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In his State of the Union address, President Obama laid out his election-year vision for restoring America’s global competitiveness. U.S. manufacturing figured prominently:

Think about the America within our reach…an America that attracts a new generation of high-tech manufacturing and high-paying jobs…we have a huge opportunity, at this moment, to bring manufacturing back.

Last weekend, the New York Times ran a long and important piece on why one particular high-tech product, Apple’s iPhone, is manufactured in Asia and not the United States. The article is part of a renewed debate about how the United States can reinvigorate its manufacturing sector, or whether it even should.

A key part of the article is that there is a dearth of middle-income jobs in U.S. manufacturing. A combination of labor-saving technological improvements and the off shoring of more labor-intensive manufacturing has led to a sharp reduction in factory jobs that were once a pathway to the middle class for many Americans. Manufacturing employment on the factory floor may simply never reach levels of previous decades.

Nevertheless, as we have written previously, advanced manufacturing remains critical to U.S. prosperity in the 21st century for three key reasons:

• Advanced manufacturing drives productivity and innovation. Two-thirds of R&D investment occurs in industry and manufacturing is a core component of the nation’s innovation ecosystem that is key to creating new technological industries.
• Advanced manufacturing generates output and employment throughout the economy. It has the largest economic multipliers of any industry and large manufacturing facilities sustain entire communities. Even if manufacturing never supports as many direct jobs on the factory floor as it has in the past, restoring advanced manufacturing is thus essential to America’s long-term employment challenges.
• Manufacturing is critical to improve the nation’s trade balance and tackling our 0 billion cumulative trade deficit. Manufactured goods still comprise 57% of U.S. exports and closing the trade deficit will be difficult, if not impossible, without manufacturing playing a key role.

So there is a strong rationale for renewed government efforts to help strengthen this vital sector of the economy, but how?

The fact is that global manufacturing has fundamentally and irreversibly changed in recent decades in ways that has altered the structure of national economies. In essence, the production system has become globally fragmented. In a new paper on this subject, economist Richard Baldwin calls this globalization’s “second unbundling.”

The “first unbundling” occurred with the introduction of steam power, which led to a sharp reduction in shipping costs. Production was no longer tethered to local consumption; factories could produce for internal markets that could now be reached by rail or foreign markets by steamships. Yet production was still local. It tended to cluster within factories and in industrial districts, both to increase the scale of production and to coordinate closely with other actors within a particular industry.

The “second unbundling” occurred with the rapid advance and diffusion of information and communications technologies, beginning in the mid 1980′s and accelerating in the late 90′s, which led to an unprecedented reduction in coordination costs both within and across national economies. For the first time, it became economical not just to geographically separate consumption from production but separate different stages of the production process. Today, coordination is still necessary for production, but that coordination has become increasingly internationalized into global supply chains with key components being produced in regional networks.

Apple’s production process epitomizes this transformation. As the New York Times story notes, the iPhone is designed in the United States, but includes semiconductors manufactured in Germany and Japan, memory from Korea and Japan, display panels and circuitry from Korea and Taiwan, chips from Europe, and rare metals from Africa and Asia. The final device is assembled in China. All told, just 10 percent of iPhone components are manufactured in the United States.

It’s important to note that it’s not simply lower labor costs that are behind the iPhone story:

It isn’t just that workers are cheaper abroad. Rather, Apple’s executives believe the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that “Made in the U.S.A.” is no longer a viable option for most Apple products.

Just as important is that China, Japan, Korea and Taiwan are part of a competitive regional electronics supply chain cluster that is self-reinforcing. As Ryan Avent writes, “After some level of Asian development and integration, it became more attractive for manufacturers to locate there as more manufacturers located there.” Manufacturing firms are sustained by operating within a cluster of related firms and suppliers and drawing on pools of specialized labor and other resources. This phenomenon is known as “economies of agglomeration,” and it is an increasingly important feature of the 21st century global economy.

Despite the era of globalization, geography still matters — just in new ways. Even as supply chains have globalized, proximity has retained an importance in manufacturing. This is particularly true for just-in-time manufacturing, where businesses seek to reduce inventory and waste and improve productivity by closely balancing the supply chain with product demand. If changes are made to the product design, proximity is important to reduce time lags in production. The rise of just-in-time production therefore means that the time it takes to ship supplies and components to assembly can be a much more important factor than the dollar costs of shipment itself.

This means that it would likely be difficult to bring manufacturing of key iPhone components back to the to the United States. Many of the key components of the supply chain — memory, consumer electronics batteries, flat screens, even semiconductors — have been progressively or completely off shored, and economies of agglomeration have taken over. So “bringing these jobs back,” as President Obama says, would take more than simply closing the labor cost gap through either lower wages or higher productivity in U.S. manufacturing. It would also require a long effort to build our own regional manufacturing agglomerations around key components here in the United States, and that could prove costly.

Instead, a better strategy is to indentify the industries where we still have supply chain component ecosystems, particularly those at the higher end of the value chain, where policy and targeted investments can help retain and expand our competitive edge. We should also indentify emerging technology industries that have the potential to be a source of high growth, and ask what we can do to build new industry agglomerations and foster the commercialization and competitive production of those technologies in the United States.

We don’t need to look far for recent examples of this strategy in action. The bailout of America’s auto companies has been maligned as overreaching “industrial policy,” but the logic of the move was clear. If GM and Chrysler had gone bankrupt, the entire industrial ecosystem and supply chain that supported the automakers in the United States would have collapsed, creating not just massive unemployment but also undermining America’s future auto production capacity. Once lost, the network of parts suppliers could have been gone for good. From this perspective, the auto bailout efforts worked. As the President noted in his State of the Union, GM is again the world’s top automaker, Chrysler is rebounding fast, and the auto industry added 160,000 jobs since the end of 2009.

The Obama Administration’s investments in advanced battery technology for vehicles are an example of forward-looking policy to build an ecosystem in an industry that is in its early stages. It took .4 billion in stimulus grants to 48 different companies, but the Administration’s efforts have helped to build a critical mass of advanced battery manufacturers, many of them clustered across Michigan and the American rust belt. Here, they may become a critical contributor to a globally competitive advanced vehicle production cluster, including the factories of the retooled “Big Three” automakers.

In this effort to identify key manufacturing opportunities, we also need to determine which industries are particularly important to sustaining a broader high-tech innovation ecosystem. Harvard Business School professors Willy Shih and Carl Pisano have made a persuasive case that a hollowing out of some high-tech supply chains in the Unites States have harmed the nation’s ability to innovate and produce next-generation technologies. The consequences of losing these supply chains thus means more than losing the jobs of today; it could mean losing entire industries of tomorrow.

The new reality of global supply chains requires a new debate about manufacturing in the United States, one that recognizes that manufacturing has irreversibly changed, yet has become even more essential to sustaining American prosperity in the 21st century. The president is right to stake much of his vision for America’s economic future on renewed American leadership in advanced manufacturing. But realizing that vision will require new strategies and new thinking.

For more reading, see “Manufacturing Growth: Advanced Manufacturing and the Future of American Prosperity,” by Breakthrough Institute and Third Way

Business on HuffingtonPost.com

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WASHINGTON, DC— In this week’s address, President Obama told the American people about steps his Administration is taking to make it easier for travelers to visit the United States, because increasing tourism will help local economies and support businesses looking to expand and hire.  This plan to boost tourism is part of a series of actions the President has taken without Congress, because we can’t wait any longer to take the steps we need to help grow the economy and create jobs.  President Obama also said that in next week’s State of the Union Address, he will outline his blueprint for how our elected leaders and all Americans can work together to create an economy that is built to last.

Remarks of President Barack Obama
As Prepared for Delivery
The White House
Saturday, January 21, 2012

Hello, everybody.  On Thursday, I went down to Florida to visit Disneyworld.  To Sasha and Malia’s great disappointment, I was not there to hang out with Mickey or ride Space Mountain.  Instead, I was there to talk about steps we’re taking to boost tourism and create jobs.

Tourism is the number one service we export.  Every year, tens of millions of tourists come from all over the world to visit America.  They stay in our hotels, eat at our restaurants, and see all the sights America has to offer.

That’s good for local businesses.  That’s good for local economies.  And the more folks who visit America, the more Americans we get back to work.  It’s that simple.

We can’t wait to seize this opportunity.  As I’ve said before, I will continue to work with Congress, states, and leaders in the private sector to find ways to move this country forward.  But where they can’t act or won’t act, I will.  Because we want the world to know that America is open for business.  And that’s why I announced steps we’re taking to promote America and make it easier for tourists to come and visit. 

Frequent travelers who pass an extensive background check will be able to scan their passports and fingerprints and skip long lines at immigration at more airports.   We’re going to expand the number of countries where visitors can get pre-cleared by Homeland Security so they don’t need a tourist visa.  And we’re going to speed up visa processing for countries with growing middle classes that can afford to visit America – countries like China and Brazil.

We want more visitors coming here.  We want them spending money here.  It’s good for our economy, and it will help provide the boost more businesses need to grow and hire.  And we can’t wait to make it happen.

Too often over the last few months, we’ve seen Congress drag its feet and refuse to take steps we know will help strengthen our economy.  That’s why this is the latest in a series of actions I’ve taken on my own to help our economy keep growing, creating jobs, and restoring security for middle-class families. 

In September, we decided to stop waiting for Congress to fix No Child Left Behind and give states the flexibility they need to help our kids meet higher standards.  We made sure that small businesses that have contracts with the Federal Government can get paid faster so they can start hiring more people.  We made it easier for veterans to get jobs and put their skills to work.  We took steps to help families whose home values have fallen refinance their mortgages and save up to thousands of dollars a year.  We sped up the loan process for companies that want to rebuild our roads and bridges – putting construction workers back on the job.  And I appointed Richard Cordray to be America’s consumer watchdog and protect working Americans from the worst abuses of the financial industry.

These are good steps.  Now we need to do more.

On Tuesday evening, I’ll deliver my State of the Union Address, where I’ll lay out my blueprint for actions we need to take together – not just me, or Congress, but every American – to rebuild an economy where hard work and responsibility are rewarded.  An economy that’s built to last.

I hope you’ll tune in.  In the meantime, I’m going to keep doing everything I can to make this country not only the best place to visit and do business – but the best place to live and work and build a better life.

Thanks for watching. Have a great weekend.  And I’ll see you on Tuesday.

White House.gov Press Office Feed

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SACRAMENTO, Calif., Jan. 19, 2012 /PRNewswire-iReach/ — SACRAMENTO: Jim Earp, Executive Director, California Alliance for Jobs, issued the following statement in response to Governor Brown’s State of the State address.

“We applaud Governor Brown’s vision for California’s future…
PR Newswire: Financial Services

Willard Mitt Romney’s major claim to the presidency is that, as an experienced, successful businessman, he knows how to create jobs as chief executive. This has prompted close scrutiny of his business, Bain Capital.

That focus misses the larger point: whatever his Bain experience was, Romney’s job creation record as governor was, to borrow a term from Newt Gingrich, pathetic.

Bain Capital was one of many private equity funds that engaged in a wide range of activities to make money for its investors. It was not focused on creating jobs in the economy, but rather saw opportunities to start, purchase, merge, restructure, close, offshore, sell and otherwise manipulate companies to make nice profits for themselves.

That Willard has not a single pang of conscience about what he did because it was posited as how capitalism works is a reasonable issue for a person aspiring to be president to address. How an individual reacts to it has more to do with one’s philosophical views of life, society and the economy that it does to Romney’s particular role in it.

But there is a bigger and simpler conclusion to be drawn. Romney espouses his business experience as “proof” that he is the one to foster job creation and economic growth. Even accepting everything Romney claims about his activities at Bain Capital at face value, Romney demonstrated already that that experience did not translate into creating jobs as a governor — Massachusetts under Romney was 47th in the nation in job creation.

Whatever Romney did at Bain, and whatever Bain did, it certainly did not make Romney a job-creating governor. There are those who may claim that, as 47th in the nation, his Bain experience may have made him even worse as governor for job creation… but, there is really no need to go there.

The point is this: Romney’s entire premise that, as a businessman, he knows how to create jobs as chief executive in government, is phony.

But, then again, so is everything else about Mitt Romney phony.

Business on HuffingtonPost.com

Every Republican candidate has an economic plan they say will create jobs. The truth is that the ability of any president to directly create private sector jobs is very limited, but he can set the focus and present a plan that his/her administration can follow and solicit the support of Congress and the American people to approve and implement his plan through legislation and funding. The legislation that Congress passes and the president signs can either help or hinder the private sector to create jobs. The funding that Congress allocates provides the fuel to accomplish the plan.

Most of us are familiar with the old adage that small businesses create up to 80 percent of all jobs; however, the new Census Bureau database called Business Dynamics Statics shows that it’s not so much small businesses that create jobs as it is new businesses. In his book, Great Again, CEO Henry Nothhaft wrote, “all the major innovations that powered the American economy to unrivaled prosperity over the last 50 years — from semiconductors and personal computers to software, biotech, and the Internet — were all created by small start-ups. So were all of the 40 million new jobs created in this country since 1977…”

However, not every new business has the potential to grow and produce a significant number of jobs. As Rodney Stark wrote in The Victory of Reason, the basic economic fact is “all wealth derives from production. It must be grown, dug up, cut down, hunted, herded, fabricated or otherwise created.” Because of the jobs multiplier effect, businesses that manufacture a product, whether it’s a hardware or software product, have the highest potential for creating jobs as they grow and succeed. However, these companies will only create American jobs if they manufacture their products or perform their services in the United States.

Most of the plans of the Republican candidates’ plans involve cutting taxes, cutting government spending, reducing the size of government, eliminating burdensome regulations, and repealing what they consider onerous legislation. Do their specific plans provide a platform to create jobs from production? Do their plans provide incentives to manufacture products in America? If they don’t, what should their plans include?

Since all of the Republican candidates recommend reducing corporate taxes, let’s examine why this would be beneficial for creating jobs. Right now, American corporations are at a disadvantage compared to other countries: our tax rates are the second highest in the world next to Japan’s, averaging 35 percent at the federal level.

The Organization for Economic Co-operation and Development (OECD) has conducted a number of empirical studies by OECD economists and others that discovered the best tax rate that maximizes revenue and compliance is 25 percent. The studies found that high corporate income tax rates have the most harmful impact on long-term growth and lowering tax rates can lead to significant productivity gains in the very companies that have the most potential to contribute to economic growth.

Governor Mitt Romney and Ron Paul propose reducing corporate tax rates to 25 percent; Governor Perry proposes a reduction to 20 percent; Rick Santorum to 17.5 percent; while Newt Gingrich proposes a reduction to12.5 percent. There were no specific recommendations on former Utah Governor Jon Huntsman‘s campaign website on reducing corporate taxes. He seems to base his American Jobs Plan predominantly on increasing free trade through additional free trade agreements.

Three candidates, Governor Romney, Governor Perry, and Rick Santorum propose to create immediate jobs by allowing corporations to “repatriate” profits being held offshore by foreign subsidiaries or divisions at a reduced rate of 5 to 5.5 percent. Over 1.2 trillion dollars could be brought back to America in a matter of days that would provide capital for investment in plants and equipment in the U.S. and hiring more workers to run the equipment.

Currently, the U.S. operates under what is known as a “worldwide” tax system, meaning that business income is taxed at the U.S. rate regardless of whether the income is earned within American borders or overseas. American companies pay the corporate tax in the host country, and when profits are repatriated back to the U.S., they pay the difference between what was paid to the host country and what would have been owed under the U.S. rate. Our higher corporate tax rate provides an incentive for companies to keep their profits offshore and not repatriate them. The U.S. is now the only country in the OECD that adheres to the “worldwide” tax system while imposing a corporate tax rate above 30 percent. A reduced rate for “repatriation” of corporate profits was provided by the Bush administration in 2004, and corporations have been hoping for the opportunity to do so again. To prevent this problem in the future, Governor Romney and Governor Perry propose switching to a “territorial” tax system in which income is taxed only in the country where it is earned.

In order to succeed and grow, businesses, and especially manufacturers, need to make long-range plans on allocating funds for R&D and capital investment. Thus, businesses would benefit by making the R&D tax credit permanent and either reducing or eliminating the capital gains tax. Governor Romney, Governor Perry, and Newt Gingrich support eliminating the capital gains tax altogether; Ron Paul proposes cutting and simplifying the corporate capital gains tax and Rick Santorum proposes to reduce it to 12 percent. They all support increasing and making permanent the R&D tax credit. In addition, all the Republican candidates support eliminating the Estate Tax, aka the Death Tax, which especially hurts small, family owned businesses where the heirs frequently have to sell the business to pay the Estate taxes instead of maintaining the business for the next generation of their family.

All of the above proposals for changing tax policies are included in the ten immediate recommendations for saving American manufacturing in chapter 10 of my book, Can American Manufacturing be Saved? Why we should and how we can. Only one candidate, Governor Romney, has included my top recommendation in his campaign economic plan: enact legislation to address China’s foreign currency manipulation. He also proposes to “direct the Department of Commerce to assess countervailing duties on Chinese imports if China does not quickly move to float its currency.” Some criticize this proposal by saying it would start a trade war. What they don’t understand is that we are already in a trade war, and China is winning.

We need a president who recognizes that currency manipulation is just one of the tactics China is using in their economic warfare with the United States. Other tactics they use have been described in my previous blogs and are well documented in the writings of Ian Fletcher, Senior Economist for the Coalition for a Prosperous America in his book, Free Trade Doesn’t Work, What should replace it and Why, and CPA’s blog www.tradereform.org.

In his book Great Again, CEO Henry Nothhaft provides additional recommendations of what tax policies should be changed to dramatically help start-up companies:

•

• Forgive or defer use taxes levied against start-ups for the purchase of new equipment
• • Reduce or defer the statutory and marginal income taxes paid by start-ups in their first three years of existence
• • Create special tax breaks, capital grants, and incentives for capital-intensive start-ups, especially manufacturing start-ups
• • Provide an innovation tax credit that would give small start-ups half of the money back that they spend on getting a patent

I heartily concur with these recommendations based on my own experience working with start-up companies in business and as a member of the steering committee of the San Diego Inventors Forum (SDIF),

Additional economic proposals of the Republican candidates that would help create jobs would be to repeal the Dodd-Frank act and Sarbanes-Oxley act. At the very least, we need to exempt firms under 0 million in market value from the costly audit and report requirements of Sarbanes-Oxley. These onerous requirements have hindered technology-based companies from securing growth funding through the IPO market according to Henry Nothhaft.

Of course, all of the Republican candidates have pledged to play a role as president in the goal of repealing Obama’ Health Care Act, which would add at least 0 billion in taxes to the burden already borne by American individual and corporate tax payers.

I urge every American voter to not just pay attention to the candidates’ sound bites from their ads, debates, and interviews. Check out their websites and read for yourself what they propose to do as president. Don’t just vote along party lines. Make your own personal decision based on facts and gut feelings. Support the candidate you choose by donating and volunteering. Join your voice with others who want to create jobs and save American manufacturing. Besides the Coalition for a Prosperous America already mentioned, check out the American Jobs Alliance, a new independent, non-profit, non-partisan organization.

Business on HuffingtonPost.com

Companies are hiring again. That’s the good news. The bad news is those hires might not be coming fast enough. In December, corporate America added 200,000 employees to their payrolls. That hit the magic number economists have been pointing to for months as the rate we needed to declare the current state of affairs a [...]
The Curious Capitalist

Forget album sales and glitzy awards. Kanye West’s new goal is nothing short of changing the entire world.

The mad scientist tastemaker of hip hop went on an epic Twitter rant on Wednesday night, discussing his new clothing line, his musical plans and, most significantly, his new company, which he says will “pick up where Steve Jobs left off.” Called Donda, after his late mother, West revealed that its goal will be to “make products and experiences that people want and can afford,” “to help simplify and aesthetically improve everything we see hear, touch, taste and feel,” and “dream of, create, advertise and produce products driven equally by emotional want and utilitarian need.. To marry our wants and needs.”

It will be comprised, West tweeted, of over 22 divisions staffed by “architects, graphic designers, directors musicians, producers, AnRs, writers, publicist, social media experts, app guys, managers, car designers, clothing designers, DJs, video game designers, publishers, tech guys, lawyers, bankers, nutritionists, doctors, scientists and teachers.”

Specifically, West wrote that one of Donda’s “projects to be released this year [is] called 2016 OLYMPIC’s … It’s a semi sic-fi since 2016 is only 4 years away,” which presumably means that it will be a movie. West also disclosed that he was in talks to become the creative director of the “Jetsons” movie, and wants to design the MTV Awards, which probably means the VMAs.

In addition, West wrote that he wants to help reshape the American school system, which he says was “designed to turn people into factory workers.” That includes starting a summer school with director Spike Jonze. “There are so many broken systems from the economy to school systems jail systems… we need experts for this,” he later said, promising that his creativity and ability to bring experts together would be of service in the effort to solve intractable problems.

Business on HuffingtonPost.com

The decrease in the unemployment rate to the lowest level since March 2009 will hit the nightly news tonight and morning papers tomorrow, and it will feel good. Anything to improve sentiment is obviously good for the economy. Consumer confidence is still very low, and this news will help. Psychology is very important for the recovery.

While feeling better is a clear positive, it is premature to celebrate. The Establishment Survey of US businesses (as opposed to the Household Survey, which is used to calculate the unemployment rate) told us that only 125K jobs were created in November. This level of job creation is generally just enough to offset an increase in the labor force during “normal” economic times. However, we’re still seeing a large number of people leave the labor force because they are discouraged and can’t find work. And while the under-employment (U6) rate fell to 15.6% in November from 16.2% in October, the rate is still very high. By our estimates, at this year’s pace it would take well over 10 years to replace all the jobs that were lost during the Great Recession (8 million).

We think the focus will likely return to Europe in the days/weeks ahead. While this week’s announcement of coordinated central bank action to make dollar loans more available is undoubtedly helpful in averting a near-term liquidity crisis, the issue of European bank solvency remains a significant threat. Earlier today, German Chancellor Angela Merkel completely discounted the possibility of a Eurobond. This limitation removes an obvious tool for dealing with the crisis. We expect further volatility driven by European headlines.

At the beginning of the week, several of the world’s central banks coordinated ready and affordable liquidity for European banks. These moves represent good news and bad news. Support and assistance are not offered to, nor are they needed by, the strong and fit. These remarkable actions indicate grave opinions that necessitate profound actions. We are encouraged that these global issues are being addressed and believe that this is a good start.

The increased liquidity does not address the real problem of troubled European sovereign debt, which threatens the solvency of European banks and almost guarantees a European recession. At this point, however, the markets seem to be anticipating further action by the European authorities to address the core problem. Disaster seems to have been once again averted, and the world financial markets are grateful. We are hopeful that all goes as planned.

We expect a muddle-through economy for a few years in the US as the consumer and governments deleverage. As world events evolve, it is important not to become overly ebullient or fearful. Remember that ignoring the yelling and screaming and paying attention to the price of fish is the best advice in the fish market.

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