Invention, innovation and US jobs

Ben Thorp, Harry Seamans, and Masood Akhtar
Biorenewable Deployment Consortium, Madison, WI, USA

According to the Bureau of Labor Statistics (BLS) there were 17,619,000 Americans employed in the manufacturing section in January 1998; by January 2010, this figure had declined to 11,462,000 or a loss of 6,157,000 factory jobs in 12 years (Hemphill et al. 2015). This does not count the number of “consequential” jobs that were also lost. This loss of manufacturing jobs has reached the point of creating national concern.

There is a need for socio-economic actions to efficiently maintain and create jobs. These days we often hear the comment “Innovation is the key to creating more jobs”. We agree, but changes must be made to make it more effective in our more global US society. Similar situations are being faced by many developed nations, but our research focuses on the US.

Total U.S. manufacturing employment, 1970–2013. Source: Bureau of Labor Statistics (2014a).

Restoring manufacturing jobs will be difficult because the manufacturing industry is trying to use research and innovation to overcome national policy that has put the US in an unbalanced position in the world. Our analysis required extensive investigation of the real role of manufacturing jobs in an economy, and of the complex and ever-changing trade policies that are thousands of pages long and periodically amended. We have written a full-length article set to appear in the March/April issue of Paper 360°, and have prepared this preview exclusively for Ahead of the Curve readers.

Today we live in a more global, less national society where more companies are international, and if a company is not yet international it will likely compete with those who are. U.S. policies established over the last several decades have helped force the international production of goods we buy. The policies favor low cost products—which is fine and good when the trade playing field is level—but due to an unlevel playing field, this has led to the loss of US manufacturing jobs. This favor toward low cost has weakened the normal result of innovation on creating jobs.

Citizens ask, “What happened to the good manufacturing jobs and the communities they once supported?” One answer given frequently and far too casually is that America is the country of great innovation, and we will invent things that will create new and even better jobs. The fallacy of that notion creates a tremendous challenge.

To illustrate this point, let’s examine the impact of recent invention and innovation in just one area. Look on or near your desk and you will likely see a TV, laptop, a modem, a printer, a cellphone, an iPad, and a few other electronic tools. Now let’s think about their origin. Each one was invented in the US by US companies with US citizens dominating their Boards of Directors. Now look at the labels on all of these high-tech tools at your desk: they are all made overseas. Go to other rooms and your garage, and you’re likely to find a similar situation. So perhaps we should examine what has really happened, but more importantly, what is likely to happen, and even more importantly, what we can do differently.

To understand the issue, it is necessary to introduce and focus on the “jobs multiplier”: the number of jobs created by one manufacturing job. The workers employed in manufacturing need raw materials, trucks to ship finished goods, schools, dry goods stores, food stores, restaurants, hospitals, doctors, nurses, recreational facilities, local water and power plants and many other things you can name. Those jobs are called consequential jobs because without the jobs in manufacturing, fewer of the consequential jobs would exist.

This concept is widely recognized, but there are wide ranges reported for multiplying factors—from 1.58 by the National Association of Manufacturers, to 16 in a case cited by Nosbasch and Bernaden (Jasinowski 2013.) There have been individual studies that have shown specific industries like coal mining have a multiplier of 4.0 (Cetnarski 2011). What is needed is a definitive study by the type of manufacturing to enable accurate estimating.

For instance, it is clear that the manufacturing of goods has a higher multiplier than mining and that mining has a higher multiplier than service jobs. Manufacturing goods requires raw materials arriving at one dock and a higher-value finished product going out on another dock, which requires an infrastructure of utilities. Mining has outgoing bulk transportation, but the raw materials already exist and the utility infrastructure is small by comparison. Service jobs like teaching, nursing, doctoring, store keeping, etc. are vital and necessary, but there are no loading docks, shipping docks, and dedicated utility infrastructure. The drivers and trucks of incoming raw materials, producers of high value goods, and outgoing finished goods are missing. So service jobs have a low multiplier (many sources cite this multiplier to be less than 1.)

With even this layman’s definition of multipliers, you can see how a move from a “manufacturing society” to a “service society” will result in the loss of huge numbers of jobs (Hilsenrath et al. 2016.) Any society has a limit to how many manufacturing jobs can be lost before that society’s well-being is significantly impacted, and the public is just waking up to what is really happening to the U.S. job market.

In the full article to be published in the March/April issue of Paper 360°, the authors will examine what has happened; more importantly, what is likely to happen; and most importantly, what we can do differently.

References:
• Cetnarski, Eric (2011). The Employment Multiplier -An Important tool for Promoting the Burgeoning Green Economy. Presidio Economics, Triple Pundit.
• Hemphill, Thomas and Perry, Mark. (2015). Putting U.S. Manufacturing Growth into Perspective. Real Clear Markets.
• Jasinowski, Jerry (2013). The Magic Job Multiplier of Manufacturing. Huffington Post.
• Hilsenrath, Jon and Davis, Bob (2016). Tech Boom Creates Far Too Few Jobs. Wall Street Journal, p. A1.

Today, October 7, 2016 is National Manufacturing Day!

More than 12 million Americans work in the manufacturing industry.

Manufacturing makes up more than 35% of the U.S. gross national product.

Here are a couple of videos that highlight manufacturing in America.

The Coalition for a Prosperous America salutes everyone that works for, invests in and supports American manufacturing.

Problem:  The US has the biggest continuous trade deficit in the history of the world. Highly competitive manufacturing companies have been lost. Millions of jobs have been destroyed. Our agricultural trade surplus has been eroding. Communities have been hollowed out. The TPP will make these problems worse.

Trade negotiators have refused to address the biggest causes of the trade deficits in trade deals. Instead they negotiate trade deals with a hodge-podge of special interest tariff cuts, regulatory changes and sovereignty giveaways. Congress has failed to set a national goal to fix the trade deficit.

Solution: We need to pass a bill setting “balanced trade” as a national goal to fix the trade deficit.  At this moment, we may have a majority in Congress opposed to the TPP. But some congressional members can flip flop and support TPP because their reasons for opposition are technical side issues – like special interest drug, tobacco or dairy positions – rather than the overall national interest in fixing trade deficits.

Achieving balanced trade – a rough balance of exports and imports over time – will eliminate our trade deficit and create at least five million jobs in our economy.  It will require eliminating our manufactured goods deficit and reclaiming a stronger agricultural trade surplus.  Tax revenues will increase. Reshoring will occur on a large scale.  Manufacturing supply chains will flourish. Communities will rebuild and prosper. America’s economy will grow.

Sign the petition a so CPA can tell Congress you support Balanced Trade!

Washington~ The US trade deficit in June grew by 8.5% according to a government report released on August 4th. Now at its 10-month high, the trade deficit reached a whopping $44.5 billion. The increase far exceeded the predictions of economists, who estimated that the deficit would rise to $43.2 billion from $41 billion in May.  

Here are key quotes from the report.

1. Trade deficit worsened: “The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced today that the goods and services deficit was $44.5 billion in June, up $3.6 billion from $41.0 billion in May, revised.”

2. Goods Exports Increased over May Numbers: “June exports were $183.2 billion, $0.6 billion more than May exports.”

3. But Goods Imports Increased More: “June imports were $227.7 billion, $4.2 billion more than May imports.”

Other important facts: Cell phones and other consumer goods as well as pharmaceutical products were a big part of the import increase. These are products that were invented in America and produced here efficiently, not low-end, developing country commodities that are imported for the US to process and sell for higher value products.

“US government officials and pundits are still stuck in Econ 101 while our trade rivals have progressed to Econ 451,” said Michael Stumo, CEO of the Coalition for a Prosperous America. “America’s trade strategy, to the extent it exists, focuses upon more stupid trade deals that increasingly give away our sovereignty. Our strategy needs to pursue balanced trade, a fix to modern foreign mercantilism and regrowth of a diverse manufacturing and agriculture sector.”