Sunday, August 09, 2009

Manufacturing DOES Count: Experts

Immelt, Torinus, Isbister, and Dad29.

Hot damn!

Eric Isbister is an unabashed evangelist for U.S. manufacturing.

The chief executive of GenMet, a Mequon metal fabricator, strongly believes that countries that make things - yes, in factories - will set the pace for the world economy and drive global innovation.

"If we need to compete against China or India, so be it. Somebody fire the starting pistol and let's compete," Isbister says.

His comments would sound familiar to Jeffrey Immelt, CEO of General Electric Co., who said recently that manufacturing jobs should represent no less than 20% of total U.S. employment - about twice what it is today.

GE, the world's biggest maker of turbines for power plants, jet engines and locomotives, is a manufacturing and exporting powerhouse with a Wisconsin division that makes medical imaging equipment.

Immelt, in a speech at the Detroit Economic Club, said the nation should commit to competing with American exports.

Of critical importance is the need to focus on technology and manufacturing.

"Many bought into the idea that America could go from a technology-based, export-oriented powerhouse to a services-led, consumption-based economy - and somehow still expect to prosper," Immelt said. "That idea was flat wrong."

The manufacturing sector in the US employed as much as 45% of the workforce in the 1950s. Yes, European and Japanese manufacturers were.......ahhhh.........temporarily hampered by .......ahhhh.........bombs and such during the 1940's, so it's clear that the US was privileged.

By 1975 or so, that had diminished to around 30% (IIRC). But the real hits came during BushI and have continued, unabated, since. By 2001, it was only 14% or so, and today it's only 9%.

Nationwide, manufacturers have dropped more than 5.7 million jobs, or 32%, since May 1998. Wisconsin has lost nearly 160,000 manufacturing jobs, about 31% in the same period, according to the Bureau of Labor Statistics.

There are a multitude of causes; US trade policy has been anemic or flatly inimical to domestic manufacturing; currency-manipulation has been rampant; other countries have imposed ridiculous tariffs on US goods (not matched by US tariffs).

The cost of abandoning manufacturing, however, has social consequences which should be recognized. Manufacturing jobs do not necessarily require college degrees, but they DO provide a decent living. Further, a well-run manufacturing enterprise usually supports a large number of service-providers (accountants, lawyers, etc.), not to mention other suppliers of sub-assembly goods.

So when you read those "jobs-lost" figures, you're reading about middle-class lives which have been destroyed, or at least downsized. And when there is no productive outlet for energy--like a job in a plant--there can and will be social consequences.

Manufacturing supports a wider slice of the U.S. population than other industries, partly because of the wide range of job opportunities and support businesses associated with making products.
It's the biggest generator of wealth in this country, especially for middle-class families. But the benefits should not be taken for granted, Immelt said.

"I've had people explain to me the Darwinian nature of markets," he said. "They tell me that America has seen a natural evolution from farming to manufacturing to services. After all, they say, this has happened in other mature economies. But there is nothing predestined or inevitable about the industrial decline of the U.S., if we as a people are prepared to reverse it.

Torinus chimes in with a focus on Wisconsin.

The long-term prospects for manufacturing in Wisconsin are very much in doubt and debate. The last year has seen an erosion of more than 120,000 jobs across the state, including more than 50,000 in manufacturing

The sad fact is that retaining manufacturing jobs in this State is not a quick and easy financial "fix."

The incentive packages run more than $50,000 for each job retained, and it's a tough assessment as to whether subsidies at that level make economic sense. There are analysts on both sides of that debate. Some say let the economy gravitate toward a service economy; some say an economy without manufacturing is untenable.

One way to look at that equation is to look at the tax revenue flowing back to the state and localities from each manufacturing job. Sales, income and property taxes from each employee run about 10% combined, so a $35,000 job would yield $3,500 a year. That would mean a not-so-hot 14-year or so payback.

Well, yah. But then not all solutions are quick paybacks; it can be argued that "payback years" is irrelevant within reasonable parameters, and 14 years is not excessive by any means.

It is not a given that China will surpass the United States in manufacturing. Our actions and reactions will have something to do with manufacturing viability. China produces 12% of the world's goods, and the U.S. 20%. That hard-working nation is closing the gap, but there are plenty of ways to compete.

Lean manufacturing is one powerful tool. Charter Steel has less labor in a ton of steel than the transportation costs of a ton from China. Cheap labor is thus neutralized.

It is also true that there are significant quality issues with PRC-manufactured goods and/or components which are NOT issues with US goods.

Timing of component and subassembly deliveries in a JIT economy is also a large factor. The 'slow boat from China' is more than just a saying, you know.

And Torinus swings for the fences (why not?):

At the state level, if Wisconsin were to decide that manufacturing is all important to its economic strategy, then the state might be better off to forget huge subsides for individual companies and send a stronger general signal. For instance, it could eliminate the 7.9% income tax on manufacturers.

He's right, you know:

...the state corporate income tax is not a huge revenue producer

And manufacturing only accounts for a small part of the corporate income tax anyway.

Finally, Torinus resorts to prayer:

At a minimum, politicians who value manufacturing contributions to the nation's prosperity should not pile on more burdens. They need to be careful about crafting health care and carbon-emissions reforms that could become nails in a coffin.

By that he means, specifically, the Doyle Administration's 'climate-change-fixup' proposals, coming to a Legislature near you soon.


Len Bertain said...


I was surprised that neither Immelt nor Torinus used the hard numbers (not just alluding to them) that one manufacturing job supports 6 others in the community. And of course one service job supports 2. In the 90's, I was active in Oakland in trying to do business retention and an Oakland Bureaucrat and I were actually able to put numbers together to substantiate that claim. It was amazing but it didn't do any good. The concept of outsourcing was just too easy.

One of my consulting clients had made the decision to outsource casting to Korea and India (crazy) and I got there and was trying to do JIT. It doesn't work in that format. So we found a local casting company (Pittsburg, PA) and worked a deal to cast every other week for us. We cut our inventory down to JIT levels in 9 months because of the large inventory levels needed in the outsourcing fiasco.

My message is this. If we don't get our manufacturing back up over 20%, we'll all be flipping hamburgers at McDonald's and feeling sorry for our grandchildren.

On top of all that, I still ask the question, what is the value-added contribution of all the work going on in New York with the money mechanics. We need the whole country to get back to the basics that lean manufacturing emphasizes and that is "The Value-added Proposition" of the business. IF you know that then you can fix it. IF not "forgeddaboudit"!

thank you letting me vent.


Leonard Bertain, Ph.D.
Corporate Innovation

Dad29 said...

we'll all be flipping hamburgers at McDonald's and feeling sorry for our grandchildren

You're an optimist. If manufacturing does not revive, what makes you think people will have the $$ to eat at McDonald's?

Anonymous said...

Govt programs for Manufacturing helping other countries and not the USA