Monday, September 5, 2011

  • We Can Jump Start Sustainable US Job Creation and Dramatically Improve The Economic Forecast With Simple Actions To Rapidly Restore Offshored Manufacturing Jobs Back Home

    • Overview

          • This post has three main sections and two subsections: 1.  Roadmap and Introduction; 2. How Government Can Help Manufacturers To Return; 2a. The Carrot; 2b. The Stick; 3. Manufacturing Jobs Are Different because Of Asymmetrical Treatment By Economists, Past Administrations, and Congress
      • 1. Roadmap and Introduction
        1.1 Roadmap
                      • 1. The President issues a Declaration of National Commitment to bring back 4 million offshored manufacturing jobs within 24 months. That will be sufficient to supply much of the national market for manufactured goods.
                      • 2. The President Announces a new United States Job Creation Coordinating Committee (JCCC) that he will direct. Members of JCCC will include members of his cabinet, the Vice President, and White House staffers. 
                      • The President will direct them to act quickly to coordinate with States, Regions,  U.S. Industry, and Labor.
                      • 3. The President, Vice President, Cabinet and White House staff members begin a planning activity coordinating with States, Regional Agencies, cities and towns as needed.
                      • 4. To help with specific industry requests, JCCC establishes and coordinates a database organized by Regions, States, Cities and Towns to assist manufacturers as they request information to locate suitable facilities. The database should identify the status of industrial buildings, renovations required to be usable, and new construction required. The JCA Database identifies infrastructure renovations and upgrades required.
                      • 5. JCCC coordinates with the Fed and the Treasury to create loan guarantees and bond guarantees. The goal is to make it easier for regional, state and local agencies to defer taxes for time required for returning manufacturing job creators in industry to pay back loans and or bonds.
                      • 6. JCCC assists manufacturers, local governmental agencies, unions, chambers of commerce, and banks, in all matters related to facilitating the transfer, as requested.

        • 1.2 Introduction:
          Jobs We Expect To Create In The Current Weak Economy

            • Quite a few. In an article appearing Wednesday, September 8, 2010, in The Washington Post,
              Light bulb factory closes; End of era for U.S. means more jobs overseas, Peter Whoriskey says "...the number of manufacturing jobs in the United States has been shrinking for decades, from 19.5 million in 1979 to 11.6 million this year, a decline of 40 percent." That means 7.9 manufacturing jobs were offshored. Sixty percent of those, more than 4.5 million jobs,that supply the domestic market, could be and should be recovered.

    • No Additional Funding Would Be Needed
      • What is needed is to set a new top priority jobs creating agenda by The President. People from a variety of Federal and State Agencies would be reassigned to support an effective manager, who could be appointed by executive order by The President. Sign on by Congress leaders of both parties would be valuable, but not absolutely required.
      • Planning and canvassing activities would focus on assisting manufacturers who want to to relocate their manufacturing plants back to the US to do so. A good first step for the new manager would be to take the necessary steps to set up a national facilities database organized by regions, states and communities where facilities exist or could be renovated to suit.
      • Since a grass roots canvassing activity using experienced local people in all neighborhoods would be desirable, census workers may be rehired and used again. That would take funds, but much of it could come from existing Federal department budgets as lower priority activities are put on hold and people reassigned to support jobs creation. Congress would likely allow this to happen since no new funds would be appropriated.This would be possible as soon as the President activates a new, top priority, rapid jobs creation, focus. Coordinating with regions, states, cities, towns, and local communities would be the first task.
    How Long Would it Take?
    • We know from bitter experience that manufacturing plants including all their manufacturing lines, ancillary measuring, monitoring, and control equipment, sensors, etc., can be exported, in a matter of a few brief months after a suitable facility has been obtained or built via purchases, leases, or construction.
    • Importing jobs can be equally fast. Importing the offshored manufacturing facilities to the US can be completed rather quickly once a suitable vacant facility can be located, and renovated to meet a given manufacturer’s needs. Existing space will be snapped up quickly, and new plants will start to be built to suit when it becomes clear one does not want to be the hindmost once "onshoring" is in vogue.
    • If the current approach of this and recent administrations continues, Peter Whorisky's article, makes it clear that very few of the one million manufacturing jobs in green industries that, according to President Obama, will be created, will remain in this country. So, I will now assume there is a sudden realization by The President, and all his advisors who matter that a change in approach is needed. I will assume further that there is a brand new national commitment to what looks like a war time footing for exported job recovery. The precedent is how we shifted gears after Pearl Harbor. We shifted industries and created jobs, lots and lots of jobs very quickly. The first thing that will happen is that planning activities will generate jobs almost immediately, as the agencies, regions, states, communities, and companies seek skilled planners. We will assume the number of those jobs is the same as the previously deployed census workers, 100 thousand jobs. The canvassing of available empty facilities and the needed renovation will no doubt be aided by owners coming forward to ensure their property is included in a new facility database. A significant number of civilian sector jobs will be generated quickly when it becomes clear the administration will use existing federal agencies, departments, and a significant fraction of their existing and future budgets to facilitate rapid planning for bringing back the exported facilities and jobs. Sort of like it did shortly after Pearl Harbor.
    • Not long after that, existing vacant facilities will start to be refurbished, modified, renovated and new construction will be required not only for buildings but also for rail lines, highway interchanges, and long neglected bridge and road maintenance. The buildup of large numbers of construction jobs will be rapid. Let us assume for starters this refurbishing activity in the construction industry will require a number of new jobs equal to 20 percent of the lost jobs. That would be approximately 1.6 million jobs. Since only 60% is for current domestic needs, we will use one half of that number or 800 thousand jobs.
    • I guestimate a time period of three months for significant planning and canvassing job creation of roughly two hundred thousand jobs to kick in. Those will be in industrial and city planning. With a further 400 thousand jobs in the maintenance and construction industries. As it builds up steadily, that could easily grow in 2012 and 2013 to replace a significant fraction of the lost, Ponzi enabled, house construction job market. Home Depot may consider recreating its contractor division ;)) Support industries will be energized into, slowly at first, hiring as well...
    • Depending on their facility needs and flexibility, some manufacturers' domestic manufacturing jobs will be created within three to six months. The start will be slow as people do their planning. Then, within six months, as planning winds down, there will be a rapid increase manufacturing job creation. At that point, competition for space and skilled manufacturing workers will kick in. Training schools and community colleges and universities will be hiring too.
    • This job creation approach benefits main street, hospital boulevard, academic way, and labor neighborhood. It seems likely the plan would be supported by most groups, including business, labor, academics, government, legal and accounting professionals. Religious groups will find it ennobling. There is no significant obvious downside for either major political party or independents. Libertarians could go either way. The only potential and very serious obstacle is the current crop of economists who have the President's ear. They may not find this approach easy to live with. However, if they adopt the WW II mindset, they should be able to adjust without changing their peacetime paradigm.

    2. How Government Can Help
    2.1 The Carrot

    • Incentives: The Government's Role
    The Government can assist in a number of ways
    • The Federal Government can provide direct financial assistance through grants, loans, or by guaranteeing local or regional bonds to communities, states or regional entities to assist companies to move manufacturing facilities, and hence manufacturing jobs, from abroad to the US.
    • One approach would be to provide Federal guarantees for governmental entity bonds to be used for facilitating planning and the actual return of manufacturing facilities. This would lead to an almost immediate employment of workers needed to staff the modern facilities.
    • We know from bitter experience that manufacturing plants including all their manufacturing lines, ancillary measuring, monitoring, and control equipment, sensors, etc., can be exported, and hence imported, in a matter of a few brief months after a suitable facility can be obtained or built via purchases or leases. This means that returning manufacturing facilities to the US can be completed rather quickly once a suitable vacant facility can be located, and renovated to meet a given manufacturer’s needs. Plants will start to be built to suit when it becomes clear one does not want to be the hindmost once Onshoring is in vogue.
    • In addition, the Federal Government can provide other types of assistance, to communities, states, and regional groupings. For example, various governmental agencies can coordinate and facilitate needed planning activities, These planning activities, in and of themselves, will generate a significant number of jobs. So will the renovation of the existing plants, new plants, and conversion of other types of facilities such as redundant strip malls. The number of such building trades generated can be estimated from the size of the needed renovated or new facility, This also correlates directly with the number of manufacturing jobs that will be returned. Other Federal assistance, legal and financial means can be used such as preventing foreign imports from undercutting and stifling the new Onshore manufacturing plants. Tax policy can help enormously via incentives and penalties. More on this in The Stick section
    • The following paragraphs address some planning and implementing activities that might benefit from Federal incentives
    • Help communities offer zero or reduced tax plans to corporations for some period of time. That could be the time it takes for manufacturers to recover the cost of moving their plants back to various locations across the US.

    Important Planning Activities
    • US Regions, States, Counties, Cities, Towns, etc should be encouraged to work together and with former and new manufacturers to plan for effective and efficient movement of plants in a rational fashion. Governmental participation that would assist manufacturers can be very helpful. Otherwise every plant will have to reinvent the wheel with fewer economies of scale. A significant advantage of the planning activities is they provide an early job stimulus to jobs that do lead to real economic growth, and are therefore more than sustainable. they act more as catalysts in addition to boosting short term well paying jobs of people with education and experience. The jobs they help create will be employing blue collar jobs that are currently sorely lacking. Offshoring left a huge hole in employment opportunities for people who could never do higher technical skilled jobs or planning jobs, regardless of retraining programs.
    • The return of manufacturing will quickly lead to cash flow in many communities. This will support amplifying and stimulating service industries and lead to hiring. Just think lunch counters that workers like. Repair people will be in demand. Retail stores will boom.
    • Planning activities should include identifying suitable inventories of existing vacant enclosed spaces and the types of weight bearing floors loading facilities, and office space exist. With the current state of demoralization on Main Street, this may take some time. The Regions, States, Counties, Cities, and Towns, should be required to create such inventories if they wish to receive Federal Manufacturing Assistance for Jobs In Communities (MAGIC) Recovery funds.
    • The purpose here is to reverse the policy of not taxing company profits on manufacturing facilities we encouraged to move Offshore in the first place.
    • We might address how to best recover some fraction of the lost tax income due to Federal encouraging of Offshore job movement as national policy by both parties. In future imported goods. Of course, the advantages of moving a plant to the us will be amplified by the disparity in the taxing of foreign to domestic profits. If a company decides to leave the US, or to remain outside the US insofar as production for the US market is concerned, it will now be at a significant disadvantage taxwise. This should encourage the return of many manufacturing jobs that were pushed out by Federal tax policy over the last 40 years or so.
    • Foreign auto manufacturers have been moving new plants to the US. US manufacturers are returning some manufacturing here due to the significant disadvantages they have discovered in using foreign workers and manufacturers as their supply sources. (Enumerate these later- I believe I have these in my estimation blog. I will check.
    • Some preference might be given to returning certain types of manufacturing plants and facilities to the same regions from which we actively encouraged that they move offshore.
    • To be consistent with Paul Krugman’s seminal work, “Increasing Returns and Economic Geography”(1) thought should be given to grouping returning industries in cohesive masses to attract trained and trainable workers, the efficient local mobility of workers, or for the manufacturers to effectively use an existing labor pool.
    • (1.

    2.2. How Government Can Help - The Stick

    • Penalties For Companies That Do Not Bring Back Jobs

    • On September 12th, Paul Krugman advocated in his NY Times op ed piece China, Japan, America, imposing tariffs on Chinese goods. That is more than I had hoped for. Way to go Paul!! But who will go along with that? The opposition is too strong and the thought of tariffs is scary to most folks who do not know better, as the Chinese do. Tariffs are one of a number of valuable tools. Just the threat of cost equalizing tariffs would motivate some manufacturers to return their jobs here. Let's look at some additional useful approaches.
    • Federal, State, and Local Governments shall purchase only from companies that manufacture n% of the assembled item and m% of each of its subassemblies in the US. Where m and n are determined by the percentage of their total production that is exported to the US.
    • Said governmental entities or their agents shall reduce the price they may pay for any imported item. Said reduction shall be equal to the difference in wage costs between the cost of wages plus benefits paid by the manufacturer in the country of manufacture and the equivalent cost of such wages plus benefits of a similar item manufactured in the US.
    • Said government entities or their agents shall further reduce the price they pay by the amount of tax that was not paid in the US. The calculation shall include income taxes not paid on the wages that would have been earned in the US. This has the added benefit of enabling the the repair of existing U.S. infrastructure and creation of new required U.S. infrastructure.
    • These calculations could be performed by the Congressional Budget office or under contract by a US modeling entity such as a US defense contractor, or a US econometric modeling contractor.
    • If no such item is manufactured in the US, we could either forbid its import, or we could use a modeled price. Modeling should be done by a suitable manufacturing modeling entity such as a US defense contractor, or a US econometric modeling contractor. These calculations will create additional useful jobs in the US.

      • People who pushed for offshoring said the support jobs were about a half a worker per manufacturing job. That is totally nuts. It dramatically and foolishly ignores the stimulating effect of a manufacturing plant on the community's other businesses. 

          • The actual enormous resulting loss has translated to a gradual rise in the economist’s definition of their acceptable level of core unemployment. Decades ago that level was three percent. Then it was four percent. Then five percent. Now they want to revalue it to six percent. One economist on TV last weekend is suggesting that the current 9.1% permanent unemployment rate may be more realistic.

            Think about it. The increase of persistent, or residual, or core unemployment is almost all due to the forcing “offshore” of the US manufacturing sector. In fact the percentage of unemployed or under employed people is staggering. it is between 18 and 25 percent depending on who is doing the estimate. Yes indeed, the true multiplier of support jobs to the very manufacturing jobs our government pushed out, at the economists urging, is a killer! More about that multiplier later in this blog entry.

          • 3. Manufacturing Jobs Are Different Because Of Asymmetric Treatment By Economists, Past Administrations, And Congress.
            3.1 Job Asymmetry Makes It Very important To Focus On Bringing Back Offshored Manufacturing Jobs.

        • A recent article asserts that manufacturing jobs are no more important than any other job category. In a later blog entry, I will address the reasons manufacturing jobs are so important. Simply stated, if you have an increase in restaurants, that does not necessarily lead to an increase in local manufacturing jobs. However if you build a local manufacturing plant, there is a definite number of additional sustainable jobs that will be generated locally. That additional activity is not present as long as the US government continues to force manufacturers overseas. And that makes all the difference in the ability to maintain and build infrastructure, to support new houses, etc. It is an asymmetrical situation regarding manufacturing jobs versus service jobs. And that is because fresh water economists and the government administrations who have believed their dogmas have made it asymmetrical. If we break that link, the jobs would no longer be asymmetrical.