Sunday, September 15, 2013

America Needs to Make Stuff Again

...stuff that's manufactured by American citizens who work and live in America.

Manufacturing has been in decline for the past three decades due to the offshoring of domestic jobs to low-wage countries like China --- and a recent study shows that almost 1/3 of all current domestic jobs are still prone to being outsourced --- leaving the US workforce with an economy primarily made up of low-paid service and retail jobs.

Manufacturing has traditionally provided some of the best-paying jobs in the U.S. economy. And where 14 million Americans are directly employed by manufacturing, another 8 million have found jobs via manufacturing because of it’s interconnected linkage to the rest of the economy. It's called the multiplier effect.

WorkingForAmerica.Org: "The National Association of Manufacturing (NAM) indicate that each dollar’s worth of manufactured goods creates another $1.43 of activity in other sectors, twice the $.71 multiplier for services. Also, two thirds of U.S. research and development capacity is concentrated in manufacturing. Manufacturing has long been a dynamic economic sector, registering remarkably sustained productivity growth."

When a large manufacturing facility comes to town, the new jobs it brings with it also demand the creation of a greater workforce in other industries: more hospital workers, teachers, food service personnel, construction workers, real estate agents, etc. When manufacturing jobs move to the town, it means there are more people to feed, house, and educate. But additionally, manufacturing jobs (especially if they are union) pay good wages, meaning people have more money to spend. This phenomenon is clearly visible in many U.S. cities, where a large factory often drives the local economy. 

So what happens when large plants are offshored to low-wage countries like China or Vietnam? Not only do the factory’s workers lose their jobs, but those people whose livelihoods depend upon the overall manufacturing economy also lose their jobs. This ripple effect means less taxes are paid into the local and state economy because of less disposable income to buy goods at the local store, which means fewer people with health insurance --- and that translates into an increase in demand for social services (like food stamps) at precisely the time when the tax base is shrinking.

It's noteworthy that jobs created at big box stores do not have this type of multiplier effect on the economy. Usually they only force small businesses to shut down. And because of basis points, a big box store like Walmart buys so much product that they dictate pricing to suppliers, driving down the suppliers' profits, and putting other suppliers out of business too. All along their supply chain, workers end up out on the street... over a few basis points difference in unit costs.

The outsourcing of jobs to China over the last 26 years could have only benefited the Chinese economy. See the before and after photos below of Shanghai after the past 26 years of China's growth (which had been averaging 10% a year).

Shanghai - 1987 and 2013

China's GDP growth slowed from 7.6 percent in the second quarter of 2012 to 7.5 percent in the second quarter of 2013 -- a marginal 0.1 percent decline. In the same period, US year-on-year growth fell from 2.8 percent to 1.4 percent.

After recently surpassing Japan as the world's 2nd largest economy, China is now predicted to overtake the US as the world's largest economy in just a few years. China's industrial output in the last year rose six times faster than the US. In July China's industrial growth was slightly increasing, whereas US industrial growth had fallen by two-thirds.

Claims about a US "industrial revival", led by natural gas fracking for example, are factually false. Over the last six years US industrial production has not even regained pre-financial crisis levels, whereas China's industrial production increased by over 90 percent. 

China's phenomenal growth --- and America's lack thereof (and because of a skewed tax code favoring the wealthy and large corporations) --- has also allowed U.S. infrastructure spending to fall far behind China's. According to a U.S. government report, just 2 percent of the U.S. gross domestic product (GDP) goes to infrastructure construction, whereas, Europe spends 5 percent and China 9 percent. Developing countries, led by China, have devoted billions of dollars to the biggest dams, highways, railways, bridges, canals and energy projects. Increasingly, this group of rising economies have been building showcase projects that once were mainly the pride of the U.S., Western Europe and Japan.

China already has the world’s largest building (the New Century Global Center) and soon will have the world's tallest building --- Sky City (at 2,749 feet in the southern Chinese city of Changsha) set to be completed in 2014. The country’s tallest skyscraper ( Shanghai Tower) has just been topped out and will be completed in 2015.

China also has the world's tallest dams and the world’s fastest bullet train, the Shanghai Maglev. Now the country has the world’s longest cable-stayed bridge as well --- the Jiashao Bridge, which just opened recently.

China's Jiashao Bridge (L) and the I-35W Mississippi River bridge (R) in Minneapolis, Minnesota after it collapsed in 2007, killing 13 people and injuring 145.

Instead advocating for major tax reform (e.g. capital gains taxed as regular wages) and promoting domestic manufacturing, President Obama has been trying to obtain Fast Track's extraordinary authority to overcome public and congressional opposition to the controversial Trans-Pacific Partnership (TPP) and Trans-Atlantic Free Trade Agreement (TAFTA) trade deals --- trade agreements that will only hurt manufacturing more and encourage more offshoring --- in conjunction to a host of other bad laws that will greatly hurt working Americans, while at the same time, favor large American-based multi-national corporations.

Letter: "As leading U.S. business and agriculture associations and founding members of the Trade Benefits America coalition, we strongly support your bipartisan efforts to develop and pass updated Trade Promotion Authority [TPA/Fast Track] legislation."

And Obama has also joined the Republicans by advocating for more guestworker and H-1B visas in the proposed immigration bills, further displacing American workers in an already over-saturated job market and further depressing wages that have already been stagnant for years.

Obama also wants to use American tax dollars to improve the infrastructure in Africa, creating another "emerging market" where American corporations could potentially offshore more domestic jobs --- while at the same time, also create a new consumer base for which to sell their goods. When might Africa have the tallest building in the world?

Meanwhile, American businesses (e.g. Apple, Nike, etc.) that already offshore domestic manufacturing jobs overseas to "contract manufactures" (like Foxconn) in low-wage countries will soon be reclassified as "manufacturers" by our government to make it look as though our GDP is a lot better than it really is. Rather than create new "jobs", our government will just create new "numbers".

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