Promoting Insourcing and Local, Niche Manufacturing
We need to invest in what we do best, here, at home. We are a country whose middle class was built by the manufacturing sector. And growth in the manufacturing sector has a ripple effect, resulting in up to four new job opportunities in other sectors for each new job in manufacturing. Yet, manufacturing now accounts for only about 11.2 percent of our Gross Domestic Product; in 1950, it comprised 27 percent of our GDP.1
1 Support locally relevant niche manufacturing
In the past three decades, while large-scale manufacturing has moved offshore, niche manufacturing, or manufacturing products on a specialized level, has, by many accounts, weathered the economic storm. Whether in Brooklyn, New York, Florida or on the North Coast of California, the story is the same — the niche-manufacturing sector is surviving, and with the right kind of support, could help lead our regions back to economic security.2
Even in the lead-up to the recession, niche manufacturing was bucking the overall long-term trends in manufacturing. For example, the loss in jobs and wages from niche manufacturers going out of business was largely made up for by the growth in employment and wages in the industry as a whole.3 Niche manufacturing is also something the North Coast does well. From Lost Coast Brewery and Cowgirl Creamery to Wing Inflatables of Arcata, these companies and many more have helped to put niche manufacturing at the fore of the North Coast economy.
In the North Coast niche manufacturing sector, we have recently seen an average wage increase of around seven percent and an employment drop of less than one percent, while the sector as a whole is contributing a full fourteen percent to the base economy payroll.4 Local entrepreneurship is an important part of the North Coast’s identity and economy, and niche manufacturing is very much a part of that story.
Niche manufacturing hinges on consumers appreciating the quality of the product being produced. Because it is a sector that emphasizes extreme specialization and occurs on a small scale, consumers tend to perceive it as more expensive. It is not necessarily the case that U.S.-based production yields a more expensive product, though.
So let’s invest in what we do well: niche manufacturing. Let’s grow jobs at home. Let’s make American-made products again. Let’s reinvigorate the American middle class, a class that grew in the middle of the last century largely because of the manufacturing sector, with a twenty-first century manufacturing sector.
2 Incentivize insourcing
A conversation about the future of our manufacturing sector is meaningless without a sincere glance at the relationship between the U.S. economy and global markets.
According to the President’s 2011 Trade Policy Agenda, “Ninety-five percent of consumers reside beyond our borders, and the International Monetary Fund forecasts that nearly 83 percent of world growth over the next five years will take place outside of the United States. To reach our full potential for employment and economic growth, America must engage globally to sell more goods and services abroad.”5
The United States is a global leader, but our competitive edge in international markets is slipping. We have seen some positive signs of economic improvement in the past two years. Insourcing is a recent phenomenon exemplified by companies that had shifted or considered shifting production abroad, but are now producing in the United States. We need to harness the factors fostering this growth to ensure that the trends continue to favor growth here at home.
- Companies like Lost Coast Brewery, Cowgirl Creamery, Wing Inflatables of Arcata — and many more — have helped to put niche manufacturing at the fore of the North Coast economy.
These factors include an improved ability by the United States to compete with other countries in the cost of production — due in part to the increased cost of labor elsewhere helping to level the playing field for U.S. labor. In addition to the relative decrease in the cost of labor in the U.S., the increase in the production of modestly priced natural gas — locally sourced energy — has made investing in production stateside even less expensive. Furthermore, the business services located in the United States are also becoming increasingly marketable abroad as economies in emerging markets continue to grow. The expanded tradability of these services has led to an aggressive growth of firms in business services.6
These factors result in new financial incentives for firms to locate in the United States. The White House offers the following examples:
- “In 2010, KEEN, the footwear designer, opened a 15,000-square-foot facility to manufacture boots in Portland, Oregon — moving production from China to a location just five miles from its corporate headquarters. The company also makes bags in California and socks in North Carolina.7
- “After watching costs rise in its Chinese factories, Master Lock began bringing production back to Milwaukee — the same place where the company was founded in 1921.”8
These success stories are the beginning of a positive development for our manufacturing sector. Yet, we can do even more by expanding existing tax credits for companies that base their production in the United States and by continuing to provide companies with a top-notch workforce. We can also be more strategic in these credits — targeting the kind of high-wage jobs we seek in the industries that show the most long-term promise.
3 Extend credit to manufacturers
Much like with small businesses, it is important to ensure that we extend resources and support to manufacturers in weathering the economic crisis and continue to invest in research, development and engineering (RD&E) to remain competitive. As credit from lenders has become more difficult to acquire, the federal government needs to step in to protect our manufacturing sector from a drying well of credit. There is no shortage of good proposals:
- Senator Sherrod Brown of Ohio recommended a federal program to provide a $30 billion dollar revolving loan fund for manufacturers.9 This fund would provide manufacturers with the immediate resources to improve their energy efficiency, update their factories, and fund the necessary training of workers on the new energy efficient technology.10
- The Manufacturing Extension Partnership program is also a key proposal.11 Housed within the Department of Commerce’s National Institute of Standards and Technology, the Manufacturing Extension Partnership program helps manufacturers improve their competitive edge, both in local and international markets.12 This program is projected to cost about $1.5 billion.13
- And the Investments in Manufacturing Progress and Clean Technology Act could yield 680,000 manufacturing jobs and subsequently an additional nearly two million new jobs in other sectors.14
- I support a Locally-Sourced Manufacturing Tax Credit to support local businesses that can help drive growth in ways that will allow communities to rebuild themselves from within. The economic crisis clarified the points of vulnerability in the American economy. By bolstering self-reliance within communities, those communities develop more resilient economies, no longer dependent entirely or largely on foreign markets for goods to produce their finished products. Furthermore such a tax credit would be another way of funding the growth of small businesses.
- And I propose a new $20 billion loan guarantee program to stimulate small businesses and get liquidity out of the banks to small businesses at minimal risk to taxpayers. The program would be administered by an existing agency like the Small Business Administration and loan decisions would be required to be made by those best qualified to assess risk.
4 Get tougher on trade agreement enforcement
There are a tremendous number of trade laws on the books that exist to regulate the flow of goods between our country and the rest of the world. These trade laws are only important and meaningful, though, if they are enforced. Bill Clinton’s Back to Work cites the growth of unenforced trade policies.15
The lack of enforcement means that U.S. goods and services are subject to the effects of currency manipulation, unfair dumping practices, unregulated labor and environmental standards, intellectual property infringement and other disadvantages.
In many cases, our leverage to enforce trade policy is compromised given our current, problematic financial positioning with countries like China. Currently, according to a report by the United States Department of Treasury, as of November 2011, China held $1.13 trillion in U.S. government debt, far and beyond the largest holder of our national debt.16 The close-knit nature of this relationship makes moving forward challenging.
We need to work both to balance our budget so we are less financially beholden to trade partners, and we need to continue to enforce trade agreements that are on the books. Failing to uphold our trade agreements, the very documents intended to protect the American economy, will continue to put us at a disadvantage. Our economy can only grow if we ensure that it competes on a level playing field with our trading partners.
Sources
1 “Report to the President on Ensuring American Leadership in Advanced Manufacturing,” (Executive Office to the President and President’s Council of Advisors on Science and Technology, June 2011), available at http://www.whitehouse.gov/sites/default/files/microsites/ostp/pcast-advanced-manufacturing-june2011.pdf.
2 Christine Haughney, “In New York, No Crisis for Niche Manufacturers,” (The New York Times, January 10, 2009) available at http://www.nytimes.com/2009/01/11/nyregion/11manufacture.html?pagewanted=all.
4 “State of the Industry Report 2007; Manufacturing,” (North Coast Prosperity, 2007), available at http://www.northcoastprosperity.com/files/webfm/contents/MfgSIR.pdf.
5 “2011 Trade Policy Agenda and 2010 Annual Report of the President of the United States on the Trade Agreements Program,” (Office of the United States Trade Representative, 2011), available at http://www.ustr.gov/2011_trade_policy_agenda.
6 “Investing in America: Building an Economy That Lasts,” (White House report, January 2012), available at http://www.whitehouse.gov/sites/default/files/investing_in_america_report_final.pdf.
7 “Investing in America: Building an Economy That Lasts,” (White House report, January 2012), available at http://www.whitehouse.gov/sites/default/files/investing_in_america_report_final.pdf.
9 “Brown, Policy Matters Ohio Discuss Steps for Job Creation and Future of Ohio Manufacturing,” (Sherrod Brown United States Senator for Ohio, February 2010), available at http://brown.senate.gov/newsroom/press_releases/release/?id=abd4a0de-5160-4164-9b5b-121ab0571393.
10 “Building the Clean Energy Assembly Line: How Renewable Energy Can Revitalize U.S. Manufacturing and the American Middle Class,” (Blue Green Alliance, November 2009), available at http://www.bluegreenalliance.org/admin/publications/files/BGA-Phase-II-Report-PRINT.pdf.
11 “The National Institute of Standards and Technology’s Manufacturing Extension Partnership Program, Report 1,” (National Academy of Public Administration, September 2003), available at http://www.nist.gov/mep/upload/napa_1-2.pdf.
14 “Brown, Policy Matters Ohio Discuss Steps for Job Creation and Future of Ohio Manufacturing; Senator Outlines New Bill Providing Tax Incentives to Employers that Hire Unemployed Workers, Next Steps for Jobs Legislation,” (Sherrod Brown United States Senator for Ohio Press Release, February 2010), available at http://brown.senate.gov/newsroom/press_releases/release/?id=abd4a0de-5160-4164-9b5b-121ab0571393.
15 Bill Clinton, Back to Work: Why We Need Smart Government for a Strong Economy, (Alfred A. Knopf, 2011).
16 “Major Foreign Holders of Treasury Securities (in billions of dollars) Holdings 1/ At The End Of Period,” (U.S. Department of the Treasury, January 2012), available at http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt.
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