January 2012, Week 3


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Fri, 20 Jan 2012 20:46:32 -0500
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On manufacturing policy, White House remains in grip of "ratchet-down" consultants 

By Mike Alberti 

Remapping Debate


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 

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

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.

At the conference, President Obama commended the
business leaders for their patriotism and said that
creating jobs in the U.S. is "part of the
responsibility that comes with being a leader in
America -- a responsibility not just to the shareholders
or the stakeholders, but to the country that made all
this incredible wealth and opportunity possible."

Mark Price, an economist at the Keystone Research
Center, a think tank in Harrisburg, Pa., said that any
implication that the corporate leaders featured at the
event were motivated by patriotism "deserves mockery."

"If we're talking about large multinational companies,
they are governed by profit and loss, not by any notion
of national allegiance," Price said.

Ironically, it was one of the speakers at the event who
provided the strongest evidence against the claim that
patriotism was driving business decisions. Hal Sirkin,
one of the co-authors of the BCG report, told the
Associated Press, "It's a simple mathematical equation
[that is] changing...It's not about the patriotism --
although I know everybody on stage with me here is just
as patriotic. But it is about the underlying


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