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October 28, 2009

Off to CAF's New Economy Conference


I'm off to the Building the New Economy conference, which kicks off tomorrow in DC.

Scott Paul, the president of the American Alliance for Manufacturing summarizes some of the issues on his mind ahead of the conference:

Ahead of the Oct. 29 'Building the New Economy' conference in Washington, one can state the obvious: something has gone terribly wrong with the U.S. economy. But chalking up the blame to a few bad apples on Wall Street and their risky financial instruments, and responding by simply providing appropriate regulation in the financial services sector, will ultimately be unsatisfying. There are much deeper, structural issues which must be urgently addressed. 

It stands to reason that America needs to produce things of value in order to assure its continued prosperity and security. I'm still weighing the arguments about what role manufacturing should play in that equation. 

Obviously, we shouldn't fall into the trap of propping up heavy manufacturing for heavy manufacturing's sake. But it's impossible to deny that manufacturing has historically been a source of good, skilled jobs.

I'm excited to learn more about green manufacturing jobs. We're going to have to spend a lot of money to become more fuel efficient and less polluting. Someone will have to make the solar panels and wind turbines. Why not Americans?


Reading Paul's post, a few things came to mind:

First, we shouldn't let the Chinese trade balances scare us. We may import a lot from China, but we can make up for it by exporting a lot to other countries. Trade balances with specific countries don't matter, only our overall trade balance matters.

Second, a lot of those "cheap imports" end up in the hands of small businesses and poor people who can't afford higher-priced domestic goods. This improves the quality of a lot of people's lives.

Third, there's nothing wrong with a service economy. Service jobs that are done in person---lawyer, doctor, plumber, gardener, interior decorator, hair stylist, waiter---are jobs that cannot be exported.

In regards to the role that America has in manufacturing, this is a subject that hits home living in Michigan. I hope to see the auto industries improve and I would love to see some of the old auto plants start manufacturing wind mills and solar panels.

I'll be really interested to see the opinions of and potential roll of unions in all of this.

Much of the economic growth, specifically standard of living growth, of the twentieth century can be tied to the dominance of unions and the availability of higher education. It does the country little good to grow the economy if most citizens don't reap a meaningful benefit from it so it stands to reason that education and labor relations should play a pivotal roll in an American industrial future.

Lindsay, I expect better of you. The people running the conference are all lobbyists and shills for manufacturing interests; of course they'll say manufacturing is important to security and prosperity. This is no more surprising or worthy of your reporting than a conference sponsored by Turkmenistan's lobbyists saying that Turkmenistan is an emerging democracy whose success is vital to US interests.

Thomas, unions and higher education have jack shit to do with each other. The US was for decades both the least unionized developed country and the best educated one. The US was certainly never dominated by unions - even at its peak, US union density was lower than this of post-Thatcher Britain. Education improves economic performance; unions have nothing to do with it, and in fact the fastest growing developed countries today include both the most unionized (Finland, Sweden) and the least unionized (Hong Kong, Singapore).

Of course they're lobbyists and advocates of various stripes. This was an avocacy-oriented event from top to bottom. Everyone who participated was upfront about their institutional affiliation and their agenda. It's not like when the Economist pretends to host a "Turkmenistan Day" where all the so-called independent academics and journalists invited talk about Turkmenistan are secretly being paid and programmed by the Carmine group.

The theme of the conference was actually two-pronged: Manufacturing and public investment generally. So, yes, a lot of people looking for public money came to make their case.

If it was up to me, I'd rather spend public money retrofitting public buildings to meet high energy efficiency standards than lending money to U.S. Steel to build another coke plant. If the components to retrofit the buildings could be made in the U.S., that would be great, too. A good model might be Germany which manages to maintain a high standard of living by outsourcing low-end manufacturing and keeping high-end manufacturing at home.

When the headlined sponsor is the Alliance for American Manufacturing, the event would have failed on its own terms if participants didn't come away thinking: These folks want to promote manufacturing in the United States. Most of the participants were directly or indirectly involved in doing that already.

It's like going to a gay rights rally and being surprised that everyone there has already made up their mind about same-sex marriage.

But this wasn't a rally! It was presented as a sober panel about policy. I don't think you'd have covered a rally billed as a protest of the steel and auto industries for more subsidies and import protection to the steel and auto industries.

If you don't like the Turkmenistan example, take a real-life example from last month: Reason, Heritage, and other GM- and Exxon-Mobil-funded organizations talking about urban policy descended on Houston. The event's speaker list included not a single expert on urban policy; it was instead packed with highway advocates and lobbyists who tried to pin every problem in America - declining fertility rates, the housing bubble, reduced mobility - on smart growth.

Were the people there upfront about their agenda? Yes - they don't even bother denying they're Exxon-funded. But that doesn't make the event anything other than a hack fest. A manufacturing panel that had Sherrod Brown rather than someone who actually knows what he's talking about - say, Paul Krugman - is no different from an oil-and-cars-are-good-for-you panel. Or from, say, a hypothetical panel about foreign policy featuring Team Blue, Paul Wolfowitz, and Bill Kristol, who, again, are pretty open about what they're shilling for.

The German example is a pretty good one for the US. To follow it the US would need to do the following things: promote unions that understand wage restraint and try to make their companies more efficient, cut executive salaries by a factor of 10, liberalize trade policy (EU protectionism is driven by France, not Germany), invest in public transportation and not just mega-highways, stop subsidizing the pollution industry with lowballed gas taxes, and restrict coal development. I don't think the Steelworkers' Union and the UAW would support most of those policies.

On another note: I don't know about wind turbines and solar cells, but with public transit, you want Americans to stay as far away from making it as possible. In New York, for about a decade the city had to follow Buy American laws and buy trains and buses from a handful of US manufacturers, which delivered lemons. Every car delivered from 1968 to 1979 was a lemon; eventually, the trains got so bad the city sued, bankrupting most of the domestic rolling stock industry in the process. Then Reagan came to power and defunded any public transportation improvements, so suddenly the city was free of Buy American, and imported trains from Japan. Those trains were the first order in over 15 years that worked, and ever since the city has succeeded with buying foreign-designed equipment.

Now, solar cells and wind turbines may be different. It's possible there are businesses in the US that do it well. But if the feds decide to slap import protections and collude with the biggest manufacturers, they'll never be, because they'll get away with making crap to a captive market. Right now, the correct thing to do would be to fund R&D better, reform laws so that it's easier to start a business, stop the subsidies for polluting industries, and invest in creating demand for alternative energy. The incorrect thing to do would be to try to shoehorn it into Detroit's business model, and meanwhile provide Detroit with a soft landing by letting it pollute as much as it wants. But big auto and big steel are too big to fail and small solar isn't, so we all know how it will actually turn out...

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