Amid the urgency of the sequestration crisis, many things of substance are likely to fade into the background of public debate -- at exactly the moment when they should not.
Among those are the president's call for a strengthening of the economy's manufacturing base and the recreation of well-paying U.S.-based manufacturing jobs -- his key solution to the problem of diminishing middle-class prosperity. He made that call in the State of the Union Address, and he went straight from delivering an address to Asheville in North Carolina to make the case again. In Asheville, he proposed four ways of bringing manufacturing jobs back home -- "insourcing instead of outsourcing" as he put it.
Number one -- we can create more centers for high-tech manufacturing in America-- global centers of high-tech jobs and advanced manufacturing around the country...The second thing we need to do is make our tax code more competitive....Number three -- if you're a manufacturing town, especially one that's taken a hit -- that's seen a company close up shop or a plant shut down -- I want to partner with local leaders to help you attract new investment....Number four -- we've got to help our workers get the training to compete for the industries of tomorrow....So those are four common-sense steps that we can take right now to strengthen manufacturing in America. There's no magic bullet here. It's just some common-sense stuff. People still have to work hard. Companies...still have to make good products. But the point is, is that if we can just do a few things, then over time what happens is we start rebuilding our manufacturing base in a way that strengthens our economy as a whole.
If all this is, in the president's words "just some common-sense stuff," the questions worth asking become these. Will common sense win the day; and if it does, will common sense be enough?
The very obvious answer to the first of those questions is that, given the present state of our politics, common sense will not rule the day. Washington, D.C. is deadlocked. The president faces a Republican-controlled House that will never countenance a well-funded federal recovery program without compensating cuts in welfare programs that no Democratic president (including this one) should ever tolerate. The less obvious answer to the second question is that, even were the Democrats currently in control of the Congress, the kind of modest program now being advocated would not be enough. At best, it would only scratch the surface of a problem whose roots are so deeply and firmly embedded in our entire economic and social structure that pulling them out requires much more radical political gardening than any currently being proposed by the White House.
Why the need for more radical political gardening? For these four reasons at least.
•First, because recreating large numbers of well-paying manufacturing jobs is no easy matter. On the contrary, increasing manufacturing employment here in the United States runs counter to all the major trends in investment-location and job-creation of the last decade. Even leaving the recession aside, the number of manufacturing jobs located in the United States has long been falling, as have the wages that those jobs are capable of sustaining. The contribution of manufacturing GDP has been going down, and the number of jobs created abroad by American-owned multinational corporations has been going up. So the president is attempting to reverse very deeply embedded tendencies -- tendencies of outsourcing, deindustrialization and stagnant wages -- that will not go away on their own; and is making the effort armed with very limited policy equipment indeed -- mainly with tax incentives and public/private partnerships.
•Second, the main immediate barrier to the recreation of jobs of any value here (well-paid or otherwise) is not outsourcing. It is limited and uncertain consumer demand here at home. We have seen in the last week just how fragile that demand can be, with the simultaneous increase in the payroll tax and in the price of gasoline triggering price reductions at Burger King and falling sales at Wal-Mart. With unemployment still officially at 7.9 percent and in reality much higher, with home-starts stalling again amid a continuing foreclosure crisis, and with further job losses and salary furloughs waiting down the pike as the sequestration cuts kick in, no business is going to start hiring in volume, or voluntary raising its wage bill, any time soon: no matter how often the President says that it should. On the contrary and as the Fed's Vice-Chair Janet Yellen put it in a major speech last week, "It will be a long way back to a healthy job market. It will be years before many workers feel like they have regained the ground lost since 2007." So if the president genuinely wants large-scale hiring to begin again, as I'm sure he does, an industrial policy designed to strengthen manufacturing employment will have to be immediately accompanied by a general and substantial stimulus program. That program, moreover, will need to consolidate consumer confidence and demand in all sectors of the economy, and not just in the manufacturing one. Yet there is no sign of that renewed stimulus package anywhere on the current political horizon.
•Third, the lack of demand and uncertainty about the future prevalent among contemporary American consumers is not accidental. It is the direct legacy of the Reagan-designed growth strategy that collapsed so dramatically in 2008. The prosperity of the Reagan/Clinton years was built on the very business deregulation that facilitated the systematic outsourcing of jobs and the explosion of the trade deficit with China. It was built on wage and tax policies that allowed an unprecedented increase in inequality in both income and wealth, and on an easy credit regime that facilitated the accumulation of unprecedented levels of personal debt, including student debt -- debts accumulated by middle-class Americans precisely to cross-compensate for inadequate wage growth. And the Reagan/Clinton growth strategy was built on welfare policies that trapped one American in seven in real and abject poverty -- Americans able to escape from welfare-based poverty into the poverty of low-wage employment in the 1990s, but not even able to escape in that fashion in any great numbers after 2001. Shaking off the legacies of a failed growth strategy of this scale and complexity requires the creation of another one of greater potency and length -- which is why a few tax breaks for companies bringing jobs home will not cut it, when the economic failures of the immediate past run so deep and so wide.
•Fourth, it is not possible easily to eradicate the long-term impact of the 2008 financial crisis and its subsequent recession on either the psychology or the practices of the contemporary American consumer. Too many of our fellow citizens now live in or on the edge of poverty to enable us to rapidly return this economy to a high-consumption, high-employment growth path simply by our spending alone. The shadow of 2008 has not yet gone away and it will not go away any time soon. Many American consumers now quite properly choose to reduce the volume of their debt rather than to increase the volume of their consumption, as and when their personal financial situation begins to ease. And indeed, the next generation of American consumers -- the millennium generation -- is already buying fewer houses, making their cars last longer, and struggling more with the burden of their student loans, than did their parents a generation ago. Vast areas of once-prosperous middle-America remain plighted by closed factories, foreclosed homes and depleted public services -- the people in one place, the jobs in another. Changes to the American tax code, however desirable and long overdue they may be, will not markedly transform any or all of that -- certainly not in any immediate time period -- and yet we need that transformation now.
This economy is flat-lining for very good reason. It is flat-lining not just because Washington can't get its act together. It is flat-lining because the new social compact needed for the restoration of strong economic growth is nowhere visible in contemporary America. This economy and society is not simply stuck. It is damaged. It is so damaged, in fact, that the restoration of the long-term economic health requires nothing short of fundamental economic and social reform.
There will be no generalized prosperity again in contemporary America without a major and sustained assault on the causes and reproducers of poverty . There will be no generalized prosperity again until we make new rules limiting the wealth of the few and protecting the earning powers of the many. There will be no generalized prosperity again so long as only certain sectors of our damaged economy -- those closest to the Pentagon and to the Departments of Agriculture and Energy -- swallow the bulk of federal assistance and protection, at the cost of assistance and protection for the rest. There will be no generalized prosperity again in contemporary America without major programs of urban renewal, industrial relocation and environmental protection. There will be no generalized prosperity again without a dramatic increase in investment in public education. There will be no generalized prosperity again until..... The list is necessarily very long.
Because it is, it is a list that we need to start building and talking about now. The president's proposals are definitely a beginning. They go in the right direction, but they are at best baby-steps. They open a much-needed conversation, but they don't and they mustn't end that conversation. We need active industrial and social policy on an ambitious scale if we are ever to put this economy back onto the high-investment, high-wage growth trajectory from which the Reagan years took us away. Amid the chatter and clatter of the sequester fight, we need to say again that -- no matter what Congressional Republicans repeatedly assert -- the American economy right now does not need smaller government. It doesn't even just need smarter government, as the president said in the State of the Union. It needs big government, active government, interventionist government, reforming government: and it needs it now. We ought to say so.
First posted with full academic citations at www.davidcoates.net
These arguments are developed more fully in David Coates,
Making the Progressive Case: Towards a Stronger U.S. Economy