Wednesday, March 24, 2010

Doubling of US Exports Will Require Tripling of Smart Manufacturing Policy

The administration has announced a goal of doubling US exports over the next five years. The program is called the “National Export Initiative (NEI). The goal for the program is to create 2 million new jobs.

As seems to be the practice when discussing US exports, the government actions that hurt exports and created overwhelming imports are not mentioned. Over the last 35 years mismanagement of trade agreements with specific countries and the World Trade Organization sent thousands of US based manufacturing opportunities overseas along with the fruits of American innovation. Once again our elected government representatives failed to protect Americans as they gave away US manufacturing sectors, one by one, to astute countries. Those countries wisely helped their own industries make good use of the gifts. The foreign factories are now built and running, selling us the results of our innovations that are now made in their factories. The receiving countries helped their industries make good use of the transferred technology by ignoring US reciprocal trade treatment.

In the review of the program with Reuters the Secretary of Commerce made statements showing that they do understand the problem.

"Free trade only works in a system of rules where all parties live up to their obligations," Locke said in the prepared text of a speech he gave detailing Obama's National Export Initiative, or NEI.

"The United States is committed to a rules-based trading system where the American people and the Congress can feel confident that when we sign an agreement that gives foreign countries the privilege of free and fair access to our domestic market, we are treated the same."

"The approach that we're taking is trying to get much tougher about enforcement of existing rules, putting constant pressure on China and other countries to open up their markets in reciprocal ways."

It is good to see that we now have a goal and understand the problem. But this is only the start. It is in solving the problem that the challenge lies.

The US got here by blindly accepting the advice of economic specialists who claimed we need not worry about the loss of manufacturing jobs in existing industries because even more new jobs would be created in advanced industries by"innovation.” They failed to understand the effect of the large capital outflows that went to construction of plants in foreign countries and the strong inspirational link between innovation and the technology of manufacturing. It turned out that by shipping manufacturing sectors overseas we were also shipping our innovation infrastructure along with a large portion of the business of our parts suppliers.

Innovation in the US could not make up for the large number of jobs lost under these conditions. We are now also importing advanced technology products built by our newly educated foreign competitors.

This is all explained very well, with confirming statistics, in a webinar by the Association of Manufacturing Technology. AMT is the trade organization for companies which manufacture machines used in manufacturing, such as machine tools. Their members have had a front row seat on how unthinking actions by both political parties have hurt their American customers. If you can, stay with the whole webinar to get an ideal of how our manufacturers are fighting back and want government assistance in critical areas.

So what to do? In 2008 total exports were $1.826 trillion dollars against imports of $2.522 trillion for a resulting annual deficit of $696 billion. Doubling exports with reasonable restraints on new imports would certainly make a dent in the problem. But what more are we going to export? What needs to happen to allow us to recover our previous positions? Excluding devaluation of the dollar there are three other areas to work on:

1 Supercharge our innovation engine

America has been the hands down world leader in product innovation. Innovation has been the driver for our economic leadership. We are still leaders in innovation both through our established companies and from breakthroughs by startup small companies. Apple, Microsoft, Google, Genentech, Dell, are just a few examples of American companies that were either starting up or not existent just 35 years ago. Startups offer specialized expertise, ideas, and the willingness to work unreasonable hours for the idea. We must not let the associated American jobs from these sources slip away. Government should work closely with small and larger manufacturers to develop innovation friendly policies. Special financial incentives for investments in startups that encourage US manufacturing combined with associated basic research are already in place in many sectors but should be greatly expanded.

2 Redo one sided trade agreements and make changes in the World Trade Organization

China, Japan, Mexico, Canada, and Germany are the countries which supply over two thirds of our deficit. They have to be approached with the information that we will not continue the current imbalances. They must become more favorable trading partners for US goods to avoid direct action by the US.

The World Trade Organization is a special case in which we need revisions of many elements which are unfavorable to US trade.

3 Capture a favorable trade balance in emerging markets

Emerging markets are countries experiencing rapid economic growth after previously lagging the advanced countries. China, India, Brazil, Hungary, Poland, and Taiwan are typical of what is called advanced emerging markets. Chile, China, Argentina, and Egypt are typical of secondary markets. Wikipedia has 22 markets listed as “emerging”. These areas are targeted as future leading area for economic growth. The US must gain its proper share of exports to these areas. It will not be easy because these countries want jobs as well as products and we have supplied them with the technology they need to compete..

We have had almost 40 years of destructive behavior from both political parties that fell upon the American citizen. Even now our government is heavily lobbied by former federal officials representing foreign interests. We have a hard row to hoe. One thing for sure, it won’t be fixed by band aid rhetoric and a congress heavily lobbied and influenced by foreign interests. Like our other problems it will only be corrected through citizen anger and very hard work. We desperately need a sincere American- centric cooperative effort by our government and industry. Neither has the ability to succeed alone. The government has the responsibility of setting policies and negotiating agreements that have reasonable economics for manufacturers to produce in the US. The manufacturers have the responsibility to respond intelligently and with appreciation of the advantages of being an American company.

Friday, March 12, 2010

Fix Our Trade Deficit and Manufacturing Situation Now!!

The continuing trade deficit is disgraceful, and an insult to the American worker. Americans want to build and manufacture, not borrow to buy products made by others.

From the early 70’s until now our elected governments and their appointees have mismanaged the US from a global manufacturing powerhouse with a trade surplus to an annual negative balance of over 696 billion dollars in 2008. The American worker hasn’t changed. The American export environment negotiated by our government is different.

We must face the fact that over the last thirty years our elected governments and some large corporations have traded away thousands of opportunities for American to add value to the worlds manufactured items. They did this by following the advice of narrow “experts” who did not understand the pivotal roll manufacturing plays in a nation’s strength. They seemed completely oblivious to the long tern consequences of the trade and financial policies they were promoting. As a result some few individuals have been grossly enriched while the large majority of American citizens, and the nation, have been severely harmed.

Our great nation has been crippled by leadership that damaged our ability to provide the challenging jobs our skilled people deserve. They undermined our position as a prime example of the benefits of a free working democracy.

They did this by committing to conditions of the World Trade Organization, and individual countries which were very unfavorable to US built products. They gave no consideration to the consequences for the US citizen worker. They failed to adhere to the sensible thought that a country of the size of the US should always have the capability to be independent in critical areas. They allowed themselves to be heavily lobbied by foreign and US companies to pass US legislation that favored foreign manufacturing. This all has a disheartening resemblance to failures of the financial sector to show any interest in the good of the US in its disastrous practices.

We need real action with America’s interest placed first. Fixing this entangled mess requires that we renegotiate our trade agreements with several countries and the World Trade Organization to a level of reciprocity between what we give and what we receive. We also must immediately develop a national plan for a guaranteed balancing of our imports versus exports and stand the pain to implement it. It should be easy to resist the nonsense of some who will say a trade deficit is good.

This situation was brought on by both political parties. Many of those responsible are still in power. The same old lobbyist system that brought us here is still in play.

A sincere effort will only be undertaken through the anger of the citizens. Our Founding Fathers anticipated these situations and have given us in the Constitution the required tools—Let’s use them in 2010. A quick and decisive end to the trade deficit and a resurgence of our manufacturing reach must be a sincere component of the program of any candidate who gets your vote.
If you are interested in a further understanding of the entangled mess we are now in and would like a better understanding of what needs to be changed I recommend the book "Saving Capitalism" by Pat Choate

Saturday, March 06, 2010

Once Again Nature Teaches Us Humility

Snow in the Eastern Shenandoah area is supposed to happen just a few times per year, is usually just a covering of a few inches ,and is rarely over 12 inches. It stays just a few days before warm weather returns to chase it away. Sure the old timers talk about the real storms of the past but they are usually associated with the Blue Ridge or Appalachians and taken with a grain of salt. The District of Columbia, that is over 50 miles to the east, has usually been spared even that modest amount. The most talked about snow in DC recent history was January 22, 1961, the day of the Kennedy inaugural. That day DC got a whopping eight inches which created havoc in the inaugural celebration events.

That is why two successive storms over 25 and 30 inches of snow each, combining with winds to whip up towering drifts, were so appalling to us. They essentially imprisoned most of the population around DC for over a week. It was a perfect example of how easily Nature can brush aside mans’ petty agendas and come forth with its own.

As in always true when Nature flexes its muscles its raw power was overwhelming. Our plows, energy reserves, food and heroic physical efforts were temporary barriers and couldn’t compete with the peak level storms. Schools, politics and almost all social functions faced reality and were cancelled and forgotten. Health care reform and the economy were dropped from TV for 24 hour coverage of the storm. We were put in our proper place each night as the bitter cold winds re-drifted the snow, destroying the days hard plowing.

As always, Nature final relented and the struggle slowly turned in our favor. The winds became less ferocious, the snow stopped, the main roads became passable, and the essentials of our society returned. The drifts and mountains of plowed snow remain but are largely out of the way of our critical life systems.

What important bits of knowledge can be gleaned from the experience? There are several:

We are a pretty tough society that fights back hard.

When the scope of the storms was understood a hardworking cooperative meta-organization was immediately formed. This front line defense was shared without hesitation by contractors, government, local volunteers and neighbors.

The commitment of the personnel who formed this line against the storms showed the toughness of the American workers. This includes both those fighting the snow and those restoring power. Many served consecutive 12 hour shifts or longer to work all night in bitter cold moving and blowing snow. A tremendous amount of back road plowing was done by private owners.

The commercial delivery system was also outstanding under very strenuous conditions. Large delivery trucks make it through on very marginal roads. As soon as a route for delivery to a commercial area was configured by the road team the word was spread and the delivery vehicles came through.

It was an excellent job by overextended teams. Another example of how good the American worker can be when challenged. A curse on those idiots that sent so many of their jobs overseas.

Citizen Behavior

Generally good, with the usual exceptions that caused suppressed resentment. The most common was people with the wrong vehicles stuck and blocking roads. Some residents didn’t grasp the need for high road clearance to travel through deep snow. They became stuck and blocked streets that had been previously passable by four wheel drive trucks, jeeps and most SUVs.

Side Events

There was a well deserved shift of wealth to construction operators that put previously underutilized construction equipment into 24 hour operations moving snow.

Many unemployed construction workers earned well deserved good paychecks for the period.

The internet was a priceless local information center for the citizens. You could always get the latest status of a local road or route by queries on the internet.

The storm was especially tough on restaurants, because neither staff nor customers could make it in.

A Philosophical Thought

This once again confirmed that when Nature is in a state of violence the tools of mankind are weak and only allow us to wait it out. We absolutely count on Natures violent excursions lasting only a limited time before returning to a quieter level where we can regain control. That is what happens in almost every clash of civilization with violent Nature, be it earthquakes, thunderstorms, volcanoes, hurricanes or flash floods. As expected, this is what happened in our record snow storm of 2010.

As powerful as it is, however, the damage done to mankind by Nature is small in comparison to that which man inflicts on himself through wars and stupidity. (Possible future cosmic events not considered)