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In Manufacturing, a Plan to Lure Jobs Back to America

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WASHINGTON — In his State of the Union addressPresident Obama called for a wide-ranging package of policies to help create American manufacturing jobs, including trade enforcement measures, business tax breaks and worker training programs.

In many ways, the proposal is surprising, as few economists now consider manufacturing a potent engine for job growth in the United States. Manufacturers have added about 330,000 jobs in the country in the last two years. But the growth followed three decades of decline, during which companies like automakers and textile companies slashed payrolls by about 7.5 million. That has led many economists to say the recent turnaround might be nothing more than a correction from the depths of the recession.

But the administration argues that big trends — like rising wages in developing countries, falling wages in America and a weaker dollar — have made moving workers to or keeping workers in the United States a much more viable option. And they say that manufacturers will continue to add jobs domestically, especially with a little help from Washington.

“We have a huge opportunity, at this moment, to bring manufacturing back,” Mr. Obama said in his address to Congress. “But we have to seize it. Tonight, my message to business leaders is simple: Ask yourselves what you can do to bring jobs back to your country, and your country will do everything we can to help you succeed.”

The proposal stems from a belief that after “a long period where people felt the wind was in our face, the wind is with us,” said Gene Sperling, director of the White House National Economic Council. “It’s not fighting against the trends. It’s actually working with them.”

Workers might command relatively high wages in the United States, but wages are climbing rapidly in countries like China and Brazil. High energy prices have increased shipping costs. And manufacturers argue that American workers frequently produce higher-quality goods and that American factories are closer to the markets for more sophisticated goods.

Those trends have led some companies to repatriate manufacturing jobs in the last few years, a development called on-shoring. General Electric has moved production of a water heater to Louisville, Ky., from China, for instance. NCR, a maker of self-service kiosks and automated teller machines, has shifted jobs to Columbus, Ga.

It is difficult to determine how many jobs American manufacturers are sending overseas or bringing back. But in a November survey by MFG.com, a site that connects manufacturers with suppliers, one in five North American manufacturers said they had brought production back from a “low-cost” country, up from about one in 10 manufacturers in early 2010.

Economists said that the administration could help sustain the trend. But they warned that the administration’s proposal seemed unlikely to lead to major job growth, and said that many businesses would continue to hire lower-cost workers overseas.

“We’re not going to get very labor-intensive, relatively low-skilled jobs in America, and I don’t think we want them,” said A. Michael Spence, a professor at New York University and Nobel laureate in economics. “But sometimes it makes sense to have a little help developing technologies that will make us competitive. And sometimes public support for upgrading workers’ skills makes sense.”

“The best we could possibly get is continued modest growth in manufacturing jobs,” said C. Fred Bergsten, director of the Peterson Institute for International Economics, a research group in Washington.

Mr. Bergsten noted that manufacturing continued to become more efficient, meaning companies needed fewer and fewer workers. American manufacturers produced roughly the same amount of goods in 2010 as they did a decade before, but they did so with six million fewer employees on their payrolls. Mr. Bergsten also argued that sending jobs to other countries continued to make sense for many global firms. “You’re trying to buck two major trends,” he said.

Some economists also questioned whether Washington should be giving manufacturing a hand at all.

“It’s totally implausible to think that there’s going to be a surge in manufacturing jobs,” said Lawrence F. Katz, an economist at Harvard. Broader measures to improve American infrastructure and education, he said, would be more effective in creating middle-class jobs.

But the White House says that manufacturing offers significant potential for new jobs — jobs that require more skills and offer better pay than the assembly lines 30 or 40 years ago. And the administration says that even modest government incentives might make a difference.

To that end, the administration has put together a far-ranging set of proposals: cutting taxes for manufacturers who produce goods in the United States, taking away tax breaks for businesses that move jobs offshore, doubling a tax deduction for makers of high-tech goods, providing support to businesses investing in areas where factories are closing, expanding worker training programs and creating a new task force to better enforce trade rules and intellectual property rights. Closing a loophole that allows companies to shift profits abroad would pay for the tax credits, the White House says.

It all adds up to what economists might call an industrial policy, the out-of-favor practice of using tariffs, taxes and other measures to help a particular industry. The White House avoids the term — a divisive one, given that it implies that the government is picking winners and losers. Rather, it argues that its proposals are a moderate plan to aid businesses deciding whether to move jobs overseas.

Countries like Germany, Japan and China offer far larger tax breaks and financing support to their manufacturers, the administration argues. Such countries have “been in a bear hug” with manufacturers, said Fred P. Hochberg, chairman and president of the Export-Import Bank of the United States, a federal agency. “We’ve held them at arm’s length.” The new proposals might help level the playing field, he argued.

He also said a focus on manufacturing and exports might lead to more sustainable growth. “For the last three decades, we’ve relied on the U.S. consumer for growth,” said Mr. Hochberg. “But now we’re seeing growth coming from an investment in infrastructure happening in the emerging economies,” where American manufacturers should be selling their wares and expertise.

The administration also called for a focus on manufacturing because of its positive spillover effects on the broader economy. “We do believe that manufacturing punches above its weight economically,” said Mr. Sperling of the National Economic Council. “Advanced manufacturing is critical to your innovative capacity as a country.”

President Obama Awards $2.3 Billion for New Clean-Tech Manufacturing Jobs

The White House

Office of the Press Secretary

For Immediate Release
January 08, 2010

Recovery Act Tax Credits to Enable More Than $7 Billion in New Manufacturing Projects and Create Tens of Thousands of Jobs

WASHINGTON – Today at the White House, President Obama announced the award of $2.3 billion in Recovery Act Advanced Energy Manufacturing Tax Credits for clean energy manufacturing projects across the United States.   One hundred eighty three projects in 43 states will create tens of thousands of high quality clean energy jobs and the domestic manufacturing of advanced clean energy technologies including solar, wind and efficiency and energy management technologies.

As part of the Recovery Act, these tax credits are focused on putting Americans back to work by building a robust domestic manufacturing capacity to supply clean and renewable energy projects with American made parts and equipment.  These credits are also an important step towards meeting the President’s goal of doubling the amount of renewable energy the country uses in the next three years with wind turbines and solar panels built right here in the United States.

“Building a robust clean energy sector is how we will create the jobs of the future,” said President Obama. “The Recovery Act awards I am announcing today will help close the clean energy gap that has grown between America and other nations while creating good jobs, reducing our carbon emissions and increasing our energy security.”

“By investing in innovative clean energy manufacturing projects like these, we are not only creating good jobs now, but helping lay a new foundation to keep America competitive in the 21st century economy,” said Vice President Biden. “This is what the Recovery Act is all about.”

“There is no greater priority for this Administration than getting Americans back to work,” said Treasury Secretary Tim Geithner. “The awards announced today, together with the more than $5 billion in private sector capital spurred by our investment, will drive significant growth in the renewable energy and clean technology manufacturing sectors, good jobs, an energized private sector marketplace and a leadership role for the U.S. in these crucial high-growth markets.”

“The world urgently needs to move toward clean energy technologies, and the United States has the opportunity to lead in this new industrial revolution,” said Secretary Chu.  “Today’s awards will create new jobs and jumpstart the industries we need to both solve the energy problem and ensure America’s future competitiveness.”

This effort, along with other Recovery Act investments, will drive significant growth in the renewable energy and clean technology manufacturing sectors and give the United States the ability to lead globally in these markets.  The investment tax credits, worth up to thirty percent of each planned project, will leverage private capital for a total investment of nearly $7.7 billion in high-tech manufacturing in the United States.

The projects announced today address the broad spectrum of manufacturing capabilities needed to support a robust clean energy economy.  The projects were competitively selected through a rigorous merit review process and the companies chosen say they will create more than 17,000 jobs in some of the fastest growing parts of our economy.
Today’s announcement includes tax credits for numerous clean energy technologies and companies, including:

Smart Grid – Itron, Inc.’s OpenWay CENTRON meter is one of the first smart meters for the residential market providing built-in, two-way communications and a remote on/off switch which will give customers more choice and enable utilities to provide higher reliability at lower cost.
The expansion of manufacturing capacity in their facility in South Carolina will allow an annual production of four million meters. Itron estimates that one year’s production of the meters will be able to reduce electricity use by approximately 1.7 million MWh per year.

Building Efficiency and Energy Management – W.L. Gore & Associates, Inc. is producing an advanced membrane for high efficiency fuel cells for buildings and vehicles.  The company’s products can help enable lower-cost fuel cells for use in electric vehicles or to power homes and businesses.  They are also manufacturing an advanced turbine filter to improve the performance of gas turbines to produce greater outputs at lower cost and reduce greenhouse gas emissions.

Solar Energy – PPG Industries, Inc. will produce a double anti-reflective coating for glass to make solar cells more efficient.  At their Louisiana facility, PPG will produce a special tire tread component that reduces rolling resistance and improves fuel economy.  Before the solar industry had begun, PPG pioneered the first low-iron glass that has been used in solar cells and on countless solar installations over the past two decades. Today, this credit will help to expand the manufacture of one of the critical components of glass solar cells, the transparent conductive oxide (TCO) coatings of the glass, without which the cells cannot function.

Wind Energy – TPI Composites, Inc. is building a new manufacturing facility in Nebraska to produce next generation wind turbine blades. TPI says the facility will create over 200 new jobs and will have a capacity equivalent to supplying 265 turbines rated at 2.5 MW for a total electrical output of 663 MW  TPI will also be expanding their existing manufacturing facility in Iowa to meet the anticipated increased demand for composite wind turbine blades.  TPI’s composite materials made in both facilities are used to make lighter and stronger wind turbine blades and lighter and stronger (and more fuel efficient) vehicles.

While projects selected for this tax credit generally must be placed in service by 2014, approximately 30 percent of them will be completed in 2010.

As part of an innovative partnership between the Departments of Treasury and Energy, the two cabinet agencies worked together to develop, launch, and award the funds for this program in record time.  The Advanced Energy Manufacturing Tax Credit authorized Treasury to provide developers with an investment tax credit of 30 percent for facilities that manufacture particular types of energy equipment. Qualifying manufacturers will produce solar, wind, and geothermal energy equipment; fuel cells, microturbines, and batteries; electric cars; electric grids to support the transmission of renewable energy; energy conservation technologies; and equipment that captures and sequesters carbon dioxide or reduces greenhouse gas emissions.

One hundred eighty three projects have been selected for the tax credit today.  For a full list of selected projects,CLICK HERE.

** This spreadsheet has been updated and corrected.

America’s Dirty War Against Manufacturing (Part 1): Carl Pope

Dirty War Against Manufacturing (Part 1)

Illustration by Tomi Um

By Carl Pope 

“I’d love to make this product in America. But I’m afraid I won’t be able to.”

My host, a NASA engineer turned Silicon Valley entrepreneur, has just conducted a fascinating tour of his new clean-energy bench-scale test facility. It’s one of the Valley’s hottest clean-technology startups. And he’s already thinking of going abroad.

“Wages?” I ask.

His dark eyebrows arch as if I were clueless, then he explains the reality of running a fab — an electronics fabrication factory. “Wages have nothing to do with it. The total wage burden in a fab is 10 percent. When I move a fab to Asia, I might lose 10 percent of my product just in theft.”

I’m startled. “So what is it?”

“Everything else. Taxes, infrastructure, workforce training, permits, health care. The last company that proposed a fab on Long Island went to Taiwan because they were told that in a drought their water supply would be in the queue after the golf courses.”

So begins my education on the hollowing-out of the American economy, which might be titled: “It’s not the wages, stupid.”

Manufacturing’s share of U.S. employment peaked in 1979 and has since fallen by almost half. Although manufacturing has been a relative bright spot in the dismal economy of the past couple of years, in the last decade, the U.S. lost a third of its manufacturing jobs, with the damage rippling far beyond that base to erode millions of jobs that are dependent on it.

Tomorrow’s Losses

The loss of textile, shoe and toy production to low-wage competitors such as China, and nowCambodia, has devastated a few regions, particularly South Carolina. But the loss of yesterday’s manufacturing isn’t the really painful part: It’s losing tomorrow’s manufacturing: automobiles, electronics, metal fabrication, specialty chemicals, appliances and consumer electronics.

Those industries left the U.S. in search not of cheaper workers, but of more supportive governments. If the U.S. lost manufacturing due to high wages (or unions, labor laws, regulation — the other commonly cited villains), how do you explain the manufacturing success of Germany and Japan? Germany, the world’s pre-eminent high-end manufacturing economy, has higher wages, stronger unions and stricter labor laws than the U.S. Japan, too, is a high-wage competitor, yet Toyota Motor Corp. still makes 60 percent of its vehicles there. General Motors Co. makes only about 30 percent in North America.

So if wages aren’t to blame, what is?

Policy. But is U.S. government policy really hostile to manufacturing?

Sadly, yes. Take tax policy. Historically, manufacturing was the high-wage sector of the economy — manufacturing jobs still pay about 30 percent more than service jobs in education and health care — so tax policy milked it. Manufacturing companies, in the old days, actually paid the corporate income taxes that many others avoided. Commodity producers (oil, timber, agribusiness) lobbied for, and received, federal subsidies, with investors in oil and gas wells simply voiding corporate income taxes on the profits they earned. Banking, retail and services found their own ways around taxes, often by offshoring intellectual property or shifting profit totax havens. Eventually, manufacturers figured out how to duck taxes as well — by going overseas.

Varying Regulations

Yet it isn’t just taxes. Wind turbines, for example, are enormous, heavy and expensive to transport — so there is a big advantage to fabricating them close to the installation point. But consider the predicament of the Spanish wind manufacturer Gamesa Corporacion Tecnologica SA after it began operations in Pennsylvania. Because the George W. Bush administration’s Department of Transportation wouldn’t establish uniform standards for transporting the enormous turbine blades, each state followed its own rules. Whenever a blade crossed a state line it had to be unloaded by a construction crane and then reloaded to conform to the next state’s specifications.

Similar policy failures explain why Minnesota’s Port of Duluth exports iron ore to China and imports wind turbines from Europe. On the way to China, the ore freighters pass Chicago; Gary,IndianaCleveland; and Buffalo, New York — cities where steel could be made and turned into turbine towers. But the U.S. wind market is too small, and the government too focused elsewhere, to make it profitable.

And that Long Island golf-course story? Not unique to New York. During the 1991 Californiadrought, Silicon Valley’s electronics manufacturers were warned by Governor Pete Wilson that the state might have to shut off their water supply. Agriculture, Wilson said, came first. When I asked a Silicon Valley lobbyist in Sacramento if he had quietly received assurances that California would prioritize 21st-century computer chips over 19th-century alfalfa, he said he hadn’t. In fact, he said, some plant expansions initially planned for Silicon Valley were being diverted to Oregon to secure access to water.

In 1991, it was Oregon. Today, it’s Asia. Conventional wisdom blames globalization for the exodus of factories and jobs. Because other countries pay lower wages, the thinking goes, there is nothing we can, or even should, do about it. But the evidence of Germany and Japan — and the experience of manufacturers in the U.S. — tells a very different story.

We are not victims of an impersonal Leviathan called “globalization.” We’re the suckers who allowed our government to sacrifice the manufacturing sector while protecting the real winners: commodities, intellectual property, finance and agribusiness. The U.S. didn’t lose its manufacturing leadership; it threw it away.

In the next two parts of this series, I’ll discuss how that happened and what we can do about it.

(Carl Pope is a former chairman of the Sierra Club. The opinions expressed are his own. Read Part 2 and 3 of the series.)

To contact the writer on this story: Carl Pope at carl.pope@sierraclub.org

To contact the editor responsible for this story: Francis Wilkinson atfwilkinson1@bloomberg.net.