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American Manufacturing

A Country Needs Manufacturing

Some Americans believe we must embrace manufacturing to have a whole society.  Some believe we can get by perfectly fine without it. I believe we need manufacturing. But I’ve been in this debate long enough to understand the necessity of American manufacturing has been, and still is, a judgment call.

-Todd Shelton


How To Save American Apparel Manufacturing

The decline of American manufacturing is relatively new – and ongoing. No one knows with certainty if America would be better or worse today, or 30 years from today, if we had chosen to be more protective of our domestic manufacturing sectors.

Both sides of the manufacturing debate have data to support their positions. One side claims manufacturing jobs enrich society much more than service jobs. The other side claims goods produced at the lowest cost, no matter the source, are best for the economy. But again, the data we choose to favor is a judgement call.

I’m confident we don’t fully understand how manufacturing or the lack or manufacturing affects our existing and future businesses, our economy, and the culture of our society. We don’t know how the global economy changes in the coming decades. We don’t know if corrective action to strengthen U.S. manufacturing will become a necessity in the near or distant future. Because we don’t know, I believe we must hedge our bets, and strategically protect our capacity to manufacture.

Idea 1: ‘5% for America’

‘5% for America’ is an idea meant to simplify the manufacturing debate and serve as a call to action. Its purpose is to preserve manufacturing capacity for important sectors of the U.S. economy that are most vulnerable to outsourcing. If we consume a product at mass-scale, for example apparel or mobile phones, we should aim to domestically produce 5% of total consumption. 5% would not interrupt market functions or be seen as protectionism by trading partners. 5% domestic production for any mass-scale product would mean a small, but sustainable manufacturing infrastructure.

The objective is to preserve the manufacturing infrastructure (skilled labor) necessary to cost effectively start a new factory, operate an existing factory, or jump start a larger domestic industry if the need presented itself.

‘5% for America’ certainly does not seek the end of globalization. After all, targeting 5% domestic production also means targeting 95% imported production. It’s an effort to stop America from reaching 0% domestic capacity or losing entire sectors completely.

Idea 2: Wage Subsidies for At-Risk Sectors

Wage subsidies can aid American manufacturing sectors that cannot compete with low wage foreign competition. The purpose again is: preserve manufacturing capacity and be a vehicle to lift sectors that need help reaching 5%.

‘At-risk’ manufacturing sectors are sectors at risk of reaching 0% domestic capacity. ‘At-risk’ industries must have enough scale to be labeled “important” to the U.S. economy, face a severe global wage disparity, and have fallen below the 5% domestic production target.

Wages are so low in foreign countries that ‘at-risk’ sectors are not in a position to raise wages.  If anything, there’s pressure to push wages even lower in order to compete. The problem is Americans aren’t choosing work in ‘at-risk’ sectors because the pay doesn’t match the skill required to do the job.  A wage subsidy would do the two things to preserve ‘at-risk’ sectors: 1) create higher wages necessary to attract good workers, and 2) give factory owners confidence to invest.

In apparel manufacturing, a $5 per hour wage subsidy for sewing operators only – distributed directly to the worker (not to the business) is the best idea to preserve manufacturing capacity. Typical solutions to aid U.S. industries like tax credits, easing regulations, or machinery grants simply won’t help – and generally favor large businesses, not the small businesses that make up this sector.

The subsidy may pay for itself in jobs created, healthy businesses paying taxes, and new innovations spawning new businesses. Placing a small tax on imports could pay for it outright.

Whether it is apparel or another “important” sector that has dropped below the 5% target due to global wage disparity – a wage subsidy is like the U.S. government saying, on behalf of all Americans, “We have a national interest in preserving what you do, and we’re going to support you and keep manufacturing alive in your sector.”

Conclusion

We can continue to debate whether manufacturing is important to our society. But experience shows debating this issue simply results in no action taken, while we lose complete sectors of manufacturing one-by-one.

Ending currency manipulation and similar ‘big’ ideas likely won’t help ‘at-risk’ sectors because they are too complex to be implemented. ‘5% for America’ and wage subsidies are humble in scale and simple enough to implement. They can be effective in preserving a small percent of capacity for important manufacturing sectors. Until we determine if America actually needs manufacturing.

– Todd Shelton