Viewpoints: US Manufacturing: Forgotten Wisdom from 1791
By Harry C. Moser
Founder and President
The Reshoring Initiative
There is much to be learned from the past. As we consider the challenges facing US manufacturing today, I think of the insight offered by Alexander Hamilton, Secretary of the Treasury, Report on Manufactures from 1791: "Not only the wealth, but the independence and security of a country, appear to be materially connected with the prosperity of manufactures. Every nation … ought to endeavor to possess within itself all the essentials of a national supply. These comprise the means of subsistence, habitation, clothing and defense."
In contrast, on Feb. 4, 2012, Christina D. Romer, economics professor at the University of California, Berkeley, and former chairperson of President Obama’s Council of Economic Advisers, wrote in the New York Times: "…our earnings from exporting architectural plans for a building in Shanghai are as real as those from exporting cars to Canada" and "a persuasive case for a manufacturing policy remains to be made, while that for many other economic policies is well established." Apparently the "well established" policies include "a tax cut for households" and "more aid to troubled state and local governments." Giving people and governments money that does not exist cannot produce a long-term recovery. Bringing back enough manufacturing jobs to balance our $600 billion trade deficit would create about 8 million jobs and also make major inroads into federal and state budget deficits, income inequality and housing market stagnation, creating a sustainable recovery.
While I tried to recover from Prof. Romer’s distressing lack of insight, I ate lunch and listened to the Feb. 7 Bloomberg Rewind program. Steve Blitz, an investment expert from ITG Investment Research, repeatedly attributed his confidence in the US economy to the continued strength in US manufacturing. He cited the benefits of Chairman Bernanke’s low interest rate policy, giving manufacturers a case to return to the US. Blitz understands the economy far better than does Professor Romer.
A major reason for our economic and manufacturing decline is the attitude represented by Professor Romer. At best, it’s benign neglect of manufacturing. Meanwhile, other countries prioritize manufacturing. Germany and Switzerland succeed via apprenticeship programs that allow 70% of their youth to become successful "professionals," whom some here might devalue as "tradespeople." Japan and China likewise succeed by massively undervaluing currencies and a national commitment to supply domestic and foreign companies whatever is needed to locate there and grow.
In contrast, our society abandoned manufacturing careers in favor of a four-year university degree in any field, no matter the availability of related jobs. In addition, we allowed the dollar’s reserve currency status to cause a perpetual 10–15% overvaluation, making our factories less competitive. At worst, we sacrificed our real economy for diplomatic gains, allowing developing countries’ duties to be lower than ours. We sacrificed our manufacturing sector to get China’s help containing North Korea. This might have made sense in the 1950s when the US dominated manufacturing but that is now an unacceptable burden on our weakened economy.
There are some positive signs. President Obama held the Insourcing Forum on Jan. 11 and then, in the State of the Union message, addressed manufacturing 16 times versus 3 times in 2011, focusing on insourcing, better known as reshoring. I had the honor of participating in a roundtable discussion with President Obama and a cross-section of American industry leaders and experts and in one of two panel discussions.
I believe that the fastest, most cost effective way to bring significant numbers of manufacturing jobs back to the US is to educate companies to make sourcing decisions based on total cost of ownership (TCO). As an example of the power of using TCO, I presented to President Obama the results of analyzing 10 cases that compared US and China as sources for components or products:
- At price level: US averages 108% higher
- At TCO level: US averages only 12% higher
- For 100% of the cases: US price is higher
- For 60% of the cases: US TCO is lower than Chinese TCO,
average 22% lower.
For more information, visit www.reshorenow.org. I look forward to working with you to restore the country Alexander Hamilton envisioned. ME
This article was first published in the March 2012 edition of Manufacturing Engineering magazine. Click here for PDF.