It’s Not Jobs, Stupid

In 1992, one of Bill Clinton’s campaign managers summed up the key issue of that year’s presidential election in just four words: “It’s the economy, stupid.”

Fast-forward to 2007, and ask most any politician: What’s the biggest issue facing U.S. manufacturing today? Almost invariably, the answer will be the ongoing loss of good-paying manufacturing jobs.

That attitude is understandable, coming from a politician who: a) likely has a limited understanding of manufacturing, and b) is primarily concerned with “bringing home the bacon” for his or her constituents in hopes of perpetuating time in office.

The problem is, focusing solely on manufacturing job numbers is at best a diversion that deflects attention from the real problems facing U.S. companies. At worst, it’s just plain wrong.

Without question, the job loss numbers are shocking. According to government statistics, the U.S. manufacturing sector has lost 3.2 million jobs since 2000. That’s one-sixth of all factory jobs, gone in just a few years.

I don’t want to seem callous. I’m not saying job losses of this magnitude aren’t painful. They most certainly are to the individuals, companies and communities directly involved, and they have ripple effects felt throughout the economy. But reality is that American manufacturers are in a global fight for survival, and one of their main weapons in that fight is productivity.

Increasing productivity means doing more with less. Automation and other technological advances are enabling U.S. manufacturers to do exactly that. Investing in new technologies and employing new management techniques has resulted in increased output without a corresponding increase in the number of manufacturing workers. In fact, since 1979, the productivity of manufacturing workers in the United States has grown at an average annual rate of 3.3%—significantly faster than the 2% overall growth in the U.S. economy, and faster than our industrialized trading partners.

According to Clemson University professor of applied economics William A. Ward, productivity increases account for 100% of domestic manufacturing jobs lost since 2000. So, if the health of U.S. manufacturing isn’t directly tied to the number of people it employs, what are the real challenges facing domestic manufacturers struggling to find a place in the global economy?

Jeremy Leonard, an economic consultant for industry trade group the Manufacturing Alliance/MAPI, shed some light on this topic at the recent NASF Washington Forum. Leonard says the combined effects of high corporate tax rates, employer health care/pension costs, tort litigation, regulatory compliance and high materials and energy costs add 30% to U.S. manufacturing costs relative to major trading partners. According to Leonard, corporate tax rates in the U.S. are higher than those of all our major trading partners with the exception of Japan. Health care and pension account for 15% of manufacturing compensation. Although the tort reform law passed in 2005 is slowing growth in costs, the U.S. tort system is by far the most expensive in the world.

Regulatory compliance cost U.S. manufacturers $162 billion in 2004, with fully half spent on environmental regulations. And wellhead prices for natural gas in the U.S. are significantly higher than those of our major trading partners.

These are the real issues facing U.S. manufacturers, and most of them revolve around inappropriate or outdated government policies, Leonard says. A handful of politicians—those who have taken the time to listen to their constituents involved in manufacturing and look past the jobs numbers—understand this. Whether these relatively enlightened individuals have the ability or the will to do anything with this information remains an open question.

So, there’s bad news and good news for manufacturers, and for the U.S. in general. Job losses are bad news, especially if you’re directly impacted or if you’re a politician and the losses are occurring in your district. The good news is that willingness to apply new technologies and management techniques has enabled many domestic manufacturing companies to keep pace with global competition despite restrictive and in some cases downright harmful government policies. We can only imagine what those companies could do without all the added burdens imposed on them by our own government.