Statistics support manufacturing; bills could help

Minneapolis, MN—Statistical support was offered for better manufacturing representation, support, and lobbying, locally, at the state level, federally and internationally, at the “Manufacturing Tomorrow” conference here April 5.


Minneapolis, MN— Statistical support was offered for better manufacturing representation, support, and lobbying, locally, at the state level, federally and internationally, at the “Manufacturing Tomorrow” conference here April 5. Merits of pending U.S. legislation were debated, as well.

Patrick J. Cleary, senior VP for public and external affairs, National Association of Manufacturers (NAM), suggested that we all have a responsibility to be advocates for the wealth and competitive and strategic advantages that U.S. manufacturing brings to the country. And, he continued, we need to be aware of its impact, so we can individually and collectively promote its health and expansion. Manufacturing has been key to developing the U.S. standard of living. “There need to be water cooler discussions about the importance of manufacturing because it takes about a nanosecond for public debate to become congressional debate.” Here’s why manufacturing is central to future U.S. economic development and success in the knowledge economy.

One-sixth of the U.S. gross domestic product is manufacturing, Cleary says, which is 60% bigger than retail; 90% bigger than transportation and utilities; and 130% larger than construction, mining and agriculture. Taken by itself, U.S. manufacturing is the fifth largest economy in the world, which is larger than the economies of Canada and Mexico combined, or France, or China. Manufacturing accounts for three quarters of all U.S. exports. U.S. agriculture exports $50 billion a year. Manufacturing exports $50 billion monthly. Manufacturing employs 16 million people. Manufacturing is responsible for two-thirds of all R&D. “The technology in manufacturing is unbelievable. If you sell R&D, you should care about manufacturing. Airlines lost 100,000 jobs after 9/11. We were losing 100,000 a month. In the last few years, there’s been a loss of almost 3 million jobs. Global competition has eliminated the ability to raise prices. Our goal,” adds Cleary, “is to create climate in the U.S. that allows manufacturing to survive and prosper by:

  • Reducing cost of doing business in the U.S., which has a 22% non-production cost disadvantage. The U.S. has the highest environmental compliance costs of all its trading partners. We spend 2% of GDP on legal costs, which is larger than the individual economies of Hong Kong, Vietnam, Portugal, Israel, Ireland, Finland, Denmark, Singapore, and more than 180 others.

  • We need a level playing field with all trading partners. With China, that means halting currency manipulation that keeps the rate of eight won to $1. China should let it float. They should have greater respect for intellectual property. In a measurement taken prior to Sen. John Kerry becoming a candidate, he had a 7% pro-manufacturing track record. Yet we find it easier to focus on China rather than things we can fix ourselves. We must keep heat on China, but cannot do it at the expense of what we can do here. We could do all things we need done today, but it’s easier to talk about China. I’m unsure why we think it’s easer to move all the Chinese people, rather than our own U.S. House and Senate.

  • Revise the tax system to encourage people to invest in manufacturing.

  • Create an adequate supply of workers, through adequate education and training initiatives.”

In encouraging participation in the political process, Cleary cited Plato’s explanation that the penalty good people pay for not taking part in politics is to be governed by those not as smart as they are.

Jeremy Leonard, an economist and author of “How Structural Costs Imposed on U.S. Manufacturers Harm Workers and Threaten Competitiveness,” consults for Manufacturers Alliance/MAPI, adds that U.S. manufacturers could go head to head with anyone in the world and win if we weren’t fighting with our hands tied. Research from MAPI, NAM, and Emerson Electric shows that manufacturing costs need to be reduced. (See links to previous coverage below.) Leonard noted that 22% of GDP growth in the 1990s was from manufacturing, more than its share of output. Statutory corporate tax rates are decreasing everywhere but here; our corporate tax rates are higher than anyplace except Japan, he says. For pollution abatement, he says there’s no reason to deregulate, but industry can be regulated more efficiently; U.S. pollution abatement costs as a percentage of manufacturing output are greater here than among any of our major trading partners, including Mexico, Canada, Japan, China, Germany U.K., South Korea, Taiwan, and France, among others. He also recommends shifting health care to individuals, so they could use the cost of health care to change to healthier (less expensive) lifestyles.

Leo Reddy, founder and ceo, National Coalition for Advanced Manufacturing , industry manager, Manufacturing Skill Standards Council, and author of “The Case for Enhancing American Workforce Skills,” noted some discouraging long-term trends, such as a critical shortage of workers in 2020. Manufacturing, though still significant, has declined in GDP share from nearly 29% in 1953 to close to 14% today. Manufacturing accounted for more than 30% of employment in 1953, and about 11% today. The trade deficit in goods in 1976 was $20 million, $540 billion in 2003. Twelve of 15 of the fastest-growing occupations, according to Bureau of Labor Statistics, March 2004, were in low-wage, low-skilled occupations, what Reddy called the “Wal-Martization” of the American economy. A comprehensive policy strategy is required to reverse those negative trends, as outlined in his recent, “Industry views toward a comprehensive strategy to address challenges to U.S. manufacturers.” Recommendations include a federal manufacturing focus, improved tax policy, ways to lower manufacturing costs, technology and innovation, workforce education and training, better trade policy, and preservation of defense-oriented manufacturing. A full 80% of manufacturers have reported a shortage of qualified workers; 78% cite failure of education and training systems; 60% of jobs in next 10 years will require skills held by only 20% of present workforce. A workforce investment act would better prepare workers for high-growth, high-value jobs, he says. Some of it falls on employers; training budgets are less than 2% of payroll and most of that, Reddy says, goes to executive seminars.

Politicians agree, disagree on what to do
At the meeting, there was some contention that a number of politicians, largely Democrats, are stonewalling initiatives that other politicians, largely Republicans, think would benefit manufacturers. The lone Democrat on the program suggested that Republican fiscal mismanagement is creating problems.

Minnesota Gov. Tim Pawlenty, via video, started the conference positively, saying a healthy country and state depends on growing manufacturing, even as he noted that manufacturers face some stiff challenges. He proclaimed April 5 as Manufacturers’ Day. One of his recent initiatives was to name Diane L. Knutson, as the Minnesota manufacturers’ advocate, serving as liaison between state manufacturers and their organizations and state and federal agencies.

Matt Kramer, commissioner, Minnesota Department of Employment and Economic Development , says the average manufacturing salary in Minnesota is $41,000 per year. More than half of manufacturers expect more orders; 55% expect economic growth. Median age is 44 years in the upper Midwest. In a few years the labor shortage of the 1990s (1.7% unemployment) will look like a picnic, Kramer adds. A Minnesota job skills partnership program allows the state to pay half the cost for specific training. Low-interest loans also are available for business investments. JobZone tax incentives allow tax relief for property and corporate taxes. Recent wins include Marvin Windows, Polaris, and Arctic Cat, among others, Kramer says.

Federal politicians were less hospitable, with clear lines of demarcation between political parties, but both sides acknowledged that action on several fronts is needed.

To comply with World Trade Organization (WTO) requirements, the U.S. House recently passed a bill stalled in the Senate, which U.S. Rep. Jim Ramstad (R-MN) says would avoid adding to the $4 billion in fines already sanctioned against U.S. businesses since March 1. Other “pro-growth tax policy provisions” would create hundreds of thousands of jobs, he claimed. “Use your influence to get the Senate to act,” he urged. In tax code, R&D tax credits will expire in June; 16 other provisions expired in December. “At the very least, if Congress does nothing else, a real possibility in this election season, we need to pass these extenders to have a favorable environment for R&D. Without passage, it’s going to hurt a lot of research and innovation,” he adds. U.S. Rep. Martin Olav Sabo (D-MN) says he “assumes that we will extend them again,” tossing back that he’s “less confident in keeping funding for the advanced technology program.”

Rep. Mark Kennedy (R-MN) emphasized, “We will not tax our way to success. We need to innovate our way to success, and I hope we will get the extenders for R&D before end of session.” Other countries, contends Kennedy, “treat foreign subsidiaries better, which is why we have a Daimler-Chrysler and not a Chrysler-Daimler.” He noted that eight of the U.S.’s nine closest competitors have lower corporate taxes, and only Japan has higher taxes. Kennedy adds that steel tariffs have ensured that for every 60 jobs processing steel, there’s one job producing steel.

Continuing on taxes, Ramstad says, “I hear politicians say we should increase to the upper 1%. Well, two-thirds of the so-called‘super-wealthy’ are small business owners. That would be a tax on our engines of economic growth because companies with 500 or fewer or employees account for all the net new jobs in last 10 years.” Other tax relief should be the end of the death tax, to prevent resumption of governmental confiscation of 55% of business assets in 2010. “Why shouldn’t you be able to pass along to heirs?”

On health care, Sabo noted that what we pay for prescription drugs is out of line with others in the world. “We have to figure out how manage very severe cases; 40% of health-care costs come from 10% of people. One of the least invested in new technology is healthcare industry. There are many problems not addressed by slogans.” Kennedy suggested that doctors, afraid of attorneys, immediately give someone a $1,500 MRI for a twisted knee, whereas if the patient was doing the paying, a $150 X-ray and a day of “wait and see” might be sufficient.

Republicans pushed for passage of the stalled, “20-years overdue” Energy Bill, saying it would lower energy costs and encourage conservation. Sabo said the energy bills “drilling as a long-term solution. We need more emphasis on alternative energy sources.” Sen. Norm Coleman, R-MN, added that windmills weren’t going to be enough; more drilling and cleaner use of coal resources are also needed.

Sabo said it would be worthwhile to get someone appointed for the position of assistant secretary of manufacturing services that President Bush created last fall. “The last 3.5 years stagnant economy for job creation. The Bush Administration could be the first four-year term since the Hoover Administration that hasn’t shown a net gain in number of jobs. We’ve had major pump priming and increased spending with minimal impact on creating jobs,” says Sabo, criticizing Bush fiscal policy. Ramstad lashed back, saying that he wasn’t going to say that Bush inherited the recession and has had to contend with the costs of Sept. 11. Pro-growth tax policies are getting the economy moving again. More needs to be done, but “I’d rather look forward,” Ramstad added.

Sen. Coleman said that in eight years as St. Paul’s mayor, he helped create thousand of jobs, didn’t increase property taxes and secured a AAA bond rating. “We not going to beat people on labor costs,” he said, having heard recently that Mexico was complaining about low-cost labor in China. He pointed to the power of start-up entrepreneurial efforts, such as Ford, Disney, Readers Digest, and Apple computer, saying, “We need to shape an environment where you choose to invest,” rather than “take away your opportunity to compete.” But, one politician’s loophole is another person’s tax relief, he noted, in a slight nod to the contentiousness of the issues. NAM has a good vision, he said; admitting that he can do nothing about direct cost of labor, but can try to do something to reduce 20% U.S. premium on indirect labor costs. Admittedly worried about presidential politics and the unwillingness of one side to give the other anything that might seem favorable, he warns that the WTO non-compliance tariffs could jump from 5% to 17% through inaction. “The best welfare is a job…. Democrats love jobs so much,” Coleman joked, “they almost saved one.”

Keynote comments by Donald Evans, U.S. Secretary of Commerce, continued to advocate Bush Administration views. Evans attributed the lion’s share of 1.4 million in job losses to the effects of Sept. 11, which was followed by lack of stock market confidence because of corporate scandals. Positive tax moves need to continue he suggested. Building on the 308,000 jobs created in March 2004, he expected revised figures to show 170,000 additional jobs were created in January and February. Recent examples, such as $6 million in product-liability damages awarded to someone, who tripped while wearing a certain brand of boots, and a Chinese-made lawnmower duplicating a U.S. brand, are reasons why tort reform and property-law enforcement need to happen. Recent analysis, he says, puts the annual U.S. “tort tax” at $806 per capita, Evans says, for frivolous suits. A trade agreement enforcement unit is gathering evidence to “lay on the table in front of Chinese officials.” Behavior that could lead to less trade isn’t the answer, saying that factories that export, on average, have 18% higher employee wages. “We can compete and win,” he said.

Minnesota manufacturers unite
Manufacturers in Minnesota recognized the need for more unified messages for state and federal policymakers, so 23 Minnesota manufacturing and business organizations united in a banner group called the Minnesota Manufacturing Coalition to provide more unified guidance on a smaller set of issues common to all. The group was announced April 5.

Erick Ajax, past director of the Precision Metalforming Association and charter member of MMC, said members would meet regularly to identify highest priority subjects that deserve attention from state and federal policymakers. Another founding member, Charles Arnold, executive director of the Minnesota Precision Manufacturing Association, noted that the average manufacturing employee’s weekly wage is nearly 20% higher than the statewide average. Ajax, VP at E.J. Ajax & Sons Inc. in Minneapolis, explained to Control Engineering prior to the meeting that his metal-stamping company, which now employs 25, had 60 employees three years ago. Leaner processes and implementation of automation have helped Ajax stay in business, he says. Five years ago, Ajax had one machine per operator. Advanced technologies now allow three to five machines per operator with strong profitability, he says, even if sales of the steel hinges they make have dropped a bit from the historic high.

Leo J. Meyer, managing director of operations for Toro in Bloomington, MN, told Control Engineering that lean manufacturing and application of some automated material handling, sorting, robotic welding, and automated torque measurements are among ways the company is staying competitive with the high variety of products Toro makes.

Tony VanDanacker of Meier Tool & Engineering of Anoka, MN, says vision systems for inspection and automation part cleaning are two ways advanced technologies have advanced its metal-stamping competitiveness.

For related Control Engineering coverage, see “ NAM urges advocating for U.S. manufacturing ,” NMW 2004: NAM survey finds manufacturing recovery, improved hiring ,” Think Again: Automate or export jobs .”

More‘promote manufacturing’ statistics
Organizers of and participants in the April 5, 2004, “Manufacturing Tomorrow” conference provided additional statistics to encourage more investment in policies that will promote manufacturing.

  • Eighth-grade math students scoring at the 50th percentile in the U.S. would finish in the 11th percentile in Singapore.

  • More than 60% of students in Russia and Brazil earn their first university degree in engineering and science fields. 72% in China.

  • Engineering accounts for 19.4% of all bachelors decrees in Japan; 5.3% in the U.S.

  • About 90% of the world’s engineers are educated outside the U.S.

  • In 1954 15 million people worked in manufacturing and fewer than 7 million in government. Today, 14 million work in manufacturing and 22 million work for government (not including military).

  • U.S. trade deficit was $31 billion in 1991 and $489 billion in 2003;

  • U.S. is the largest debtor nation.

Control Engineering Daily News Desk
Mark T. Hoske, editor-in-chief

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