America’s Real Industrial Policy: Maximize Profits at All Cost

Unfortunately, the Obama administration has come closer and closer to fully admitting the wrong thing: that it is willing to sacrifice more of the nation’s industrial base. The three NAFTA-style ​“free trade” agreements approved last week by Congress at Obama’s urging —illustrate how Obama’s eagerness to promote more off-shoring of jobs and capital at the expense of his working-class constituents. (U.S. corporations’ offshoring of jobs alarms fully 86% of Americans)

Obama’s new stance in favor of the deceptively-labeled ​“free trade” doctrine turns one of his most fundamental appeals in 2008 absolutely counterfeit. ​“Free” does not accurately describe the repressive anti-labor conditions favored by US firms. Nor does ​“trade” do justice to the majority of transactions, which actually occur within the same firm, like GE ​“exporting” machinery and parts to Mexico and ​“importing” finished products.

AUTO BAILOUT CHAIR ATTACKS INDUSTRIAL POLICY

Even with this disturbing backdrop of the newly inked NAFTA-style deals, it was still stunning to read Sunday’s attack on industrial policy by Wall Street tycoon Steven Rattner, whom Obama selected to head up the auto bailout Task Force, which was dominated by fellow financiers. His op-ed was titled ​“Let’s Admit It: Globalization Has Losers.”

Rattner’s New York Times commentary was an open admission that a very key Democratic player utterly rejects any systematic effort to save the U.S. industrial base.

First, Rattner’s piece illuminates the mentality that made the GM and Chrysler bailouts so much less constructive than they could have been. Progressives had envisioned the crisis at GM and Chrysler as an opportunity to link Obama’s aim of stimulating the economy with enhanced spending power for workers with building a green economy, by converting some auto factories to the production of high-speed rail vehicles and other non-gasoline powered transportation equipment.

But dominated as it was by Wall Street heavyweights like Rattner (net worth: $188 million to $688 million) and chief economic advisor Lawrence Summers, the Task Force failed even to ensure that the maximum number of jobs possible were retained in the U.S. The final version of GM’s recovery plan — closely tailored to the demands of the Task Force — appallingly called for an enormous 98-percent increase in autos produced in Mexico, China, South Korea and Japan for the U.S. market.

Speaking with authority gained from this over-rated ​“success,” Rattner outlines a strategy for surrendering almost all of what is left of America’s still-considerable manufacturing base and settling instead on an economy built chiefly around financial and computer-based services.

Bizarrely enough, Rattner premises his economic strategy on supposedly trying to aid working families whose incomes have plummeted chiefly, he admits, as a result of corporate ​“globalization.” But the solution, Rattner insists, is to let go of our ​“nostalgic” feelings about manufacturing and allow the offshoring of jobs to continue, while focusing our efforts on service industries:

While America still leads in sectors like defense and aviation, our greatest strength, and a source of high-paying jobs, lies in service industries with high intellectual content, like education, entertainment, digital media, and yes, even financial services. Facebook, Google and Microsoft are all American creations, as are the global credit card companies American Express, Visa and MasterCard. …

We should resist the temptation to plunge deeply into industrial policy. … Washington is ill-equipped to pick winners and should concentrate its capital on infrastructure and other public investments that the private sector won’t make.

Rattner can imagine a limited role for continued manufacturing here: 

We should follow the example of successful high-wage exporters in concentrating on products where we have an advantage, as Germany has done with products like sophisticated machine tools.

Unfortunately, Rattner doesn’t know what he’s talking about. Milwaukee, for example, was long proudly known as ​“the Machine Tool Capital of the World.” But with many of the city’s biggest firms — Briggs & Stratton, Johnson Controls, Rockwell International (formerly Allen-Bradley), AO Smith (later Tower) and MasterLock — shifting substantial portions of their production to Mexico, Milwaukee has lost 80 percent of its manufacturing jobs since 1977, according to Marc Levine of the Center on Economic Development at the University of Wisconsin-Milwaukee. 

As a result, machine-tool makers requiring highly-skilled workers were no longer located in proximity to the large manufacturers they once worked with closely, and so the tool makers largely went out of business or relocated. 

Generally, ​“the machine tool industry is almost extinct across the US,” says Frank Emspak, professor emeritus at the UW-Madison School for Workers, who serves on a German government commission working on that nation’s industrial policy.

“The U.S. also used to be the leader in railroad equipment, from air brakes to signals, and all that is gone. Even in computer chip manufacturing, the U.S. is no longer number one. Steve Jobs’ big innovation was not only to develop sophisticated chips, but to produce them in low-wage, high-skill corporations like FoxCom [in China] where a number of workers have committed suicide in response to the conditions there.”

In Emspak’s view, ​“industrial policy” is crucial to coordinating government efforts on technology, taxation, energy, and training to protect and expand America’s manufacturing base. By stressing the importance of keeping jobs within the U.S., industrial policy not only means preserving the current production jobs, it also permits U.S. engineers to observe the production process closely and make innovations.

“When you have the separation of production from engineering, once you start production of anything sophisticated, then you lose the capacity for innovation,” Emspak said. ​“So with General Electric moving its medical equipment headquarters from Waukesha [Wis.], Waukesha becomes just a branch plant and the innovations and advances will take place in Shanghai.”

Contrary to conventional wisdom, Emspak says, ​“We do have a very clear industrial policy: that is the financial industry policy of making the largest profits as quickly as possible, and everything is subordinated to that.The financial people have won the internal debates in both parties.

“The only principle is the maximization of profit, wherever it occurs, and it has little or nothing to do with the needs of the country,” he declared.

Ironically, those like Rattner who claim to be forward-looking are effectively destroying the nation’s capacity to innovate and create new types of jobs when they call for letting manufacturing jobs go offshore. 

Moreover, the majority of jobs left behind are low-wage and will contribute only to further income decline, and an even bigger gap between the top 1 percent and the rest of us, says Emspak.