Today a manufacturing forum was held with both Presidential candidates for the Democratic primary.
What is amazing is this seemingly was not broadcast on CNN, or on CSPAN. Trade and manufacturing policy area is critical to the US economy, so not covering such a forum is ....well, par for the course? Anything important is obscured, anything divisive is sure to be played over and over.
Guess who didn't even bother to show up? John McCain.
Of course the bitter tit for tat rhetoric is ongoing, with Obama in retaliation commenting others surrounding Hillary support bad trade deals which ignores Hillary's position statements or the lack of his own. Yet again, policy positions are obscured.
In my opinion, there are only two things that matter:
- The actual policy proposals and positions
- Can you trust them to stick to their policy positions after getting into Office
Below are the actual speech videos, in links, plus KDKA is doing a good job covering manufacturing issues in the campaign:
KDKA video overview coverage on the AAM Manufacturing forum. KDKA has some damning facts, such as 40,000 US factories have been shut down, in this video report.
Hillary Clinton speech at the AAM forum (unedited, 47 minutes).
Obama speech at the AAM forum (unedited, 28 minutes).
Earlier, Clinton released a 5 point plan to deal with industrial espionage. Here are the 5 points:
- Comprehensive Review of Defense Industrial Base Initiated Within the First 100 Days
- A New Critical Capabilities Impact Analysis for Federal Contracts
- New Public Periodic Review Requirement of Foreign Investments in Critical National Security Industries and Technologies
- Protecting "Buy America" Provisions for Metals that are Vital to Our National Security
- A New Inter-Agency Task Force to Combat Industrial Espionage
Regardless on who wins this nomination, the above plan is a sorely, long overdue policy modification which would help the US economic interests as well as strategically critical manufacturing. I hope all support (and adopt) this policy plan.
Obama focused on China's currency manipulation, yet Hillary also had sponsored legislation to crack down on China's currency manipulation.
The Washington Post has printed an entire transcript of this forum, some quotes:
I'm also going to provide real relief for U.S. industries hurt by surges of Chinese imports. I'm talking about the special China safeguard in our trade laws, Section 421, which was a precondition for letting China join the WTO.
The idea behind these safeguards is simple: Protect American manufacturers from being disadvantaged by an influx of Chinese goods into the American markets.
We're also going to stand up to China and other non-market countries that subsidize their exports and put our manufacturers at a disadvantage.
I didn't know Clinton has started a manufacturing caucus in the Senate.
WaPo transcript of Obama remarks:
The truth is trade is here to stay. We live in a global economy. For America's future to be as bright as our past, we have to compete. We have to win. And to win, we have to understand some hard realities. Not every job that's left is coming back. If somebody tells you they are, they're not telling you the truth. Not every job has been lost due to trade. Automation has made plants more efficient, so they can make the same amount of steel with fewer workers. Those are realities.
This statement below really bothered me:
Many poor countries need access to our markets and pose no threat to our workers, and we always want to access the markets abroad
It is precisely those poor countries from which the cheap labor pool is coming from. Because they are so poor, American pay simply cannot compete against the wages being paid in these nations.
Obama goes onto to mention health care. Sure health care is adding costs onto businesses in the US but American wages which have a 100:1 ratio or a 10:1 ratio are really one of the bottom line reasons manufacturing is offshore outsourced.
Neither Obama or Hillary have endorsed true universal health care, H.R. 676. Obama also mentions a $60 billion dollar infrastructure reinvestment plan, which is certainly needed and will also create US jobs, but that doesn't quite address the trade issue.
I know there are many Obama supporters reading and contributing to this blog. I also know many believe Obama is more Progressive than Clinton. But frankly, I really am having a very hard time finding any action, policy positions, votes which support this view. Maybe Obama supporters can write about policy positions, votes to show me where I'm wrong, but statements like the above claiming jobs are just not coming back, sure echo McCain's statements in Michigan to me.
Why do you believe her?
She campaigned for NAFTA. I don't trust the Clintons at all. I think Obama is more likely to do "the right thing" then either of them.
Why do you believe him? (or don't believe him?)
There is tons of evidence she was against NAFTA and one needs to remember that she was first lady. That is not an elected position, she was wife of the President, her role is to support her husband. That is not an elected official position.
In terms of believing, she mentions holding her accountable to her campaign promises and policy positions in this speech.
I know what people are saying, and frankly there are forces behind the Clintons which are very scary...yet in terms of legislation she literally has introduced legislation, votes that goes completely against what Bill is actively lobbying for (Dubai Ports World). On the other hand, Obama has repeatedly endorsed open borders, "free trade" and has no positions to revamp trade at all.
So, I can counter this and say what makes you believe that Obama would magically change his positions to revamp trade in office when none of his policy positions during the campaign state he will renegotiate trade treaties?
So, we have here better Clinton positions and no one believes a word she says and we have Obama positions which are much weaker in favor of the US middle class than Hillary, so I must say, what makes you think Obama would magically decide to change his positions once in office?
Or could it be tweedle dum, tweedle dee?
To End Recession-End Manfufacturing Crisis: A Plan
Industrial Reconstruction Finance
The crisis of U.S. Manufacturing transcends any current set of economic conditions.
The crisis effects and is effected by the currency, energy, and housing crises. The role of U.S. manufacturing is pivotal in solutions to energy and housing, because the dearth of manufacturing has exacerbated both housing and energy. When U.S. industrial might led the way in WWII, industry pulled the U.S. from
Depression and made half of the materials and weapons needed in the War effort for all Allies. A crisis of equal gravity is at hand, and an effort to match the gravity of the crisis is needed. Nothing proposed here is any more dangerous than the construction of the Canals of the Washington Administration.
The solution is the reconstruction of the U.S. industrial base. The starting point must be basic industries then move outwatd. The plight of automobile industry is grave enough to warrant help even without externalization of auto industry crisis. Externalization of the automotive crisis effects other industries, the environment, the dollar, and economic recovery and trade. We cannot put metal in the ground for wind turbines or drilling pipe when there is no metal to buy. The siren song of the supply chain is over when supply of commodities are short, expensive, and both import prices and trade debt are so high.
Needed for the auto crisis is a U.S. authority with the capacity and deep pockets to turn around domestic production. Turn-around will focus on manufacture of auto,steel,chips and other domestic plants, American and foreign owned. The objective is to provide bridge financing for a distraught industry. The bridge financing authority will seek take-out substation of the loans made by private capital after the factory floor and plant capacity is built and ready, most likely a 2 to 3 year window.
A carefully planned first year budget should be less than the original cost of the Marshal Plan ($45Billion). Net cost to the taxpayer is planned to be zero.
A prime objective is to protect taxpayer funds and recycle loan money in the window. The authority will help in of the early production for federal, state and local government fleets. Without Reconstruction, the goal of creating fuel fleets may exceed ten years.
The Reconstruction will target factory and movable shop floor capacity for a range of new technology, fuel efficient vehicles. Such vehicles will include the plug-in hybrids, conventional hybrids, fuel-cell vehicles, very high mileage conventional vehicles, natural gas and methanol vehicles and other new technologies still to come.
Tiers of the reconstruction are ordered by critical path. Reconstruction as a whole, is the critical path out of the recession, manufacturing and energy crises.
Some tiers of the plan may start early but all tiers have critical paths in earlier tiers.
Each of the industries in question are short of capital except for the funding of polymer lithium ion batteries. That is where help at a national level comes in.
Phases of INDIREFI Reconstruction
· First Tier - basic auto component industries - specialty steel, generic microprocessors, copper, aluminum
· Second Tier – fortify and build capacity of Polymer Lithium Batteries, direct solar, wind turbines, specialty steel tubing (oil drilling), and custom microprocessors
· Third Tier – increase cement and non specialty steel capacity
for highway construction and railroad rolling stock and rail and airport runway and management systems
· Fourth Tier – auto shop floor capacity and automation for building
next generation automobiles, local financing to utilities for wind turbines, nuclear power, land fill methane, small hydro, co-generation
· Fifth Tier – nanosolar fabrication capacity, next generation wind turbines, advanced vehicle designs and identifiable cutting edge technologies entering production stage but short of capital
GM and select industries
I've been mulling some idea on the auto industry now that GM reported in the US 15.5B in losses. Somehow the UAW and the employees of GM should plain be "given" GM by the government in some subsidiary spin off/write down deal from GM and they get subsidized to create the ultimate alternative energy/fuel efficient vehicles. i.e. in one fell swoop, throw out GM executive management period, spin it out and get managers from labor and the employees who are not going to get a huge bonus and absurd executive pay for mergers, acquisitions, offshoring vs. real products and technological advances.
The US, has some successes in government funded enterprise but this would cause an uproar as "socialist" but more importantly such an initiative is at strong risk of plain being mucked up. I don't see how the employees could do any worse than GM executive management though frankly.
Put a mandatory condition that US citizens get the jobs and the production is in the US unless it can be proven with utmost certainty whatever component or material is not available domestic.
Then, in terms of rebuilding the US manufacturing base, one needs to identity key industries that are in the economic national interest or national security interests.
i.e. take power infrastructure, that is assuredly in the US national and economic interests and the US power grid is antiquated. They sold off huge sections of the Internet backbone to foreign enterprise.
Another is steel, a nation needs access to steal, especially in times of war.
I'd say vaccines. Those are being moved offshore and the implications are pretty obvious as to why that is in the national interest.
Re Industrial Reconstruction
As long as the loans are asset finance, this kind of finance
is as old as factoring, and absolutely not Socialist.
It's a given that no money goes offshore. Also, at this time,
private financing is essentially dead. Unless you are T.Boone Pickens or some well healed private source, the private capital is just not there. It's a Depression syndrome, but a big difference now is the SWF's.
Do nothing and China Inc etc. will pick clean the remains of U.S. Industry.
Believe me, there are billions out there from Venture Capitalists. That's all "private" financing. Although I doubt any of them would touch a proposal like the above.
Venture Capital no Longer Ventures anymore
Sure, there is the investment in nanosolar, the 23 California solar start-ups. Most venture capital in info tech space insists on outsourcing the development effort. These are followers, sheep, not real leaders. Long term ICs count only in a Schumpeterian-destructive sense.
The effort to Reconstruct may take a part of the $1Trillion
Pickens is discussing. Pickens is a leader and deserves much support the way Patton said of the Battling Bastards of Bastoigne "Sons of bitches like that are worth saving".
Ya got that one right
How about "US VCs" get a "tax credit" of maximum absurdity on potential profits, when they invest in US ventures, US citizen workers first. Bonus tax incentive for all workers over the age of 40 and US domestic diversity status. :)
Our government is very good about tax breaks to the super rich, this one should be a no brainer maybe if they find out what specifically would entice them.
You are right about VCs forcing new ventures to offshore outsourcing at least part of the operations to get the seed, round 1,2,3 of funding.
thats the problem with the tax breaks
Tax breaks for the wealthy with no strings attached - before any corp gets a tax break it needs to prove how much they invested domestically in new technolgy R&D, how many domestic jobs did they create, how much energy did they conserve and so forth.
Tax breaks should never be given for offshore investment - if the market were truly free there should be plenty of incentive for doing so without taxpayer money. The taxpayer should never be financing the destruction of our own economic well being
Targeted Subsidies Only
Now, corporate America can use the credit for international profits to shudder factories, and even get financing to move offshore. That cycle has to be broken.
- Targeted Asset Financing for Plant & Equipment for domestic manufacturers.
- Revive the Investment Tax Credit (thrown away because of Tax Shelters). ITC was directed at tangible fixed assets.
- Remove the tax incentives to go offshore and incredibly, Commerce Dept. financing.
The last and most important element is leadership akin to what Teddy Roosevelt did in 1907 by assembling the Robber Barons (Rockefeller, Carnegie, J.P. Morgan and Mellon) to buy stock and reverse the Bear Market. We have the opposite
of that kind of leadership now. If we had leadership, we would appeal to the private equity guys and VCs with the incentives discussed.
What has been show to fail is the nonsense of cuts in the corporate tax rate. In the last 30 years, off-shoring of manufacturing has followed all corporate rate cuts.
That would make a very good blog post if you care to research it out. Is there any correlation to corporate tax cuts and offshore outsourcing (in the negative).
Corporate Tax Rates and Mfg Jobs Move in Opposite Direction
For a nation to nation comparison of current rates see this attachment: http://www.mof.go.jp/english/tax/tax001/E_15_16.pdf.
The historical perspective is more interesting. Corporate Federal rates were 60% in the 50's and 60's dropping to 50% in 1969 and again dropping in 1981 with a slight rise in 1986.The rate has been 35% after 2001.
In the last 7 years more than 3.5 Million manufacturing jobs were lost despite a drop in Corp Rate to 35%. A similar manufacturing job loss occurred in the late 1980s through 2000 after TEFRA cut rates in 1986. But if you go back to the 50s the trend is even clearer. More than a quarter of the work force was in manufacturing at the time of the Korean War. Corporate Tax rate? A confiscatory 90% when the Excess Profits Tax was enacted in 1950. Manufacturing employment increased between 1950 and 1956.
Manufacturing job losses correlate inversely with corporate tax rates. The simple economic reason is 'take the money and run'. There is simply nothing in a tax rate that binds a U.S. corporate manufacturer to the U.S. shores.
To put the Corporate Rate in perspective, it is 3% of sales.
Even big changes in rates add only a penny or two to margin income as a percentage of sales. But wages are a much bigger slice of total sales. In a manufacturing company in the U.S., wages are about 70% of sales. Engage in Labor Arbitrage and the percentage sales represented by wages can drop in half or more.
Corporate Rate Cuts track Manufacturing Job Cuts
Since the Korean War and Excess Profits Taxes on Corporations, Top Corporate Rates have fallen steadily. The U.S. has no Value Added tax, like Europe. VAT can be as much as 30 Percent and at least 15 Percent. VAT and Corporation Taxes are social taxes on production by society. The current effective rate on corporations is just over 20 percent. 38 percent of companies pay no tax at all, or get hit with the corporate Alternative Minimum Tax of 20 percent. So when we see the 35 percent sticker price (top rate) quoted, remember that hardly anyone pays 35 percent. So what did we get for cutting corporate rates for 50 years? Manufacturing jobs fell from almost 30 percent of all jobs to less than 10 per cent of the job base.
In the last 8 years we see falling income with the middle class.
So when any candidate at any level proposes Corporate Rate Cuts, please ask for any proof that rate cuts do any good.
Until Taxable Inc Max Rate (%)
1946 50000 53
1950 25000 42
1951 25000 50.75 (1)
1967 25000 48 (2)
1968 25000 52.8
1970 25000 49.2
1974 25000 48
1979 100000 46
1981 100000 46
1983 100000 46
1986 1405000 46
1987 1405000 40
1993 335000 34
2004 18333333 35 (3)
(1) sum of income and excess profits taxes was capped t a given percentage of income (from 62% to 70%)
(2) Rates include the Vietnam War surcharge of 10 percent.
(3) AMT Rate Set at 20% - IRS Reports 38 Percent of Corps pay No Tax Actual Max is 35 Percent
rates vs. incentives
The problem with corporate tax rates is there are so many deductions, write offs. Then the real problem is with these trade agreements, corporations can move capital easily around the globe from subsidiary to subsidiary to take advantage of exchange rates and PPP of national currencies.
So, honestly I don't even know if the tax code can have that much effect against super cheap labor.
That said, what is the history of actual corporate taxes paid, as a percentage of gross?
My Point Exactly: Tax Rates do not stop Labor Arbitrage
In fact, you can say that lowering tax rates may even cause labor arbitrage. The government signals by drops in the corporate rates that no one cares about off-shoring jobs and shuttering factories.
The idea behind this protracted story is that McCain and Obama are about to tell the Big Lie: just lower the rates and the economy will get better. Let us go on record to say why history shows that lowering rates is a fraud and worse.
Carly Fiorina has been doing a media blitz to get the CNBCs of the world to buy into her Con Game. Fiorina has told CNBC that lowering tax rates was what drew HP to Ireland - not lower wages.
Actually corporate taxes make are about 1.5 to 2 percent of Gross Sales. Wages are 60 to 70 percent of Sales. So when HP moved to Ireland, guess why Fiorina did it.
But Palmisano moving production to China was much worse.
you noticed that too huh?
I'm fairly shocked that both parties are running the "lower taxes" mantra as if the tax code is the only economic tool available. But then, this is one massive public relations war versus policy.
There is more to the story than just wages. They can play not only in essence, making profits by manipulating domestic currencies, inflation rates and so on but also reduce their gross profits by keeping money offshore.
Lutz - VP of GM - Co-Opts Economic Populist Lines
Lutz has heard and memorized the lines of our song. But watch how the lyrics change. Lutz is in charge of the Plug-In Hybrid and sees the opportunity to borrow when GM is down and hurting. The instinct is good and the project is worthy but the devil is in the details of how the borrowing goes.
Do we tie borrowing to U.S. plant and equipment assets as we argued, or will GM get no strings loans from congress and presidential candidates falling over themselves during an election year?
Maybe we are changing the conversation.
I doubt it
We're saying, "hey man, ya gotta tie those loans to American jobs, good paying jobs, union jobs". None of this $14/hr to start in advanced skills and manufacturing, no benefits crap. Real wages. Then, I think we're also saying, "you shits" you are making polluting, gas guzzling auto sales in India and China and you managed to scrape together $1B to build a factory in India. You're selling those cars for next to nothing so perhaps that's why you lost $15.5B in a quarter?
The biggest thing is they have to invest in the US, the jobs are in the US and we export the cars to India....we don't help fund them manufacture in India when they can't get it together to invest in the U.S.
But, in the veiled Obama speech it sure sounds like Dems are going to give them the money, no real strings, guarantees and most importantly US jobs for US citizens...attached.
Senate & Congressional Delegations Petitioned for INDIREFI First
I sent a copy of INDIREFI to Senate Committees first. If they screw up the loans to the auto industry, it will be deliberate. When Lutz spoke, Congress had a clue of what they could do in a sensible way before Lutz started to talk.
I am still waiting for the Free Traders, Business Roundtable, and the rest of the Economic Surrender Lobby to start screaming. They are very quiet so far, too quiet.
U.S. Chamber of Horrors Commerce
I think is what you are referring to. If they tie it to US citizens, US workers I imagine they will scream for anything that puts US workers first they fight tooth and nail, no matter how small. So, silence from the US Chamber of Commerce does mean bad news.
They have lost it on a proposal to give a 1% tax incentive to companies to create jobs in the United States. They have lobbied against a minor guest worker fee increase to fund science college scholarships....
anything, no matter how trivial if it puts US workers as the benefactor, they will spend millions fighting it.