The price of a U.S. manufacturing revival

By Phil Mattera, Dirt Diggers Digest

A few decades ago, U.S. factory jobs began moving offshore to countries that lured corporations with the prospect of weak or non-existent unions, minimal regulation, lavish tax breaks and other profit-fattening benefits. Workers in those runaway shops enjoyed little in the way of a social safety net, thus making them all the more dependent on whatever dismal employment opportunities foreign firms had to offer. Much of the U.S. manufacturing sector was left for dead.

Now, we are told, U.S. manufacturing is undergoing a resurrection. "Manufacturing is coming back," President Obama told a group of blue-collar workers at a recent public event. "Companies are bringing jobs back." Obama earlier used the State of the Union address to tout the recovery of the U.S. auto industry in the wake of the bailout he championed. One of the bailed-out firms, Chrysler, aired a Super Bowl commercial called "It's Halftime in America" in which Clint Eastwood hailed the country's industrial recovery.

It's true that manufacturing employment has been on the rise after many years on the decline. But is this something calling for unqualified celebration?

Boosters of the industrial resurgence would have us believe it is a reflection of improved U.S. productivity, entrepreneurial zeal or, as Obama put it in the State of the Union, "American ingenuity." In the case of Chrysler, that should be Italian ingenuity, given that the bailout put the company under the control of Fiat.

But it can just as easily be argued that domestic manufacturing is advancing because the United States has taken on more of the characteristics of the countries that hosted those runaway shops. Deunionization, deregulation, corporate tax preferences, excessive business subsidies and a shriveled safety net are more pronounced than ever before in the U.S. economy. If any of the Republican Presidential candidates get in office, those trends will only accelerate.

Even the Obama Administration is on the bandwagon to a certain extent. Its Office of Information and Regulatory Affairs has obstructed a slew of new environmental and workplace safety regulations. Now the President has legitimized years of conservative rhetoric claiming that companies are overtaxed by introducing a corporate tax reform plan that would reduce statutory rates in general and create an even lower rate for manufacturers. The plan has some good intentions -- such as ending special giveaways to Big Oil and other loopholes while encouraging corporations to bring jobs back home -- but it ignores years of evidence from groups such as Citizens for Tax Justice showing that big business will exploit any softening of the tax code to bring its actual payments down to the absolute lowest levels.

The perils of joining the manufacturing revival chorus can be seen by looking at heavy equipment producer Caterpillar. The company has been getting a lot of attention lately for expanding its domestic employment through moves such as the planned construction of a $200 million plant in Athens, Georgia that is projected to employ about 1,400.

This needs to be put in some context. According to data in Cat's 10-K filings, the company's workforce outside the United States soared from around 13,000 in the early 1990s to more than 71,000 last year, growing to some 57 percent of the firm’s total employment. The number of foreign workers in 2011 was greater than the company's total head count in 2003.

Cat's love affair with places such as China blossomed as the company was trying to escape its U.S. unions, which it had unsuccessfully tried to destroy. Cat's hard-line approach to collective bargaining soured relations with its workers, resulting in a series of strikes and other confrontations, including a dispute in the 1990s that lasted for more than six years.

It appears that unions have no role in Cat's limited back-to-the-USA plan. The company's new domestic facilities tend to be located in "right to work" states. After recently trying to impose huge pay cuts at a factory in Ontario (photo), Cat first locked out the workers, then shut down the plant and is now reported to be shifting the work to a facility in Muncie, Indiana, the latest state to adopt a "right-to-work" law to hamstring unions.

By locating the Athens plant in a labor-unfriendly state such as Georgia, Cat is expected to be able to pay wages far below those in its unionized plants. It is also worth noting that Cat agreed to build the plant in Georgia only after it received $75 million in tax breaks and other financial assistance, one of the largest subsidy packages the state has ever offered.

The message of all this seems to be that the U.S. can enjoy a renewal of manufacturing if we are only willing to put up with a few minor inconveniences such as union-busting and big tax giveaways to corporations. That's apparently what is really meant by American ingenuity.