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Is Deindustrialization Inevitable? MANUFACTURING DISCONTENT By Bob Baugh and Joel Yudken IS DEINDUSTRIALIZATION INEVITABLE? REBUILDING AMERICA’S INDUSTRIAL BASE IS ESSENTIAL FOR MAINTAINING OUR COUNTRY’S living standards and restoring the American Dream for future generations. Today we must borrow an unsustainable two billion dollars a day to pay for the goods we consume that we do not produce as a nation. Eventually, we must either produce more of what we consume, or be forced to consume less. Our national competitiveness is eroding despite the fact that American manufac- turing workers are the most productive in the throughout its history. It is a vital engine for world. As a high–wage country in a rapidly glo- economic growth, generating good jobs and balizing world, we must restore our competi- guaranteeing a high standard of living for tiveness by developing a national industrial America’s working families. It is a mainstay of strategy centered on innovation. Such a strat- state and local economies, providing both jobs egy requires raising the level of public and pri- and tax revenues for essential public services. vate investment, harnessing the distinctive tech- Manufacturing jobs create as many as four other nological and organizational capacities of U.S. jobs in local economies, and the earnings and manufacturing companies, and developing the benefits of those workers exceed those of work- skills of American workers. ers in services and other sectors. In addition, Manufacturing has been the foundation of manufacturing is the leading industrial sector the nation’s economic and national security in providing health care benefits. The sharp New Labor Forum 15(2): 55–64, Summer 2006 CopyrightIs Deindustrialization © Joseph S. Murphy Institute,Inevitable? CUNY New Labor Forum • 55 ISSN: 1095-7960/06 print DOI:10.1080/1095760600666645 increase in uninsured Americans, five million ing, nearly every subsector has suffered double- over the past four years, is directly related to digit employment declines—48 percent in tex- the decline of manufacturing employment. tiles, nearly 30 percent in computer and elec- Manufacturing is also the major driver of U.S. tronic parts and primary metals, and 23 per- productivity growth and technological innova- cent in machinery. tion. The crisis has spread throughout the economy to encompass both high–and low– A NATIONAL CRISIS end occupations. In 2003, engineering unem- ODAY, HOWEVER, AMERICAN MANUFACTURING ployment hit seven percent, a level that, even Tis under siege. Alarms should be going off in the worst of times in the early 1980s, never everywhere but the crisis is deliberately rose above three percent. From 2001 to 2004, drowned out by an economic orthodoxy that the Bureau of Labor Statistics estimates there tells us “globalization is inevitable” and “it’s was a loss of 221,000 technical and engineer- good for consumers.” Free market dogma pro- ing jobs: computer programmers, electrical and vides cover for government policies shaped by electronic engineers, and so on. Since January Wall Street, and multinational corporations that 2001, the U.S. economy lost 725,000 profes- are unraveling America’s working middle class. sional, business, and information service jobs, The fight for manufacturing is a fight for the and created only 70,000 jobs in architecture and economic heart and soul of our country. engineering, many of which are clerical. The past five years have been especially Manufacturing is the canary in the coal brutal, far different from earlier manufactur- mine for a “new economy” that has seen ing downturns. The nature of the decline is outsourcing spread to software, info tech, and structural, widespread, and deep. The 2001 re- financial services. The losses also have spread cession was precipitated by a manufac- turing depression that continues to this day. Since 1998, over 3.4 million manu- Since 1998, over 3.4 facturing jobs have been lost—2.9 mil- lion of those since 2001—with over half million manufacturing that total coming from union shops. In jobs have been lost—2.9 addition, since 1999, over 40,000 manu- facturing establishments have closed— million of those since medium and large plant closures have ac- 2001—with over half that counted for 90 percent of the job loss. The crisis hit everywhere and every- total coming from union one. State and local tax revenues with- ered, undermining important public ser- shops. vices. On a per capita basis, it has hit minorities, the south, and rural areas the hard- to the university level where engineering and est, as textiles, clothing, furniture and more sciences experienced declining enrollments, as closed or went offshore. Within manufactur- students turned away from degrees for which 56 • New Labor Forum B. Baugh and J. Yudken 20.0 19.0 18.0 17.0 16.0 Millions of jobs 15.0 14.0 13.0 Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- 75 77 79 81 83 85 87 89 91 93 97 99 01 03 05 Figure 8. Manufacturing Employment 1975–2005. Source: Bureau of Labor Statistics there was no perceived opportunity. Just as pansions. The foreign direct investment (FDI) troubling is the precipitous decline in domes- flow into China reached $62 billion a year in tic manufacturing investment, which fell nearly 2004 and continues to soar. Seventy percent of 17 percent in real terms from its peak in 1998 China’s FDI is in manufacturing, with heavy and 2004, while investment in manufacturing concentration in export-oriented companies structures declined 44 percent over the same and advanced technology sectors. Contracted period. At the same time, many of the same (future) FDI projections are more than double firms are making record offshore investments the actual level today, with U.S.–based firms in R&D, engineering, design, and production leading the way. R&D, engineering, design are jobs. all part of the manufacturing investments and The investment flows portend future pro- jobs that the Chinese government is aggres- duction and exports to the United States. sively pursuing. Apologist claims that outsourcing is matched The startling loss of 40,000 manufactur- by insourcing (foreign investment in domestic ing establishments and over three million ex- manufacturing) are meant to mislead. The perienced workers underscores the damage to insourced investments are overwhelmingly a our national security. All of these establish- mere change of ownership that does not result ments and workers were part a greater indus- in new jobs and production facilities here. Not trial base that met both commercial and de- so in China, where these are startups and ex- fense needs. The factory floor serves as a source Is Deindustrialization Inevitable? New Labor Forum • 57 of experimentation, innovation, and product Ford and many others firms that initially development. Many of the engineers, scientists, downplayed the international challenge. In time and skilled workers that work on commercial they learned how to respond to the challenges products one week are the same ones that work of innovation, efficiency, and quality. Employ- on defense applications the next. This vital link ers, unions, and workers both struggled and co- between production and innovation, however, operated as they adapted new technology and is being severed as manufacturers move plants work organization practices. But this is not the offshore, a move aided and abetted by Penta- only path corporations took. gon policies to promote globalization of defense products. This trend is evident in a wide range of important industries, Th[e] vital link between from high-tech sectors such as micro- electronics, printed circuit boards, and production and advanced materials; to traditional sectors innovation…is being such as machine tools and ball bearings; to large “systems integrators” such as severed as manufacturers aerospace and shipbuilding. move plants offshore … The loss of skilled production work- ers, scientists, engineers, and technical and professional workers across the manufac- There was another response, the interna- turing sector means that the next best idea, the tionalization of production—a worldwide next innovation, the next generation of prod- search for cheap labor and subsidies. One ex- ucts, and the next investment will be made ample is Nike Corp., a company that has never somewhere else, not in the United States. manufactured a shoe in the United States. Phil Knight began Nike as a virtual company—mod- FROM INTERNATIONAL eled after his Stanford master’s thesis—that did COMPETITION TO design and marketing here while seeking Asian vendors and cheap labor for production. INTERNATIONALIZATION OF The same dynamic took hold in major PRODUCTION manufacturing industries like auto. While part- HE WORLD HAS CHANGED DRAMATICALLY FOR nerships were being built in domestic plants, TAmerican manufacturing over the past six the industry began internationalizing their pro- decades. Since the end of WWII we have gone duction. They sought cheap nonunion labor by from domestic production to international regionalizing production to Mexico. Even be- competition to the internationalization of pro- fore the 1995 North American Free Trade duction. Agreement (NAFTA), the company now In the 1980s international competition known as Delphi had 50,000 employees in brought a rude awakening for American manu- Mexico. But, in addition to cheap labor and facturing. Henry Ford II’s glib “mini cars, mini weak laws, there were other incentives in place profits” dismissal of Toyota came back to haunt for Nike, Delphi, and other firms. 58 • New Labor Forum B. Baugh and J. Yudken THE POLICY TRAP: TRADE, cent of the plant closing costs even though de- TAXES, AND HEALTH CARE ferral may permit it to avoid tax on the income from the overseas operations. Similarly, a com- ONG BEFORE NAFTA, WALL STREET AND MUL- pany can fund its foreign operations by bor- Ltinationals saw the internationalization of rowing money in the United States and mak- production as the way to maximize profits by ing an equity investment in its foreign subsid- any means necessary.
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