What would be the best realistic manufacturing policy?
Posted by Bert Maes on July 12, 2010
The National Association of Manufacturers (NAM) is now promoting its priorities and policy recommendations of its June 2010 “Manufacturing Strategy – For Jobs and a Competitive America”. The Business Roundtable has released a similar report: List Obstacles to Growth.
The message of all experts: government should take a greater role in making manufacturing (the foundation of the economy) more competitive and more productive. The NAM report says that all foreign countries use all the tools of their governments to support industry and as a result they outgun the United States.
Both NAM and the Business Roundtable rally against:
- The high corporate taxes, especially the high tax rates for small businesses, as they are responsible for the bulk of the new jobs, and the best jobs;
- The rigid labor regulations, wages and benefits, making flexible work arrangements impossible;
- The tough environmental regulations without a global approach will impose additional expenses, create uncertainty and will damage the ability of manufacturers in the US to compete;
- The non-existent R&D tax provisions that could stimulate investment, recovery, significant rise of GDP and strong job creation;
- The insufficient focus on Intellectual Property and increased immigration (access qualified, highly skilled professionals around the glob e), which should both be fixed to remain competitive;
- The unfair (tariff) trade barriers China, India, Brazil, Europe, South America, Canada and Australia are constructing to protect and promote their own domestic manufacturing companies;
- The underfunded tools to help small and mid-sized manufacturing export such as trade fairs, marketing assistance and the export-import bank;
- The energy dependence without sufficient domestic supply of energy, coal, hydropower, gas, nuclear, renewable and alternative fuels:
- The poor infrastructure in transportation and high-speed communications;
- The uncertainty and danger of the ever increasing employer mandates and business costs of the health care reform;
- The disappointing quality of education as the majority of manufacturers in America face a serious shortage of qualified employees, and cannot be given the certainty that they are hiring a skilled technical workforce when recruiting from schools.
Or in other words “SHOW US THE MONEY!” And then I ask myself the eternal question:
- Government spending with lasting corporate tax cuts to boost economy and thus increase export earnings (“the only way to get us out of the recession”), but first lending more billions from mainly China (The current US debt to China is $2 trillion or $2 000 000 000 000) and threatening the nation’s future stability (potential new financial crises), security and independence. Additionally, the current levels of debt will crowd out private capital. If less capital is available for corporate borrowers, it will retard future growth and investment, and, eventually, reduce consumer spending power.
- OR – in the IMF style – cutting costs, “a sustained focus on long-term problems” but raising taxation on families (“who will fight for the unemployed?“) to slow down sky-high escalating budget deficits and mounting government debt and… hurting the economy. Unless… domestic markets can be protected. So… it is not surprising that protectionism is rising around the world… creating more mistrust and unfair competition.
Decision making is all about prioritizing your opportunities. And it should be a genuine mix of policies that pay quickly and policies that bring long-term strategic opportunities.
I see the US working hard on the latter ‘secondary‘ areas that support long term export opportunities, such as health-care, education, immigration and energy policies.
I also see the government is not taking away immediate fear. There are intentions to raise taxes on business.
That is probably the biggest challenge we all face during crisis, whether it’s a personal crisis or a global one: FEAR.
Governments all over the world will have to figure out how they are going to communicate the stability of their countries in a way that the citizens will understand and believe it. Government should show enough detail of the state financials so that firms and consumers know, beyond all doubt, that the country isn’t in ‘free fall’ and that customer spending is a safe bet. A president’s personal guarantee won’t be enough.
The job is to lift people’s heads, with policies that decrease the number of business failures and increase their odds of success. The job is to lessen the people’s fear. This is not the time for messages of high risk that emphasize inspiration, empowerment and innovation. It’s the time for messages of low risk like protection, security and stability.
If governments show how they will protect jobs and reduce structural unemployment… they’re 90 percent on the way to further recovery.
What would be the best realistic manufacturing policy?
I am thinking about:
- Lower corporate taxes and force banks to restore small business credit quickly to trigger investments in efficient manufacturing technology.
- But keep the environmental and labor regulations to ensure the health, safety and quality of life of the people. I can live with the government intentions to award federal contracts to companies that provide living wage, health care, retirement and paid sick leave and have fewer violations in labor and employment, tax, environment and antitrust.
- “Develop a system of financial incentives: levy an extra tax on the product of off-shored labor [personal note: and on heavily polluting off-shored production?]. Keep that money separate. Deposit it in the coffers of what we might call the Scaling Bank of the U.S. and make these sums available to companies that will scale their American operations.” (Andrew Grove, co-founder and senior adviser to Intel Corp)
- Bring better qualified, higher-skilled professionals inside manufacturing by restructuring immigration and starting to reform manufacturing education. The success of top-performing states – a Chamber of Commerce report points out – depends on their “ability to execute successful initiatives” in amongst others: basic education; “delivering adequate funding for initiatives; (…) enterprise-friendly tax and regulation systems; and vigorous collaboration between business, government and education.”
I believe a lot more is not possible under the current financial constraints and in the given four-year terms. The education reform will already take 10 to 15 years…