It's make-or-break time for manufacturing
Saturday, February 12, 2011; 3:13 PM
If you haven't seen the movie "The Company Men," you should - not just for the wonderful acting and John Wells's affecting story, but also for the important economic truth that it delivers.
I'm not talking about the film's somewhat hackneyed message that big corporations are run by selfish, greedy bastards more concerned about the short-term stock price than the lives of their employees - in this case, the employees of a once-proud shipbuilding company that is bled dry and then shuttered. The more subtle and more original insight comes near the end of the movie, when the former head of the unwanted division raises some capital, buys the crumbling shipyard back for peanuts and rehires the old crew at half their previous pay.
The hopeful message I took away from "The Company Men" is that there's still a future for high-skilled manufacturing in the United States if workers and management pull out of the corporate fast lane, roll up their sleeves and work together to proudly build great products that generate reasonable but not spectacular pay and profit.
As it happens, this is also the theme of a new book, "Make it in America," by Andrew Liveris. Perhaps because Liveris is Australian by birth, his economic patriotism comes across as genuine and heartfelt. The fact that he is chief executive of Dow Chemical gives the book added authority. What is most noteworthy about the book, however, is his unsparing critique of the business community for its blind faith in markets and globalization, and its stubborn refusal to accept a government role in managing the economy.
"At a time when U.S. companies - run by patriotic people - are moving offshore at the fastest rate in history, we should, at a minimum, recognize that the model we are relying on isn't working," Liveris writes. "It is time to recognize that if we don't act soon, if we continue to let markets rule in every instance, we will become the global economy's biggest bystander, and potentially its biggest drain. . . . It is time for us to recognize, whether we like it or not, that for now, in certain key areas, we actually need more government, not less."
This is not the official message coming from the U.S. Chamber of Commerce, but I can tell you that it is one you hear with increasing frequency and urgency from top executives in public forums and private conversations. In terms of the competitiveness of our companies, the skills of our workers and the pace of innovation, there is increasing concern that we are approaching a dangerous tipping point, even in what is supposed to be our economic sweet spot - high tech.
The story goes something like this: For decades, the governments of China and other Asian countries offered low wages and extravagant subsidies to lure U.S companies to build new plants in their countries. For years, Americans acquiesced to this off-shoring because it fattened corporate profits, lowered consumer prices and fit neatly with a a free-trade-free-market consensus among the economic elite. Any suggestion that we try to stem the outflow of investment or the inflow of products was dismissed as protectionism, and any suggestion that we try to match those subsidies was derided as a misguided effort to have government pick "winners and losers."
As a result, it's not just shoes and textiles and furniture that are now exclusively made offshore, it's also high-tech products that were invented here. Think of computer chips, smartphones, solar cells and wind turbines. And now, thanks to another round of generous inducements offered by foreign governments, research and development is beginning to move offshore as well. What companies have discovered is that much of innovation involves constant improvements in the way products are made or springs from a intimate understanding of the manufacturing process.
"Where manufacturing goes, innovation inevitably follows," Liveris argues.
Fair or not, other governments are stealing away our economic future through a combination of targeted subsidies and aggressive spending on infrastructure, education and workforce training. Our choice is to either cling to our laissez-faire orthodoxy and allow what is left to slip away, or, as Leveris puts its, "get into the game and play to win."
Although the threat here may be from China, our model ought to be Germany - another high-wage economy that over the past decade has restored its competitiveness by achieving the lower unit labor cost in Europe. How did they do it? Certainly not by slashing government or pulling back on government investments and incentives or shying away from regulations that stimulate demand for cutting-edge technologies, as tea party Republicans are determined to do.
Some will point to modest tax cuts and reforms of labor laws that allowed all firms to lower costs and encouraged investment. But perhaps the more important changes were hammered out firm by firm between workers and the midsize firms that comprise the backbone of Germany's manufacturing sector. Workers agreed to work longer hours for slightly less pay under less-restrictive work rules. And because most of those firms remain family owned, the executives who run them were willing to forego big salaries and short-term profit and invest in their long-term futures. In other words, they did it the way Ben Affleck and Tommy Lee Jones proposed to do it in "The Company Men."
Over the past two months, President Obama seems to have finally gotten serious about a government-led strategy of "getting in to the game and playing to win." High-profile appointments have been made, initiatives launched and trade complaints lodged. His State of the Union address singled out for praise several companies that have brought production back to the United States. The president's budget, to be released this week, will include billions of dollars in new public investmentst.
But another lesson from the success of Germany and the Asian tigers is that it takes more than smart and aggressive government policies to compete and win in the global economy. It also requires a change in the business culture and the political dialogue, a relentless national focus on competitiveness and an acceptance on the part of all of us for short-term sacrifice.
The steel and auto industries offer proof of what can be accomplished, and it should offer some comfort that Ron Bloom, one of the architects of those revivals, has been tapped to quarterback the government's manufacturing initiative. The tragedy for millions of Americans, for their communities and for the economy in general is that we waited far too long before doing what needed to be done.
As Leveris and others have warned, high-tech manufacturing is now where the steel and auto industries were a generation ago. Although the specifics are somewhat different - labor costs are much less of an issue - the broader challenge is essentially the same. We can either cling to old ideologies and ways of doing business and keep fighting the same old battles, or we can roll up our sleeves and make the accommodations to assure our long-term prosperity.
It remains an open question whether multinational corporations will be willing to join in that national effort. When they don't, we need to be prepared to quickly reassemble the capital, the talent and the technology into new enterprises and do whatever it takes to prove them wrong.