Monday, September 19, 2011
A series of articles from the New York Times, and other sources, on manufacturing, recently attracted my attention.
One discussed a two-tiered wage structure, that now seems to have become the norm for autoworkers. Older workers started at around thirty dollars an hour, whereas younger workers are coming in at fourteen. Benefits have also been reduced.
While that’s better than the starting salary at Wal-Mart, which is just over seven dollars an hour, it’s not enough to get someone into the middle class, as such jobs once did. And the potential for such a system to generate resentment seems real.
Newer autoworkers at Chrysler are no longer able to afford the cars that they are building. It was Henry Ford who, a century ago, had the brilliant idea to pay workers enough to buy the cars that they were building, initiating a self-reinforcing loop that made him one of the richest and most powerful men in the world.
A second Times article discussed the continuing decline of manufacturing as a segment of the U.S. economy, and suggested that a vibrant manufacturing sector cannot exist without government support in the form of tax incentives, favorable trade agreements and currency arrangements, and outright subsidies.
European governments have recognized this and have few qualms about exercising such policies. China is, of course, even more aggressive, offering huge incentives for transnational manufacturing firms that locate there, including free land and substantial tax breaks. Manufacturing in the U.S., it is worth noting, has declined from almost 30% in the 1960s, to about 11% today. It has declined substantially as a percentage of GNP over the last four years. In the last year alone, U.S. manufacturing has fallen 5%.
A flurry of articles also appeared last week on the American solar industry. While American media, including The Daily Show, focused on a non-existent scandal involving Solyndra, a firm that received $500 million in subsidies and went bankrupt, this diverted attention from the more important development. Not that long ago, the U.S. led the world in the production of solar panels, and today we have only one major producer left. The reason for this trend is quite simple. The Chinese government made a conscious decision several years ago to “own” the solar power industry globally, and invested vast resources into making that happen.
Unfettered by faith-driven, free-market ideologists, the Chinese essentially undercut the American market. Moreover, they didn’t do this with “innovation.” In fact, the more innovative American firms, banking on gains in panel efficiency, tanked. The Chinese simply took the standard preexisting model for solar panels and decided to make them as cheaply as possible. The problem, in other words, wasn’t too much investment in American firms by the U.S. government, it was too little.
Anyone that thinks that the long-term structural problems that we face were either caused by the current administration in Washington, or that they can be cured by “liberating” the U.S. economy, as John Boehner has recently suggested, is, to be quite blunt, out of touch with reality.
On the other hand, perhaps, at some point, the two-tiered labor system will become so pronounced that American workers will be competitive with their Chinese counterparts. And perhaps American regulations will become so lax that demonstrations will break out at solar manufacturing factories here, as has recently occurred in China. But I believe that's a future we should try to avoid, rather than embrace.