Bringing Back Manufacturing Jobs to the U.S.A.: Confronting Tough Realities

Meeting with American corporate CEOs at the White House on the first “working day” of his presidency, Donald Trump warned, “A company that wants to fire all of its people in the United States and build some factory somewhere else, then thinks that product is going to just flow across the border into the United States . . . that’s just not going to happen.”[1] The new president was up against “tectonic forces” in trying to bring back “blue collar” manufacturing jobs to his base using tax policy. Yet the business calculus goes immediately on the basis of financial advantage, and the contours of the “game board” include the various tax and trade policies of countries.

Without an import tax of sufficient amount to render the cost savings of moving a factory abroad, CEOs will naturally succumb to the pressure “to increase earnings at a double-digit rate when the American economy is growing by only 2 percent, and the quickest way to deliver higher profits is by reducing labor costs, whether through automation or moving jobs to cheaper locales like Mexico or China.”[2] The push, in other words, is excessive. The cause, according to the New York Times, “is the drive for bigger returns on 401(k) accounts, pension plans and other retirement vehicles that depend on steadily rising corporate profits and, in turn, a buoyant stock market.”[3] Whereas a U.S. president has a term of four years in which to see his policies realized, no such time-span is permitted where quarterly earnings reports are all the rage. Simply put, CEOs must make sure their policies see results and quick. With many emerging-market economies, as well as China, growing at more than twice the rate of the U.S. at the time Trump took office, global—including American—capital takes flight.

It is not as though the CEO’s of American companies who move factories off-shore are unethical. Scott Paul of the Alliance for American Manufacturing, told the New York Times, “I believe a lot of the C.E.O.s in that room [with Trump] want to do the right thing and create jobs in America, but the realities of Wall Street Pressure and a globalized economy leads [those C.E.O.s] to off-shore a lot of these jobs.”[4] One way to align the patriotic value with the business calculus is to alter the “game board” in such a way that it would be cheaper for the companies to manufacture products geared for domestic sale domestically rather than abroad; products directed to the Chinese consumer could still be manufactured in China. The key lies in raising the tariff or tax high enough and in adequately enforcing it. 

To be sure, automation would still mean that a return to the manufacturing hay-days could not be expected. Herein lies a much more difficult challenge: what to do with the remaining blue-collar workers who are not oriented to moving to white-collar professions and yet cannot find jobs in manufacturing. Behind the legitimacy of a tax on American companies moving factories abroad is the hard truth that significant numbers of people in any geographical region are not going to fit into white-collar jobs, for a variety of reasons not limited to education and upbringing as well as values.

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[1] Nelson D. Schwartz and Alan Rappeport, “Call to Create Jobs, or Else, Tests Trump’s Sway,” The New York Times, January 24, 2017.

[2] Ibid.

[3] Ibid.

[4] Ibid.

GDP and Poverty: Is Economic Growth the Answer?

From 1959 to 1973, the American economy grew 82 percent, per person. It is easy to assume this is why the poverty rate decreased from 22% to 11 percent.[1] From roughly 1985 to 1990 and then again from 1995 to 2000, heady growth rates are also correlated positively with declining poverty rates. But correlation is not causation. Indeed, had the correlation in the 1959-1973 period continued, the subsequent per capita growth would have ended poverty in 1986. What then are we to make of the relationship between GDP and poverty?

According to Heidi Shierholz, an economist at E.P.I., the “very tight relationship between overall growth and fewer and fewer Americans living in poverty” broke apart in the 1970s.[2] In spite of the OPEC oil cartel’s inflationary shocks in 1973 and 1979, the poverty rate remained relatively constant through the decade of “stagflation,” spiking only once Reagan took office—perhaps on account of David Stockman’s domestic budget cuts that hit the poor especially hard and Paul Volcker’s high interest rates at the Fed (to decrease the inflation rate) that increased the cost of borrowing money. To be sure, the recessions in the early 1980s and the early 1990s are associated with increases in the poverty rate, which even lags the subsequent recoveries, and the rate fell as the economy was humming along in the late 1980s and 1990s. Even so, eleven percent seems to be the rate’s floor. Perhaps this is why the relationship broke apart in the 1970s?

According to Thomas Piketty, the period from World War I to the 1970s is unusual economically because the shocks reduced returns on capital relative to the growth rates of income and GDP. The economist suggests that inequalities in income and even wealth narrow under this rather artificial arrangement; typically, returns on capital have outsized increases in income, thus increasing the inequalities. Perhaps the inverse relationship we are looking at holds only when the rate of return on capital is low relative to the GDP rate. However, as I indicate above, heady growth periods after the 1970s can be found in which the poverty rate is decreasing, and recessionary periods in which the rate is increasing.

So we are back to the 11 percent floor. When the relationship broke apart in the early 1970s, the poverty rate was indeed at 11 percent. Instead of continuing downward, the rate hovered, when up a bit, then slightly downward until just above 11 percent before heading starkly upward in 1981.[3] What might be behind the floor? It seems doubtful to me that 11 percent of the adults in America are simply unable to work for non-economic reasons. It seems more likely that the market mechanism, which can support wages at the minimum wage without any upward pressure (e.g., from labor shortages), functions at an equilibrium short not only of full employment, but rising wages (relative to returns on profits and stock appreciation) as well. In other words, we cannot look to the market to “grow” us out of poverty. While undoubtedly a help, the market is only part of the solution.

The question is thus how we can fill in the rest of the solution. What, outside of the economy, can make up the difference? As the source and enforcer of societal rules, government is not intrinsically the answer, for to be the “man in charge” does not in itself connote supplying materials (including jobs). Yet the government could direct that materials and or jobs be provided outside of private industry, such as by non-profit organizations receiving funds from tax revenues and thus directly under government oversight. Even now, the Full Employment Act of 1946 directs that everyone who wants a job should be able to have one—that this is a task of government to oversee. Lest employment be viewed as an end in itself rather than a means, we could stipulate that everyone has at least a minimum amount of money and wealth. Hence the unemployable veteran, for example, would not have to suffer in poverty. Lest breaking through the 11 percent floor make it more difficult for Walmart or McDonalds to pay cashiers the minimum wage of just over $7 an hour, we might remember that a part of the solution is not in itself more important than the solution itself.

That is to say, hits taken at the margins to part of the solution as the rest of the solution is added should not outweigh the solution itself, for the end is more important than any one of the means. Too often, I fear, the American public discourse obsesses on the downsides on the margins to a means, being all too willing to preempt a full solution just so the particular means is not slighted in any way. I suppose this is a sort of tunnel vision, with greed playing a supporting role. Death and taxes may be inevitable, but surely poverty is not. Indeed, it may be viewed as an artificial byproduct of human society and thus as fully within our powers and responsibility to eliminate rather than take as a given.

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[1] Neil Irwin, “Growth Has Been Good for Decades. So Why Hasn’t Poverty Declined?” The New York Times, June 4, 2014.

[2] Ibid.

[3] Ibid.