Commentary on Political Economy

Monday 4 January 2021



America Can’t Even Produce the Things It Invented

The United States can bring manufacturing back — which will bring back good jobs and protect national interests.

By Dan Breznitz and David Adler

Mr. Breznitz is a co-director of the Innovation Policy Lab at the Munk School of the University of Toronto and an award-winning political economist. Mr. Adler writes frequently about industrial policy, as well as liquidity and financial frictions.

Credit... Christopher Payne, via Benrubi Gallery

The panic in the United States over the lack of masks and ventilators for Covid-19 has mostly eased, but please, don’t let those scary few weeks fade too quickly. The scramble for medical equipment was a telling moment for the American economy because it revealed something alarming: The United States can no longer produce what it needs in a time of crisis, even if those things were invented here.

In the past two decades, the U.S. economy has been lulled into following a path of offshoring, driven by an ideology celebrating short-term financial gains above everything else. The country, once a manufacturing powerhouse, is populated by corporations that have moved manufacturing overseas and lost their ability to produce domestically, leaving little behind except shell companies that employ relatively few people. The United States no longer produces even the essentials, from personal protective equipment to our smartphones and laptops.

The huge short-term profits of this trend, coupled with impressive decreases in the prices of certain consumer goods, soothed many Americans. But the country lost sight of the critical requirements of a vibrant economy — which is good jobs. Death by despair from drug overdoses, suicide, and alcoholism has been claiming hundreds of thousands of people unable to find well-paying work.

Production has shifted overseas so extensively that the United States is now dependent on other countries, particularly China, to supply many of our necessities, from medical supplies to 5G to the simplest of screws: 95 percent of surgical masks and 70 percent of respirators used in the United States are produced abroad. The last domestic penicillin plant closed in 2004.

The pandemic has forced us to understand just how far down this path the country has gone, and given us a chance to start reversing direction before the next crisis hits.

Here is a post-Covid-19 challenge for Joe Biden’s Build Back Better plan: In the next 10 years, the United States should try to move back just a quarter of overall production away from Asia and the greater China region. That could not only affect preparedness for a subsequent crisis but also restore America’s position as a global manufacturer and a bastion of good jobs.

The United States has fallen behind in many areas of advanced manufacturing, like 5G and the most cutting-edge computer chips. Instead of creating these manufacturing jobs, the economy is adding poorly paid service jobs. According to the Bureau of Labor Statistics, the occupation that will add the most jobs over the next decade will be for “home health and personal care aides,” which pays about $25,000 a year. Other high-wage countries such as Germany and Switzerland have increased their high-end manufacturing. The United States should aspire to do the same.

It can be done. America is still the world’s second-largest manufacturer, and has retained pockets of the needed skills, from the shop floor to management of production. It doesn’t have to start from scratch.

But one glaring thing is missing: powerful, sustainable demand for goods made in the United States.

Without stable long-term demand, no company will invest in building production capacity, and potential employees will not invest in acquiring the necessary skills. Also, government funding to build supply won’t be effective without any demand.

The experience of one of the last domestic producers of the N95 mask, Prestige Manufacturing, is emblematic. During the swine flu pandemic in 2009, the company geared up production and hired more workers, only to see hospitals shift back to foreign producers once the crisis was over.

“Hospitals didn’t stick with us; we had to lay off 150 employees,” Mike Bowen, the president of Prestige, told us. After Covid-19 hit, the company made additional masks only for hospitals willing to sign contracts guaranteeing they would stick with the manufacturer for the long term. As a result, there was a six-month delay in scaling up production, and its output was significantly smaller than what Prestige might have produced had there been more certainty about the stability of future demand.

If products are going to be successfully manufactured in the United States, there must be sustained purchases by the government at the federal, state, and local levels, certainly for medical supplies but also in other industries.

After all, taxpayer money should not be used to subsidize foreign production. Companies that are given federal aid for crises should be required to move a significant percentage of their sourcing and production back to the United States. Stopping predatory pricing by foreign manufacturers is also necessary to ensure stable demand.

Consumers are another overlooked source of stable demand for U.S.-made products. Indeed, their passion is cynically being used by companies that sell their made-in-China products as “proudly American.” Further, some consumers are clearly willing to pay more for products that they know are better, healthier and more ethically sourced. Thus, once consumers learn that not all generic drugs are alike, with pronounced differences in quality and safety, depending on the country of manufacture, many will gladly add a few cents for drugs using American-made active ingredients, perhaps with packages stating that their products are free from foreign-made active ingredients and were manufactured by fairly treated workers.

Stoking demand is all about certification, labeling and marketing. The Senate is considering proposals calling for disclosure of pharmaceutical production and sourcing. That’s a great step, and it should be extended to other industries.

Federal law should require all manufacturing industries to disclose how much of their sourcing and critical production takes place in the United States. It should be illegal for companies to use terms such as “an American tradition” on the packages of goods that were completely produced in China.

Covid-19 has brutally exposed national weaknesses. The task is difficult and will take years to bear fruit. However, there is also the chance to secure prosperity for future generations of Americans, as well as ensure that the next crisis will not find us so vulnerable. It is time that the United States believed in itself again.

Dan Breznitz is the Munk Chair of Innovation Studies and a co-director of the Innovation Policy Lab at the Munk School of the University of Toronto. His next book, “Innovation in Real Places: Strategies for Prosperity in an Unforgiving World,” will be published next month. David Adler writes frequently about industrial policy, as well as liquidity and financial frictions.

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