February 26, 2013 Is There Light at the End of the Tunnel?

Volume 16 | Issue 2

Yes, but it’s qualified. A recent Washington DC event – about the state of US manufacturing – provided hope, but speakers pointed out the se

When it comes to the manufacturing industry, the United States sometimes seems like a lemming headed for the cliff – compelled to the edge by self-imposed (even self-destructive) regulations that hinder global competitiveness.

That’s the essence of the message recently delivered by Jay Timmons, president and CEO of the non-partisan National Association of Manufacturers (NAM).

“What’s happening even now – and this is not in any way partisan – is that more than 2,000 regulations have been imposed upon manufacturers in the last 30 years,” reported Timmons.

He delivered his message at the February 7 AtlanticLIVE conference (“Manufacturing’s Next Chapter”), held in Washington DC. The program focused on all aspects of the manufacturing sector. Industry and government officials attended. The occasion provided Timmons (a frequent contributor to Industry Today) to sound yet another alarm.

Previously, Timmons has warned about:

• The fractured immigration system – how it’s outdated, inefficient, and an impediment to US competitiveness, particularly for manufacturers;
• Gridlock – a plague upon the federal government. Undivided, the nation stands; divided the nation’s economy collapses (current levels of unemployment should never be considered a “norm”); and
• Taxes – Draconian tax increases, coupled with severe industry tax cuts, freeze the major players in their tracks, thus having an unsettling impact on the economy.

Regulation: A Chilling Effect
Global warming? Better to talk first about the economic freeze. Cost of regulation, Timmons pointed out – with that nearly $2 trillion bill – cuts into the US ability to compete and succeed. No wonder Timmons could only smile weakly when asked if this was a “wonderful time” to talk about the manufacturing industry at the February 7 event.

Timmons suggested a new vision: Manufacturers seated at the table, he related, can help craft regulations based on sound economic science. That, he said, would go a long way to ensuring that:

• The most appropriate regulations are developed (and understood);
• Outcomes will be agreed upon; and
• Consistency will prevail.

Manufacturing is uplifting; it enabled his family to enter the middle class, Timmons revealed. He’d like the industry to have the same impact on more Americans.
A Manufacturing Renaissance?
Don’t count the dollars yet. Consider: With every dollar invested in manufacturing, a $1.48 of spinoff activities occurs – and that is the highest multiplier effect of any sector in the economy, explained Timmons.

Some of the politicians who like to widen the divisive aisle like to talk about a manufacturing renaissance. True, they understand that manufacturing is critical to economic growth and vitality, and that the sector creates jobs. But do they really get it?

“We’re only on the verge,” responded Timmons, when asked at the event.

Another question he addressed: “What game-changing points are happening that you see matter?”

Timmons answered, “First, I think that you have to understand that the foundation issue is the 20-percent issue, which means it is more expensive to manufacture in the United States than anywhere else in the world. Also, take into consideration the cost of labor.”

In other words, self-imposed policies – some, not all – increase costs.

The Need: Address the Root Problem
The dialogue about 21st century US manufacturing involves costs related to infrastructure, immigration reform, and the skills gap – obviously important issues. But Timmons believes that these don’t get to the root problem: the 20-percent cost disadvantage that involves regulation, taxes and energy policy. Such issues, Timmons indicates, should be easy to get right. The 20-percent disadvantage could be turned around to an advantage, with regulation and energy policy becoming equally easy. “Regulation and energy policy are the things that should be easy to get right,” said Timmons. “Congress and administration should be out front.”

For sure, Timmons – and NAM – doesn’t make a blanket condemnation of government and its regulations. “Not all regulation is bad; no one in the business community will say that,” he observed.

Indeed, regulation is necessary in many cases; but what the manufacturing industry needs from government is consistency. In turn, manufacturing leaders can’t be passive sideliners. They must participate, with their helmets on, describing needs. “Manufacturing leaders must be present when regulations are discussed,” said Timmons.

Around the Table
Such discussion goes round and round, but it always comes back to these questions: Is manufacturing coming back? What’s manufacturing’s next step?

At a business roundtable held at the same event, John Engler, former governor of Michigan (and, in the past, another Industry Today contributor), offered these observations: “[Traditionally, in the United States] states have competed against states. But what has happened in the 21st century, with its global economy, is that nations compete against nations. States still compete against states, but now in the room, you’ll find nations that offer inducements. It would be great to make everything here and ship it all over the world, but if you bring it back here, you are going to have to pay an extra tax.”

Thus, the subsequent question: so why would a manufacturer want to bring it back here?

“That’s why we have $2 trillion dollars made around the world; it’s what we call ‘trapped off shore,’” described Engler.

He, like many others, thinks it’s a good idea to bring it back home, and constantly. As far as a manufacturing renaissance, Engler believes the US is moving in that direction. “There are opportunities,” he said. “We are seeing significant investments, with energy sectors leading the way.”

Also, in sector throughout sector, we are seeing American leadership. “You want that kind of environment,” he said.

Crunch the Numbers
Despite the sizeable skills gap, other countries still perceive the US as an investment that will pay off. To capitalize on this, Timmons said that new rules of the game need to be followed:

• Hire people who possess a valued skill set;
• Move facilities closer to customers (or establish plants on American soil); and
• Make energy consumption an important part of the equation (indeed, environmental stewardship has proven to increase market value).

In following the rules of the “modern” game, the United States must consider what it can accomplish on shore, said Timmons. That would mean engaging in the control of the US tax policy (with its highest corporate tax rate in the world).

“Let’s admit that we have the highest rate,” said Timmons, as it impacts the nation’s global competitiveness.

That’s a good idea. Ill-defined ideas and policies led to this disturbing observation: More than 55 percent of companies wouldn’t have started here if they knew then what they know now – lack of policies, lack of direction, lack of a defined tax structure.

“This is what the US Government must address,” averred Timmons. “We have to change the mindset.”

What the nation must do, he recommended, is control what can be controlled at home: the 20-percent tax differential and regulation.

“That is a good starting point,” he concluded. “But Washington must be equally candid.”

One can only hope.

What the US lacks is a comprehensive commitment to a growth strategy, said Engler, echoing Timmons’ sentiments.

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