On manufacturing policy, White House remains in grip of “ratchet-down” consultants

Jan 18, 2012 — As part of a recent shift to a more populist tone, the Obama Administration last week held a conference at the White House to encourage companies to create jobs in the United States, rather than to continue outsourcing them overseas.

The event was an attempt by the White House to capitalize on the recent modest growth in the manufacturing sector, after decades of decline. In a speech given after the conference, President Obama praised the attending business leaders for patriotically bringing jobs back to the United States from other countries. “That’s exactly the kind of commitment to country that we need — especially right now, when we’re in a make-or-break moment for the middle class and those aspiring to get in the middle class here in the United States.”

But critics of U.S. manufacturing and trade policy suggest that, for all its populist rhetoric, the White House may actually be embracing some disturbing trends in the manufacturing sector: long-term wage stagnation occuring in tandem with the huge gains in productivity that have accrued overwhelmingly to the benefit of employers and the creation of jobs that pay less and offer fewer benefits — often in non-unionized states — than those that have been lost to outsourcing. These trends have led many advocates for manufacturing to warn of a “race to the bottom” approach to manufacturing policy, and to worry that the U.S. is becoming a low–wage haven.

Strikingly, both the President’s speech and a new White House study cited approvingly a paper issued last fall by the Boston Consulting Group (BCG). Remapping Debate has previously published an in-depth report on that paper, which reflected a broader and longer-term effort on the part of consulting firms (like BCG and McKinsey). The paper contained a thinly veiled public policy agenda based on the premise that wages should be kept low and workers non-unionized if manufacturing jobs are to be brought back to the United States.

The BCG paper claimed that rising labor costs in China combined with the fact that the United States “is becoming a lower-cost country” would “virtually close the cost gap” between the two countries for many goods. It went on to say that “when all costs are taken into account, certain U.S. states, such as South Carolina, Alabama, and Tennessee, will turn out to be among the least expensive production sites in the industrialized world.” The White House report touted the fact that “unit labor costs” have risen in most advanced economies, while falling here at home.

The policy proposals offered by President Obama at the conference were a proposed $12 million for research and development, the ending of tax breaks for companies who outsource jobs to other countries, and the creation of tax incentives for companies who “insource” jobs to the United States.

Bob Baugh, executive director of the AFL-CIO Industrial Union Council, said that he welcomes the elimination of tax breaks for companies that outsource, but warned that the proposals fall far short of a real strategy, and any policy program that relies on low wages and weak unions is “extremely short-sighted.”

“Other countries have a suite of tools they use to support their manufacturing sector,” he said. “They have workforce training and education policies, beneficial trade policies, and policies to make sure that manufacturing jobs remain high wage jobs. They think of this thing comprehensively. They take the long view. We’re the ones who don’t.”

Ron Hira, associate professor of public policy at the Rochester Institute of Technology who attended the White House event, agreed and added that any discussion of a “renaissance” in manufacturing needs to address the issue of high-wage manufacturing jobs being replaced with low-wage jobs. “There was no discussion about the quality of jobs,” he said. “That seems like a big omission.”

One of the companies featured at the event and praised by President Obama was GalaxE Solutions, a healthcare information technology company based in New Jersey. GalaxE was lauded for hiring 150 new workers in Detroit, but, according to its website, the company’s “key to success” is a business model that relies on “the transfer of primary development functions to its facility in Bangalore, India.” And GalaxE apparently looked to Detroit to provide the opportunity to hire relatively low-wage workers: according to Timothy Bryan, GalaxE’s chief executive officer, is a cost savings that is “comparable to what you’d find offshoring to Brazil and some other offshore locations.”

Remapping Debate emailed the White House, asking it to respond to a series of questions. One was whether recent gains in manufacturing have come at a cost to workers in the form of lower-wage jobs with fewer benefits. Another was why the White House would implicitly or explicitly embrace the strategy advocated by BCG, given that the company claims that a U.S. manufacturing renaissance depends on the maintenance of competitive cost advantages (low wages) and labor “flexibility” (weak labor unions). The White House did not respond by press time.