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HS 229 – Scott Paul of The Alliance for American Manufacturing

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Today’s Holistic Survival Show focuses on the ever-changing industry of manufacturing. Your host, Jason Hartman, talks with the President and Executive Director of The Alliance for American Manufacturing, Scott Paul. They discuss topics from moving this industry overseas, to the changing situation over history and even to the impact and potential for change due to 3D printers, with Scott Paul giving his experienced overview on each.

Key Takeaways

02.20 – The manufacturing market is so vast – it includes both the larger products such as fridges, and the smaller parts you don’t see, such as packaging or car parts.

05.30 – If a US steel plant were to move to China, the percentage increases of output pollutants are staggering.

07.00 – Manufacturing is one of the most important and effective ‘multiplier’ industries in the United States.

13.50 – The situation has changed prettily drastically since the 1990s and that’s not necessarily a good thing.

19.00 – We’re also putting ourselves in a risky security situation due to our total dependence on one manufacturing company in China.

24.20 – Putting money into improving the US infrastructure would be a very wise investment.

25.10 – Find out more information about Scott Paul and his work at www.AmericanManufacturing.org and on Twitter using the handle @KeepItMadeinUSA

29.00 – Germany is in a particularly good position right now, in terms of manufacturing, even though its average compensation manufacturing is almost 20% higher than that of the United States.

34.10 – Manufacturing has the potential to be transformed with the innovation of 3D printing.

 

 

Tweetables

Manufacturing is diverse: it’s computer chips to potato chips and everything in between. Tweet this!

Do we have to choose between having American jobs or cheap goods? Can we have both? Tweet this!

It’s an absurd idea to ship water; why can’t we apply that to manufacturing? Tweet this!

3D printing has the potential to localize and democratize manufacturing. Tweet this!

 

 

Transcript

Introduction:

Welcome to the Holistic Survival Show with Jason Hartman. The economic storm brewing around the world is set to spill into all aspects of our lives. Are you prepared? Where are you going to turn for the critical life skills necessary to survive and prosper? The Holistic Survival Show is your family’s insurance for a better life. Jason will teach you to think independently, to understand threats and how to create the ultimate action plan. Sudden change or worst case scenario – you’ll be ready. Welcome to Holistic Survival; your key resource for protecting the people, places and profits you care about, in uncertain times. Ladies and gentlemen, your host: Jason Hartman.


Jason:
It’s my pleasure to welcome Scott Paul to the show; he is President and Executive Director of the Alliance for American Manufacturing. We’ve talked about the manufacturing sector on many prior episodes and this is a very important base for an economy. Manufacturing is just critically important to an economy, so let’s talk about how we’re doing from a domestic and a global perspective, and what that means for jobs, what it means for the economy, and I’m just really anxious to dive into that. Scott, welcome, how are you today?

Scott:
Jason, I’m honoured to be here and glad to be able to have a conversation with you about manufacturing.

Jason:
The pleasure is ours. So first of all, maybe define manufacturing. What is it? It may seem obvious right, but what industries and companies constitute your alliance? I guess it’s a membership, and then you lobby for public policy? Is that what you do?

Scott:
Yeah, it’s a very good question. First, probably on manufacturing – there’s obviously the manufacturing that people see: the clothes you buy, the automobiles, the refrigerators, the processed food, our physical structures built in around cities – the whole build environment. All of that came from manufacturing in one form or another. Then there’s also the manufacturing you don’t see, which is like the parts inside the car, or the packaging that goes on top of the frozen food or whatever. Manufacturing is diverse; it’s everything from computer chips to potato chips, from steel to socks, and a lot of things in between. Our organization was formed in 2007 and it’s pretty unique, I’d say, in Washington DC because we are non-partisan and we are also a partnership between some domestic manufacturers, but also North America’s largest industrial union, which is the United Steelworkers. I will say that our stakeholders certainly don’t agree on everything – that goes without saying – but on the need to have a vibrant, thriving domestic manufacturing base and on a core set of policy issues, they do have agreement. We’ve been able to harness that odd-couple coalition, which I think makes some progress here in Washington DC, or at least making sure that lawmakers and administrations know that manufacturing’s a critical part of the economy, and one where public policy does make a difference, whether it will thrive or whether it will wither and shrink.

Jason:
Okay, so how critical is it? Let’s maybe dive into some stats or some numbers as to how many jobs are there, what do these jobs pay, how does it compare with other sectors of the economy? You look at maybe the foes of manufacturing, one of them being the environmentalists, for example, and I just think it’s such a ridiculous concept that we take the messiness of old smoke-stack manufacturing, and we ship it to another country and act as though it isn’t the same planet or the same air. It’s the old NIMBY system – Not In My Backyard, they all say. It’s still the same ecosystem. Environmentalism is just one part of this; there are many other issues, but what are some of these stats? How important is it?

Scott:
It’s very important, Jason, and first on that environmental argument, which I think is an important one. You think of a steel plant in the United States which, years ago, they faced a lot of criticism for polluting the air, the water and their surrounding environment. But if that steel plant goes to China, it will per tonne of steel have probably 3 or 4 times the carbon output, 6-20 times the pollutant in particulate matter output and as you said, we live in one world, and that’s something where particulate matter such as carbon etc has an impact. There’s a value to having that production domestically organized in an environment that is appropriately regulated, but is also able to return jobs. On the data points, and I’m glad that you raised that, there are a little over 12 million people who work in manufacturing now. It is also about 11-12% of our economy now, but its effect is much more far reaching than that. Obviously those data points have declined considerably since the 1950s and 60s, and that goes to the end of the 1970s where it probably peaked as a percentage of the US economy. So why are these jobs important? First of all, manufacturing jobs writ large are middle income jobs. These are jobs that people who don’t necessarily have a 4-year college degree, but do have some skill-set can possess, hold onto, and can have a middle class lifestyle. This means buying a car, buying a house, circulating money in the community, saving for college and all of that – the quintessential American dream. Manufacturing is also important for a couple of other reasons. One is its multiplier effect. One job in manufacturing is likely to spur about four other jobs in the economy. Some of those are what we call ‘Direct’ as part of the upstream and downstream suppliers and logistics and everything that comes in and out of the factory, and the jobs that are dependent on that, and some of those are ‘Indirect’. Because of the higher incomes, there’s more money that’s spent at the hardware store, at the grocery store, at the restaurant, and that obviously means more opportunity for other people as well, and I will quickly add that you don’t get that type of multiplier effect in most other kinds of economic activity in the United States.

Jason:
That’s what I was going to ask you: Why not? Why is that multiplier effect particular to manufacturing?

Scott:
Well, first of all, it’s the nature of manufacturing, where it’s adding value to a commodity to produce a finished product, basically, and the opportunities that are derived from that. Just by its nature, it involves more of a supply chain or a value chain, as some people call it now, than either retail, or financial services, or public sector employment, or healthcare. All of these are very important jobs and very important pieces of our economy, but let’s think of it this way. If a small town attracts a factory, that means that there will likely be people in the town who have better economic opportunity. That’s going to spur additional spending, and so that factory may also bring about a large retail store coming to the town, like a Walmart, or a Target. Public services are also likely to improve because there’s a stronger tax base. Now think of this in the reverse. If a Walmart or another big-buck store comes to a town, it only ever happens by accident if you also end up with a factory. It doesn’t work that way; it never works that way which is why if you ask local economic development officials and mayors, ‘What’s the type of economic activity that’s going to have the most value added for my community?’, they’ll say manufacturing. There’s some question about how permanent that is and how they can hold onto it, but to a person, they will say that that’s the kind of economic activity they would like to have happening in their community.

Jason:
Obama made some big promises on manufacturing and many other things, by the way, but we won’t go there! How has he done in terms of creating manufacturing jobs?

Scott:
If people are turned in, they will hear the President at the White House talking about manufacturing and a resurgence in manufacturing quite a bit. However, if you dig into the data and you look at what the President has said, they have a long way to go. First of all, during the re-election campaign, the President said ‘I want to create a million new manufacturing jobs in my second term’, which is a noble goal, and one that I thought was a good one to have. However, if you look at the performance so far, it’s not even 200,000 that have been added, and that puts him at this stage of his second term, really really far behind in working to achieve that goal. I think it will be very difficult.

Jason:
Out of one million promised, it’s been only 195,000 new manufacturing jobs that have been created, right?

Scott:
That’s exactly right, and you would need to be at about 400,000 or so at this point to be on track for meeting that goal. That’s a bit deficit to make up.

Jason:
It’s less than half. I don’t know that there’s a lot of likelihood that you can even catch up and that the pace will even quicken. What does it take to create a manufacturing job? When we talk about the million jobs promised, and the 195,000 delivered, and that there should be 400,000 delivered by this time, one of the fundamental problems we’ve got now is underemployment. I certainly see highly overqualified people doing menial jobs, whether they be people with Masters degree working at Starbucks, or driving an uber car, which I’ve experienced many times personally, by the way, and I almost wonder if a lot of people haven’t moved into manufacturing, and if that isn’t catching people on the way down the economic ladder.

Scott:
It’s a really good plight. Think of it this way as well – from 1998 to 2009, so for 11 years, we saw a real contraction in manufacturing that was both related to overall US recessions, but it was also related to the Asian financial crisis, to the onset of China as a global competitor, and the elimination of terrorists with China as well, and to this idea that was the triumphant idea of the 1990s that the key to success is the information economy and getting a 4-year college degree. As a result, our technical schools, the craft jobs, the manufacturing jobs really in academia, in policy and in management practice in the United States go out of fashion. At the bottom where you saw manufacturing going offshore to low wage competitors, but it was almost this economic idea that the faster we could move out of industry and into information and the new economy, the better off the country was going to be. So here we are today, in 2014, where we have the middle class shrinking, we have inequality growing, we have a jobs recovery from the recession that has been painfully slow, and you have declining real incomes for large portions of the United States. One of the reasons that that has come about is that you have a third fewer manufacturing jobs now that you did in 1998. That’s a lot of lost opportunities, and when you think about the multiplier effect too, we’re leaving a lot on the table. Our trade deficit in manufactured goods has grown too. The only exception to that is what’s happening with petroleum and oil product, but otherwise, our trade deficit in every type of manufacturing from advanced technology products to basic steel has been growing and growing, and there’s really no good reason for that other than the levers that we have in our economic policy haven’t been utilized in the right way.

Jason:
What do we do to create manufacturing jobs? I had Pat Buchanan on the show a while back and he says we’ve got to put tariffs in place: we should charge companies to have access to the US consumer. At least for now, and certainly for decades past, we’ve got the wealthiest consumers in the world. It’s a giant market. Nobody has a larger market than we do. The philosophy of tariffs, although some people say it’s a terrible idea and some people like it, we’re charging companies to gain access to our market.

Scott:
Well, I think it is part of an overall strategy that we need, and I will also say that we have very much limited our ability to do tariffs because of the obligations we have of the World Trade Organizations and all of the free trade agreements that have been signed. I don’t know that we’re going to go back to a world where tariffs can be the primary lever, but I will say this: Even in cases where there has been what we would call ‘unfair competition’ (that is other countries that are sending goods to the United States at a far lower price than they’re selling them in their home market, which is the classic definition of ‘dumping’, or that they’re selling them at below the cost of production, which is also ‘dumping’, or that they’ve been generously subsidizing their industries in order to gain a trade advantage, like the market list trade economies in China and elsewhere in Asia which have to do with a vengeance. The way the system works now is that our domestic industry has to bring in a case that works its way through the trade bureaucracy and the commerce department, and our industry also has to show harm it’s done already. Then, and only then, might some temporary tariffs be imposed. I do think there’s a better way to do that because we know an import surge is coming; we should be able to regulate that, and I think that one of the goals of our international economic policy should be a balanced trade account, which we have not had for a very long time, particularly in manufactured goods. That trade deficit is something that we end up owing, and it was $474 billion last year, and I hear Washington talk a lot about the US debt, about the budget deficit and those are conversations that are ripe and mature, and you see those battles occur on Capital Hill. I hear virtually no-one talking about the trade deficit; even though in the long-term, it helps to bring about some structural changes in our economy that make it much harder to recover from fiscal shocks.

Jason:
Here’s the thing about the trade deficit, and conceptually, I certainly agree with you. However, the fact is we’re never going to pay it. That’s just the ugly truth, so sorry China. We pay with money created out of thin air – it’s a pretty good deal.

Scott:
If a deal is too good to be true, it is too good to be true, which is certainly the case. The argument is that we get lower consumer prices, and they’re basically subsidized by this behaviour, so what if we have fewer of these production jobs? But again, when you look at economic performance, certainly over the last 10-12 years, it’s shown gaping holes. I will say there’s also a security aspect to this as well, because when more of this production is done overseas, we inherently lose the ability to innovate around that production. They should be co-located for maximum efficiency. We’ve got to the point where big chunks of our national security and the parts that go into things like night-vision goggles and our jet planes – in some cases, there’s a sole supplier from China that we’re dependent upon. From a national security point of view, that makes no sense whatsoever, but it’s the inevitable result of off-shoring too much of this manufacturer.

Jason:
Here’s the thing – certainly with national defence type of issues or maybe now we should call it national offence, or the war department like the old name was, because I don’t know that everything we do is defence anymore, but that’s a whole other issue for another day! It’s hard for me – and I certainly think other people have to be wrestling with this too – to wrap my head around what is the answer to this problem? On one hand, the American consumer gets the benefit of all these incredibly cheap goods. They are importing deflation to off-set inflationary pressures that we would definitely be seeing from ridiculous government spending through China, and all the other places where we can buy these cheap goods. So does the American consumer want to go to Walmart or wherever and buy stuff cheap? Certainly, we’ve all noticed that things are not very expensive nowadays, for the most part, except maybe food goods, and college tuition, which is a complete rip-off, and medical treatment and so forth. There’s lots of inflation in those areas, but electronics and consumer goods in general – they’re less expensive than they used to be for sure, so do we want those cheap goods, or do we want American jobs, or can we have both?

Scott:
I think that there is a happy middle place here, and I will add that at the same time that you’ve seen price cuts in some places – especially to technology products because there’s a well-developed theory around that that’s been proven, but in other areas, it’s been more like cost-containment, I think. You can lower the cost, you can advance the memory and the capability, and it’s a variation of Moore’s Law, but you have these amazing flat-screen TVs that 6-7 years ago, would have cost $2000 that are now only a couple of hundred bucks.

Jason:
Yeah, I remember when they were $20,000!

Scott:
Right, well that’s exactly right. You have that in electronics, but in some other areas like clothing etc. the saving gained by consumers is pretty modest. Let’s set that aside for a second because along with that, we have seen stagnant wages, and in some cases we’ve seen declining wages, and the way in which people have tried to make up the difference is through credit and debt. We have obviously seen what that does in our economy, which is when everything’s operating okay, there’s not a huge impact, but when things go haywire, and unfortunately they have, the impact is extraordinarily large. I think that there are policies beyond tariffs that could be put into place that would make manufacturing more competitive globally, because when you think about this, manufacturing is less and less wage-driven. The more mechanized and automated it becomes, and the higher the productivity of the workers, wages tend to matter a whole lot less, and in many types of industries, that’s not a determining factor. So what are the determining factors? One is energy costs, and again, we’re seeing an emerging US advantage there over some of our competitors. Another element of this, I think, is the skills of the workers and, as we had a conversation about, there was some rust on that system that built up, but I think gradually these technical schools are getting back into action with a lot of programs aimed at manufacturing and high-tech manufacturing, and that could be helpful as well. I think that investing in our infrastructure makes a whole lot of sense. The US is not globally competitive when it comes to our infrastructure, and that matters a lot for manufacturing when you’re shipping things from point A to point B.

Jason:
Tell us about that more, because I hear people say our roads are deteriorating and personally, that’s not my experience. I don’t really notice this. They seem relatively okay to me, but I don’t drive all over the country and I’m not a truck driver. What part of our infrastructure is really in bad shape?

Scott:
It’s a good question and I would say that everyone’s experience is different, but when you’re hauling goods from one end of the country to the other, you do see it come into play, and it’s not just our roads and our bridges – we do have a lot of structurally deficient bridges. It’s also our ports. We’re behind in getting them ready for the large Panemax ships; we’re behind in our rail systems and then there’s the service grid. You have our water infrastructure and our electric grid, which are both highly inefficient and outdated, and investing in that now when you have relatively low interest rates is good. These repairs tend to cost more over time, rather than less, so it kind of makes some sense to me. Ultimately, I think it will make our economy more competitive and it will allow us to spur some job creation in manufacturing as a result of that.

Jason:
Give out your website and tell people where they can find out more about the work you’re doing.

Scott:
You bet, we’re at www.AmericanManufacturing.org and we cover a lot of manufacturing policy and news and also what’s happening in particular states and even particular congressional districts. We love to stay connected, so we’re on Twitter at @KeepItMadeinUSA and we’d love to continue the conversation on there as well.

Jason:
Okay, a couple more things for you before you go though, just real quickly if you would. One is I want to ask you about the hotspots within the US. You mentioned there that you keep people advised of what’s going on in different states and congressional districts and so forth. Certainly, it would appear that Texas is manufacture-friendly. In a lot of these South-Eastern states they’ve got Right to Work policies and a lot of the foreign auto-makers have set up shop – that’s pretty inspiring. What’s going on around the country? Just talk a little bit about that; maybe some different regions.

Scott:
Yeah, Jason, I would say that there’s been a lot of development all over the country, which is encouraging. You’re right that Texas has attracted a lot of manufacturing jobs, and some of that is built up around its energy and shipping sectors, in addition to the policy elements that you referred to. We just saw an announcement about locating a new advanced battery facility in Sparks, Nevada, which no-one would have viewed as a manufacturing powerhouse, but this is going to be the largest newly built manufacturing facility, employing 6,000 people, in the United States for a long, long time. You’ve seen, in addition to some of the auto-makers from Europe and Asia that have located their production in the US, an announcement by GM that it’s going to bring a line of motors for a Cadillac SUV from Mexico back to Spring Hill, Tennessee. You’ve seen Ford do the same thing with the Fusion, and bring that back to the mid-West actually. Interestingly, in the recovery that we’ve seen in manufacturing, which I think is lagging, you have seen the autosector help to drive it away. It’s not only the southern States, but it’s also Ohio and Michigan, and the forecasts are for that to continue, at least for another 5-7 years.

Jason:
Certainly, the lion’s share of this stuff is always going to business-friendly states and jurisdictions where the government is not overly intrusive and the unions don’t have a big presence, and I know you obviously have a lot union support, but when you have the manufacturer of the companies, that’s obviously a whole different discussion. Manufacturers want places that are business friendly, no question about it.

Scott:
They do want business friendly policies, there’s no question about that. They also want a skilled workforce, and so I think that some of the successful partnerships you’ve seen between companies and unions have been built around that goal, and they’ve been able to make it work and there are a lot of examples. I think we’re in a new era of industrial relations because we’ve seen a lot of this bloodletting over the last couple of decades, and we’re at a point where we’ve got to hang in together otherwise we’re all going to be gone. I think what’s also persuaded people is that Germany, which is not a low-cost country, it’s got powerful industrial unions who have seats on the corporate board, it’s a renewable energy requirement there, the taxes are also high, but they’ve built a set of economic policies around trying to nurture manufacturing, and so Germany has twice the percentage of its economy and jobs in manufacturing than the United States, even though its average compensation manufacturing is almost 20% higher than ours. It can be done, and I’m not saying that Germany is necessarily the roadmap to doing that, but there’s a lot of advantages that we have (natural resources, a large consumer market, as you indicated earlier, we have low-cost energy and we have the know-how). We’ve done manufacturing well for a long time, so I think it is possible that we can re-grow it. I don’t know that we’re going to get the million jobs that the President promised, but I think we can see some upward movement.

Jason:
Right. I mentioned the environmental movement being the enemy of manufacturing at the beginning, and the irony of polluting China but not polluting the US, but it’s all the same thing. Kennedy famously said, “We all breathe the same air”, right, which is obviously true. The other issue about off-shoring this manufacturing is the shipping. The cost and the environmental damage done by moving these products – if they could be manufactured where they’re consumed, it would be better. It’s interesting that we’ve got this huge movement among the environmental community of ‘Buy local, grow local, eat locally grown food’. God forbid if someone drinks Fiji water. I think that’s just absurd to ship water! That’s a crazy idea, but why don’t they apply it to manufacturing? I just think it’s the selfish NIMBY attitude – Not In My Backyard, it’s weird.

Scott:
Yeah, well, localization makes a lot of sense, and when you think about it, it’s the natural extension from farmers markets and food-to-table. Bunker fuel, which is the kind of fuel that goes into these large shipping vessels is the absolute most polluting kind of fuel that we have on this planet, and I think the only good news is that there are at least some who recognize this and who also want to hedge against the cost of fuel, which varies widely. Sometimes you pick well, sometimes you don’t. Frankly, if you make it in the United States and you’re selling it here, you don’t have to worry about that nearly as much as if your production is in China and you’ve got to get it across the Pacific Ocean. By the way, it also helps control your inventories, it helps with quality control and it helps with innovation, so there’s all kinds of management reasons why you would want to take a look at the US right now, in addition to the obvious environmental arguments that you made, Jason.

Jason:
The last thing I just want you to comment on – I know we’ve got to wrap up so I’m sorry to keep you a little long but it’s your own fault, you’re just too interesting – is maybe on the good side. Maybe the real hope here is technology, and particularly interesting in the world of technology is 3D printing. Several months ago I finished Chris Anderson’s book called Makers, which you might be familiar with, and it talked about how a lot of manufacturing could really move back to the United States, and it could be downsized into small, artisan-type manufacturing with 3D printers and this phenomenal new technology that we’re starting to see. Do you have much hope for that? Is 3D printing going to be a big deal in the world of manufacturing?

Scott:
I’m also a fan of Makers, Chris Anderson’s book, and I’ve read that a couple of times. I think that the 3D printing has a lot of potential to localize manufacturing and to democratize it. It was manufacturing something that has been done in the factory, which is kind of a foreign place, but being able to craft something at a tech shop or in your own home is going to change the dynamic. You’re not going to be able to 3D print a new automobile – or at least not on a time horizon that I can see, but I do see great possibilities for it. I don’t know how big a part of overall manufacturing it’s going to be, because manufacturing is so diverse, but I do think it’s a fascinating new process, I think it has a tremendous upside for American manufacturing, and I think it may actually get more kids and more techies interested in the production aspects of everything, in addition to coding and software, so I’m personally very excited about it. I can see great potential. Believe it or not, some of the best 3D printers are made in Brooklyn, New York, of all places. MakerBots are made there, and so it’s a pretty cool thing and I’m excited about it.

Jason:
You alluded to Bots and robots, and I’d love to talk to you about that, but we’ve got to wrap up. That’s another big one for another day. Scott Paul, thank you so much for joining us today. Scott is the President and Executive Director of the Alliance for American Manufacturing. We appreciate you sharing some of these things with us today.

Scott:
Jason, it was my pleasure to be with you. I’ve enjoyed the conversation.

Outro: 
What’s great about the shows you’ll find on www.jasonhartman.com is that if you want to learn how to finance your next real estate deal, there’s a show for that. If you want to learn more about food storage and the best way to keep those onions from smelling up everything else, there’s a show for that. If you honestly want to know more about business ethics, there’s a show for that. And if you just want to get away from it all and need to know something about world travel, there’s even a show for that. Yup, there’s a show for just about anything. Only from www.jasonhartman.com, or type in ‘Jason Hartman’ in the iTunes store.

Episode: 229

Guest: Scott Paul

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