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Manufacturing Discontent

BY David Moberg
Carrying puppets and placards, several hundred union members and community activists gathered on Nov. 1 in a lot across from the rambling Brach’s candy factory on Chicago’s economically bleak west side. They were protesting the company’s decision to shut down the plant, which provided about 1,000 decently paid, unionized jobs, and move production to Mexico. The plant seemed like another tombstone in the graveyard of lost jobs.

Later that week the Bureau of Labor Statistics reported that after 28 months of shrinking employment, the longest stretch on record, the unemployment rate dropped to 6 percent. It was good news, but not as good as it seemed: The unemployment rate would be 7.4 percent, according to the Economic Policy Institute, if it reflected discouraged workers no longer looking for jobs.

It is even bleaker for factory workers, like those at Brach’s. Since the recession officially began in March 2001, 2.4 million of the 2.8 million jobs lost have been in manufacturing.

This has not been a typical recession or recovery. Low interest rates and big budget deficits have only weakly stimulated the economy, mainly because Bush’s economic policies were designed to give tax breaks to the rich, rather than help low-income workers, the unemployed and financially strapped states. More than in past recessions, many jobs are gone forever, with an estimated 15 to 35 percent outsourced overseas—part of the reason the nation’s trade deficit continues to rise to record levels.

The manufacturing jobs crisis creates political problems for Bush in key Midwestern and Southern states. But his politically motivated responses—a new quota on some Chinese textiles, a likely attempt to circumvent the World Trade Organization ruling against steel tariffs—are no substitute for the profound changes needed in policy on trade, management of the economy, and regulation of corporations and financial markets.

In all advanced economies, manufacturing represents a declining share of jobs and gross domestic product (GDP), but in the United States it accounts for only 14 percent of GDP as opposed to about 21 percent in Japan and Germany. Most economists, including Federal Reserve Chairman Alan Greenspan, argue that disappearing manufacturing jobs are nothing to worry about. As demand for products and services picks up, the reasoning goes, businesses will hire the displaced workers at a higher skill and pay level as less-skilled jobs move overseas.

But the real world doesn’t work so smoothly. Displaced U.S. workers on average earn 13 percent less when they find a new job, and getting rehired takes a long time for workers who are older, have less education, or live in hard-hit communities. Global Insight, a forecasting firm, predicts that new jobs created in the forthcoming recovery will pay on average 82 percent of those lost in the recession, as the economy sheds manufacturing jobs for lower paid service employees. Workers as a whole will be earning $26 billion a year less, even when employment returns to pre-recession levels.

Over the past three decades managerial and college-educated white-collar workers captured most pay gains, but now many of those technical jobs—such as engineering, software design and medical diagnosis—are moving offshore, depressing wages in those fields and diminishing high-skilled options for retrained factory workers.

In the early ’80s, manufacturing was battered by deep recessions and an overvalued dollar that made U.S. exports expensive and imports cheap. When rich countries agreed in 1985 to lower the value of the dollar, the huge trade deficits declined. U.S. manufacturers that survived became more competitive by boosting productivity through investment and reorganization and by driving down wages.

In the mid-’90s the combined strength of the U.S. economy and weakness in Japan and Europe drove up the value of the dollar, as did the stock market bubble that followed. The inflated (and often illegally exaggerated) profits of financial businesses and new service giants like Enron put pressure on publicly traded manufacturers to boost profits to match. New trade agreements like NAFTA made it even more attractive for American corporations to shift investment overseas. From 1993 to 2002, 880,000 jobs or job opportunities were eliminated in the United States as foreign investment in Mexico soared by 435 percent, according to a new study by EPI economist Robert Scott. At the same time, China, Malaysia and Taiwan tied the value of their currencies to the dollar, making their exports cheap and widening America’s trade deficit. The U.S trade deficit with China last year hit a record $103 billion, nearly a quarter of the total.

The overall trade deficit rose from less than 1 percent of GDP in the early ’90s to an anticipated 5 percent for this year, a level nearly everyone agrees can’t be sustained. In order to get back down to a trade deficit of 1 percent of GDP, economists estimate that the dollar will have to be devalued by 20 to 40 percent. (China also needs to revalue upward its currency. Yet for its stability and that of the world economies, it should reject the Bush administration advice that it allow its currency to float freely in the global financial market.) The choice facing American policy makers is to manage the dollar’s decline now or wait for crisis to strike, brought on by an abrupt drop in the dollar, leading to higher U.S. interest rates and recession.

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Once transferred out of the country, factories do not easily return. “Some jobs will never come back. The high dollar pushed them overseas,” says EPI economist Josh Bivens. “Will we have the capacity to export our way out of the trade deficit even in a good scenario? I think our trade deficit has gotten so enormous that supply-side constraints could bite even if the demand side improved. That would mean even greater devaluation would be necessary.”

Manufacturers in the United States also suffer crippling disadvantages compared to other industrial nations because the country has no national health insurance to control costs and lacks adequate programs to train workers. Bad trade deals, which do not raise world labor and environmental standards, also undermine U.S. manufacturing.

Cheap labor will lure some businesses, but much of the comparative advantage in international trade these days results from public policies, not labor markets. With a few exceptions, like Bush’s limited but somewhat stabilizing steel tariffs, U.S. public policies have favored the financial sectors and wealth holders, even though manufacturing remains the key to productivity growth, technical innovation and global trade. Neglecting manufacturing affects more than blue-collar workers. As Industry Week recently reported, scientific research and technical design is following the shop floor overseas.

Businesses outsource offshore because of their own strategic decisions, not only because of faulty public policies. “There was no need for [Brach’s] to go offshore,” says Dan Swinney, executive director of the Center for Labor and Community Research (CLCR), that fought to keep the candy company in Chicago for 13 years and now is pushing local governments to pursue high-wage, high-skill manufacturers for the site. Since Swiss magnate Klaus Jacobs bought Brach’s in 1987, the company has gone through unending tumult: It was frequently bought and sold, merged and spun off, placed under new managers, and subjected to swings of market strategy. The company, which faced little import competition, declined offers from groups like CLCR to train employees and rejected worker offers to buy the plant. It blamed workers

David Moberg, a senior editor of In These Times, has been on the staff of the magazine since it began publishing in 1976. Before joining In These Times, he completed his work for a Ph.D. in anthropology at the University of Chicago and worked for Newsweek. He has received fellowships from the John D. and Catherine T. MacArthur Foundation and the Nation Institute for research on the new global economy. He can be reached at davidmoberg@inthesetimes.com.

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