HS 229 - Scott Paul of The Alliance for American Manufacturing

Welcome to the Holistic Survival show with Jason Hartman. The economic storm brewing around the world is set to spill into all aspects of our lives. Are you prepared? Where are you going to turn for the critical life skills necessary to survive and prosper? The Holistic Survival show is your family's insurance for a better life. Jason will teach you to think independently, to understand threats, and how to create the ultimate action plan. Sudden change or worst scenario, you'll be ready. Welcome to Holistic Survival, your key resource for protecting the people, places and profits you care about in uncertain times. Ladies and gentlemen, your host, Jason Hartman.

It's my pleasure to welcome Scott Paul to the show. He is president and executive director of the alliance for American Manufacturing. We've talked about the manufacturing sector on many prior episodes, and this is a very important base for an economy. Manufacturing is just critically, critically important to an economy. And let's talk about how we're doing from a domestic and a global perspective there and what that means for jobs, what it means for the economy. And I'm just really anxious to dive into that. Scott, welcome. How are you today?

Jason, I'm honored to be here and glad to be able to have a conversation with you about manufacturing.

The pleasure is ours. So, first of all, maybe define manufacturing. What is it? It may seem obvious, right, but what industries and companies constitute your alliance? I mean, I guess it's a membership. And then you lobby for public policy. Is that what you do?

Yeah, yeah, it's a very good question. Well, first, broadly on manufacturing, you know, there's obviously the manufacturing that people see. The clothes you buy, the automobiles, the refrigerators, the processed food, the, you know, our physical structure around cities, I mean, the built environment, I mean, all of that came from manufacturing in one form or another. Then there's also the kind of the manufacturing you don't see, which is like the parts inside the car, the packaging that goes on top of the frozen food or what have you. And so manufacturing is diverse. It's everything from computer chips to potato chips, from steel to socks, and a lot of things in between.

Our organization was formed in 2007, and it's pretty unique, will say, in Washington, D.C. because we are nonpartisan and we are also a partnership between some domestic manufacturers, but also North America's largest industrial union, which is the United Steelworkers. And I will say that our stakeholders certainly don't agree on everything that goes without saying, but on the need to have a vibrant, thriving domestic manufacturing base and on a core set of policy issues, they do have agreement. And so We've been able to, you know, harness.

That kind of odd couple coalition, I think, to make some progress here in Washington D.C. at least making sure lawmakers and administrations know that manufacturing is a critical part of the economy and one where public policy does make a difference whether it will thrive or whether it will wither and shrink.

Okay, so how critical is it? Let's maybe dive into some stats or some numbers as how many jobs, what do these jobs pay? How does it compare with other sectors of the economy? You look at maybe the foes of manufacturing, one of them being the environmentalist, for example. And I just think it's such a sort of ridiculous concept that we just take the messiness of old smokestack manufacturing and we ship it to another country and act as though it isn't the same planet or it isn't the same air. It's the old NIMBY syndrome, not in my backyard. They all say, right, it's still the same ecosystem. So environmentalism is just one part of this. Obviously there are many other issues. But what are some of these stats? I mean, how important is it?

It's very important, Jason. And first on that environmental argument, which I think is an important one as well, you know, think of a steel plant in the United States which years ago they faced a lot of criticism for polluting the air, for polluting the water and their surrounding environments. But if that steel plant goes to China, it will, per ton of steel have probably three or four times the carbon output, six to 20 times the pollutant and particulate matter output. And as you said, we live in one world and that's something where particulate matter, carbon and all of that has an impact. So there's a value to having that production domestically in an environment that is appropriately regulated, but also is able to return jobs. And so on the data points, and I'm glad that you raised that. So there are a little over 12 million people who work in manufacturing now. It is about also so 11 or 12% of our economy now. But its effect is much far reacher, much more far reaching than that. And obviously those data points have declined considerably since the 1950s, the 1960s and into the early 1970s when it probably peaked as a percentage of the US economy. So why are these jobs important? First of all, manufacturing jobs writ large are middle income jobs. These are jobs that people who don't necessarily have a four year college degree but do have some skill set, can possess, can hold onto and can have a middle class lifestyle, which means buying a car, which means buying A house, which means circulating money in the community, saving for college, and all of that is kind of the quintessential American dream. Manufacturing is important for a couple other job reasons. One is its multiplier effect. One job in manufacturing is likely to spur about four other jobs in the economy. Some of those are what we call directly as part of the upstream and downstream suppliers and logistics and everything that comes in and out of the factory and the jobs that are dependent on that. And some of that is indirect. And that is because of the higher incomes. There's more money that's spent at the hardware store, at the grocery store, at the restaurant, and that obviously means more opportunity for other people as well. And I will quickly add that you don't get that type of multiplier effect in most other kinds of economic activity in the United States.

Well, that's what I was going to ask you. Why not? Why is that multiplier effect particular to manufacturing?

Well, first of all, it's the nature of manufacturing where it's adding value to a commodity to produce a finished product, basically, and the opportunities that are derived from that. And just by its nature, it involves more of a supply chain or a value chain as some people call it now, than some other type, than either retail or financial services or public sector employment or health care, where all of these are very important jobs and very important pieces of our economy. But let's think of it this way. If a small town attracts a factory, that means that there will likely be people in the town who have better economic opportunity. That's going to spur additional spending. And so that factory may also bring about a large retail store coming to the town like a Walmart or a Target. And public services are likely to improve because there's a stronger tax base. Now think of this in the reverse. If a Walmart or another big box store comes to a town, it never means in any case, except by accident, that you're also going to get a factory. It just, it doesn't work that way. It never works that way. Which is why local economic development officials and mayors, if you ask them what's the type of economic activity that's going to have the most value added for my community, they will say manufacturing. Now there's some question about how permanent that is and how they can hold onto it. But. But to a person, they will say that that's the type of economic activity they would like to have happening in their community.

Obama made some big promises on manufacturing and many other things, by the way, but we won't Go there. How has he done in terms of creating manufacturing jobs?

Yeah, well, if people are tuned in, they will hear the President, the White House talking about manufacturing and a resurgence in manufacturing quite a bit. However, if you dig the data, you look at what the President has said, they have a long way to go. First of all, the promise in 2012, the President during the reelection campaign said, I want to create a million new manufacturing jobs in my second term, which is a noble goal and one that I thought was a good one to have. However, if you look at the performance so far, it's not even 200,000 that have been added. And that puts him at this stage of his second term really, really far behind in working to achieve that goal. And I think it would be very difficult.

Out of 1 million promise, it's been only 195,000 new manufacturing jobs have been created, right?

That's exactly right. And you would need to be at about 400,000 or so at this point to be on track for meeting that goal. So that's a big deficit to make up.

It's less than half. I don't know that there's a lot of likelihood that you can even catch up, that the pace will even quicken. What does it take to create a manufacturing job? I mean, when we talk about the million jobs promised and the 195,000 delivered and that there should be 400,000 delivered by this time, one of the fundamental problems we've got now is underemployment. And so I certainly see highly overqualified people doing menial jobs, whether they be at Starbucks, people with master's degrees or driving an Uber car, which I've experienced many times, by the way, personally. And I almost wonder if a lot of people haven't moved into manufacturing and if that isn't catching people on the way down the economic ladder.

It's a really good point and think of it this way as well. From 1998 until 2009, so for 11 years we saw a real contraction in manufacturing that was both related to overall US recessions, but it was also related to the Asian financial crisis, to the onset of China as a global competitor.

And the elimination of tariff with China as well. And to this idea that was, I think very. That was kind of the triumphant idea of the 1990s, that, you know, the key to success is the information economy and getting a four year college degree. And as a result, you know, our technical schools, you know, kind of the craft jobs, the.

Manufacturing jobs, you really both in kind of academia, in policy and in management practice in the United States fell out of fashion. And you saw a lot of races to the bottom where you saw manufacturing being offshore to low wage competitors. But it was almost this economic idea that it was. I mean, the faster we could move out of industry and into information and the new economy, the better off the country was going to be. So here we are today in 2014, where we have the middle class shrinking, where we have inequality growing, where we have a jobs recovery from the recession that has been painfully slow, and you have declining real incomes for large portions of the United States. And one of the reasons that that has come about is that you have a third fewer manufacturing jobs now than you in 1998. And so it is a, you know, that's a lot of lost opportunity. And when you think about the multiplier effect too, you know, we're leaving a lot on the table. And, you know, our trade deficit in manufactured goods has grown. The only exception to that is kind of what's happening with petroleum and oil products. But otherwise, our trade deficit in every type of manufacturing, from advanced technology products to kind of basic steel, has been growing and growing and growing. And there's really no good reason for that other than the levers that we have in our economic policy and other things haven't been utilized in the right way.

So what do we do to create manufacturing jobs? I mean, I had Pat Buchanan on the show a while back and he says, well, we've got to put tariffs in place. We should charge companies to have access to, to the US Consumer. I mean, we've got the, at least for now and certainly for decades past, we've got the wealthiest consumers in the world. It's a giant market. I mean, nobody has a larger market than we do. The philosophy of tariffs, although people say it's a terrible idea, some of them and some like it, is that we're charging companies to gain access to our market.

Yeah, well, I think it, I think it is part of an overall strategy that we need. And I will also say that we have very much limited our ability to do tariffs because of the obligations we have at the World Trade Organization and all the free trade agreements that have been signed that I don't know that we're going to go back to a world where you can use, where tariffs can be the primary lever here. But I will say this. We are even in cases where there has been what we would call unfair competition, that is other countries that are sending goods to the United States at a far lower price than they're selling them in their home market, which is the classic definition of dumping, or that they're selling them at below the cost of production, which is also dumping, or that they've been generously subsidizing their industries in order to gain a trade advantage, like the mercantilist economies in China and elsewhere in Asia should do with a vengeance.

The system, the way it works now is that our domestic industry has to bring a case. It works its way through the trade bureaucracy at the Commerce Department.

And our industry also has to show harm that's done already. Then and only then might some temporary tariffs be imposed. And so I do think there's a better way to do that because we know an import surge is coming, should be able to regulate that. And our goal, I think the goal of our international economic policy, one of the goals should be a balanced trade account, which we have not had for a very long time, particularly in manufactured goods. And that trade deficit is something that we end up owing. And it was $474 billion last year. And I hear Washington talk a lot about the US Debt, about the budget deficit, and those are conversations that are ripe and mature. And you see those battles occur on Capitol Hill. I hear virtually no one talking about the trade deficit, even though in the long term it helps to bring about some structural changes in our economy that make it much harder to recover from fiscal shocks.

Here's the thing about the trade deficit. And conceptually I certainly agree with you. However. However, the fact is we're never going to pay it. That's just the ugly truth. So sorry, China, I mean, we pay with money created out of thin air. It's a pretty good deal.

If a deal is too good to be true, it is too good to be true, which is certainly the case. And so, you know, the argument is that, well, we get lower consumer prices and they're basically subsidized by this behavior. And so what if we have fewer of these production jobs? But when you again, you look at economic performance certain over the last 10 or 12 years, it's shown gaping holes. It really has. And I will say there's also a security aspect to this as well, because when we, you know, when more of this production is done overseas, we inherently lose the ability.

To innovate around that production. They should be co located for maximum efficiency. I mean, we've gotten to the point where, you know, big chunks of our national security.

And the parts that go into things like night vision goggles and our jet planes and what, in some cases there's A sole supplier from China that we're dependent upon. And from a national security point of view, that makes no sense whatsoever. But it's the inevitable. Yeah, it's the inevitable result of offshoring too much of this manufacturing.

Here's the thing, I mean, certainly with national defense type of issues, or, you know, maybe now we should call it National Offense or the War Department like the old name was, because I don't know that everything we do is defense anymore. But that's a whole other issue for another day. It's hard for me, and I certainly think other people have to be wrestling with this too, to, to wrap my head around what is the answer to this problem. On one hand, the American consumer gets the benefit of all these incredibly cheap goods they are importing deflation to offset inflationary pressures that we would definitely be seeing from ridiculous government spending through China and all the other places where we can buy these cheap goods. So does the American consumer want to go to Walmart and want to go to wherever and buy stuff cheap? I mean, certainly we've all noticed that things are not very expensive nowadays for the most part, except maybe food goods and college tuition, which is a complete rip off, and medical treatment and so forth. There's lots of inflation in those areas. But electronics and consumer goods in general, they're less expensive than they used to be, for sure. So do we want those cheap goods or do we want American jobs or can we have both?

Well, I think that there is a kind of a happy middle place here. And I will add that at the same time that you've seen, you know, in some cases there have been price cuts, especially when it comes to technology products. Because there's a well developed kind of theory around that. That's been proven. But, but in other areas it's been, you know, it's been more like cost containment, I think along. Well, it's like the, you know, you can, you can, you can lower the cost, you can advance the memory and the capability and it's, you know, it's kind of a variation of Moore's Law, but you can, but you get. Yeah, exactly. But you have, you know, you have these, these amazing, you know, flat screen TVs that, you know, six, seven years ago would have cost $2,000 that are now a couple of hundred bucks.

Yeah, I remember when they were 20,000.

Right, right. Well, that's exactly right. So you have that electronics, but in some other areas like clothing and what have you, the savings gained by consumers is pretty modest. But let's set that Aside for a second, because along with that, we have seen stagnant wages.

And in some cases we've seen declining wages. Wages. And the way in which people have tried to make up the difference is through credit and debt. And so we have, we've obviously seen what that does in our economy, which is when everything's operating okay, you know, there's not a huge impact. But when things go haywire, and unfortunately they have, then the impact is extraordinarily large. But I think that there are policies beyond tariffs that could be put into place that would make manufacturing more competitive globally. Because when you think about this, I mean, manufacturing is less and less wage driven. The more mechanized and automated it becomes, and the higher the productivity of the workers, wages tend to matter a whole lot less. And in many types of industries, that's not the determining factor. So what are the determining factors? One is energy costs. And again, we're seeing an emerging US advantage there over some of our competitors. Another element of this, I think is the skills of the workers. And as we had a conversation about, there was some rust on that system that built up. But I think gradually these technical schools are getting back into action with a lot of programs aimed at manufacturing and high tech manufacturing, and that could be helpful as well. I think that investing in our infrastructure makes a whole lot of sense. The US Is not globally competitive when it comes to our infrastructure, and that matters a lot for manufacturing. When you're shipping things from point A to point B.

Tell us about that more. Because I hear people say, you know, our roads are deteriorating. And personally that's not my experience. I don't really notice this. I mean, they seem relatively okay to me, but I don't drive all over the country. You know, I'm not a truck driver. What part of our infrastructure is really in bad shape?

It's a good question. And I would say that everyone's experience is different. But when you're, when you're hauling goods from one end of the country to the other, you do see it come into play. And it's not just our roads and our bridges, and we do have a lot of structurally deficient bridges. It's also our ports. I mean, we're behind getting them ready for the large Panamax.

Ships.

We're behind in our rail systems. And you know, and then you have other kind of like the, then there's like the service grid. You have our water infrastructure and our electrical grid, which both are highly inefficient and outdated. And investing in that now when you have relatively low interest rates. And I mean, again, these repairs tend to cost more over time rather than less. Kind of makes some sense to me because I think ultimately it will make our economy more competitive and it will allow us to spur some job creation.

In manufacturing as a result of that.

Give out your website and tell people where they can find out more about the work you're doing.

You bet. We're@AmericanManufacturing.org and we cover a lot of manufacturing policy and news and also what's happening in particular states and even particular congressional districts. And we'd love to stay connected. We're on Twitter @KeepItMadeInUSA and.

We'D love to continue the conversation on there as well.

Okay, well, a couple more things for you before you go, though, just real quickly, if you would. One is I want to ask you about the hotspots within the U.S. you mentioned there that you keep people advised of what's going on in different states and congressional districts and so forth. Certainly it would appear that Texas is manufacturer friendly. A lot of these southeastern states where their right to work policies and a lot of the foreign automakers have set up shop in these states. That's pretty inspiring. What's going on around the country. Just talk a little bit about that. Maybe some different regions.

Jason, it's interesting and I would say that there's been a lot of development all over the country.

Which is encouraging. So you're right that Texas has attracted a lot of manufacturing jobs and some are some of that is built up around its kind of energy sector and its shipping sector. In addition to the policy elements that you referred to, we're also, I mean, we just saw an announcement where Tesla is going to locate a new advanced battery facility in Sparks, Nevada, which no one would have viewed as a manufacturing powerhouse, but this is going to be the largest newly built manufacturing facility employing 6,000 people in the United States for a long time. Long time. You've seen in addition to some of the automakers from Europe and Asia that have located their production in the south, you've also seen GM announce it's going to bring.

A line of motors for a Cadillac SUV from Mexico back to Spring Hill, Tennessee, you've seen Ford do the same thing with the Fusion and bring that back to the Midwest, actually. And so, interestingly, in the kind of the recovery that we've seen in manufacturing, which again, I think is lagging, you have seen the auto sector help to drive the way. And it's not only the Southern states, but it's also Ohio and Michigan and the forecasts are for that to continue at least for another five to seven years.

Certainly the lion's share of this stuff though is always going to, to business friendly states and jurisdictions where the government is not overly intrusive and the unions don't have a big presence. And I know you have obviously a lot of union support, but then you have the manufacturer, the companies that are obviously that's a whole different discussion. But manufacturers want places that are business friendly. I mean, no question about it.

Yeah, well they do want business friendly policies, there's no question about that. They also want a skilled workforce. And so I think that some of the successful partnerships you've seen between companies and unions have been built around that goal.

And they've been able to make it work. And there are a lot of examples in that. I think we're kind of in a new era of industrial relations because we've seen a lot of this bloodletting over the last couple of decades and we're to a point where, well, we got to kind of hang in together, otherwise we're all going to be gone. So it's changed the dynamic a little bit. And what has also persuaded people, I think is that Germany, which is not a low cost country, it's got powerful industrial unions, they have seats on the corporate board, it's a renewable energy requirement there. The taxes are also.

High, but they've built a set of economic policies around trying to, to nurture manufacturing. And so Germany has twice the percentage of its economy and jobs in manufacturing that the United States does, even though its average compensation in manufacturing is almost 20% higher than ours. So it can be done. And I'm not saying that Germany is necessarily the roadmap to do that, but there's a lot of advantages that we have. We have natural resources, we have a large consumer market as you indicated earlier. We have low cost energy and we have the know how. I mean we've done manufacturing well for a long time that I think it is possible that we can, we can regrow it. I don't know that we're going to get the million jobs that the President promised, but I think we can see some upward movement.

Right, right. So one of the things, you know, I mentioned the environmental movement being the enemy of manufacturing at the beginning and the irony of polluting China but not polluting the US but, but it's all the same thing. Kennedy said famously, we all breathe the same air. Right. Which is obviously true. The other issue about offshoring this manufacturing is the shipping, the Cost and the environmental damage done by moving these products, if they could be manufactured where they're consumed. I mean, it's interesting that we've got this huge movement among the environmental community of buy local, grow local, eat locally, grow grown food. God forbid if someone drinks Fiji water. I think that's just absurd to like ship water. That's crazy. It's a crazy idea. But why don't they apply it to manufacturing? I just think it's this selfish kind of NIMBY attitude. Not in my backyard. It's weird.

Yeah, localization makes a lot of sense. And it's kind of, when you think about it, it's the natural extension from kind of farmers markets, food to table. You know, it makes a lot of sense. You know, bunker fuel, which is the kind of fuel that goes into these large shipping vessels, is the absolute most polluting kind of fuel that we have on this planet. And I think the only good news is that there are at least some who recognize this and who also want to hedge against the cost of fuel, which varies widely. And sometimes you pick well, sometimes you don't. And frankly, if you make it in the United States and you're selling it here, you don't have to worry about that nearly as much as if your production is in China and you got to get it across the Pacific Ocean. And by the way, it also helps control your inventories, it helps with quality control, it helps with innovation. So there's all sorts of kind of management focused reasons why you would want to take a look at the US right now. In addition to the obvious kind of environmental arguments that you made. Jason.

And the last thing I just want you to comment on, I know we've got a wrap up, so I'm sorry to keep you little long, but it's your own fault. You're just too interesting. Okay, so the last thing is maybe on the good side, maybe the real hope here is technology. And particularly interesting in the world of technology is 3D printing. Several months ago I finished Chris Anderson's book called Makers, which you might be familiar with. And it talked about how a lot of manufacturing could really move back to the United States and it could be downsized into small artisan type manufacturing with 3D printers and this phenomenal new technology that we're starting to see. Do you have much hope for that? I mean, is 3D printing going to be a big deal in the world of manufacturing?

Well, I think that I'm also a fan of Makers and Chris Anderson's book and I read that a couple times. And I think that the 3D printing has a lot of potential to localize manufacturing and to democratize it because it was, you know, manufacturing something that has been done, you know, in the factory, which is kind of like this foreign place. But you can, you know, being able to craft something at a tech shop or, you know, in your own home is going to change, change the dynamic. I mean, you're not going to be able to 3D print a new automobile, at least not.

On a time horizon that I can see. But I do see.

Great possibilities for it. I don't know how big a part of overall manufacturing it's going to be because manufacturing is so diverse, but I do think it's a fascinating new process. I think it has a large upside. I think it has a tremendous upside for American manufacturing. I think it may actually get more kids.

And more techies interested in the production aspects of everything, in addition to kind of coding and software and what have you. So I'm personally very excited about it and see great potential. And I'd quickly add that some of the best 3D printers are, believe it or not, made in Brooklyn, New York of all places. So makerbots.

Are made there. And so it's a, a pretty cool thing and I'm excited about it.

You alluded to bots and robots and I'd love to talk to you about that, but we gotta wrap up. That's another big one for another day. But Scott Paul, thank you so much for joining us today. Scott is a president and Executive director of the alliance for American Manufacturing. We appreciate you sharing some of these things with us today.

Jason, my pleasure to be with you. I've enjoyed the conversation.

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