Oct. 25, 2011 — In August, when Boston Consulting Group, one of the world’s leading business consulting firms, released a relatively optimistic report on the future of manufacturing in America, that good news received extensive coverage, including a front-page article in the Financial Times. Implicit in almost all of the coverage was the premise that the report represented a thorough, objective, and neutral assessment of the relevant facts.
But according to experts in manufacturing and industrial policy, as well as to experts in corporate social responsibility, a close reading of the report — Made in America, Again: Why Manufacturing Will Return to the U.S. — reveals a different picture: that of a company with its own distinct and one-dimensional ideological framework, promoting a particular set of public policy choices.
Decoding the report
Annotated excerpts to make the values and agenda of the report more visible.
View report excerptsThe advocacy nature of the report perhaps becomes most clear in the report’s final sentence. There, BCG states that the domestic manufacturing renaissance supposedly on the horizon depends on the U.S. providing what the company calls “a favorable investment climate and flexible labor force.” Translated, some advocates said, the conclusion constitutes a not-very-subtle call for the U.S. government to continue to give business interests free rein.
The cover of the report features an American flag presented as the foundation upon which workers are busily employed, but the vision of large consulting firms has been, and continues to be, one that favors the unfettered movement of capital across national lines. Indeed, critics point out, the report is entirely indifferent as to where jobs are located, explicitly making a judgment that cost — not national allegiance or any other factor — is the only value companies should consider when making decisions about where to locate and invest.
Indeed, the absence of consideration of any values besides economic cost is one of the report’s most salient features. (See “Decoding the Report,” an annotated selection of excerpts from the report.) Remapping Debate’s requests to interview representatives of BCG were declined.
A narrow framing
Several experts asked by Remapping Debate to review the report criticized what they described as its narrow focus. They noted that reports like this one, not contracted for by a specific business, were not even constrained by the duty that the consulting firm might be said to owe the client, and urged large consulting firms to expand their analyses to include a variety of social costs and benefits
While some experts in corporate social responsibility said that no one should expect that BCG or other consultants would operate from any premise other than the perceived need to maximize profit, others said that consulting firms should be held to even higher expectations to address social costs than other firms.
“One of the adages in ethics generally is that those that have greater power have greater responsibility,” said Gene Laczniak, a professor of business at Marquette University who specializes in the social implications of business decisions. “So, that being the case, it’s clear that consulting companies have a special expertise and a special knowledge, and they should be setting the tone in terms of considering the social and environmental consequences of the advice they give.”
Big consulting firms: long the champions of globalization
Traditionally, private consulting firms like BCG and McKinsey have been champions of the free movement of capital, encouraging companies to relocate offshore in low-cost countries with loose regulatory standards if it would boost the company’s bottom line. That movement of capital and labor is often referred to as “offshoring.”
“The consulting industry has had a huge impact on offshoring in the past,” said Ron Hira, an associate professor of public policy at the Rochester Institute of Technology. Hira said the role of consulting firms has long been to identify the easiest ways for firms to profit, and, in the context of globalization, that has meant being at the forefront of the drive to offshore production to low-cost countries, even at the expense of social, environmental, or national interests.
That assessment was echoed by Judith Stein, a professor of history at City College and the Graduate Center of the City University of New York, and author of Pivotal Decade: How the United States Traded Factories for Finance in the Seventies. Consulting firms, she said, are “the voice of multinational capital, the think tank of multinational corporations.”
Indeed, Remapping Debate found several BCG reports written within the last decade that advocate for offshoring to low-cost countries. A 2004 report called “Capturing Global Advantage: How Leading Industrial Companies Are Transforming Their Industries by Sourcing and Selling in China, India, and Other Low-Cost Countries,” for example, concluded by saying, “Companies that continue to hesitate [to offshore] do so at their peril. Globalizing your company’s cost structure and business model, with China and India as first-pass options, is rapidly becoming not merely a strategic alternative but a competitive imperative.”
“These guys have been cheerleaders for this stuff all along,” said Bob Baugh, the executive director of the AFL-CIO Industrial Union Council. “They led the charge…free market advocates like BCG have no sense of national interest. They’re in it for the profit.”
Different forecast, same premises
In “Made in America, Again,” BCG appears at first blush to have changed its tune, projecting that the United States is poised to enjoy a “manufacturing renaissance” and advising companies that producing in China should “no longer be the default option.”
Remapping Debate spoke with several manufacturing and corporate responsibility experts who had read the report. Without exception, they said that while the advice had changed, the underlying premise — that companies should move to wherever costs are lowest — had not.
“It’s essentially the same message,” said Scott Paul, executive director of the American Alliance for Manufacturing, a manufacturing policy think tank that receives funding from both the Steelworkers union and steel companies. “They’re saying, ‘Do what’s best for your bottom line.’”
“With its seemingly limitless supply of low-cost labor and an enormous, rapidly developing domestic market, an artificially low currency, and significant government incentives to attract foreign investment, China was the clear choice” for companies considering where to build manufacturing jobs, the report says.
“Now, however,” the report continues, “a combination of economic forces is fast eroding China’s cost advantage as an export platform for the North American market. Meanwhile, the U.S., with an increasingly flexible workforce and a resilient corporate sector, is becoming more attractive as a place to manufacturing many goods consumed on this continent.”
The report singles out the Southern states — where union membership and labor costs are low and where environmental and safety regulations are not as strict as in Northern and Midwestern states — as being the domestic destinations that firms should look to when considering re-shoring production.
Mark Price, a labor economist at the Keystone Research Center, a think tank in Harrisburg, Pa., that focuses on manufacturing policy, said that it was clear from that language that BCG was continuing to advocate that firms shift their resources based on a simple cost-benefit analysis concerning labor costs and regulations.
Indeed, the report does not predict that all companies that have moved production to China will re-shore, instead advising that some companies consider moving to even lower-cost countries — such as Indonesia, Thailand, or Mexico — that have a history of environmental and labor abuses.
“They’re not saying that companies should locate in the U.S., necessarily,” Price said. “They’re telling companies to go wherever labor costs are low.”
Selling the virtues of “labor market flexibility”
According to the report, among the primary advantages of producing in the Southern states — particularly Alabama, South Carolina, and Tennessee — are the high degree of “labor market flexibility” in those states and “minimal wage growth.” (See an exhibit to the report, “Economics will drive reinvestment in the U.S.,” below).
Price said that the phrase “labor market flexibility” is often understood to mean that workers have little power to control their wages and working conditions. “But it also means, ‘Don’t have a high minimum wage, have rules that restrict the choices workers have regarding unions, don’t have too many safety regulations, and limit the extent that workers have rights in regard to hiring and firing,” he said.
In an earlier version of the report, Mississippi was used as the comparison to China. When Harold Meyerson, a columnist at the Washington Post, pointed out to Harold Sirkin, one of the report’s three authors, that Mississippi ranks near the bottom of most measures of living standards, Sirkin said, “We made a mistake by picking Mississippi.”
In the updated version of the report, issued in August, South Carolina, Alabama, and Tennessee are the only states specifically mentioned (wages in these states are slightly higher and labor regulations marginally more extensive than in Mississippi). The report estimates that those states “will turn out to be among the least expensive production sites in the industrialized world” by 2015.
“You can’t help but come away from this report with the idea that the Southern states are the only states where we can compete in manufacturing, because those are states where we have cheap labor and fewer regulations,” said Kate Gordon, vice-president for energy policy at the Center for American Progress.
BCG: “Economics will drive reinvestment in the U.S.”
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Exhibit 3 of the report, reproduced with permission of BCG, presents limited choices for location in the U.S. and identifies “flexible unions/workforce” and “minimal wage growth” as among the desirable features of those locations.
Price also pointed out that the report mentions recently negotiated autoworker contracts as an example of flexibility. Remapping Debate has previously reported on how the two-tier contract agreed to by General Motors and the UAW compares with data going back 50 years on autoworker compensation and how the two-tier system — originally presented as a temporary arrangement — has an impact on the lives of second-tier auto workers.
Win-win or win-lose?
Map & Data Resources
As the highest income households have increased their share of national income, real wage of production workers have stagnated.
View the graphicPrice said that now that two-tier agreements “are a feature of the times, a lot of the talk about flexibility has referred to the fact that even in Northern states, unions are willing to make concessions.”
Revisionist history
The report contains a short, four-paragraph history of the decline of manufacturing in the United States since the 1950s. It describes a dramatic shift of manufacturing to Asia in the 1970s and 1980s, but then provides an upbeat telling of the changes that followed.
“The U.S. suffered through many painful adjustments to these challenges,” the report says. “Unlike most nations, however, it quickly ripped off the Band-Aid and allowed industry to adapt. Factories closed, companies failed, banks wrote off losses, and workers had to learn new skills. But U.S. industry and the economy responded with surprising flexibility and speed to reemerge more competitive and productive than ever.”
According to Price, the wording of the report implies that all sectors of the economy — factories, companies, banks, and workers — suffered equally when manufacturing moved offshore. “Workers had to do more than ‘learn new skills,’” he said. “Yes, most of the manufacturing workers who lost their jobs got new ones, but they were jobs that paid less. There is a persuasive literature that says that when there is a mass layoff, the cost of dislocation is quite severe. It’s even been shown that [going through one] knocks a year off your life.”
BCG’s narrative is not the whole — or the accurate — story, Stein agreed. “There is still a whole class of workers that is suffering from that period today.”
Stein also took issue with another, implicit aspect of the history: the assumption that offshoring has been — and will continue to be — the unavoidable result of the “natural” process of globalization. The report, she said, glosses over policy choices that have been made in the United States and other countries to promote free trade and offshoring.
“I think this report was done for ideological reasons,” she added. “The ideology here is that we can all stop worrying, because the market is taking care of it already.”
And according to Price, the idea that, due to market forces, the overall economy recovered after a period of adjustment is misleading. “It’s true that we’ve undergone a transformation,” he said. “But it’s not a rosy one. The real story is less about everyone recovering than it is about certain sectors getting creamed and an overall economy that hasn’t performed very well for anyone below the top five percent.” (See graph above.)
Policy advocacy
Several experts Remapping Debate spoke with said that, although the report held itself out as a neutral and objective analysis, its language often reflects advocacy of particular policies.
The tip-off, for many, is the report’s last sentence: “As long as it provides a favorable investment climate and flexible labor force, the U.S. can look forward to a manufacturing renaissance.”
Cynthia Williams, a professor at the University of Illinois College of Law, read the sentence’s implicit message as saying that the U.S. won’t be able to look forward to a manufacturing renaissance if current policies relating to investments and the labor force are changed. She speculated that one BCG concern was that, in reference to potential changes to the tax code, “there may be some tinkering with that that is unfavorable to investors.”
Others, like Stein, saw the sentence as a warning to policymakers, particularly a warning about not creating union-based or other obstacles to the availability of a pliable work force. In fact, she said, “They seem to stress that throughout.”
Joel Joseph, the chairman and general counsel of the Made in the USA Foundation, a nonprofit that promotes American manufacturing, agreed, adding that the last sentence is aimed not only at policymakes but directly at unions, as well.
“It’s a warning to unions that they shouldn’t be too aggressive about demanding wage increases, or you’re not going to have any jobs at all,” he said.
A one-dimensional value system
According to Stein, the report reflects a vision of society in which the market is the only value that matters and that there is no need to consider any others.
Rob Scott, an economist at the left-leaning Economic Policy Institute (EPI), agreed that the report venerates the free market and fails to consider any other values besides the ability of companies to move capital as easily as possible between countries.
“They’re trying to reinforce the same ideology that has been dominant over the last 30 years and that has channeled all of the increases in productivity into profits instead of into wages,” he said.
Price agreed, adding that there are a host of other values that should have been included in the report as factors that companies would want to consider when making decisions about location.
“They’re not worried about the overall level of economic growth, or the health and sustainability of communities,” he said. “They are worried about the particular, narrow-minded interests of business.”
Remapping Debate sent BCG a follow-up inquiry by email regarding what values the firm thought should inform a report not produced for a client (that is, a report generated on the firm’s own account and for public consumption). The inquiry gave as illustrations of potential considerations “economic, social or environmental factors.”
BCG’s response cited only the values of being “objective and unbiased,” not mentioning any economic, social, or environmental factors. BCG added that it “hoped our reputation speaks for itself.”
Remapping Debate asked McKinsey & Company the same question it had asked BCG. McKinsey declined to respond.
Quoted in Labor Notes, however, Michael Zinser, one of the BCG report’s co-authors, appeared to suggest that broader, societal considerations are irrelevant.
“Location is agnostic,” he told Labor Notes. “It’s a question of what the market will bear.”
When asked what values she would have liked to see considered in the report, Stein said, “I would think that in this day the first one would be employing Americans. You could argue that every corporation owes its existence to the fact that it is in the United States and that it has been nurtured and should have a responsibility to the American people.”
Kate Gordon of the Center for American Progress said that she would have liked to see environmental concerns weighed in the report. She referred specifically to BCG’s suggestion that, as Chinese wages rise and environmental standards are tightened, it was “reasonable” for many companies to “look for sourcing opportunities in other low-cost nations” — particularly Vietnam and Thailand.
“Vietnam and Thailand are where China was twenty years ago,” Gordon said.
Laczniak of Marquette University said that notably absent from the report were any considerations of human rights. “You have to look at the social effect of economic decisions,” he said, “not just the economic effects. When you just cherry-pick economic opportunity, there’s a lot that you miss.”
For example, Laczniak pointed out that the report could have included some information on working conditions and human rights issues in the “lower-cost” countries the report advises some companies to consider as Chinese wages rise. “When they talk about the promise of the maquiladora zone on the [U.S.-Mexico] border, they should mention that that area is notorious for human rights abuses and violence.”
Many economists said that, instead of presenting a low-wage, low-skill manufacturing approach as the only successful strategy for the U.S. to pursue, the report should have discussed alternatives. For example, they said, some countries with healthy industrial bases, particularly Germany, have successfully pursued a high-wage, high-skill policy, with the result that wages have risen over the past three decades at the same time that environmental and safety regulations have become more robust.
“If you’re going to be in the business of giving policy advice,” Scott said, “then I’d hope that your advice would be beneficial to American workers.”
Consultant social responsibility?
The idea that companies might have ethical responsibilities to consider what economists call “externalities” — that is, the negative byproducts that society endures when a company only takes its bottom line into account — is not a new one. Indeed, a large literature has developed in the last decades concerning “corporate social responsibility,” or CSR.
“The idea is that looking only at economic decisions is suboptimal,” Laczniak said, “so you have to look at the effects of economic decisions, both on the environment and on society.” The concept that companies should consider economic, social, and environmental effects of their decisions is referred to as the “triple-bottom line.”
Several CSR initiatives have arisen in the last several years. They tend to include the principle that companies need to take responsibility for the outcomes of their actions on various “stakeholders,” including communities, consumers, and workers. A second common principle is that of environmental responsibility or “sustainable development.”
When asked what standards of corporate social responsibility should apply to consulting firms like BCG, several experts noted first that the issue would be complicated if a consultant has been retained by a particular client to produce a specific analysis. Indeed, the code of ethics of the Association of Management Consulting Firms and the one promulgated by the Institute of Management Consultants USA both focus on the duties of the consultant to a client, although the latter code calls on each consultant to pledge to “represent the profession with integrity and professionalism” in the consultant’s relations not only with clients and colleagues, but with the general public as well.
Remapping Debate did not pursue inquiries as to how consulting firms should balance a duty to a client with a duty to the public for this article, because it appears that BCG produced the “Made in America, Again” report on its own account. Hira, of the Rochester Institute of Technology, characterized the report as “basically a marketing strategy.”
In that case, Price said that there was no reason to exempt consulting firms like BCG from broader norms that include ethical concerns. “There’s no reason to withhold a desire to see BCG behave in a more ethical way,” he said. “We expect people to act morally and we criticize them when they don’t. Why should we withhold criticism from certain corporations?”
Laczniak agreed with Price, and added that large consulting firms like BCG may have even more responsibility, in a sense, than the companies they advise. He said that it would be useful if consulting agencies were to agree to abide by a set of industry-specific ethical principles, one of which would say that when giving advice to companies and the public, they would promise to include social and environmental factors in their analysis.
Others expressed skepticism that companies could be trusted to effectively self-regulate, and pointed to the need for other institutions to hold them accountable for their actions. Hira, for example, said he did not fault BCG for positioning itself as a non-partisan source of information when presenting the report. Rather, he said that it was the responsibility of the media to judge the content and present it accurately.
“There is a big failure here on the part of the mediating institutions,” he said. “They can’t just parrot this stuff without asking who is behind it.”
Others said it was the responsibility of the government to make sure companies are behaving in a responsible way. “I sort of take it for granted that they’re going to be telling firms how to make money,” Dean Baker, an economist at the Center for Economic and Policy Research, said. “That’s why we have public policy: to make sure that firms are making profit by doing things that we want them to do.”
But Allen White, a senior fellow at the Tellus Institute, which advocates for sustainable development, and a co-founder of the Global Reporting Initiative, an effort to persuade companies to report on their social impact, said that the value of having CSR principles is that they often evolve into legislation.
“Government sees a set of norms emerging, and once they’re established, [government] says, “it’s time to codify them,’” White said.
An unacceptable status quo?
Ultimately, there was widespread agreement that the current state of affairs — in which a report that only reflects a one-dimensional value system can be treated as neutral and accepted uncritically — is not desirable.
“Imagine if they said, ‘whenever we’re going to put out a public report we’re going to do it in the broad sense,’” Laczniak said. “If they felt obligated to consider social responsibility as well as economic gain, they might have said, ‘Well, those jobs maybe shouldn’t have left in the first place.”