New Directions in Manufacturing: Report of a Workshop (2004)

Stephen R. Sleigh

International Associate of Machinists and Aerospace Workers, AFL-CIO, CLC

The U.S. economy continues to reel from the multiple impacts of the economic downturn that began in 2000 and that turned into a severe recession for certain sectors of the economy after the terrorist attacks of September 11, 2001. Even before the overall economy stalled, the manufacturing sector had begun a long downward slide. The numbers look grim from a number of vantage points:

• In August 2003, non-farm employment fell by 93,000 jobs. This was the 7th consecutive month of job losses. Manufacturing shed an additional 44,000, with August 2003 being the 37th consecutive month of falling employment in this critical sector of the economy.

• During the 1990s, more than 24 million jobs were added to the American economy. Almost 2.7 million of those jobs have been lost since January 2001.

• All in all, there are currently 15 million unemployed and underemployed workers, a 42 percent increase since President Bush took office.

• In manufacturing, employment is falling in both relative and absolute terms.¹

As the head of research and strategy for a major North American labor organization, I am involved in many situations that require creative responses to difficult issues. My union, the International Association of Machinists and Aerospace Workers (IAM), represents nearly 750,000 active and retired workers throughout North America. The IAM core industries are aerospace, air transportation, and general manufacturing. The IAM has collective bargaining agreements that spell out the terms and conditions of work for nearly 5,000 employers. The profile of employers is fairly typical for the economy overall, with a few very large employers and many small and mid-sized companies.

The large companies, such as Boeing, United Airlines, and General Electric, attract the majority of public attention with high profile disputes between labor and management. While our relationships with large employers do occupy a lot of our attention, the problems of the 10-person company are just as difficult and time-consuming. The current economic environment, characterized by downturns in all the IAM core sectors, has resulted in the largest 2-year drop in membership in a history that dates back to 1888.

My own work history is a case in point. I served an apprenticeship as a machinist in the mid-1970s, a time when manufacturing jobs at decent wages were readily available, even for individuals like myself who had just graduated from high school with no specialized skills. Shortly after completing my 4-year apprenticeship, I took a job with the Goss Printing Press division of Rockwell International. At the time, Goss was the dominant producer of newspaper printing presses, holding approximately 80 percent of the worldwide market for large offset presses. With manufacturing and service facilities in the United States and the United Kingdom, Goss was well positioned with dominant technology, a solid workforce, and fat profit margins.

After a decade of spin-offs, recapitalizations, and changes in management, however, Goss lost its way. The company was overtaken by both German and Japanese competitors that then sourced much of the manufacturing out to China. In 2001, Goss filed for bankruptcy, closed its U.S. manufacturing facilities, and sourced new production from China, while keeping most of its servicing operation and sales force in the United States. The net effect was the loss of nearly 1,000 skilled U.S. manufacturing jobs and as many as 4,000 ancillary jobs for suppliers and others.

This story has been repeated a thousand times in the last few years. U.S. manufacturers that were once dominant can no longer compete with aggressive manufacturers in Europe, Asia, and, especially, China. The causes may be complex, but the effects are simple: displaced workers, loss of capacity, and reduced tax revenues. Saving manufacturing is important for the United States for many reasons, not least of which is national security. We must maintain the capacity to produce the armaments of democracy. Manufacturing jobs provide important opportunities for new entrants into the workforce; manufacturing jobs have a high multiplier effect and create or support nearly three jobs for each job; manufacturing brings together technical innovation with operational know-how that creates real value for consumers. For these and many other reasons, manufacturing is worth special consideration from economic policy makers and research groups.

How should the United States address these issues and ensure a durable recovery for manufacturing? There are a number of common themes for troubled manufacturing companies that could be dealt with through economic policy.

The value of the U.S. dollar must be adjusted and stabilized. U.S. manufacturers are, in effect, paying an export tax, while foreign competitors are receiving a subsidy through exchange rate policies that inflate the value of the dollar. Consumers benefit from such a subsidy by being able to buy inexpensive imports. However, jobs are clearly more important than cheap shirts.

Tax subsidies should be limited or eliminated for U.S. companies that move manufacturing capacity offshore. U.S. taxpayers should not be expected to underwrite the export of their own jobs.

Trade laws should be rewritten to encourage fair trade based on internationally recognized standards of work. Through consensus agreement of all nations, the International

Labor Organization (ILO) has developed a list of core labor standards, including freedom of association and collective action and freedom from forced labor or discriminatory practices. This list should be made a part of all trade agreements. As the economy becomes truly global, attention must be paid not only to financial interests, given priority under current free trade pacts, but also to a broader view of economic activity that includes the impact on the producers of wealth.

There must be an increased focus on health care costs and quality. The United States spends more per capita on health care than any other OECD country. For the past 3 years, health care costs have increased at double-digit rates and will continue to increase. Manufacturing companies that are already facing financial problems have no option but to pass these costs on to employees. In the IAM, the leading cause of labor disputes is currently the shifting of health care costs. A difficult situation is thereby made significantly worse. Simultaneously, the health care system is virtually immune from the quality improvements that manufacturers have put in place over the past 20 years. According to the Institute of Medicine, between 44,000 and 98,000 Americans die each year from preventable medical errors. Policy makers must ensure that everyone pays a fair share for health care through a “pay or play” system that requires employers to either provide health care for their employees or pay into a state or federal pool that would cover the nearly 43 million Americans without health insurance. Policy makers must also require the sharing of information from health plans, hospitals, and health care providers on the quality of services provided. Such disclosures would allow consumers to make choices based on more information.

Manufacturing is dying, but it’s not dead! The next generation of workers needs to be recruited and trained for high-skilled and general-production jobs. The average age of blue collar workers in aerospace, for example, is nearly 51 years. We anticipate that fully half of these workers will retire within the next 5 years, resulting in a dramatic loss of skills and knowledge. Acting now to attract new entrants into manufacturing will require a commitment from policy makers to ensure that such a choice is a sound one for new entrants into the workforce.

Manufacturing is in crisis. The five ideas outlined above clearly require extensive study and debate. But the time for engaging in such study and debate is short. Every day more capacity disappears, and getting it back will be difficult once it leaves our shores. Most of these issues are not, or should not be, divisive issues between labor and management in manufacturing. Our challenge now is to make the case for policy intervention to save a critical sector of our economy.