Business Excellence Awards
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“I’d love to make this product in America. But I’m afraid I won’t be able to.”
My host, a NASA engineer turned Silicon Valley entrepreneur, has just conducted a fascinating tour of his new “clean-energy,” bench-scale test facility. It’s one of the valley’s hottest clean-technology startups. And he’s already thinking of going abroad.
“Wages?” I ask.
His dark eyebrows arch as if I were clueless, then he explains the reality of running a fab – an electronics fabrication factory. “Wages have nothing to do with it. The total wage burden in a fab is 10 percent. When I move a fab to Asia, I might lose 10 percent of my product just in theft.”
I’m startled. “So what is it?”
“Everything else: taxes, infrastructure, work force training, permits, health care. The last company that proposed a fab on Long Island went to Taiwan because they were told that in a drought their water supply would be in the queue after the golf courses.”
Manufacturing’s share of U.S. employment peaked in 1979 and has since fallen by almost half. Although manufacturing has been a relative bright spot in the dismal economy of the past couple of years, in the last decade, the U.S. lost one-third of its manufacturing jobs, with the damage rippling far beyond that base to erode millions of jobs that are dependent on it.
The loss of textile, shoe and toy production to low-wage competitors such as China, and now Cambodia, has devastated a few regions, particularly South Carolina. But the loss of yesterday’s manufacturing isn’t the really painful part: It’s losing tomorrow’s manufacturing: automobiles, electronics, metal fabrication, specialty chemicals, appliances and consumer electronics.
Those industries left the U.S. in search not of cheaper workers, but of more supportive governments
Take tax policy. Historically, manufacturing was the high-wage sector of the economy – manufacturing jobs still pay about 30 percent more than service jobs in education and health care – so tax policy milked it. Banking, retail and services found their own ways around taxes, often by offshoring intellectual property or shifting profit to tax havens. Eventually, manufacturers figured out how to duck taxes as well – by going overseas.
Yet it isn’t just taxes. Wind turbines, for example, are enormous, heavy and expensive to transport – so there is a big advantage to fabricating them close to the installation point. But consider the predicament of the Spanish wind-manufacturer Gamesa Corporacion Tecnologica SA after it began operations in Pennsylvania. Because the George W. Bush administration’s Department of Transportation wouldn’t establish uniform standards for transporting the enormous turbine blades, each state followed its own rules. Whenever a blade crossed a state line it had to be unloaded by a construction crane and then reloaded to conform to the next state’s specifications.
During the 1991 California drought, Silicon Valley’s electronics manufacturers were warned by Gov. Pete Wilson that the state might have to shut off their water supply. Agriculture, Wilson said, came first. When I asked a Silicon Valley lobbyist if he had quietly received assurances that California would prioritize 21st-century computer chips over 19th-century alfalfa, he said he hadn’t. In fact, he said, some plant expansions initially planned for Silicon Valley were being diverted to Oregon to secure access to water.
The U.S. didn’t lose its manufacturing leadership; it threw it away. •