Manufacturing Hubbub

 | 

American manufacturing is in decline. It has been for decades, shrinking to half of what it was at its peak in 1979. During the 2000s alone, it lost one-third of its workforce — largely blue-collar workers who, without a college education, could still earn a middle-class wage — and, today, its output and employment remain below their pre-recession levels.

Who cares? We still make stuff. And we still have enough money to get the stuff we don't make — from countries such as China and Mexico, at cheaper prices. In an advanced, services-oriented economy like ours, so what if our trade balance (which was in surplus prior to the mid-1970s but has been in deficit since) has plummeted to -$508 billion (-$741 billion for manufactured goods) today? We can always borrow or print more money. Right?

By outsourcing critical engineering and manufacturing expertise, the US is frittering away its industrial leadership.

Indeed, politicians, especially liberal politicians, welcome the decline. America has the coolest companies (Facebook, Amazon, Google, Apple, etc.), run by cool, billionaire geniuses. President Obama, our coolest president, uses them to run his campaigns, promote his polices, tweet his followers (a twitterati of 63 million), and post his selfies. America's future lies with these energy-efficient, planet-friendly, high-tech giants. To the liberal elite, America can do with fewer factories, even ones making things that America invented. Besides, factories pollute and warm the planet.

Except that America is now losing its high-tech manufacturing dominance as well. By outsourcing critical engineering and manufacturing expertise, the US is frittering away its industrial leadership, eroding what once was the world's font of scientific discovery, technological advance, and product innovation, and guaranteeing future decay. In a 2009 Harvard Business Review article (“Restoring American Competitiveness”), it was noted that "Beginning in 2000, the country’s trade balance in high-technology products — historically a bastion of U.S. strength — began to decrease. By 2002, it turned negative for the first time and continued to decline through 2007," reaching -$53.6 billion. Today, it has dropped to -$81 billion.

This development has even alarmed the Center For American Progress (CAP), which attributed the deterioration to "the dramatic difference between U.S. innovation policies and those of our global competitors." The high-tech trade deficit "finds its roots in the negligence of our innovation policy," claimed CAP, which, after deep liberal think-tank thought, recommended "a strong policy response." Maybe, liberals suggested, a Department of Innovation is what this country has needed all along — one with strong policies, not those negligent ones.

In President Obama's first Hub, a handful of highly paid computer engineers diligently work to develop machines that will eliminate countless blue-collar jobs.

CAP's prescription may have been what caused President Obama to spring into action with his Manufacturing Innovation Hubs, to "create high-quality manufacturing jobs and enhance America’s global competitiveness." The idea is to bring industry, academia and, of course, government together into a joint effort to convert scientific knowledge into jobs — "a steady stream of good jobs into the 21st century," said Mr. Obama.

The first such hub, America Makes, opened for business in October 2012 in the Rust Belt city of Youngstown, Ohio. It focuses on 3D printing, and will be used as a model for subsequent hubs. As many as 45 hubs are planned, with projects that are intended to have a multiplier effect: each job created will support 1.6 other jobs, outside the factory. A Reuters article described the facility as "a sleek new laboratory" housing "a Silicon Valley-style workspace complete with open meeting areas and colorful stools." Inside, "Several 3-D printers hum in the background, while engineers type computer codes that tell the machines how to create objects by layering materials." That is, a handful of highly paid computer engineers diligently work to develop machines that will eliminate countless blue-collar jobs.

As of March 2014, when the Reuters article was published, none of the six businesses participating in America Moves had hired new workers. But the government component, the National Center for Defense Manufacturing and Machining (an organization funded by the US Army, i.e., funded by taxpayers), which manages the project, had hired ten. At this rate, 450 jobs will have been created when all 45 hubs are operational, soaring to 1170 jobs once the multiplier effect kicks in.

To be fair, it’s too early to tell how much of a dent, if any, Obama's struggling Hubs scheme will put in the 5.7 million manufacturing jobs that have been lost since 2000. For example, at a similar stage, the success of Obama's green economy scheme could not be determined. But after spending billions of dollars on green manufacturing companies such as Solyndra (solar panels), Nordic Windpower (windmills), and A123 (lithium batteries), all of the green jobs that were created ended up in China — which now manufactures all of our high-tech solar panels, windmills, and batteries. Whoops, bad example. But at least the Hub jobs have not left America, yet.

In 2011, Mr. Obama — the man who said that he wakes up every morning and goes to bed every night thinking about jobs — held a “town hall” meeting at Facebook, to discuss his economic policies. To Obama, Facebook is especially cool. Its young multi-billionaire CEO, Mark Zuckerberg, wears a hoodie to work. Its 500 million users (at the time) were available to watch Obama pal around with Zuckerberg, who "offered questions submitted online that gelled with Obama's key talking points and victories."

To Obama, factories are hulking, dilapidated buildings where glum Americans used to work, producing goods the world used to buy from us.

No one asked why — if Mr. Obama cared about creating jobs, in general, or manufacturing jobs, in particular — he didn't choose a company like Boeing, which, in 2011, was comparable in value (about $50 billion) to Facebook? Boeing — which is the only remaining American manufacturer of large jetliners in our declining Aerospace industry — employed 160,000 workers. Facebook, which apparently manufactures little more than narcissism and low self-esteem, only employed 2,000, all of whom, no doubt, gelled with Obama.

Factories, on the other hand, do not gel with Obama. To him, they are hulking, dilapidated buildings where glum Americans used to work, producing goods the world used to buy from us. That is why the regulatory policies he supports are designed to ensure fewer factories. The annual cost to comply with federal regulations for the average US manufacturing company is almost $20,000 per employee, twice that of the average US company (manufacturers included). For a small (<50 employees) manufacturing company, perhaps an innovative startup firm inspired by an Obama Hub, the cost is almost $35,000.$35,000! So much for global competitiveness.

Factories provide middle-class jobs for blue-collar workers. And, at $77,506 per year ($37.26 per hour), the average compensation for US manufacturing workers, millions of jobless Americans would like to see more of them — and may have wondered why Mr. Obama chose an Amazon fulfillment center as a venue to pitch middle-class jobs. Amazon is where middle-class jobs go to die.

Most of Amazon's 150,000 employees are seasonal workers — 80,000 of them hired just last year — who make $10 to $11.50 per hour, when there is work. Known as "pickers," they scurry about "the massive warehouses plucking item after item for shipment" and are paid no more than Walmart's "lumpers," who scurry about loading and unloading trucks all day. A smattering of Amazon employees, the ones with the good middle-class jobs ("the skilled direct-hire positions, like supervisor or forklift operator — the sort of gigs hyped during a high-profile visit by the president") shared Obama's stage. The pickers were offstage, scurrying. The slowest scurriers are discarded at season's end, or sooner; the fastest are rewarded with full-time employment, where they can earn as much as $27,000 per year, for as long as it takes Amazon to find robots that are faster.

Of Obama's visit, the White House asserted, “The Amazon facility in Chattanooga is a perfect example of the company that is investing in American workers and creating good, high-wage jobs.” No wonder he brags about the record-breaking number of fast-food and service jobs that his economic policies have created. He thinks they are high-paying, middle-class jobs.

Obama thinks that a steady stream of $27,000 service jobs is thrusting the economy in the right direction.

High-tech companies such as Amazon, Google, and Facebook, as important as they are to our economic power and prosperity, are not the places to go for middle class job creation. The American manufacturing industry is a much better bet. Existing US manufacturing companies would export more products if they were allowed to compete on a level playing field with foreign trading partners. Subsidies and tariffs are not needed. They would hire more workers, if they expected higher profits — profits now eroded by excessive taxes and regulations. A steady stream of $77,506 manufacturing jobs would stimulate the economy, increase tax revenues, reduce the trade deficit, and do many other substantial things.

Despite almost seven years of economic stagnation and the rise of a vast underclass of Americans stuck with lousy jobs, Obama thinks that a steady stream of $27,000 service jobs is thrusting the economy in the right direction. US manufacturing, hobbled by his trade, tax, and regulatory policies, needs only a nudge from his manufacturing hubs.

But it's not clear that Obama's Hub program is the place to go for good manufacturing jobs either. After all, it is a scheme whose principal objective is to invent and develop machines that will eliminate manufacturing jobs. Then there is his bizarre fascination with high-tech companies that either employ a very small number of the high-wage, high-skill elite or very large numbers of the low-wage, low-skill drudge.

His Hub scheme may indeed help US manufacturers. They would certainly welcome any technology that increases their productivity and profits — especially if it was paid for with taxpayer money instead of company R&D funds. Companies such as Amazon may already have agents salivating in the demonstration areas of the robotics hubs, looking for faster pickers. But peering inside a future factory spawned by Obama Hub technology may surprise even Mr. Obama.

These factories will not create the "steady stream of good jobs into the 21st century" that he had hoped for. Rather, they will create a flood of lousy, underclass jobs — the scurrying human labor needed to feed parts and raw materials to Obama's deft, voracious machines, and relieve them of their prodigious yield. All the jobs in such a factory will be held by these pickers and lumpers, except for one: the cool job held by a geeky-looking guy from an elite engineering school, who runs the factory computer system and earns a six-figure salary. He wears a hoodie and fastidiously controls every function performed (by both scurriers and machines) for the entire operation, from his colorful stool. He gels with Mr. Obama.




Share This


Taxing the Ether

 | 

Here’s the instinctive mindset of the Democratic Party: “If it moves, tax it. If it doesn’t, tax it even more.” If you need proof, consider the frantic attempts by desperate Democrat governors in high-tax states to tax commerce conducted on the internet.

One story about this comes out of California, notoriously one of the most economically ignorant and fiscally incontinent states in the nation. It appears in a Los Angeles Times editorial lauding the efforts of Democrats in the state legislature to try to apply California’s outrageously high sales taxes — nearly 11%, counting state and localities together — to purchases on the internet, targeting especially the dominant internet retail giant Amazon.com. The LAT (always an affirming voice for redistributionist tax-and-spend government) argues that the state is “owed” millions in tax dollars for sales over the net. The paper, natch, supports a bill by Berkeley Dem Nancy Skinner to require internet retailers to collect sales taxes.

The LATviews this as fair — what is the difference, it asks, between buying your shoes at the local store and purchasing them at a store based in Nevada? And, the rag pompously avers, this is the law.

It cites the 1992 Supreme Court ruling (Quill Corp. v. North Dakota) that held that out-of-state mail-order companies (and presumably, by inference, internet retailers) with no physical presence (i.e., no actual stores or warehouses) in a state could not be compelled to collect sales taxes from customers in that state — although the court allowed states to try to collect taxes from such customers directly. So this is the law.

According to the LA Times, people who buy over the internet are both legally and morally (morally?) obligated to pay sales taxes on their purchases. It argues that Amazon and other online stories deliberately encourage consumers to evade their legal and moral obligation by failing to inform them of that obligation on their websites. Not only must the internet help to suck in taxes; it must also lecture people about their ethics.

In an effort to grab more taxes — as opposed to cutting spending — Gov. Quinn cost his state jobs.

The LAT not only endorses legislation that would require any internet company to collect sales taxes from purchases by Californian customers if that company has any affiliates (suppliers) in the state; it also recommends a national bill that would explicitly require all internet companies to collect sales taxes on half of all states that want their citizens’ purchases taxed—and which of them wouldn’t? The LATconcedes that so long as the Republicans have a check in Congress, such a bill won’t ever be passed, but the grand vision is of every vendor of five-dollar trinkets to become an IRS agency, assiduously divvying up its surplus value in accordance with the 50 tax codes of the 50 states, plus Puerto Rico, Guam, and the District of Columbia.

At the time the LAT piece was published, rumors were circulating out of Sacramento that the state Board of Equalization — the agency responsible for collecting California state taxes — would be hiring computer geeks to find out ways of looking at internet traffic to discover which criminal Californians are daring to buy on the web. This, needless to say, caused considerable consternation—not to mention considerable concern about the morals of internet aficionados who would thus be involved in killing the internet.

But the LAT’s case is patently defective. Why the devil should a business like Amazon, which uses none of California’s police or fire services (since it has no bricks-and-mortar locations in the state), much less its educational enterprises, have to pay the state a nickel? And why should Amazon customers within the state have to pay any more than they do right now? They already support the schools with their property taxes. Their sales taxes, collected at the stores that actually exist within the state, support the police, the fire department, and the other agencies that protect those stores. Where does one’s moral and legal obligation stop?

And the consequences from trying to tax the internet are likely to be counterproductive to the states that do it, as a piece in the Wall Street Journal reports. The WSJ — which understands economics approximately a thousand times better than the LAT understands it — points out the obvious: if a state (like California) tries to saddle (say) Amazon with collecting sales taxes for that state because Amazon has affiliates within it, then Amazon will just drop those affiliates.

Indeed, as the WSJ piece recounts, this is just what happened recently in Illinois (a state in even worse fiscal shape than California, if that be possible). The tax-happy Democratic Governor Pat Quinn signed a law applying the state sales tax to internet purchases in Illinois, and it took Amazon only a few hours to announce that it was immediately halting purchases from and affiliation with the 9,000 small Illinois businesses with which it had been doing business — business profitable for Illinois as well as for Amazon.

So, in an effort to grab more taxes — as opposed to cutting spending — Quinn cost his state jobs. Either a discontinued affiliate will stay in Illinois and see its sales plummet (which will then necessitate cutting its workforce), or it will — as some are already doing — move to an adjacent state (such as Indiana) that manifests less tax madness.

Rhode Island, which like Illinois and a few other states (Colorado, New York, and North Carolina), had earlier passed an “Amazon tax bill,” has collected only peanuts in extra sales tax revenues. A study by the Tax Foundation shows that when you factor in the lost jobs from affiliates cutting back, closing down, or moving away, the state probably lost revenue.

The LAT editorial suggested that to prevent internet companies from dumping affiliates in a state that imposes an Amazon tax, what we need is a federal law forcing all internet companies, wherever located, to collect taxes from all customers, wherever located, and remit those funds to the customers’ respective states.

That insipid argument is based on the absurd premise that if we pass a national Amazon tax, Amazon couldn’t drop all of its national affiliates. But it sure as hell could, and just move its central operations to (say) Mexico and all its affiliations to businesses in other countries. That would be yet another example of government greed, triumphant.




Share This
Syndicate content

© Copyright 2017 Liberty Foundation. All rights reserved.



Opinions expressed in Liberty are those of the authors and not necessarily those of the Liberty Foundation.

All letters to the editor are assumed to be for publication unless otherwise indicated.