manufacturing

A Look At German Manufacturing

Dave Johnson — Wed, 08 Feb 2012 21:52:47 -0500

PBS NewsHour took a look at why Germany's economy is doing so well, while much of the rest of Europe is not doing so well.

Here are a few notable excerpts from the transcript:

With just a quarter of America's population and a quarter of its GDP, Germany exports more than the United States in total, notes Norbert Walter, the former chief economist of Deutsche Bank.

[CEO] NICOLA LEIBINGER-KAMMULLER: It's just a terrible thought having to lay off people, because we like our employees and we need them. And they are well-trained, and they're loyal. And they have been working for us for decades, some of them, or many of them have. And it's just a terrible thought to have to send them away.

MARGARET WARNER: Instead, Trumpf turned to a new German program called Kurzarbeit, or short work, cutting its employees' work hours and pay. The government made up part of the difference. And they got extra training on their off-days.

... MARGARET WARNER: Nicola's brother, Peter Leibinger, vice chairman of Trumpf, said the short work program, readily accepted by the German workers, positioned industry to restart quickly after the downturn, and it paid off big-time for Trumpf.

PBS NewsHour: Amid Eurozone Crisis, How Germany Became Europe's Richest Country

Watch How Germany Became Europe's Richest Country on PBS. See more from PBS NewsHour.

In June Harold Meyerson wrote in, Using German ingenuity to fix our economy, (emphasis added to emphasize what I wanted emphasized)

For a growing number of economists, pundits and even the occasional CEO, Germany offers lessons in how an advanced economy can compete globally and actually raise, not lower, its living standards.

In a March paper for the Council on Foreign Relations, Nobel laureate economist Michael Spence and New York University researcher Sandile Hlatshwayo argue that Germany’s success at building a booming manufacturing sector that constitutes almost twice the share of the economy that ours does is largely the result of “a broad agreement among business, labor and government” to keep wages competitive and high-value-added production at home.

Leslie Gelb, former president of the Council on Foreign Relations, also attributes Germany’s overwhelmingly positive trade balance and comparatively low unemployment rate (7 percent) to that tripartite system. David Leonhardt, the New York Times economics columnist, wrote last week that Germany owed its edge in global competitiveness to a range of policies that could not be more different than ours: limiting homeownership, improving education (including vocational and technical education) and keeping unions strong — which is why “middle-class pay,” he noted, “has risen at roughly the same rate as top incomes.”

Please read Meyerson's entire piece. Especially this part:

Second, the key to both the retention and the continual upscaling of manufacturing in Germany is the composition of corporate boards, which are required by law to have an equal number of management and employee representatives.

Also, How Germany got it right on the economy and Why Germany and China are winning

Manufacturing On Planet Economus

Dave Johnson — Tue, 07 Feb 2012 15:26:40 -0500

Economist Christina Romer had an op-ed in the NY Times this weekend, Do Manufacturers Need Special Treatment? The question that keep coming back to me is why did she feel the need to write an op-ed to diss manufacturing? Is it just an economist thing? Or is she, like so many economists, from another planet?

In her op-ed Romer claims those of us who argue for a national manufacturing policy do so out of “the feeling that it’s better to produce “real things” than services.” But, she says,

American consumers value health care and haircuts as much as washing machines and hair dryers. And our earnings from exporting architectural plans for a building in Shanghai are as real as those from exporting cars to Canada.

Here is the difference: We can't just keep servicing each other. This "service economy" thing hasn't worked out so well here on Earth, and now we have a huge trade deficit. It is "better to produce real things" because that is what you sell to others to get the money to pay each other for haircuts (and scissors).

Once You've Got It It's Hard To Lose It, Once You Lose It It's Hard To Get It Back

Manufacturing brings so much along with it that entire economies have been, are and will be supported. China isn't making its living by cutting each others' hair. Neither is Germany, or other countries that have realized the importance of manufacturing and manufacturing policy to an economy.

Manufacturing brings with it all the businesses in a supply chain, it brings the research and innovation that manufacturing requires, and it brings a lasting real infrastructure that requires enormous investment to duplicate elsewhere before competition is enabled. Today we have a tremendous current account imbalance that resulted from the terrible trade deficits suffered since we were invaded by this crowd from planet Economus, who told us we don't need manufacturing - that we should transform ourselves into a "service economy." And it will require enormous investment to restore the ecosystem that we allowed to escape to other countries in that period.

Once you've got it, it's hard to lose it, and once you lose it, it's hard to get it back. Not so much with services.

Romer's Three Straw Arguments

Romer sets up three arguments made of straw for helping manufacturing, only to knock them down:

One: Market Failure. Romer says "government intervention" is only justified when you can demonstrate "market failure." In essence she says markets must make our decisions, not We, the People. “For example, when competition in a market is limited, antitrust laws that prevent monopoly can be helpful.”

Romer writes that another “market failure” comes when it can be shown that there is a benefit to having clusters of businesses. When benefits leak beyond where a company is putting their money then tax breaks and other government help may be due.

Romer knocks down this justification for government “intervention” with two arguments. She says, “large clustering effects have been hard to find.”

Perhaps cluster effects don’t have benefits on planet Economus, where Romer apparently resides, but on earth all you have to do is look from the development of the auto industry in Detroit to the development of the semiconductor industry in Silicon Valley to understand that yes, clustering effects matter.

Romer also says if clustering does brings benefits why single out manufacturing for government benefits when other sectors also benefit from clustering? Well, of course we shouldn't just help our manufacturing if it can be shown that government involvement boosts the businesses of We, the People in other sectors.

Romer also says there is market failure if a learning period means that future companies benefit from work done by early companies. Romer says, “ a study of the semiconductor industry found that although learning by doing was substantial, most of the rewards went to companies doing the early investing.”

The Silicon Valley Romer talks about is located on that planet Economus. The Terran Silicon Valley I live in has seen many, many startups fail, only to see later companies take up their ideas and succeed.

Romer concedes that we might need manufacturing to make things with which to defend the country, justifying government intervention in markets. The argument that we need a strong manufacturing base here in case of war must be taken seriously. But she says it still doesn’t follow that all manufacturing deserves special treatment. Which industries are truly essential in a war effort, she asks? I guess she asks this is because on planet Economus service industries are essential to a war effort. On Economus you apparently win wars by cutting each others’ hair.

Two: Romer’s second case-of-straw for “government intervention” is to create jobs and reduce unemployment. Romer says, “Unfortunately, those effects are probably small.”

In the 2000-2009 "service economy" decade we lost 5 million manufacturing jobs, more than 50,000 factories, and the hope to capture several industries of the future. Those are not small effects. And the effects on the surrounding communities are severe.

Romer rightly says that the current problem with the economy is lack of demand. She prescribes tax cuts for households, help for state and local governments and investment in infrastructure. (The old "taxes take money out of the economy" argument?)

But then she says that a tax break to encourage insourcing of jobs in manufacturing won’t create demand so we shouldn't do it. It might make our goods cheaper to export, but challenging China’s currency manipulation would do more, so we shouldn’t do this. This is the old "don't do anything if it doesn't fix everything." We need to do all of these things, and more.

Three: Romer’s third straw argument is income redistribution. Because manufacturing jobs “are seen as” better-paying “for less educated workers” then manufacturing is a way to distribute more income to people with less education. But no, she says, “Increased international competition has forced American manufacturers to reduce costs. As a result, the pay premium for low-skilled workers in manufacturing is smaller than it once was.”

Romer says government should help people get a better education instead of helping create jobs for people who do not go to college. Perhaps on planet Economus all the IQs are above average, but on Earth the average IQ is 100, and not everyone can or should get a college degree. If we send more people to college without bringing back manufacturing, we'll just have more unemployed people with college degrees than we do now.

Romer also says, "If increasing income equality is the goal, it might be wiser to put money into infrastructure than to subsidize manufacturing. Construction also pays good wages, but with lower educational requirements. And America’s infrastructure needs are enormous." Well, yes. But again this is the old "don't do anything if it doesn't fix everything." Do those things. And revive American manufacturing.

Why is "the pay premium for low-skilled workers in manufacturing ... smaller than it once was"? Here is why: Before we became a plutocracy we were a democracy. When We, the People had a say we demanded good wages, benefits, good working conditions, a clean environment and dignity on the job. But workers in China have no say. They are stuffed 6 to a room in dormitories, rousted in the middle of the night to work extra shifts …

"Free trade" agreements made democracy a competitive disadvantage. To people from planet Economus, these conditions in places like China are just “lower costs” that the rest of us need to learn to compete with.

Are All The Other Countries Wrong?

The countries that are successful in today's economy have national industrial/economic policies. We do not. They work to capture parts or all of key strategic industries, and line up the infrastructure, finance, education, supply chains, power grid, tax policies and everything else needed to compete in the world economy. We do not.

We send our companies out against these national systems, and even our largest companies cannot compete with national systems. So we lose.

Are China, Germany and so many other countries just wrong, putting so much into these efforts to capture parts or all of strategic industries? Or are they being smart? Look at who has a trade surplus and who has a trade deficit, and see if you can guess the answer.

The Fix

1) Romer says we should not have special treatment to help manufacturing. Well, let’s start by removing the special treatments that are hurting manufacturing. After that we can begin to talk about "special treatment" to help manufacturing. Out tax policies encourage outsourcing and make it economically beneficial to close a factory rather than maintain it.

2) Countries like China offer subsidies to strategic companies and industries. They manipulate their currency to keep their prices lower in world markets. Let’s enforce trade rules against that, and if we can’t then let’s get out of these "free trade" agreements that are killing us and put tariffs on their goods so they are not unfairly competing with goods made here. And start matching subsidies on exports so they compete in world markets.

3) Other countries have national industrial policies, lining up everything needed to capture part of all of strategic industries. We don't so we send our companies out alone against countries. We have to change this, or ultimately our companies have to lose.

4) Planet Economus is a place far from Earth. On planet Economus they apparently have free markets, and free trade. But on Earth free markets and free trade never existed anywhere at any time, and never worked when they were tried. So on Earth we have to have policies that reflect what happens on Earth, not on planet Economus.

This Time Isn't Different

Romer concludes,

AS an economic historian, I appreciate what manufacturing has contributed to the United States. It was the engine of growth that allowed us to win two world wars and provided millions of families with a ticket to the middle class.

Right, and it still is. This time it isn't different.

China Cheating Costs 400K Auto Parts Jobs

Dave Johnson — Thu, 02 Feb 2012 14:21:26 -0500

This week three new reports described even more continuing damage to our economy caused by China's trade cheating -- and our own lack of response. Even as the auto industry recovers and auto-assembly jobs are returning, the auto-parts industry and jobs are not.

The reports, one from the Stewart and Stewart law firm along with two reports from the Economic Policy Institute (EPI) make the case that China is cheating, that it is costing lots of US jobs, and detail the national numbers and individual state costs.

The reports describe Chinese trade violations and calculate the damage done to our economy:

Growing Threats to the U.S. Auto-Parts Industry from Heavily Subsidized Chinese Tires and Parts, from EPI. The report concludes that “every one of these [1.6 million U.S.] auto-parts jobs is individually at-risk from this unfair trade competition.” With 75% of auto-industry jobs in the auto-parts sector, this means a lot of jobs are at risk even as our auto industry recovers.
Putting the Pedal to the Metal: Subsidies to China’s Auto-Parts Industry from 2001 to 2011, conducted for EPI by Usha C.V. Haley, says there are $27.5 billion of Chinese government subsidies to their auto-parts industry with an additional $10.9 billion in subsidies for industrial restructuring and technological development of the industry coming.
China’s Support Program for Automobiles and Auto Parts Under the 12th Five Year Plan, by the law firm Stewart and Stewart says China's subsidies to their auto-parts companies are in violation of China’s WTO commitments, but will continue unless we enforce trade rules.

I joined a call discussing these reports, with Leo Gerard of the United Steelworkers, Robert Scott of EPI, Scott Paul of the Alliance for American Manufacturing and CAF's Robert Borosage. The call detailed the many ways that China helps companies, even things like a tax on rare-earth mineral exports. So Chinese companies don't pay the tax, this is one more way their costs are lower, while US companies, already facing currency-rate manipulation, lose the competitive battle.

The Chinese government subsidizes energy costs, land, financing, labor, labor training and many other things, while our government does not. There are so many ways that China incorporates a national industrial policy to help capture vital and strategic industries, while our government does not. Our government barely begins to even enforce trade rules, which enables and encourages competitors to cheat while forcing out honest actors. Some of this is smart policy on China's part coupled with really not-smart policy on our part. We are blocked by ideologues from having a good, coordinated national industrial policy. Some of that is helped along by the beneficiaries of this lack of policy. With all the causes, the result is that Americans are losing jobs, factories, companies industries and our economy.

Corporate media coverage of these reports is telling, with the LA times describing them as "left-leaning" and the Detroit News describing them as "liberal-leaning."

Meanwhile the China Daily warns us not to fightback, calling enforcement of trade violations "protectionism." From Protectionism won't help,

Trade protectionism against China is on the rise in the United States. The Obama administration has brought trade cases against China at nearly twice the rate of the previous administration, and it is also creating a trade enforcement unit to investigate the "unfair trade practices" of China and other countries.

Nevertheless, are these protectionist measures the right remedy for solving the US' grim unemployment problem?

Well, the answer to the question is yes.

The punch line comes in what can only be described as a "Freudian slip" at the end of the China Daily piece:

Resorting to protectionist measures hinders international trade, outsourcing and investment, and ultimately harms all.

Why yes, enforcing trade laws just might hinder outsourcing. Yes, that's the point.

Take Action

Click here to Tell Congress and the White House to Stop China's Illegal and Unfair Trade Practices

Auto Parts Manufacturers Are Being Undercut

Through a range of unfair, illegal, and predatory trade practices, China is seeking to corner yet another industry and drive American workers out of their jobs. This time, the target is the auto parts manufacturing sector, and the pattern is the same as we have seen in sector after sector.

President Puts American Manufacturing Front And Center In State Of The Union

Dave Johnson — Wed, 25 Jan 2012 14:59:42 -0500

President Obama put American manufacturing literally at the front and center of his State of the Union speech. American manufacturing was at the front of the speech and at the center of a "blueprint" for bringing back jobs and strengthening our economy. By placing manufacturing front and center he has taken this conversation further than any President before him.

There is good reason to cheer, but also good reason to ask for even more. He outlined steps to stop the outsourcing and start the insourcing, but there is not yet a comprehensive, overall government strategy to fix trade and capture the industries of the future.

The Speech

Right up front the President talked about building "an America that attracts a new generation of high-tech manufacturing and high-paying jobs." Then,

"Tonight, I want to speak about how we move forward and lay out a blueprint for an economy that's built to last, an economy built on American manufacturing, American energy, skills for American workers, and a renewal of American values.

This blueprint begins with American manufacturing."

Bob Borosage, in The Obama State of the Union: A Progressive View,

On the economy, the speech led with more discussion of manufacturing than anyone has heard in years. The president wanted and deserved credit for saving Detroit – a key to his campaign in the Midwest – and wanted to highlight the uptick in manufacturing jobs and “insourcing,” the movement of some jobs back to the US.

Again, his agenda focused on mostly symbolic measures of populist appeal. In addition to the tax on multinationals, he promised a new trade enforcement effort to challenge China and others who trample global trade rules. With Romney promising to cite China for currency violation on day one if elected, the administration seems likely to finally challenge China, at least symbolically.

Steps, But Not An Overall Picture

The President outlined steps to stop the outsourcing and start the insourcing. There are things that the Congress can do right now. These include but are not limited to,

Eliminate existing tax deductions for outsourcing
Big multinational corporations should pay a minimum tax
Use some of the money this brings in to cover the expenses of bringing jobs home
Pass tax cuts for manufacturing here
A trade enforcement unit to look at bringing cases against countries like China that cheat, use piracy, give subsidies
Steps to train skilled workers, with a national commitment to train 2 million with skills that will lead to a job
Do something about the maze of confusing training programs
Turn our unemployment system into a reemployment system
Instead of bashing teachers and laying them off, give schools resources to keep good teachers
Reduce the cost of college. Stop student loan interest rates from doubling in July. Condition federal assistance on lowering tuition.

This "blueprint" has a number of good, solid steps that will help stop the outsourcing and start the insourcing. But it is not a comprehensive national industrial/economic strategy that addresses the overall picture of all of the components of a national manufacturing ecosystem. To begin to address this, the President has established a cabinet-level Office of Manufacturing Policy to coordinate efforts of various government agencies.

Coordinating the efforts of various government agencies to help American exports is important, but this does not address the development of a national plan, like other countries have. We need this, too. A national plan would seek to cover all the elements of a healthy "industrial commons" -- meaning all of the components of a healthy manufacturing ecosystem. These include government efforts to make sure the components are ready, funded and functioning:

The necessary educational components to provide people ready to do all of the jobs an industry requires;
The financing to build factories and obtain inventory;
The modern infrastructure of roads, electrical power, internet, posts and airports, to support the companies;
Trade and tax policies to help these companies locate and export;
R&D facilities and researchers for innovation and design;
Local suppliers to support the companies;
Legal structures and fully-funded and staffed court systems to support the industry;
The entire "chain of experience" located in an area, often around a "cluster" of businesses, required for an industry to develop and thrive.

Countries like China are engaged in national efforts to get all of these components lined up to capture industries like the new green energy revolution that is taking place. China is working to capture solar and wind energy manufacturing. They are working to capture high-speed rail manufacturing. The news about the reasons Apple and other high-tech manufactures have had to locate in China show how hard China has worked to capture that industry -- and not without quite a bit of cheating that we are not stopping.

Our competitors are engaging in national efforts to line up all of these components to capture other new industries as they emerge. We are not.

Ideology Holds Us Back From Competing

This list of components of a national industrial/economic policy describes the kind of national effort that competitors like China are engaged in, and is the reason they are bringing in such a share of new industrial growth. To address this we have to see ourselves as a country, as China does, mutually supporting each other, to be able to embark on an undertaking like this. We have to abandon the "each of us on our own" and selfish, "in it only for ourselves" mentality that has set us apart, preventing national government efforts like other countries engage in.

Some of us hold on to an ideological fantasy that government is only in the way, but other countries do not. So the result is that we keep sending our companies out on their own against national systems. Even our largest companies cannot compete on their own against countries with national efforts to put all of these components in place. It takes a unified government effort.

We have to move to a "we are in this together" understanding of ourselves and our country if we want to bring back the shared prosperity we used to have, and can have again.

Update - White House fact sheet: FACT SHEET: President Obama’s Blueprint to Support U.S. Manufacturing Jobs, Discourage Outsourcing, and Encourage Insourcing

Hold Cheaters, Fraudsters and Exploiters Accountable To Get Our Economy Back

Dave Johnson — Mon, 23 Jan 2012 15:44:35 -0500

The spiral-to-the-bottom and inequality we are suffering is not an inevitable result of globalization, it is what happens when we don't hold cheaters and exploiters accountable and stop them. This is not just about Wall Street, it is the story of what has happened to our wages and benefits, jobs, factories, companies, industries, economy and democracy in the last 30-or-so years.

Cheaters, Fraudsters and Exploiters

If cheaters and exploiters are not held accountable and fraudsters are not prosecuted, then the advantages this brings them forces honest players out. We're all waiting to see if there is a deal in the works that lets big banksters off the hook for mortgage fraud and other (uninvestigated) crimes, making their shareholders pay fines for them instead. But that story of the 1%'s fraud and cheating and the consequences to the 99% are not what I am writing about here. This post is about how letting 1%er cheaters, fraudsters and exploiters off the hook has hurt America's manufacturing and trade.

Apple Can't Make It Here

Recent news stories about Apple hilight how we allowed our thriving, high-paying manufacturing sector to erode, with the result that our middle class is in decline. Apple used to proudly make their computers in the United States, but now everything is made in Asia. The NY Times' Charles Duhigg and Keith Bradsher, in How the U.S. Lost Out on iPhone Work describe how China's massive government subsidies and exploitation of workers mean “Those jobs aren’t coming back.”

The Entire Supply Chain Is Over There

China has done what it needs to do to bring factories, which bring supply chains, which bring industries. The NYT story describes what it means to have an entire supply chain located where the factories are,

When an Apple team visited, the Chinese plant’s owners were already constructing a new wing. “This is in case you give us the contract,” the manager said, according to a former Apple executive. The Chinese government had agreed to underwrite costs for numerous industries, and those subsidies had trickled down to the glass-cutting factory. It had a warehouse filled with glass samples available to Apple, free of charge. The owners made engineers available at almost no cost. They had built on-site dormitories so employees would be available 24 hours a day.

The Chinese plant got the job.

“The entire supply chain is in China now,” said another former high-ranking Apple executive. “You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.”

Subsidies are often a violation of trade rules. Even so, as the article says, "The Chinese government had agreed to underwrite costs for numerous industries, and those subsidies had trickled down to the glass-cutting factory." So, of course, "the Chinese plant got the job." Meanwhile, our own country has resisted having an "industrial policy" to keep our industries and foster new ones. This is finally changing, but good efforts like "Buy American" and President Obama's green energy policies are fought tooth-and-nail.

Exploited Workers

Another key part of China's advantage is the ability to exploit workers and get away with it -- which lets Apple get away with it, too. And when Apple sees violations, it doesn't stop them.

One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.

A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

“The speed and flexibility is breathtaking,” the executive said. “There’s no American plant that can match that.”

Later in the story,

The first truckloads of cut glass arrived at Foxconn City in the dead of night, according to the former Apple executive. That’s when managers woke thousands of workers, who crawled into their uniforms — white and black shirts for men, red for women — and quickly lined up to assemble, by hand, the phones.

... The company disputed some details of the former Apple executive’s account, and wrote that a midnight shift, such as the one described, was impossible “because we have strict regulations regarding the working hours of our employees based on their designated shifts, and every employee has computerized timecards that would bar them from working at any facility at a time outside of their approved shift.” The company said that all shifts began at either 7 a.m. or 7 p.m., and that employees receive at least 12 hours’ notice of any schedule changes.

Foxconn employees, in interviews, have challenged those assertions.

Apple Audits Its Suppliers, Finds Many Violations

Earlier this month Apple released a report describing the practices of its suppliers. NY Times: Apple Lists Its Suppliers for 1st Time,

Apple said audits revealed that 93 supplier facilities had records indicating that over half of workers exceeded a 60-hour weekly working limit. Apple said 108 facilities did not pay proper overtime as required by law. In 15 facilities, Apple found foreign contract workers who had paid excessive recruitment fees to labor agencies.

And though Apple said it mandated changes at those suppliers, and some showed improvements, in aggregate, many types of lapses remained at general levels that have persisted for years.

William K Black, writing in Apple's Foreign Suppliers Demonstrate Widespread Scamming and Horrific Abuse of Employees at AlterNet, looked at Apple's report. Black writes that the audit of suppliers, "shows that anti-employee control fraud is the norm."

Black says that two things stand out in the report,

First, Apple rarely terminates suppliers for defrauding their employees – even when the frauds endanger the lives and health of the workers and the community – and even where Apple knows that the supplier repeatedly lies to Apple about these fraudulent and lethal practices. Second, it appears unlikely in the extreme that Apple makes criminal referrals on its suppliers even when they commit anti-employee control frauds as a routine practice, even when the frauds endanger the worker’s and the public’s health, and even when the supplier repeatedly lies to Apple about the frauds. Apple’s report, therefore, understates substantially the actual incidence of fraud by the 156 suppliers (accounting for 97% of its payments to suppliers).

As Black wrote, "Apple knows that the supplier repeatedly lies to Apple about these fraudulent and lethal practices" and "...it appears unlikely in the extreme that Apple makes criminal referrals on its suppliers" Apple doesn't stop these violations. They get too much of a competitive advantage out of it.

This Is Fraud

When you buy a product you assume that it is on the shelf at the cost you are asked to pay because laws and regulations were followed and standards were met. So you buy the one that has the right quality at the right price. But what if a product has a low cost as the result of cheating, exploitation and violations of environmental, labor and trade laws? What if there is a lie at the root of the transaction you are engaged in?

China's massive investment in capturing entire industries -- a violation of trade laws -- means that many of the components of the high-tech manufacturing supply chain have migrated out of the US to that country. And China's non-democracy political system means that workers have few, if any rights, and often the rights they have are not enforced. Black says American companies taking advantage of this are engaging in "a form of control fraud (fraud in which the head of a company subverts it for personal gain)."

Anti-employee control frauds most commonly fall into four broad, but not mutually exclusive, categories – illegal work conditions due to violation of safety rules, violation of child labor laws, failure to pay employees’ wages and benefits, and frauds based on goods and loans provided by the employer to the employee that lock the employee into quasi-slavery.

Allowing Fraud Drives Legitimate Businesses Out Of Existence

The key point Black makes is that allowing cheating, fraud and exploitation to continue brings them advantages that drive legitimate businesses out,

George Akerlof, in his famous article on markets for “lemons” (largely describing anti-customer control fraud), explained the perverse “Gresham’s” dynamic in 1970: "[D]ishonest dealings tend to drive honest dealings out of the market. The cost of dishonesty, therefore, lies not only in the amount by which the purchaser is cheated; the cost also must include the loss incurred from driving legitimate business out of existence.”

A Criminogenic Environment

Specifically, what this means to companies that try to compete with companies like Apple,

Anti-employee control fraud creates real economic profits for the firm and can massively increase the controlling officers’ wealth. Honest firm normally cannot compete with anti-employee control frauds, so bad ethics drives good ethics out of the markets. Companies like Apple and its counterparts create this criminogenic environment by selecting least-cost – criminal – suppliers who offer components at prices that honest firms cannot match. Effectively, they hang out a sign – only the fraudulent need apply to be suppliers

When we let companies get away with building products in places that violate trade rules, allow environmental degradation, exploit workers, cut corners on safety, use cheap components and ingredients, these companies get cost advantages that force honest companies out of business. This is the story of our economy. This is why our middle class is engaged in a race to the bottom.

Should Companies Like This Exist In The US?

Robwert Cruickshank puts two and two together, in a must-read post, Thinking Differently About Apple and 21st Century Society. He writes,

In the last year or two, it’s become increasingly clear that the way Apple makes its products is deeply flawed. Working conditions at the factory which makes most of their products – Foxconn in Shenzhen, China – are so appalling that workers engaged in a rash of suicides in 2010 to ameliorate their own suffering. Earlier this year workers threatened mass suicide over pay and working conditions. And of course, there’s the fact that Apple makes these products overseas rather than in the United States, where unemployment remains at some of the highest levels we’ve seen since the Great Depression.

Cruickshank asks if companies with this attitude should be allowed to continue to do business? He writes that Apple has,

...a narrow focus on their products and their profits, and disdain wider concerns for the good of society. When an unnamed Apple executive was asked about their role in addressing America’s economic problems, their response was revealing:

They say Apple’s success has benefited the economy by empowering entrepreneurs and creating jobs at companies like cellular providers and businesses shipping Apple products. And, ultimately, they say curing unemployment is not their job.

“We sell iPhones in over a hundred countries,” a current Apple executive said. “We don’t have an obligation to solve America’s problems. Our only obligation is making the best product possible.”

That quote is perhaps the best encapsulation of the pathologies of the modern American corporation. In fact, Apple does have an obligation to solve America’s problems. Everyone who lives in this country has that obligation. And corporations have that obligation too. If they don’t want to help make things better, then they shouldn’t exist.

Then he gets to the wider point,

The notion that companies exist only to generate profit or build a specific few set of products is corrosive. Those profits and products serve the rest of society. And as a part of that society, companies and their executives exist to make that society a better place. If they are engaged in a set of practices that make society worse off, then those actions are indefensible and need to be changed.

For the last 30 years, American businesses have been devoted to a single-minded pursuit of maximizing short-term profits. Unsurprisingly, this has had profound ripple effects throughout the rest of society. The economy became focused on those profits, and so with it followed politics, culture, and our values as a civilization.

By now it should be clear to everybody that while this works well for the small elite that has hoarded all these profits – the so-called “1%” – it has utterly failed to provide a happy and fulfilled life for everyone else.

Here I quote Cruickshank quoting Black, who is looking at Apple's report of its suppliers, with "overwork and other forms of employment fraud being rampant."

As William K. Black explains at Alternet, this is a good example of what may be a widespread tolerance for fraud in the global economy:

These frauds take place abroad, but they harm employees at home. Mitt Romney explains that Bain had to slash wages and pensions to save firms located in the U.S. who had to meet competition from foreign anti-employee control frauds. The damage from foreign anti-employee control frauds drives the domestic attack on U.S. manufacturing wages. Bad ethics increasingly drive good ethics out of the markets and manufacturing jobs out of the U.S. and into more fraud-friendly nations.

"These Frauds Take Place Abroad But They Harm Employees At Home"

Once again, for emphasis, "these frauds take place abroad, but they harm employees at home."

If we want the downward slide to stop we have to decide to hold the cheaters, exploiters and fraudsters accountable for their actions. At home the efforts by the giant corporations to keep the National Labor Relations Board (NLRB) and the Consumer Financial Protection Bureau (CFPB) from doing their jobs, enforcing the rules and holding them accountable further show how this is affecting us all. Abroad we have to demand enforcement of labor and trade rules so companies like Apple can not gain advantages that put more ethical and honest companies out of business. We certainly should not be letting products made there have cost advantages here and stiff tariffs can fix that. Letting companies get away with this makes democracy a competitive disadvantage.

We have to get mad and hold the cheaters, fraudsters and exploiters accountable.

Did The President's Jobs Council Go All Corporate?

Dave Johnson — Wed, 18 Jan 2012 15:10:19 -0500

President Obama's Council on Jobs and Competitiveness ("Jobs Council") issued a report calling for fewer regulations and lower corporate tax rates. This doesn't have to be a bad idea.

The Report

The Jobs Council report, Road Map to Renewal makes a number of recommendations. Here are the main points - please click through for the details:

Prepare the American Workforce to Compete in the Global Economy
Foster a Climate that Lets Innovation Thrive
Adopt an “All-In” Strategy on Energy
Revitalize the American Manufacturing Sector
Enhance American Competitiveness through Smart Regulatory Reforms
Reform the Outdated Tax System to Enhance American Competitiveness

Council Heavily Weighted Toward 1%

The Jobs Council is heavily, heavily, heavily weighted to tilt toward the 1%. The list of members reads "Chair and CEO" with a smattering of ultra-wealthy finance types thrown in, and then a couple of token union leaders.

The Objections

United Food and Commercial Workers president Joseph Hansen abstained from voting. AFL-CIO President Richard Trumka released a 1635-word dissent. In the dissent Trumka writes, (emphasis added)

I agree with the overall spirit and a number of the specific recommendations in today’s report ... I absolutely agree ... that the United States is falling behind our international counterparts in investing in modern infrastructure, education, and skills; supporting a vibrant manufacturing sector; developing cost-effective and globally responsible energy practices; and supporting innovation. ...

Unfortunately, I believe the report downplays the need for a proactive role for the U.S. government in many of these areas; fails to address the significant additional revenues needed to address the challenges identified on an appropriate scale; and in many cases erroneously identifies the root causes of the underlying structural problems.

... the report addresses regulatory issues as if we were not in the midst of a prolonged economic crisis whose proximate causes clearly included inadequate regulation of business, and in particular financial markets and institutions.

With respect to corporate tax reform, I believe that corporations as a group pay too low a share of taxes to support the kind of infrastructure investment and education/skills upgrades that are so urgently needed at this time... The report places way too much emphasis on statutory tax rates, mentioning only as an aside that the effective rates paid by corporations are much lower, and that overall corporate tax revenues as a percent of GDP are the fourth lowest in the OECD.

Yes, We Can Cut Corporate Taxes ... If

Actually, we can cut corporate taxes, increasing our international competitiveness, while We, the People still fund our democracy and get paid back for our investment that enabled the prosperity of the corporations. Here's how: Cut corporate taxes, but raise taxes on the 1%er owners of the corporations. Stop the nonsense of lower capital gains tax rates, and restore pre-Reagan top tax rates. Also, require corporations to either use their cash or pay it out to shareholders instead of just sitting on it as many do now.

Capital gains are taxes at a lower rate because most of the income of the 1% is from capital gains, and most of the income of the 1% is from capital gains because the tax rate is lower. The "incentive to invest" should be a good investment, period.

What does cutting corporate tax rates accomplish? First, by cutting corporate tax rates the right ways our companies could become more competitive with companies in other countries. This can be an incentive to locate companies here. But we don't have to just sacrifice this revenue by any means. Instead we can tax it when it becomes personal income. But cutting corporate tax rates without increasing personal income tax rates to make up for it -- which happens to be the DC elite consensus as voiced by Simpson-Bowles -- is complete folly, nothing more than another scam by the 1% to rob We, the People. It is essential that a cut in corporate tax rates happen at the same time as taxes on the resulting personal income are increased, along with requirements that corporate money is either used inside the company or paid out to shareholders.

Look at this chart, which tells you everything you need to know about the who what when where and why of corporations. Corporate wealth is also personal wealth. When you hear about corporations doing well, think about this chart:

Yes, the top 1% also own 50.9% of all stocks, bonds, and mutual fund assets. The top 10% own 90.3%. And it's most likely only gotten worse since these figures were gathered.

Cut The Right Regulations

When the elite DC consensus calls for cutting regulations, they mean regulations that hamper the 1%'s ability to fleece us even more. But there are regulations that actually do impede competitiveness.

Here is what usually happens in DC. After Congress passes laws the regulatory bodies translate the laws into a regulatory framework. This is where the giant companies and their lobbyists get to work. The work they do is influencing these agencies to write regulations that help them, the 1%er corporations that can afford to swarm the agencies with lobbyists -- and that obstruct their competition. So we end up with a situation where small businesses and startups don't have a chance making it through the regulatory maze. They either have to hire specialized, $1000-an-hour DC law firms to help them out, or give up. This is by 1%er design, not because of "big government."

So yes, there are regulatory impediments to competition, but I don't think this form of "cutting regulations" means what the 1%ers on the Jobs Council and the big corporate-elites think it means.

Education

On education, the Jobs Council recommends,

In order to stay competitive in a global age, we must invest in our future by ensuring Americans have the right education and skills to realize their full potential and drive our nation’s economic success. ... These measures will create a purposeful educational system that produces work-ready graduates, satisfied employers with access to a talented labor pool, and a vibrant economy poised for growth and success.

Trumka writes,

With respect to the education section of the report, I believe that the Jobs Council’s education recommendations begin and end in the wrong place: focusing on providing businesses with an endless supply of workers -- as opposed to supporting, improving and sustaining a strong public education system.

So the report calls on government to reconfigure our education system to provide companies with trained worker-bees, which means companies don't have to cough up the dough themselves to train their own workers. The report actually goes even further, basically calling for government to replace think-for-yourself education with do-what-we-say job training. There's a difference. And they ask for this after already asking for tax cuts, too. Sheesh.

The Rest

On energy the 1%ers of course mean "drill, baby, drill." But the council is correct, we do need to go "all-in" on energy, with massive Green Energy investment, freeing us from the damage Big Oil and King Coal do to our environment, our economy, our politics and our democracy.

On manufacturing the council notes that since 1980 manufacturing has slipped from 20% to only 9% of total employment,. The report calls for adding "three to four percentage points of global value added market share—an ambitious but achievable goal." They say we should :take share from our global competitors." There are wonky but great suggestions like "cluster development" and important ideas like going after in promising new manufacturing sectors. The President has formed an Office of Manufacturing Policy that is taking up many of the kinds of recommendations in this report.

In fact, we also need to rewrite our trade agreements so they provide a win-win for the working people here and across our borders, and incentives to manufacture here rather than move jobs, factories, companies and industries out of the country.

And So In Conclusion

Trumka sums things up nicely at the end of his dissent:

Perhaps most profoundly, the report does not ask the critical question: why is our country suffering a manufacturing crisis, complete with massive job loss and a structural trade deficit, when countries with higher overall taxes, higher wages, and more robust health, safety and environmental regulations are enjoying trade surpluses?

The answer lies in the view that we share with so many of our fellow Americans: that our country has become dominated by the interests of the wealthiest 1% at the expense of the remaining 99%. It turns out that a country run in the interests of the wealthiest 1% systematically underinvests in public goods;systematically silences, disempowers, and underinvests in its workers; and in the end is less competitive and creates fewer jobs than a country that focuses on the interests of the 99%.

Echo and amplify what Trumka said: Perhaps most profoundly, the report does not ask the critical question: why is our country suffering a manufacturing crisis, complete with massive job loss and a structural trade deficit, when countries with higher overall taxes, higher wages, and more robust health, safety and environmental regulations are enjoying trade surpluses?

Can We 'Insource' Jobs?

Dave Johnson — Tue, 10 Jan 2012 13:51:34 -0500

President Obama will host a forum on insourcing jobs Wednesday. The forum will feature leaders of several companies who have already shifted jobs back home and are encouraging others to do the same. According to the White House,

On Wednesday, January 11, 2012, President Obama and Vice President Biden will host an “Insourcing American Jobs” forum at the White House focused on the increasing trend of companies choosing to “insource” jobs and invest in growing in the United States.

As part of the “Insourcing American Jobs” forum, the President will meet with business leaders, as well as experts on the topic, to discuss why it’s competitive to locate in the United States and what more can be done to work with companies to take similar steps to insource American jobs. Following the meeting, the President will deliver remarks to a group that will include leaders from the government and the private sector that are taking steps to encourage companies to insource and invest in America. In the afternoon, Cabinet officials will host panel discussions with both small and large businesses and experts on insourcing and investing in America.

Leading up to this White House forum, the President said in his Weekly Address, "On Wednesday the White House will host a forum called “Insourcing American Jobs.” We’ll hear from business leaders who are bringing jobs back home and see how we can help other businesses follow their lead."

Headwinds

There are still headwinds pushing against efforts to bring jobs back. While China has allowed its currency to appreciate a bit, it is still undervalued by as much as 30% to 40%, which means goods made in China are priced 30% to 40% lower than goods made here. That's even before the effect of Chinese subsidies, trade violations, suppression of labor rights, cost savings from allowing environmental degradation and other advantages, including their massive investment in infrastructure, are taken into account.

The Wall Street Journal highlighted another problem for manufacturing: In spite of conservative complaints about debt, in truth the safety of U.S. currency makes it attractive and therefore "stronger," especially now, with the worries over the euro. This "flight to safety" has the reverse effect of China's currency manipulation. Where China manipulates its currency to make it "weaker," the strength of the U.S. dollar increases the price in international markets of goods made in the U.S. The WSJ explains, in U.S. Factories Could Suffer From Dollar’s Appeal,

Being a safe haven can be a drag. The euro zone remains the albatross around the global economy’s neck. Any hint about default, a euro-zone break up or banking collapse sends skittish investors into the secure embrace of the U.S. dollar.

... A strong dollar may enhance the U.S.’s sense of pride. But it will be a headwind for U.S. manufacturing.

That isn’t because a weak euro will cut U.S. exports to Europe. The euro zone is in recession and won’t be buying much from any nation.

The challenge will come in emerging markets that have the money and pent-up demand for foreign-made goods.

... A weak euro will give European producers a price advantage in emerging markets. This is especially true for commodity materials, such as chemicals and paper, that compete on price more than brand-name preference.

Can insourcing brings jobs back? Michael Mandel asks at the Wall Street Pit, Can Insourcing Be A Major Source of Job Creation?

Can insourcing be a major source of job creation for the U.S.? The answer is yes, with a caveat. Widespread insourcing–or import recapture, as I like to call it–won’t happen without some help from government policy. In particular, the main role of the government is to provide better data about the relative cost of insourcing vs outsourcing.

Why would better statistics help create new jobs in the U.S. and accelerate insourcing? The reason is hysteresis. Hysteresis is defined as a “lag in response” when the forces acting on a situation have changed. Originally hysteresis worked in favor of keeping jobs in this country, because businesses didn’t want to switch their production to a country thousands of miles away, even if it might be cheaper.But now, with production firmly established in China, India, Mexico, and other low-cost countries, hysteresis is working against the U.S.

Mandel says that the loss of manufacturing ecosystem will make it difficult to bring these jobs back. We have lost suppliers, we have lost some of the "ecosystem" as we "hollowed out" our own manufacturing and our smaller manufacturers will find it very expensive to find the suppliers, etc. if they wish to return manufacturing here. Government can help this by providing better information:

Assuming that production costs really are converging, better information would make it easier for companies to justify the decision to bring jobs back to this country. Right now the safe decision for executives is to continue sourcing from China and India, since they are generally accepted to be ‘low-cost’ countries. It’s like they used to say, you can’t get fired for buying from IBM. It’s the same today–execs can’t get fired for buying from China and India, because everyone assumes that prices are lower there.

In For 2012 Let's Restore Our "Industrial Commons", I explained this phenomenon,

We have been dismantling our "industrial commons." By sending manufacturing out of the country we have been taking apart the supply chains and abandoning the expertise and skills and culture that go with it.

Other Warnings

Last year former Intel CEO Andy Grove sounded a warning about this problem. In How to Make an American Job Before It's Too Late. Grove wrote that we are not just losing jobs to China, we are losing the "chain of experience" that enables new companies and industries to form and to create new jobs and argues for a national economic strategy to preserve our manufacturing and technology base. He lays out a plan: "rebuild our industrial commons,"

The first task is to rebuild our industrial commons. We should develop a system of financial incentives: Levy an extra tax on the product of offshored labor. (If the result is a trade war, treat it like other wars—fight to win.) Keep that money separate. Deposit it in the coffers of what we might call the Scaling Bank of the U.S. and make these sums available to companies that will scale their American operations. Such a system would be a daily reminder that while pursuing our company goals, all of us in business have a responsibility to maintain the industrial base on which we depend and the society whose adaptability—and stability—we may have taken for granted.

We have to start now rebuilding the manufacturing ecosystem - the "industrial commons" that helps us make things here.

Santorum's Make It In America Plan Shows Republicans Can Read Polls

Dave Johnson — Fri, 06 Jan 2012 14:51:18 -0500

One after another, the Republican presidential candidates have come out with strong statements that appear to show support for making things in America and revitalizing American manufacturing. This is because they can read polls and polls show that Americans overwhelmingly want American manufacturing revitalized, are tired of offshoring, understand the importance of fixing trade deficits and want to see things made here again.

Donald Trump gained a lot of traction from the appearance of taking on China. Mitt Romney also talks about how we need to take on China. Rick Santorum has his own "Made In America" plan. But do their actual proposals match up with their rhetoric?

Romney

Mitt Romney has strong words about China. For example, last week Romney visited Competitive Edge, an Iowa company that sells promotional campaign items that you can put your own brand or message on. ("We've got items for convention give-a-ways, business gifts, direct mail campaign items, fund raising, political campaigns, special events, company promotions, and more!") At this campaign stop Romney said,

“I’ll clamp down on China that’s been cheating,” Romney said. “They’ve been stealing our intellectual property, our designs, our patents, our know-how, our brands, they’ve been hacking into our computers. That has got to stop.”

“I will stop it if I’m President of the United States,” Romney said.

However, in spite of Romney's words, many wonder if he is only saying this to get votes. For example, the website for Competitive Edge, the site of his Iowa appearance, says, "Competitive Edge is a major importer of Specialty Products from Asia and Europe." According to TPM, the president of Competitive Edge "said he doesn’t think Romney’s being completely serious when it comes to his tough China talk." He explained,

“I think the rhetoric of a campaign is different than the actual application,” he said. “[Romney] will sit down and he will get the right people in, he will take the advice of maybe a Huntsman who will say, ‘this is how to handle China.’” ... When it comes to actually governing, Greenspon said he expects Romney will take a much softer approach to China at the urging of his supporters in the business community.

So much for Romney. As with so many of his campaign positions, surrogates explain behind the scenes that he is just saying what he needs to say to get votes, what he will do if he is elected might or might be completely different, there is no way to know.

Santorum

Rick "not-Romney" Santorum is now the official No. 2 in the GOP race. Santorum can also read polls, and is offering a "Made In America" plan.

The plan begins the way Santorum always begins: "Rick Santorum believes that to have a strong national economy, we must have strong families."

Much of Santorum's plan is the usual Big Lobbyist and Wall Street-backed Republican stuff about cutting taxes on the rich and getting rid of any restraints on the wealthy and powerful as "pro-growth" policies. Items 1, 2, 3, 4, 5, 6, 7, 8 and 9 are actually all the same item: Cut taxes on the rich and their big corporations.

And then Santorum diversifies. Item 13 is get rid of President Obama's health care reform, with no explanation of how this will help manufacturing. Item 15 includes, "eliminate funding for Planned Parenthood and support adoption" and "eliminate funding for United Nations organizations that undermine America’s interests." Again, there is no explanation of how these will help manufacturing.

These points are apparently included in a manufacturing plan to reassure the Republican base that he is certifiably nuts, to attract Michelle Bachmann voters.

Some of the items appear to be the result of selling advertising space to lobbyists from various industries.

The oil industry purchased Item 20: Tap into America’s vast domestic energy resources...
The big Telco giants purchased Item 21: Unleash innovation in telecommunications and Internet consumer options by getting government out of the way...
Pete Peterson shelled out for Item 22: Reform Social Security and Medicare...
The big Wall Street firms that are investing in privatizing education purchased Item 26: Reclaim the role of parents as the decision makers in their children’s education and incentivize the states to promote parental choice...
Canadian oil companies that want to sell to China purchased Item 28: Approve the Keystone Pipeline...
Wall Street and promoters of "The Big Lie" purchased Item 30: Phase out Fannie Mae and Freddie Mac’s government backed role in mortgages...

The plan is not all bad. Santorum accidentally comes up with a few things that would actually help American manufacturing. Of course, they are mostly just more about cutting taxes, but these cut specific taxes on manufacturers, which might help bring some manufacturing back. These are:

Item 10: Eliminate the corporate income tax for manufacturers – from 35% to 0% - which will spur middle income job creation in the United States and will create a job multiplier effect for workers
Item 11: Spur innovation in America by increasing the Research & Development Tax Credit from 14% to 20% and make it permanent

Santorum's Item 32 is important, and I'm singling it out for attention: Strengthen our national security and national defense so that we are not dependent upon our foes or competitors for critical manufacturing, technology, energy and other security needs.

So Santorum's plan has a few good points but only barely matches the promise of its title. In reality it only offers more of the same policies that boost the 1% at the expense of everything else, even harming smaller manufacturers trying to compete with the multi-national giants.

The plan even offers a number of items that have ravaged our manufacturing base, pushing even more disastrous "free-trade" agreements. And, the plan has the added bonus of a series of unrelated proposals apparently included only as filler and the necessary proof of insanity to qualify him in a Republican primary.

President Obama and Congressional Democrats

As one component of a set of policy initiatives to improve manufacturing President Obama recently set up a new Office of Manufacturing Policy that will have cabinet-level status, reflecting the importance of the manufacturing sector to our economy. The office will coordinate the efforts of different government agencies, such as the Small Business Administration, the Department of Commerce and the Transportation Department.

In May Democrats in the Congress brought out a "Make In In America" package of specific legislative proposals to revitalize American manufacturing. In Democrats' Plan Makes Jobs In America I described the plan:

Congressional Democrats yesterday unveiled the Make It In America plan for the 112th congress. This is a set of specific, detailed, targeted bills that clearly create jobs and restore our economic competitiveness, beginning with a national strategy for manufacturing. This is very different from the vague, sloganeering, lobbyist-written plan offered by Senate Republicans.

Yesterday House Democratic Whip Steny Hoyer and Minority Leader Nancy Pelosi unveiled their Make It In America plan “to support job creation today and in the future by encouraging businesses to make products and innovate in the US and sell it to the world through strengthening our infrastructure and supporting investments in key areas like education and energy innovation.”

This Make It In America initiative involves a series of bills that have been introduced for consideration by the 112th Congress. This initiative will create jobs here, grow the economy and reduce the trade deficit, all of which help reduce our budget deficits. Creating jobs and growing the economy reduces deficits by increasing tax revenues and decreasing spending on unemployment benefits, food stamps, etc.

Click through for details of the plan.

A Warning

There is a warning here for President Obama and all other candidates of either party running for office in 2012: the public wants to see plans to bring back American manufacturing.

The public understands what the NAFTA-style trade deals have done to our wages, jobs, factories, industries, trade deficit and economy. They hate Wall Street's quick-buck outsourcing schemes and the trade deals that enabled them, and want American manufacturing revitalized. Supporting Wall Street and trade deals and the quick-buck, offshoring economy harms the country and for that reason is political suicide.

The public wants to go into stores and see "Made In America" again.

Frank Sobatka explains:

China Currency Manipulation - From "Enough Is Enough" to "Not Enough To Certify"

Dave Johnson — Tue, 27 Dec 2011 18:17:51 -0500

In November President Obama said, "enough is enough" to China's currency manipulations. Today the Treasury Department said it hasn't seen enough to call China a currency manipulator. This is happening because certain powerful interests are benefiting tremendously and using their wealth and power to keep things from changing.

China's Currency Manipulation

China manipulates its currency to keep it "undervalued." This means that things made there cost less in world markets than things made in other countries. The result is that manufacturing moves there, bringing them entire industries, supply chains, and the "industrial commons" of expertise, suppliers and culture that brings with it new businesses and industries. Many economists say that China's currency is undervalued by 25 to 40% meaning products made there have a 25-40% pricing advantage before any other advantages, subsidies, manipulations, etc. are considered. The currency it does not rise to market levels because China takes steps like preventing open trading and buying other currencies -- most of us wold call this manipulation -- to keep this from happening.

Instead of competing fairly China uses this manipulation and others, throwing world trade completely out of balance. Countries "make their living" by producing things and selling them to the rest of the world. This imbalance is costing our country jobs, factories, industries and trillions of dollars but we can't seem to get our government to do anything about it.

"Enough Is Enough"

In a November 14 press conference at the Asia Pacific Economic Cooperation (Apec) summit in Hawaii, President Obama acknowledged the simple reality that China is not allowing its currency to rise to market levels and that this is distorting global trade. He said “enough’s enough.”

“Changes are difficult for them politically, I get it…But the United States and other countries, I think understandably, feel that enough’s enough.”

And in regards to to the glacial pace at which China has been raising the value of the yuan, the president pointed out that “We recognize they may not be able to do it overnight…but they can do it much more quickly than they’ve done it so far.”

But Not Enough

The US Treasury Department today released its semi-annual Report to Congress on International Economic and Exchange Rate Policies. From the report's Key Findings:

"This Report highlights the need for greater exchange rate flexibility in these economies and most notably in China.

Over the past decade, China has resisted very strong market pressures for RMB appreciation. China’s real effective exchange rate has exhibited persistent and substantial undervaluation, although the estimated range of misalignment has narrowed over the course of the past 18 months."

This is the sixth time the Obama administration has refused to label China a currency manipulator and begin taking steps to remedy this problem that is distorting world markets and taking our jobs, factories, industries and money.

Currency Legislation

In October the Senate passed a bipartisan bill -- on a vote of 65 to 35 -- a bill requiring the administration to label China a currency manipulator and begin the necessary steps to remedy the problem. The House Republican leadership has refused to allow this to come up for a vote - because it will pass.

House Speaker John Boehner has made it clear he wants nothing to do with the legislation that has already raised heckles in Beijing.

And for now he seems to be in control despite loud protests including from within his own party.

Boehner, the most powerful Republican in Congress, denounced the bill again on Wednesday, a day after it passed the Senate, saying it posed a "very severe risk" of starting a trade war between the world's two biggest economies.

Even though many Republican members of the House say they support the bill, none of them will sign a discharge petition to force Speaker Boehner to allow a vote. Wall Street opposes addressing the currency imbalances, and has made it clear through their front-group Club For Growth that Wall Street will oppose House members who help bring this up for a vote. And right now Wall Street has more influence in DC's ongoing influence scheme than those who want to manufacture in the US, thereby bringing jobs, factories, industries, innovation and money back to the US.

Obama Appoints Two For Cabinet-Level Manufacturing Policy

Dave Johnson — Tue, 13 Dec 2011 15:04:08 -0500

President Obama has appointed Commerce Secretary John Bryson and National Economic Council Director Gene Sperling to co-chair a new White House Office of Manufacturing Policy. The new Office of Manufacturing Policy will have cabinet-level status, reflecting the importance of the manufacturing sector to our economy. It will coordinate the efforts of different government agencies, such as the Small Business Administration, the Department of Commerce and the Transportation Department.

The idea of a coordinated government manufacturing/industrial/economic policy has been in disfavor for some time, with conservatives deriding the concept as "picking winners and losers." The right-wing blog RedState, for example, calls this new effort "central planning" and calls the new appointees "czars." Other countries, however, do have coordinated industrial policies. So the result of our own abandonment of government coordination while countries like China and Germany charge ahead has been that we send our companies out on their own to compete against national systems. Even our largest companies have a very hard time up against this kind of supercharged opposition. We lost as many as 50,000 factories and millions of manufacturing jobs during the conservative-dominated Bush years, and have carried a massive trade deficit since Reagan's presidency.

The White House issed a press release, President Obama Names Commerce Secretary John Bryson, NEC Chair Gene Sperling as Co-Chairs of White House Office of Manufacturing Policy. From the release,

President Obama today announced that Secretary John Bryson would join National Economic Council Director Gene Sperling as co-chair of the White House Office of Manufacturing Policy. The Office of Manufacturing Policy is part of the National Economic Council in the White House and works across federal government agencies to coordinate the execution of manufacturing programs and the development of manufacturing policy.

“At this make or break time for the middle class and our economy, we need a strong manufacturing sector that will put Americans back to work making products stamped with three proud words: Made in America,” said President Obama. “I am grateful that Secretary Bryson and Gene Sperling will head up this office to continue our efforts to revitalize this great American industry and fight for American workers and jobs.”

... The President has also called on Congress to help revitalize American manufacturing, including continuing to push for an expanded, simplified, and permanent research and development tax credit which would provide the certainty and predictability manufacturers need to invest in innovation. In addition, the President’s American Jobs Act would extend the 100 percent capital purchase expensing provision signed into law in December 2010 and make an immediate $50 billion investment for highway, highway safety, transit, passenger rail, and aviation activities.

Since the bottom of the recession in 2009, manufacturing production has grown 14 percent while real goods exports have grown 29 percent. Over this same period, U.S. manufacturing has added over 300,000 jobs, the first time the sector has experienced sustained job growth in over a decade, but more must be done to revitalize American manufacturing.