Feb. 7 (Bloomberg) -- For most policy problems, there is usually a simple answer and a correct answer; they are rarely the same thing. That dilemma is evident in the debate about what the U.S. can do to boost its manufacturing sector.
One side was staked out by President Barack Obama in his State of the Union address. Building on the success of his rescue of the auto industry, the president set forth a multipronged approach toward a broader reinvigoration of manufacturing.
His proposal includes closing tax loopholes that subsidize companies that ship manufacturing jobs overseas and investing the savings in incentives to bring plants back home. Obama also called for doubling the tax deductions that high-tech manufacturers get for making products in the U.S., additional incentives for putting factories in hard-hit areas, and further tax disincentives for foreign operations.
The president also outlined an agenda for expanding trade in U.S. manufactured goods, cracking down on foreign manufacturers that don’t compete fairly, and implementing country-specific trade measures. In addition, he called for expanded programs to train workers in the skills they need to be qualified for new jobs in advanced manufacturing.
A sophisticated, smart plan to help our manufacturing sector? Absolutely. A bit complex and abstract? Perhaps. A message that fits on a bumper sticker? Unfortunately not.
The opposite approach is embodied by the Republican who delivered that party’s response to Obama’s speech, Indiana Governor Mitch Daniels. His single-minded and simple “manufacturing plan” wasn’t a feature of his response -- a doom-and-gloom affair that offered little in the way of true alternatives -- but rather was contained in Daniels’ decision to sign a right-to-work law in the days that followed the speech.
Daniels said that Indiana needed “a right-to-work law to capture jobs for which, despite our highly rated business climate, we are not currently being considered.”
There are two problems with right-to-work laws as simple solutions for our manufacturing woes: They aren’t right and they don’t work.
Such laws aren’t right because they entitle a worker to all the benefits of a union-negotiated contract without paying any dues. In other words, they grant a free ride, aimed at undermining the desire of anyone to pay their fair share. Regardless of how you feel about unions, the unfairness of this legislation should offend you.
Here’s a metaphor: Imagine you own a home in an exclusive community that provides a golf course, a clubhouse and other fine amenities. Now, the legislature passes a “Right to Home Freedom” law, which allows residents to enjoy all these great facilities and services, but gives them the “freedom” from being “coerced” into paying homeowner association dues.
Should your neighbor be able to use the golf, pool and tennis facilities without paying a fair share? If free riders were allowed, would anyone continue to pay? Would the services continue to be available? That’s the situation right-to-work creates for the workplace, except that instead of golf, pool and tennis, you can substitute fair wages, health-care coverage and safe working conditions.
Moreover, as a way to spur manufacturing, it won’t work. The last state before Indiana to adopt a similar measure was Oklahoma, 10 years ago. At the time it passed, advocates promised that it would result in a surge of manufacturing jobs coming to the state. But in the decade that has followed, industrial exits from Oklahoma have increased 30 percent, manufacturing employment in the state is down by a third, and the unemployment rate is higher today than it was on the day the law was passed.
Where has manufacturing growth occurred in recent years? Most of the growth, especially in high-tech manufacturing, has been in states with high education achievement and productive, well-paid workforces. Of course, one sector adding high-tech manufacturing jobs is the auto industry, thanks mostly to the policies that Obama advanced, and former Massachusetts Governor Mitt Romney, the Republican presidential front-runner, opposed.
It’s no surprise that wage-reducing policies aren’t a catch-all solution for manufacturing job growth. Employers who are choosing sites for their plants solely based on where wages are lowest and working conditions cheapest will hop-skip-jump over right-to-work states and go straight to Mexico and Asia, where the cost savings are greatest. Recent coverage of manufacturing conditions in China, for example, makes clear that the U.S. can’t -- and doesn’t want to -- compete for the kinds of jobs that manufacturers fill solely on the basis of finding the cheapest workers.
It’s important to avoid overpromising or excessive nostalgia. Many low-skill manufacturing jobs are lost to foreign soil, and will never come back. The number of new, high-skill, high-tech manufacturing jobs that can be created in the U.S. will be far lower than those provided by factories a generation ago. Consider that refurbished auto assembly lines that once employed thousands now employ hundreds, due to more use of robots and mechanized assembly techniques.
Yet, with those caveats, there is hope for a renaissance of American manufacturing in the decade ahead. As Clint Eastwood said in his Super Bowl ad for Chrysler Group LLC: “This country can’t be knocked out with one punch. We get right back up again, and when we do, the world’s going to hear the roar of our engines.”
It will probably take all of the tax, trade and training measures the president has proposed -- and more -- to get us “back up again.” No simple answer, no single answer will do the trick.
If we make the right policy choices -- not the simple ones -- there is a future for American manufacturing that will preserve our heritage as a nation that makes things and will provide a great livelihood for millions of families, coast-to-coast.
(Ron Klain, a former chief of staff to Vice President Joe Biden and a senior adviser to President Barack Obama on the Recovery Act, is a Bloomberg View columnist. He is a senior executive with a private investment firm. The opinions expressed are his own.)
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