Dangers of Manufacturing Loss in the U.S.A.

Manufacturing Loss, The New Economy, and American Unilateralism
sja 4/12/04

Month after month the majority of indicators show the economy in consistent recovery and growth. One glaring exception was highlighted by the Chicago Tribune report on 2/7/04 of 42 straight months of manufacturing job loss.

Congressman Don Manzullo (R-IL) represents an area including Rockford, IL (this writer's hometown), which has seen large manufacturing job losses over the last 10 years. Rep. Manzullo is Chairman of the House Small Business Committee, and has proposed 17 action items to preserve and create American jobs, which include maintaining the existing tax cuts, giving companies greater flexibility to control health care costs, reducing costly federal regulations, and greater enforcement of trade rules. These proposals are certainly to be welcomed and deserve support from the Bush administration and congressional leaders.

Democratic presidential nominee John Kerry recently unveiled his plan to create 10 million jobs. As president he would implement a corporate tax reduction to induce companies to hire new workers, and also cut the deficit. Unfortunately, statistics show that most job growth is created by small businesses, most of which are not corporations, and therefore are taxed at individual rates, which under President Kerry would see a large tax increase - hardly a stimulus for adding new workers. Companies generally hire in response to greater demand, not a small decrease in overhead costs. Regarding the deficit, reducing it will reduce interest rates, all other things remaining equal, but interest rates are already at or near record lows. As we have seen over the last 2 years, low interest rates do not automatically create job growth. Companies that are reluctant to hire are also reluctant to borrow, even at very low rates.

Part of the job loss is due to the rising productivity of U. S. companies, and another part the factors rightly highlighted by Congressman Manzullo, but a large number can also be traced to accelerating globalism. Globalism clearly increases interdependency among nations, the post-industrial nations upon the developing third world where labor is cheap.

Belief in the free market (or the freest possible market, analogous to Leibniz' best of all possible worlds): is that the end of the debate for those of the conservative persuasion? Is this the only concern we should have - saving American jobs, as important as that is?

The House Small Business Committee does in fact see a larger picture, as it held a hearing on October 16, 2003 entitled 'Is America Losing Its Lead in High-Tech: Implications for the U. S. Defense Industrial Base.' Semiconductor fabrication was the focus of this hearing, but this same concern should apply to other industries that should also be thought of as key to our defense capability. It is the contention of this writer that the machine tool industry, and industries that use these tools for metal machining, also need to be viewed as key to America's future ability to resist future possible international economic blackmail and maintain an adequate military industrial base.

Observe the rise of machine tool and other metal manufacturing in China, and American companies sending more and more of their machining work to China, work which used to be done here. Note the collapse of Ingersoll Milling Machine (also of Rockford, IL), and most American machine tool companies (Devlieg/Bullard, White Sundstrand, Madison Machine Tool, etc.) As recently as 1997, Ingersoll employed 1200 people and produced specialized machine tools for the defense industry, among other industries. Are there any of these companies left at all? If so, will there be any left 10 years from now? 20 years?

Implications of this trend continuing:

We get at least 1/3 of our oil from the Middle East. What if it was 90%? Would this be a good thing? What if 90 or 95% of all metal machining for the US economy is done in China or similar countries, which are openly hostile to US interests? Would this be a good thing?

Imagine an Iraq-like scenario 10 years from now or something much worse. The French and Germans could not really stop us this time around because they had no real leverage except spouting off at the UN. In 2003 they had virtually no military and the US economy does not depend on them in any serious way. And these were our so-called allies. But suppose 10 years from now a block led by China could economically blackmail the US. Once the crisis hits, it will be too late. The US will not be able to regenerate its machine tool and metal manufacturing industries overnight.

Must the US protect critical machine tool and manufacturing companies through direct or indirect subsidies to prevent unfriendly countries from constraining the US in future conflicts? This does not sound like a very conservative solution. Can the US continue to be a global superpower and leader if it has fully evolved into an information and service economy, as the trends and experts say? Can we maintain a world-class military without the supporting military-industrial complex?

Globalism may be good for American consumers, but it is not so good for our ability to project our will on future world events. Will the US lose the ability to act unilaterally due to the loss of key industries? The current foreign policy debate in the US over unilateralism vs. multilateralism could be a moot point if economic interdependency continues on its pace.

Even if there was the political will or foresight, can the machine tool and metal machining industry be sustained even at its current decimated levels except by large direct or indirect subsidies? At minimum, they must be sustained at a level analogous to embers from a fire, with enough still present to reconstitute a real fire when needed. How many tax dollars would be needed in such an enterprise? $500 million a year? $1 billion? What cost are we prepared to pay 10 years from now if we do nothing? To give a broader context, how much is going to be spent on price supports for American agriculture, which date back to the Depression and whose value is highly debatable? According to CBO estimates, $17 billion a year!

Will the America that won WWII and the Cold War be, like Gulliver, slowly tied down, not by feisty Lilliputians, but by its desire for cheap cars, clothes, and coffee cups?