Making It

Why Manufacturing Still Matters

Louis Uchitelle

• Publisher: The New Press
• Year: 2009
• ISBN:
  9781620971017
• Topic: Negocios y empresa
• Subtopic: Manufactura

A veteran New York Times economics correspondent reports from factories nationwide to illustrate the continuing importance of industry for our country. In the 1950s, manufacturing generated nearly 30 percent of US income. But over the decades, that share has gradually declined to less than 12 percent, at the same time that real estate, finance, and Wall Street trading have grown. While manufacturing's share of the US economy shrinks, it expands in countries such as China and Germany that have a strong industrial policy. Meanwhile Americans are only vaguely aware of the many consequences—including a decline in their self-image as inventive, practical, and effective people—of the loss of that industrial base. Reporting from places where things were and sometimes still are "Made in the USA"—New York, New York; Boston; Detroit; Fort Wayne and Indianapolis, Indiana; Los Angeles; Midland, Michigan; Milwaukee; Philadelphia; St. Louis; and Washington, DC—Louis Uchitelle argues that the government has a crucial role to play in making domestic manufacturing possible. If the Department of Defense subsidizes the manufacture of weapons and war materiel, why shouldn't the government support the industrial base that powers our economy? Combining brilliant reportage with an incisive economic and political argument, Making It tells the overlooked story of manufacturing's still-vital role in the United States and how it might expand. "Compelling... demonstrates the intimate connection between good work and national well-being... economics with a heart." —Mike Rose, author of The Mind at Work

1

The Long Unwinding

Most Americans no longer pay much attention to factories. They assume there aren’t that many still in operation in the United States—not in a country where people are more likely to see empty, boarded-up buildings that once were engines of manufacturing. Nor is there much awareness of the ingenious ways in which factories function.¹ True, we lament outsourcing and are uneasy about the country’s huge trade deficit. We are troubled that so much of what we purchase, and need, is made overseas. But we are less and less troubled as the years pass. We even import, without acknowledging the irony, most of the machines that are installed in the factories we have—machines that stamp a sheet of steel into an auto fender, for example, or bore cylinder holes into iron or aluminumalloy engine blocks. Take away the imported machinery, and most of our factories would resemble nearly empty, cavernous warehouses. Or leave the imported machinery in place, but take away the imported parts that go into so many products made in our factories, and those products would become unusable. Auto dashboards, for example, might still be labeled Made in America, but absent imported components, many would come off assembly lines grossly disfigured, with round, empty holes into which foreign-made gauges were previously implanted.

In terms of factory output, no nation in the world other than China produces more than the United States. Standard government statistics are clear on this point, although they are also misleading.² Within manufacturing, a relatively small sector—the production of computers, electronics, and related products—accounts for most of the output growth. In addition, the manufacturing base in the United States (that is, the number of companies operating factories in the country) is narrow. If the U.S.-based multinationals—the GEs, the GMs, the IBMs, the Dow Chemicals—were to shut their American plants and transfer production to their numerous factories overseas, exporting back to the United States what they now make here, we would cease to be a manufacturing nation of consequence:³ fully two-thirds of what is manufactured in the United States is produced by the U.S.-based factories of American-owned multinationals.⁴ Of course, in this fantasy scenario, thousands of small manufacturers would continue to operate in this country, but many of them make the parts that go into what the multinationals produce in their U.S. factories. Without the latter, the ranks of the smaller fry would be diminished.

If we look back to the 1950s and 1960s, we see an era in which U.S. domestic manufacturers large and small made nearly all of the finished products that Americans purchased, as well as the component parts and materials used to make those products, and most of the machinery used to fashion the parts and materials into those finished products. Yet even this golden age undercounted manufacturing’s vast presence in the U.S. economy. Undetected by the federal government’s statistical radar, legions of brokers and dealers moved the manufacturing process along, arranging to get raw materials to factories, semi-finished products to the next stage of production, and finished products to warehouses, showrooms, and stores.

Those middlemen included people like my father, who in the early and mid-twentieth century acted as brokers or sales agents for the numerous textile manufacturers in the United States, finding buyers for the millions of yards of newly woven cloth then flowing from their factories. The buyers were other manufacturers, also still located in the United States, who dyed the cloth, or cut and sewed it, once it was dyed, into sheets or aprons or dish towels or tablecloths or shirts or socks or summer-weight pants or curtains or the numerous other products that were made from cotton in the years before rayon, nylon, and other synthetics were widely adopted. For all the flow from one factory to the next, however, the factory owners rarely orchestrated this process themselves. They outsourced that function to brokers such as my father, who collected commissions on each inter-factory transaction. Yet the brokers’ often middle-class incomes for performing this essential function were not usually counted in government data as manufacturing income. If that had been the case, then manufacturing’s statistical share of the gross domestic product (GDP) would have been noticeably higher than the official post–World War II peak of 28.9 percent in 1953. (Instead, the brokers’ and dealers’ earnings were counted as wholesale income.) And the fall from that peak, to 12 percent in 2014, might have drawn more attention to the thwarted lives of thousands of college-educated young people who followed their fathers into family businesses as brokers and dealers and, ten or fifteen years later, found themselves out of work.

My father, not suspecting what lay ahead, offered the manufacturing path to his three sons, who graduated from college in the 1950s. As a self-employed cotton “gray goods” broker, he facilitated the movement of newly woven cloth (grayish or off-white in color) to the next manufacturer in the process. If we joined him, he said, he would do more than just facilitate the launch of our careers: he would step into the production chain himself, leasing or purchasing a textile mill. Meanwhile, he competed with other brokers to find buyers for cloth as it rolled out of the country’s mills. While the buyers he served were mainly dyers, he also brokered the sale of dyed cloth, although not as often. Gray goods were his specialty. His standard commission was 0.5 percent of the transaction price, a small cut indeed, but one that swelled into an upper middle-class income over the course of many, many brokered transactions.

Occasionally my father took a risk. Instead of acting as a broker, he would buy gray goods himself—thousands of yards of cloth, using a line of credit—and quickly resell it to a manufacturer who dyed or printed a pattern on the cloth. That way he collected the markup rather than the smaller commission. “Taking a position,” he called this maneuver, and risking a loss. I suppose he must have taken some losses, although he rarely admitted to one, at least not to his sons.

For us, he would acquire a factory so we could earn a profit from actually making cloth, not just brokering the manufacturing process. He imagined that the factory he purchased or leased would weave thread into gray goods, that being the stage of production that interested him most. He assured us, his sons, that we would not have to move to the town where this factory was located. We could operate instead from lower Manhattan, where brokers such as my father and a number of manufacturers had offices, and periodically visit our factory, which would be run day-to-day by foremen and managers. In the end, we turned him down, mainly because owning or even leasing a factory was his vision, not ours. Moreover, he was not an easy man to work with, at least not for his sons. We moved on, my older brother and I into journalism and our younger brother into law, not realizing until twenty years later that if we had followed our father into an expanded family textile business, we would have found ourselves scrambling, in our early forties, for other ways to make a living as the industry that he wanted to bequeath to us moved overseas.

The textile factories that had flourished in America—those that spun raw cotton into thread, those that wove the thread into cloth on giant, noisy looms, and those that dyed or printed fabric—had been located mostly in New England’s cities and large towns before World War II and mostly in the less-expensive South afterward, in the period when my father was hoping to draw his sons into the business. Garment manufacturers too migrated southward in a similar pattern after the war, but more than a few lingered in northern cities, two reasons being the skilled workers that urban areas offered and the proximity to department stores and other big retailers, when shopping for clothes and linens was still done mainly in midtown emporiums.

New York City in my father’s era had many garment factories, some of them within walking distance of his office at 40 Worth Street, in lower Manhattan. A few were clients and, when I came to his office as a teenager, he would occasionally take me with him on a factory visit. While he schmoozed with owners and salesmen in the front offices, a secretary or clerk, as a courtesy, walked me back into the huge, loft-like factory spaces behind the offices, where I watched cutters and sewers at work making pants, jackets, shirts, and other pieces of clothing. Their skill and dexterity fascinated me and, playing on my awe, they would offer to let me cut three or four layers of fabric, admonishing me to follow the contours of a pattern for a pants leg or a jacket sleeve. I tried, but in wielding the industrial scissors I lacked the skill for a rapid and accurate cut. That came only with experience, and New York enjoyed a large population of experienced garment workers.

There was work for them, at reasonable pay, until the industry shifted out of New York.⁵ Some moved with the factories to New England and the South, only to find themselves stranded again, as the migration continued, to Mexico and Asia. Others retrained for entirely different work in other fields outside manufacturing, but most didn’t manage to make the transition. The work in other fields went instead to younger people already skilled in these different occupations or more adept at learning them. What happened to factory workers in New York wasn’t unique, of course. The same experience played out in the 1980s and 1990s wherever urban manufacturing had once flourished, in many cities and towns east of the Mississippi River.

In that heyday no one talked of skills shortages in manufacturing, not as long as the demand for factory-made merchandise exceeded the supply. Somehow enough skilled workers were found to fill the jobs, or factories hired unskilled men and women and trained them. The issue arose as factories closed in the 1980s and thousands of people who wanted decent-paying factory jobs could no longer find them. The jobs ceased to exist while the workers who wanted them remained, and we were reluctant to acknowledge the shortfall. Instead we put the blame on the unemployed workers themselves, arguing in an epidemic of magical thinking that sophisticated, cutting-edge factories would emerge to replace offshored industries, but only if the unemployed acquired the skills to staff them.⁶ New factories did materialize, but not often enough in the United States. The skills needed to staff them, it turned out, existed (or could be acquired easily enough) in Asia and Latin America as well. American manufacturers, as a result, put more and more factories in those parts of the world and equipped them with sophisticated technologies. They did so not only to take advantage of labor pools with appropriate skills but because the demand for manufactured goods rose faster abroad—especially in Asia—than in the United States. In addition, governments on those continents offered subsidies—often generous ones. They recognized something that should have been axiomatic in every country, including the United States: manufacturing is not exclusively a market-dependent activity, and it rarely has been. The process of making physical products is too complicated, too capital intensive, and too dependent on costly and continuous innovation to pay for itself simply from a manufacturer’s own, sometimes uncertain, revenues. Governments must supply subsidies in one form or another to sustain this vital activity, and they do so.

We hesitate to call them subsidies, and that reluctance has worked against manufacturing in the United States. While most other industrial nations acknowledge their essential role, we hold back and in doing so allow what are in effect subsidies to be disbursed in haphazard ways. Rather than channel them to manufacturers who export their products, for example, or who bring production home from abroad—adding to the nation’s total factory output—we stand by as our cities and towns auction themselves off to manufacturers searching for factory sites, even if a new site is only a few cities away from the old factory and simply replaces production in the old plant rather than increasing it by much. That process spreads more than $80 billion a year across numerous manufacturers.⁷ Add to that the nearly $300 billion in annual Defense Department spending, which is really a subsidy dedicated to the manufacture of weapons and other war materiel, and the total is one-sixth of the value of what all of the nation’s factories produce each year. Yet public funding of manufacturing does not stop there. We must include the numerous ad hoc subsidies that big manufacturers manage to obtain from all levels of government, offering the often legitimate argument that without such funds, they could not make enough profit to justify staying in business or operating a factory in a particular locale. In total, the flow of public money approaches 20 percent of the value generated in the manufacturing process.

The Revere Copper Company in Rome, New York, for example, has purchased from the New York State government, at cost, the huge quantity of electricity it needs to manufacture copper. This discount from the state power authority’s standard price has contributed significantly to Revere’s profitability. Similarly, in Louisville, Kentucky, the more than seven hundred employees at General Electrica factory complex there paid a 2-percent wage tax imposed by the city government, which then rebated the money to GE. That’s a subsidy funded by GE’s own workers! And in Midland, Michigan, the Dow Chemical Company in 2013 opened a battery factory that cost $300 million to construct and equip. Because the batteries were designed to power electric car engines, the federal government paid much of the factory’s construction costs, with the justification that battery-powered vehicles were more likely to result in a greener environment than gasoline-powered ones.⁸

Manufacturing in the United States, in sum, is a publicly subsidized market activity. It thrives when the subsidies are generous and well targeted and when the citizenry understands their importance. That is the case in Germany, where manufacturing output has generated a steady 22 percent of the national income year after year for at least seventeen years, and the government is quite open about its participation. In the United States, by contrast, manufacturing’s share of GDP in that same period declined from 17 percent in 1998 to 12.1 percent in 2015, in part because our prevailing economic ideology blinds us to the way manufacturing really works in a modern economy, and we hold back on the public support that it requires.⁹ In no other industrial nation except Britain and Canada is so little of the economy devoted to manufacturing. The typical range of the sector’s share of GDP is between 15 percent (Russia) and 19 percent (Japan), with China and South Korea far above, at 32 percent and 31 percent, respectively.¹⁰ If manufacturing is the defining characteristic of an industrial nation, then the United States is gradually, imperceptibly retreating from that status for lack of a targeted, coordinated subsidy program.

We lament the lure of lower-wage labor overseas, but in fact the lure of subsidies offered by foreign governments frequently plays a more important role in a corporation’s decision to put a factory abroad rather than to expand production in the United States and export from home. The Vermeer Corporation of Pella, Iowa, for example, produces horizontal drilling equipment at its factories in Pella for the U.S. market and for export to countries everywhere in the world except China. Among other uses, the company’s unique drills offer an efficient way to hollow out horizontal tunnels a few feet below ground level to house power lines running through pipes inserted in the tunnels. The Chinese government, trying to develop a similar machine, insisted that Vermeer put a factory in China rather than export the drills from Iowa, and Vermeer complied in 2008, not wanting to give up the huge market there.

Vermeer in the early years of the twenty-first century earned nearly one-third of its more than $500 million in annual revenue from exports, counting on the U.S. government for trade agreements, favorable currency arrangements, and even white-knuckle diplomacy so that exports would flow smoothly. In China, none of these tactics was sufficient. For several years, Vermeer had been running into competition from a Chinese manufacturer of horizontal drills, who had Chinese government support in the form of free land, tax breaks, and cheap credit, among other subsidies. With its share of this important market falling precipitously, Vermeer opened a factory in Beijing, taking a Chinese partner and soon attracting subsidies for the venture from the Chinese government. Still, the decision to manufacture in China rather than export from the United States was an about-face for Mary Vermeer Andringa, chairwoman of the company her father had founded. “I am a very big proponent of making the United States a great place from which to export,” she told me when I interviewed her in 2011 in Pella, where Vermeer has its headquarters and most of its domestic factories. At the time she was also chairwoman of the National Association of Manufacturers (NAM), which should push the eleven thousand companies that are its members to keep their factories in the United States, but doesn’t. Over the last thirty years, too many NAM members have located factories abroad. The NAM, as a result, officially favors free trade, which means no subsidies or tariffs that give one nation an advantage over another or hinder a multinational from selling in the United States what it makes in Asia.

Still, as Andringa discovered, free trade is in practice often neutered (see chapter 4). President Barack Obama and his counterparts abroad would have been better off during his eight years in office negotiating trade agreements that acknowledged the essential role played by subsidies in the manufacturing of just about everything that is or could be traded. They would have done well moreover to set official targets for the percentage of GDP from manufacturing that each nation seeks to achieve. In the United States, that would mean a return to a level of 17 percent or even higher, if we as voters bang our fists and insist.

That seems unlikely, given the year-after-year decline in the number of American factory workers, diluting their clout. Automation has shrunk the workforce needed to operate a modern factory, and while output keeps rising, it doesn’t rise rapidly enough to result in the rehiring of idled workers, much less recruiting new ones. Recessions and offshoring have also suppress...