Our shrinking manufacturing sector – Part I
It’s almost impossible to walk through a major “big box” store these days and not feel like Ichabod Crane riding through the dense trees of Sleepy Hollow. Surrounded by thousands of products now stamped with the “Made in China” label, the feeling is one of profound loss.
America has awakened to a brutal new reality. A one-time enemy turned trading partner has now become our largest creditor, and one that is pulling the levers of our financial system through its investments in – and stranglehold on – the U.S. economy.
Back in the 80s, the Japanese were the bogeymen, threatening to take over New York City with offers to purchase Rockefeller Center (and other prime real estate). I was frequently asked then if I thought this was a dangerous development. My answer was, “I’d rather have foreign ownership of real estate than world domination of the currency or bond markets. What would the Japanese do if they ran into cash problems, pack up their real estate and take it with them?”
That was then, when we still made things at home and sold them abroad.
The 90s changed all that with the rapid growth of the high-tech sector that sucked investment money from old-line manufacturing companies and put it into the stock market. Many U.S. manufacturers struggled to stay profitable (and protect their share values) by moving huge production volume offshore where labor rates were lower and where foreign governments rolled out the red carpet for them in industrial parks across southern China and other parts of Asia.
Back then everybody was making money (not unlike the late 1920s), and it seemed that by cleverly off-shoring production, manufacturers would be able to compete for share value with the fast-growing dot-com companies.
The trouble was during that period of off-shoring, American companies were not taking their new gains made from lower production costs and re-investing them in newer technology (though their foreign partners, the contract manufacturers, did). To make matters worse, their stock prices were not rising as fast as those of the new-tech service sector, so many invested there instead. Any new products developed were developed with a view toward overseas manufacture, thereby perpetuating the vicious circle of dependency.
At the same time, federal tax loopholes made it more attractive for companies to move profits to tax havens in a whole new set of foreign countries rather than bring them home. Neither the Feds nor the private sector thought there would be a day of reckoning when America’s chickens (failed investment and manufacturing strategies) would come home to roost.
All operated on the assumption that our GDP and disposable income growth rates would continue unabated. We thought we were on a journey toward prosperity without suspecting we were ensuring the demise of our generations-old manufacturing supremacy.
By the time that realization set in, our options to reverse the trend disappeared. We were involved in expensive foreign wars that drained our treasury and bad lawmaking that grew our deficits and indebtedness. In addition, our companies began downsizing American workers instead of reducing their foreign workforces or cancelling production contracts overseas.
In Part II
To be fair, these corporate decisions were really “no-brainers,” because American consumers were used to paying low prices for their goods (and were reluctant to accept higher prices no matter where the goods were produced), and federal tax laws gave companies little room or incentive to repatriate their profits. In Part II, I’ll write about free and fair traders and how seemingly competing interests moved America into a dependency on foreign contract manufacturers and the consequences of those decisions.
Stephan Helgesen is a former diplomat who served in 24 countries over a 25-year period. He is also former director of the New Mexico Office of Science and Technology. Today, he owns a high-tech consulting company and is the honorary consul for Germany in New Mexico. He can be reached at firstname.lastname@example.org.
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