Manufacturing Erosion Poses Threat to Standard of Living
31 Mar, 2003
While manufacturing has been the engine for healthy economic growth and good jobs, intense global competition and the rising cost of doing business in the U.S. threaten manufacturing’s capacity to maintain the nation’s economic strength and standard of living, according to a new study by economist Joel Popkin.
“Manufacturing spawns more additional economic activity and related jobs than does any other economic sector,” stated Popkin, president of Joel Popkin and Company. The study, “Securing America’s Future: The Case for a Strong Manufacturing Base,” commissioned by the Council of Manufacturing Associations (CMA), contends that manufacturing is “the heart of an innovative process that powers the U.S. economy to global leadership” and that “America’s unprecedented wealth and world economic leadership are made possible by a critical mass of manufacturing within the geographic confines of the American common market.”
“Popkin shows how the unique linkages of manufacturing to the rest of the economy create more innovation, productivity and good jobs than any other sector of the economy,” said Jerry Jasinowski, president of the National Association of Manufacturers. “Popkin attributes America’s high standard of living to the manufacturing innovation process. Research and development stimulates investment in capital equipment and in workers, leads to new processes and products, generates spillovers that benefit other economic sectors, and ultimately leads to higher living standards.
“Manufacturing has an amazing impact on our economy,” Jasinowski said. “Every dollar of specific manufacturing production creates an additional $0.67 in other manufactured products and $0.76 in products and services from non-manufacturing sectors. Manufacturing contributes more than 60 percent of U.S. investment in research and technology, and manufacturing workers make 20 percent more than the average wage.
“However, America’s industrial leadership is being squeezed between unprecedented foreign competition based upon predatory trade practices that make it impossible to raise prices, and rising costs due to rising health care costs, soaring runaway litigation, and excessive regulation. The result is a dramatic decline in manufacturing cash flow that forces firms to cut back on R&D and capital investment, and to reduce employment. The U.S. manufacturing base is receding – and with it the all-important innovation process that is the seedbed of our industrial strength and competitive edge.”
“The loss of 2.3 million manufacturing jobs poses a real and present threat to the American middle class,” said Thomas Dammrich, president of the National Marine Manufacturers Association, and chairman of the CMA. “These are among the best paying jobs in our country, and almost all of them offer a full range of benefits, including health insurance. Every lost manufacturing job is a tragedy for someone’s family.”
The greatest long-term impact of the erosion of U.S. manufacturing, according to the Popkin study, is on innovation. “U.S. manufacturing generates the greatest innovation process in the world by germinating and nurturing innovations from concepts through to full-fledged improvements in the products and processes that provide the basis for improved productivity, prosperity and a higher quality of life,” the study concludes. “But as U.S. manufacturers face serious challenges to their continuing existence, the critical mass necessary to maintain a dynamic innovation process is jeopardized.”
“If we want to maintain the R&D investment and innovation strength of the U.S. economy, we must require our competitors to compete on a level playing field, hold down the costs of doing business at home, and encourage R&D and investment,” said Jasinowski. “It is increasingly important that policy makers hike spending on R&D activities, that we enact a permanent R&D tax credit, and that the government provide incentives to increase the supply of scientists and engineers. The U.S. is facing a critical skills shortage in the near future as the current generation of manufacturing workers retires and few young people are coming into industry.”
“If the U.S. manufacturing base continues to shrink at the present rate and the critical mass is lost,” the Popkin study concluded, “the manufacturing innovation process will shift to other global centers. If this happens, a decline in U.S. living standards in the future is virtually assured.”
The CMA is an independently funded division of the National Association of Manufacturers with more than 200 manufacturing trade association members. The complete Popkin paper can be accessed at the NAM web site at www.nam.org/future.
The National Association of Manufacturers is the nation’s largest industrial trade association. The NAM represents 14,000 members (including 10,000 small and mid-sized companies) and 350 member associations serving manufacturers and employees in every industrial sector and all 50 states. Headquartered in Washington, D.C., the NAM has 10 additional offices across the country ( www.nam.org ).