Will Washington Take Manufacturing’s Loss Seriously?

Will Washington Take Manufacturing’s Loss Seriously?

Can the future be built in America? Business Week asks this question in an enlightening article this week — and the answer is, "It depends." If we can't maintain our lead in large-scale high-tech manufacturing, don't expect future generations of Americans to experience anything close to the living standards that recent generations have enjoyed.

The evidence for this is so clear it's irresponsible for policymakers to ignore it. Study after study has linked a vibrant manufacturing base to increased living standards.  For example, the NAM published "The Case for a Strong Manufacturing Base" six years ago, concluding  that manufacturers invest more in R&D, which stimulates investment in capital equipment and in workers, which leads to new processes and new products and generates beneficial spillovers into other economic sectors.  Business Week's Pete Engardio makes a similar case:

Governments prize [manufacturing] plants because they serve as broad economic catalysts. Besides skilled jobs, they spur parts suppliers, construction work, services, and the creation of big engineering forces that are the pillars of the new industries and companies.

But U.S. policymakers are near sighted. They tend to focus on media-friendly issues-of-the-day, not long-term strategy, and as Engardio notes, they've been indfferent to manufacturing over the years. (I could argue they've been more hostile than indifferent.)  How? Other nations offer manufacturers generous tax breaks, cheap credit, and speedy regulatory approval if they'll locate there. Meanwhile, in the U.S. corporate taxes are among the highest in the world, credit has become very hard for manufacturers to get, and (as Engardio points out) it can take two years just to obtain all the environmental, health, and safety permits to build a modern electronics plant here.

As a result, having already lost labor-intensive industries (like textiles and metal forming) to low-cost Asian countries, we're now seeing a trend in which high-tech products are invented here and made overseas.  And soon they may also be invented beyond our borders instead.  For example, two high-tech industries that everyone is watching are lighting (which is moving from incandescent to solid state lighting) and the auto sector (which is moving from internal combustion engines to electric cars).  While America is at the technological forefront of these areas today, the entrepreneurial U.S. companies that are making small light-emitting chips and new lithium-ion car batteries are getting tempting offers to transfer their manufacturing plants overseas.

If Washington policymakers truly care about America's long-term economic well being, they need to devise economic policies that make it far more alluring for cutting-edge manufacturers to keep their facilities, R&D, and employees here. While forming an official industrial policy is risky business (personally, I don't trust politicians to pick the right companies to fund), reduced corporate tax rates, permanent R&D tax credits, streamlined regulatory hurdles, and protection from costly frivolous tort challenges would go a long way to making us more competitive.  Engardio even suggests the U.S. follow they lead of our Asian competitors and create large "industrial zones," which offer tax breaks, inexpensive land, workforce training, and one-stop regulatory shops.  After all, if they can take our great manufacturing ideas, we can take their great policy ideas.

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