stimulus initiative would do more to resuscitate U.S.
employment and reduce our massive trade deficit.
 In May, China, the largest exporter of goods to the U.S.,
confirmed its policy of 100% of domestic procurement.
Leo Hindery et. als, “FDR Had It Right.” The American Prospect, January 2010.
“Playing Ourselves for Fools”
The trading system America sold the world is killing U.S. industry. Here’s a better way.
By Robert Kuttner
17
“After WWII, the U.S. was so far ahead that it didn’t
matter if military allies like Germany or France, Korea
or Japan, practiced a somewhat different form of
capitalism, namely state-led economic development,
or that contrary to the dogmas of laissez-faire, stateled development actually worked.”
Quiz
 In the United States, what do many people call
“state-led economic development?”
SOCIALISM
State-led Development in the U.S.
 “We had our own vast, unacknowledged system of
industrial planning and research and
development.”
THE PENTAGON
 U.S. industry was enjoying huge spillovers from
technology created by military agencies such as
the Defense Advanced Research Project Agency,
and from research spending of the National
Science Foundation and National Institutes of
Health.
Robert Kuttner, “Playing Ourselves for Fools.” The American Prospect, January 2010.
Remember the concept of “mercantilism?”
Laissez-faire vs. Mercantilism
“The role model for newly emergent nations is not
the laissez-faire model that the United States is
promoting to the world but the frankly mercantilist
forms of capitalism such as those of Korea and
Brazil.”
– Robert Kuttner
Robert Kuttner, “Playing Ourselves for Fools.” The American Prospect, January 2010.
U.S. Failure to Recognize and Deal with
Mercantilist Policies of Other Nations
 “Trade talks failed to sufficiently clarify which
policies of industrial aid, applied R&D assistance,
wage subsidies, regional policies, domestic content
requirements, and other forms of mercantilism are
legitimate tools of economic development and
which ones are predatory.”
– Robert Kuttner
Robert Kuttner, “Playing Ourselves for Fools.” The American Prospect, January 2010.
Concessions by U.S. Companies
In exchange for access, U.S. companies –
 Accepted deals to shift their research, technology and
production offshore, sometimes in exchange for explicit
subsidies for land, factories, and research and development,
and the implicit subsidy of low-cost labor and weak
environmental and safety regulations.
 Sometimes – “if you want to sell here, you must manufacture
here.”
 Or, “you can manufacture here but only for re-export to your
own domestic market and not for local sale.”
Robert Kuttner, “Playing Ourselves for Fools.” The American Prospect, January 2010.
Quiz: Chinese Tires
In September 2009, President Obama imposed tariffs on imports
of tires made in China. Which of the following companies and
organizations supported the President’s actions?
a.
Bridgestone
b.
Cooper
c.
Firestone
d.
B.F. Goodrich
e.
Goodyear
f.
Michelin
g.
Pirelli
h.
U.S. Rubber Company
i.
U.S. Tire Industry Association
U.S. companies and political support for
an industrial policy
“The ranks of companies that behave like patriots have
dwindled.
“Most big multinationals are now too cozy with foreign
mercantilists to put up much of a fuss.
“It has fallen to smaller companies, trade unions, and a few
larger firms still committed to manufacturing domestically,
such as Corning and U.S. Steel, to fight to continue
production within the U.S.”
Robert Kuttner, “Playing Ourselves for Fools.” The American Prospect, January 2010.
“Losing Our Future”
If we don’t develop a national industrial policy for clean-energy production,
the strategies of other nations will displace American companies and jobs.
BY JOAN FITZGERALD
 Total global investment in wind and solar technologies could
be worth as much as $3.6 trillion by 2030. (U.S. Energy Information
Administration)
 70-75% of jobs in wind and solar energy are in manufacturing
 The U.S. is headed down a path that will render us consumers

of renewable energy – but not leading innovators of
manufacturers.
We already have an annual trade deficit of over $6 billion in
renewable energy, while nations like China, Germany and
Japan are widening the lead.
Joan Fitzgerald, “Losing Our Future.” The American Prospect, January 2010.
RENEWABLE ENERGY &
MANUFACTURING POLICY
Other countries have deliberate policies to link
innovation in renewable energy to manufacturing
advantage.
 Commercializing
products resulting from subsidized
research and development
 Subsidizing education of skilled workers
 Using domestic green-energy requirements to help launch
export champions
Joan Fitzgerald, “Losing Our Future.” The American Prospect, January 2010.
GERMANY
Since the 1970s –
• Federal investment in research and development
• Direct subsidies
• Tax allowances
• Loans for renewable energy
1991 – “Feed-in tariff” requires utilities to purchase all the renewable energy
that is produced, at prices set by the government
 Policies seek to keep high-end manufacturing in Germany


Although Germany is neither windy nor sunny, it is among the world’s leading
exporters of wind and solar technology
Employment in renewable energy is at 273,700 with expectations to grow to
400,000 by 2020.
Joan Fitzgerald, “Losing Our Future.” The American Prospect, January 2010.
China
As with manufacturing in general, China’s
approach to the manufacturing segment of
renewable technologies includes:
 Massive
subsidies
 Pricing below cost to capture market share
 Closed supply chains
 Requirements that foreign companies produce for
export but not for China
 Coercive technology transfer
Joan Fitzgerald, “Losing Our Future.” The American Prospect, January 2010.
China
 China’s goal is to become a leading manufacturer of solar and




wind equipment.
Expanding wind-power capacity from 5,600 megawatts in
2008 to 100,000 by 2020
Raised tariffs on imported wind turbines
Increased domestic content requirements for wind-farm
developments from 40% in 1996 to 70% since 2004
China has more than 100 solar companies accounting for onethird of global solar production
Joan Fitzgerald, “Losing Our Future.” The American Prospect, January 2010.
STIMULUS WITHOUT AN INDUSTRIAL
POLICY
 Without a national strategy for linking renewable
energy to domestic production, the stimulus package
has given 84% of the $1.05 billion in clean-energy
grants to foreign wind companies.
 $545
million to Iberdrola S.A. (Spain)
Joan Fitzgerald, “Losing Our Future.” The American Prospect, January 2010.
TEXAS WIND FARM
 $1.5 billion wind farm, applied for federal funds
through the stimulus package
 Would create 300 jobs in the U.S.
and 2,000 jobs in China!
Joan Fitzgerald, “Losing Our Future.” The American Prospect, January 2010.
“FDR Had It Right”
If the economy is going to come back, we need to buy
– and make – American.
By Leo Hindery Jr., Edward G. Rendell, Leo W. Gerard,
Donald W. Riegle Jr., and R. Thomas Buffenbarger
“Our greatest primary task is to put people to work.
Our international trade relations, though vastly
important, are in point of time and necessity
secondary to the establishment of a sound national
economy.”
-- President Franklin D. Roosevelt in his first inaugural addess
Inevitable shift to an economy without
manufacturing?
 Even though more than 5.5 million manufacturing
jobs have been lost just since 2000, mostly
overseas, some believe that the decline in our
manufactured goods can be made up by a
favorable trade balance in products such as
software, legal services, university tuition, and
motion pictures.
They couldn’t be more wrong.
Leo Hindery et. als, “FDR Had It Right.” The American Prospect, January 2010.
Manufacturing as Critical Component of
Economy
 America cannot prosper over the long-term with less than
12% of GDP from manufacturing.
 This sector should generate at least 20% of GDP.
 When it does, 12 million more workers will be employed
directly, and another 30 million indirectly due to the high
multiplier effect of new manufacturing jobs.
Leo Hindery et. als, “FDR Had It Right.” The American Prospect, January 2010.
Importance of Manufacturing Jobs
 Compensation for manufacturing jobs is on average 15%



greater than for non-manufacturing jobs.
Manufacturing offers the best opportunities to women and
people of color for wage parity.
Manufacturing has by far the largest multiplier effect of all
job sectors, creating $1.40 of additional economic activity for
each $1 of direct spending, 2.5 other jobs for each job in the
sector, and at the upper end, 16 associated jobs for each
high-tech manufacturing job.
Service jobs create, on average, 1.6 associated jobs.
Leo Hindery et. als, “FDR Had It Right.” The American Prospect, January 2010.
“The world’s largest economy can no longer count on
consumer spending to drive demand, nor can it rely
on Wall Street financial wizardry if it wants its
population to continue to enjoy a high standard of
living. GE, like many U.S. companies, has turned too
many core technological procedures over to outside
contractors and foreign operations and has
outsourced too much.”
-- Jeffrey Immelt, CEO of General Electric
Leo Hindery et. als, “FDR Had It Right.” The American Prospect, January 2010.
Support for Manufacturing Among Individual
American Citizens
2006 survey by Republican Pollster Frank Luntz for
the Public Policy Fund
 88%
of Americans consider manufacturing extremely
or very important to the American economy, vs.
o 70% felt that about services
o 69% about finance
o 69% about information technology
Harold Meyerson, “The Politics of Industrial Renaissance.” The American Prospect, January 2010.
American attitudes about manufacturing
 While Americans believe that the U.S. leads the
world in services, finance and information, 72%
believe that we no longer lead the world in
manufacturing.
 Asked to choose between leaving manufacturing to
other nations while we focus on cultivating our
service and professional sectors vs. fostering
domestic manufacturing, 81% chose the latter.
OBAMA AND INDUSTRIAL POLICY
Ron Bloom
 Senior
Counselor for Manufacturing Policy
 Financial Whiz
 Harvard MBA
 Worked for years in investment-banking before taking a
job with the United Steelworkers to help restructure
companies and ensure their survival.
 Served on Obama’s Task Force on the Automotive
Industry
Richard McCormack, “The Plight of American Manufacturing.” The American Prospect, January 2010.
WHAT DO YOU THINK?
 Should the United States have a policy
of supporting a healthy domestic
manufacturing industry?
Slides Not Used
U.S. pushback against mercantilist policies
 President Reagan
 Under Presidents George H.W. Bush, Bill Clinton,
and George W. Bush, the U.S. government largely
ceased defending U.S. manufacturers against
predatory practices of foreign companies and
states.
 Most American multinational companies,
abandoned by their government, have been left to
make a separate piece with foreign mercantilist
practices.
Robert Kuttner, “Playing Ourselves for Fools.” The American Prospect, January 2010.
Military Policy
 Purchase of U.S. weapons systems by ally countries
 Offset requirements – sometimes 100% or more
Robert Kuttner, “Playing Ourselves for Fools.” The American Prospect, January 2010.
“What domestic manufacturers want is for the U.S. government to
shift its economic policies away from consumption to incentives
that favor investment in new factories, equipment and jobs in the
United States.
They want the United States to abandon policies that favor
geopolitical global interests that have no regard for the
economic health of the United States and its millions of
taxpayers and retirees.”
Richard McCormack, “The Plight of American Manufacturing.” The American Prospect, January 2010.