Mr. Chairman, other Subcommittee
members, I am Leo Hindery and I am Chairman of the Smart Globalization Initiative at
the New America Foundation, where I spend my time on jobs and trade issues. Occupationally, I am an investor in media
companies, and I was formerly CEO of AT&T Broadband and its predecessors,
Tele-Communications and Liberty Media. It is an honor for me to appear before you.
I want to discuss our largely jobless
economic recovery and desperate need for an all-of-government national
manufacturing & industrial policy.
President Obama has recently reaffirmed
the administration's belief that the economic stimulus plan passed by Congress
in February will "save or create" 3.5 million jobs over two years. There's obviously a huge difference between
a job that's saved and one that's created -- the Labor Department does not even
collect data on "jobs saved", nor does anyone else -- but much more important, 3.5
million jobs represent only a quarter of the 13.3 million jobs effectively lost
since the recession began in December 2007 and just 12% of the more than 30
million workers already effectively unemployed.
I would offer that it is important that Congress always consider in its
deliberations the millions of unemployed workers not included each month in the
BLS's determination of the officially unemployed, specifically those workers
who are either part-time of necessity, marginally attached, or in the "labor
force reserve" because they have quit the labor force out of frustration. In the past, the number of "uncounted"
unemployed almost never exceeded a third or so of those who were officially
counted, albeit still a very large number.
However, right now, there are actually 800,000 more uncounted unemployed workers than counted ones, making
the total number of effectively unemployed workers an unprecedented 30.2
million instead of the official 14.7 million and the effective unemployment
rate 18.7% instead of 9.5%. And yet as
numbing as these numbers are, I believe we are going to see additional
significant net job losses for at least another 18 months.
We are already deep into a
jobless recovery, and in the process we are headed toward an economic base so
weakened that it will be incapable of sustaining a vibrant middle class. There is also the reality that this
jobless recovery will be particularly susceptible to a new downturn because of
the way it is already feeding back on itself, actually worsening in some cases
the circumstances that originally triggered it. Finally, a jobless
recovery means there will be little or no relief for state and local
governments whose budgets have been hard hit by falling tax revenues.
When nearly 19% of workers are already effectively unemployed and while even
the nation's current full-time workers
are working only 33.1 hours a week -- the fewest hours on record since the BLS
began counting in 1964 -- and seeing their wages reduced at an average 6.2%
annual rate, significant and timely job retention and creation must be an
urgent priority, on a par with health care reform. Right now, neither initiative can take a back
seat to the other, as both are integral to true economic recovery.
And the reason this particular hearing is so important is because the
massive job-creation deficit we face really tells only the macro side of our sad employment story. We need to be just as worried about the fact
that our economy is mostly hemorrhaging jobs in the very sector -- manufacturing -- that must grow in order
for us to move permanently away from debt-financed consumption as the principal
engine of economic growth.
Since the recession began,
manufacturing has lost 13% of its workforce; manufacturing industries now
represent just 11.7% of GDP, after being 15.5% as recently as 1996 and much
higher earlier; people working in manufacturing now account for only 8.7% of
the jobs in the country; a quarter of the nation's 282,000 remaining
manufacturing companies -- 90,000 in all -- are now deemed severely "at risk"; and
we have run an average trade deficit in manufactured goods of more than $500
billion over the past five years.
Yet despite 30 years or so of extreme neglect, our now depleted
manufacturing sector still accounts for a critical 60% of all exports from the US and
for 70% of the nation's entire R&D.
However, aside from its emergency restructuring of
Chrysler and GM, the administration has not developed an all-of-government
national manufacturing & industrial policy designed to simultaneously
ensure the competitiveness of US-based businesses and grow high-value jobs in
Congress and the administration, working
together, need to immediately enact such a policy, one that puts
American workers first and is comparable to the policies of our major trading
partners. We also need to integrate this
policy with efforts to be the world's dominant manufacturer of green
technologies and components, and I applaud you, Senator Brown, and your former
colleagues in the House, Congressmen John Boccieri and Zack Space, for
sponsoring the "Investments for Manufacturing Progress and Clean Technology" or
The need for an elaborate American industrial policy was first widely
observed as far back as the early 1980s, and by 1993 some in the Clinton administration and
especially some enlightened members of Congress tried to enact such a
policy. Regrettably they failed, and now
16 years later, we sit here in 2009 still without one.
Even if some in leadership today don't understand and
accept this basic imperative, America's
main trade competitors certainly do. All
of the other members of the G-20 have such policies, and they are using them
today to great effect to resuscitate their broken economies and further weaken
Japan and South Korea especially are doing everything
possible to preserve their manufacturing bases, while China, which consistently accounts for 60% of
trade deficit in manufactured goods, is aggressively accelerating its efforts
to grow its manufacturing sector.
To this latter point, while the US was losing 1.4 million manufacturing jobs
from 2002 to 2006, manufacturing employment in China during these five years
was increasing by 10% to 112 million,
which is about 100 million more than
the total number of manufacturing workers left in America -- and this trend is
now only worsening.
I believe that two things are holding the US back from having its own
manufacturing & industrial policy -- and we need to quickly disabuse both of
First, some in the Obama administration, as well as others of
influence outside the administration, wrong-headedly believe that one job is as
good as another, whether it is in manufacturing or service. This is simply not true, and even the
simplest comparison of the two sectors shows that:
Compensation in manufacturing jobs is 20% greater than in
Service jobs do very little to help America's balance of
trade, and mostly just move incomes around the country; and
Manufacturing overall has by far the largest multiplier
effect of any job sector in the country, creating: $1.40 of additional economic
activity for each $1.00 of direct spending; on average, 2.5 jobs in other
sectors for each job in it; and, at the upper bounds, 16 jobs for each
high-tech manufacturing job.
Second, these individuals assume, with no supporting evidence whatsoever,
that new jobs associated with exported services will make up for past and
future manufacturing job losses. One
administration official even said recently that America's export future resides,
and I quote, in exporting "consulting and legal services, software, movies and
medicine". It is nave to speak so
optimistically of these non-material activities, and it is simply wrong to view
exported services as ready substitutes for good manufacturing jobs, since
large-scale high-quality service jobs are heavily dependent on and correlated
to a strong manufacturing sector. The
reality is that in the future, high-quality service jobs are at least as much
at risk of being offshored as are manufacturing jobs, with India and China especially
keen on seeing such jobs domiciled on their own shores.
To offer just one big example of what the failure to have our own
manufacturing & industrial policy has wrought, the State of California,
which is now confronting the largest annual budget deficit in the history of
the Union, would in fact have a dramatically smaller deficit, or maybe even
none at all, if in the State manufacturing workers today represented simply the
same share of total workers as they did in the year 2000, which was 12.8%. Instead, however, California lost, over this
period, more than 400,000 manufacturing jobs which, after considering
multiplier effects, would have benefited the State on the order of $300 billion
of cumulative income taxable wages.
In addition to throwing its full weight behind an all-of-government
manufacturing & industrial policy, the administration must also be willing
- "Pick winners" in the economy and then
support them, despite its apparent aversion to doing so, because frankly all
other developed nations and China do so every day, to great effect. The administration moved modestly in this
direction with its proposals to encourage private investment in wind and
solar energy and by making targeted federal investments in building
retrofits, smart grids and meters, and clean transportation systems. However, it needs to do much, much more
if we are to create new comparative advantages in these and other
industries, and particular attention needs to be paid to
associated training, access to low-cost energy, and financing provisions
for small and medium size manufacturers.
Fund a ten-year (not the current two-year) program of
significant public investment to upgrade and rebuild our nation's
infrastructure, which would provide the much-needed foundation for higher-value
added production and advanced business services.
Adopt, consistent with WTO rules, "Buy American"
requirements related to all federal procurement, especially procurement
associated with new investments in infrastructure and green energy
initiatives. Federal purchases make up
about 20% of the economy, yet America appears to be the only nation among the major developed nations and China without a
significant "buy domestic" procurement program.
Enact major corporate tax reform to make incentives for
corporations to create jobs here and eliminate the incentives for them to
relocate manufacturing jobs, as well as service jobs, abroad. This should include reducing the corporate
income tax and payroll tax and moving to a value-added-tax or VAT to replace
that lost revenue.
A national industrial
policy cannot succeed, however, without complementary trade policies that
prevent other economies from gaining unfair competitive advantages. The trade deficits accumulated just during
the Bush administration -- a whopping $4.7 trillion -- were a major cause of the
loss overseas of 5.3 million manufacturing jobs and more than 2 million service
jobs, and they made the US economy about $1.5 trillion smaller today than it
would have been otherwise.
We couldn't afford these
economy-zapping job losses then, and we certainly can't afford them now. Notably, even today's recession-shrunken
trade deficit of 2.5% of GDP will subtract more from the demand for US goods
and services than the economic stimulus plan will add, and in normal times our
trade deficits consistently aggregate an even more economy-draining 5% or so of
The administration and Congress should, I believe, immediately move away
from our decades of misguided trade policies and demand trade agreements that
have meaningful labor and environmental standards and forbid illegal subsidies
and currency manipulation. We also need
to dispense with "one size fits all" trade agreements that ignore
significant differences in levels of development, forms of government, and
At the same time, we need meaningful trade policy coordination among
especially the G-8, and we need it to counter the confusing statement out of
the administration recently that "floating exchange rates mean that economic
policies don't have to be harmonized among nations". Of course, they do!
And on an overall basis, right now the major "surplus nations" -
specifically, China with its enormous $2 trillion of foreign currency reserves,
Germany and the oil-exporting nations -- also need to immediately deploy a
significant portion of their accumulated foreign reserves where doing so will
most stimulate the world economy, whether it be within their own economies,
overseas, or, in order to assist the poorer countries, in a combination of
long-term development loans and Official Development Assistance or ODA.
Most important when it comes to trade and globalization, however, we
need a fundamental re-examination of our relationship with China.
China's massive trade
surplus with the United States -- a staggering $277 billion of manufactured
goods just in 2008 -- is the result of its severely undervalued currency,
massive subsidies to its own manufacturers, and elaborate policies to induce
foreign corporations to shift their production facilities and technology to
it. These policies have already cost us
millions of jobs, and they will keep costing us jobs until they are
Challenging China over its unfair trade practices is not just necessary
for the future of US manufacturing jobs, however -- it is also critical for the
world economy. The global economy simply
can't function if the third-largest individual economy runs current account
surpluses on the order of 8 to 10% of GDP, as China has done consistently for
the past few years.
In closing, these are truly unprecedented times, and thus looking at
past business cycles and responses is likely to be of only very limited
relevance and utility. To address the current
desperate situation, we need, as soon as possible, an Emergency National Summit
on Manufacturing, to be attended by relevant Cabinet
officers, the bipartisan leadership of both Houses of Congress, and a small
number of the top corporate and labor leaders on this issue. And we especially need an activist executive
branch and Congress willing to turn around the excessive laissez faire and
deregulatory approaches of the last eight and, in some cases, the last thirty
years, and to enact a national manufacturing & industrial policy that
matches and competes fairly with the industrial policies of our major trading
partners, especially China.
Thank you, and I am happy to answer any questions you may have.
1. "Building the
Next American Century: The Past and Future of American Economic
Competitiveness", by Kent H. Hughes (Woodrow Wilson Center Press, 2005)
2. "U.S. Needs a VAT", March 7, 2009, by Economyincrisis.org -- America's
Economic Report -- Daily.htm
"Manufacturing 2.0: A More
Prosperous California", June 2009, by the Milken Institute
"Manufacturing and the US Economy",
June 4, 2009, by Samuel Sherraden and Sherle Schwenninger, New America
5. "Not Out
of the Woods: A Report on the Jobless Recovery Underway", June 9, 2009, by New America
6. "Senator Brown's IMPACT Act'
Included In House Climate Change Bill", press release, June 26, 2009
7. re June 2009 US effective unemployment figures, Bureau of Labor
Statistics "Current Population Survey" of employment (released July 2, 2009)
8. American Small Manufacturers Coalition
9. Alan S. Blinder, Gordon S. Rentschler
Memorial Professor of Economics and Public Affairs at Princeton University,
Co-Director of Princeton's Center for Economic Policy Studies, and Vice
Chairman of the Promontory Interfinancial Network
Morici, Professor, Smith School of Business, University of Maryland School