Manufacturing Insecurity – New Report Points to America’s Economic and National Security at Risk

A panel of industrial and defense experts warned today that the steep decline in America’s manufacturing base has dire consequences for the nation’s ability to provide good jobs and defend itself. Noting that because the defense industry and the manufacturing sector are tied together, whole civilian industries are linked with defense manufacturing, said Dr. Joel Yudken, author of Manufacturing Insecurity: America’s Manufacturing Crisis and the Erosion of the U.S. Defense Industrial Base. Yudken, a Sectoral Economist and Technology Policy Analyst in the Public Policy Department, American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) in Washington, D.C., said that during the last decade under the Bush administration, the Pentagon led by former Defense Secretary Donald Rumsfeld promoted policies to globalize defense procurement by going overseas in a move to cut costs and speed innovation. As a result, the U.S. is now dependent on offshore sources for items such as flat panel displays and night vision goggles. “As this tapestry unravels it undermines our economic and our national security,” Yudken said. Yudken noted that as a result of these policies, we have seen a sustained erosion across each sector with our research and development and innovation capacities also eroding and an accelerated loss of American know how and skilled workers. Ticking off a list of worrisome trends, Yudken said these indicators should be cause for concern for federal policymakers. Manufacturing employment has shed 6 million jobs since 2001 and our industrial capacity is also on the wane with the number of establishments lost – 57,000 in the last decade, with a third of those being large firms of 500 employees or more. Our value-added manufacturing, which is an industry’s contribution to GDP, has seen a rate of growth far less than in the 1990’s. And America’s global competitiveness has seen a steady growth downwards because of the trade deficit. Where the U.S. once dominated areas like advanced technology products, in sectors like aerospace and communications, where we had a comparative advantage, Yudken said the U.S. world share is now shrinking. “China is making semiconductor manufacturing a national priority,” Yudken said, adding that in 2009, China led the world in new semiconductor factory openings. Yudken also pointed to the import penetration rate which in industry after industry shows an “across the board increase.” In areas such as advanced materials like metals, ceramics and photonics, “we’re losing capacity,” Yudken explained. “The signs of erosion are very clear, they’re moving offshore.” The U.S. has fallen behind China, Germany and Japan in production of machine tools and China is now the largest producer of stainless steel and is trying to corner the market on rare earth, metals that are key components of magnets and other high technology products. The corporate research and development investments in India and other overseas locations is also having an adverse impact on the loss of domestic science and engineering workforces, Yudken said. “These are people who create wealth, they are at the heart of the erosion we are talking about,” Yudken said of the brain drain offshore. “The Department of Defense needs to play a major role on a national manufacturing strategy with business and labor Yudken said if things are going to turn around. Panelist Owen Herrnstadt, director of Trade and Globalization for the International Association of Machinists, said “we see a threat to the leading edge industries like aerospace which are critical to high wage jobs.” Herrnstadt said that unless we do a better job of coordinating issues like taxes and investment there will be more incentives for corporations to ship jobs overseas. Herrnstadt said IAM is developing a 10-point white paper to restore jobs in manufacturing here at home. Among the recommendations are: • Require employment impact statements for all contract awards from the Department of Defense (DoD). • Insure that ‘Made in the USA” actually means “Made in the USA” by having domestic content regulations contain provisions for marketing costs and intellectual property. • Enforcement of current trade laws. • Stopping states (most of which face large budget deficits) from battling each other for manufacturing jobs by offering tax breaks. Panel moderator Robert Baugh, director of AFL-CIO’s Industrial Union Council, said the U.S. has to begin thinking more strategically about how we make investments in infrastructure that have the ability to help revive our domestic manufacturing base. “The rest of the world is playing soccer and we’re playing football,” Baugh lamented.