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Manufacturing key to Ohio’s recovery

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Reposted from The Middletown Journal

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Manufacturing key to Ohio’s recovery

Steve Bennish | February 21, 2012 | Middletown Journal

The United States must develop a coordinated national strategy to strengthen manufacturing, a slowly recovering but vital segment of Ohio’s economy, or risk decline and being overtaken by other nations, according to a new report from the Brookings Institution.

The report from the nonprofit policy think tank in Washington, D.C., joins a growing chorus of voices from President Obama, leading conservatives like Republican Sen. Rob Portman of Ohio and industry leaders who say manufacturing is essential to the nation’s economic recovery and ability to restore the middle class. High-wage jobs, commercial innovation, and reducing the nation’s nearly $600 billion trade deficit are among key benefits, the report said.

Rick Little, president of contract manufacturer Starwin Industries, agreed.

“There needs to be national effort and some focus,” Little said.

“Research and development, lifelong training for workers, there is real benefit in that.”

In Ohio, manufacturing is a mainstay, accounting for one of every 10 jobs in the region and 2,400 companies.

The report refutes rationales against revitalizing the sector or suggest it isn’t in serious trouble because U.S. productivity is growing well. Government productivity statistics mislead by wrongly including offshore-produced parts and factory temp help, and wages here aren’t too high to compete globally, the report said.

U.S. industry will not recover “automatically” or be globally competitive without national leadership, the report said. Low-paid service work isn’t an adequate replacement for manufacturing’s power to innovate and build wealth. Computers and electronics, chemicals including pharmaceuticals, transportation equipment including aerospace and motor vehicles and parts, and machinery are especially important. So is the need to support national defense.

Brookings describes itself as nonpartisan, but has been called liberal-centrist.

Co-author and economist Howard Wial said the nation’s challenges include the loss of six million manufacturing jobs in a decade – the most in U.S. history. The more than 300,000 jobs gained since 2009 amounts to a trickle, and those are coming back at lower wage rates.

Unless the U.S. does more, it’ll be 2037 before manufacturing employment reaches its previous level, Wial said. There is also a need to reform the nation’s trade management, he said.

Wial said key barriers include “a lack of political will and the common belief in Washington that manufacturing doesn’t matter until it’s campaign season. That applies to both political parties.”

Support for changing policy is not universal. Former Obama administration advisor Christina Romer in a recent New York Times op-ed piece attacked changes of the sort Brookings advocates.

“A successful argument for a government manufacturing policy has to go beyond the feeling that it’s better to produce ‘real things’ than services,” Romer wrote. “American consumers value health care and haircuts as much as washing machines and hair dryers.”

German manufacturing policy is a good model because it combines national measures with support for individual manufacturers, the report said.

“German policy promotes a manufacturing sector in which highly paid, skilled workers make innovative products that provide value for consumers, profits for owners, and contributes to a better environment and a trade surplus for the nation,” it said. China, Japan, Denmark also have strong policies.

Warren Davidson, owner of contract manufacturer West Troy, likes the German model idea.

“Throwing Germany out as a benchmark is a better direction than we have now, and better than Greece,” he said, referring to that nation’s debt crisis and heavy reliance on service industries. “The challenges are that we need to create jobs and we need talented people. We won’t be globally competitive unless we are truly productive.”

Official statistics confuse increasing use of factory temp help with growth, the report said. Although some argue that strong productivity growth has caused much of America’s manufacturing job loss, there’s no economic reason why greater productivity leads to job loss because the increase should lower product prices and expand market size. That should lead to more worker hires.

Offshoring industry stymies innovation later in areas like batteries, semiconductors and electronics, the report said, because production and innovation go together.

“The reason is that making products exposes engineers to both the problems and the capabilities of existing technology, generating ideas both for improved processes and for applications of a given technology to new markets. Losing this exposure makes it harder to come up with innovative ideas,” the report said.

Making more manufactured goods in the U.S. is essential because it would reduce the trade deficit, which has risen every year since 1976 and hobbles job growth. It’s been at least 2.7 percent of gross domestic product in every year since 1999. It began rising again after the recession, increasing to 3.9 percent in the second quarter of 2011—a percentage that was higher than in any year after 1999.

“In the long term the trade deficit can gradually erode the ability of the United States to have a dynamic, innovation-driven economy because Americans can lose the ability to innovate if they buy innovative products from abroad rather than make them at home,” the report said.

The situation isn’t all bad. Although the U.S. runs a large trade deficit, about 64 percent comes from just three industries: computers and electronics, apparel, and transportation equipment. The U.S. runs trade surpluses in machinery, chemicals (but, notably, not pharmaceuticals, which are included in chemicals), food, paper, textile mills, and printing, the report said.

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