U.S., CA Attack Manufacturing

U.S., CA Attack Manufacturing

JAN. 25, 2012

By JOHN SEILER

New reports show how both the U.S. and California governments have imposed severe anti-manufacturing regulations impeding economic recovery and growth. President Obama and Gov. Jerry Brown pay lip service to creating good middle-class jobs. But their anti-manufacturing bias belies their statements.

Ever since the Industrial Revolution began more than two centuries ago, manufacturing has been the key to middle-class prosperity. China, Vietnam, India and other countries have realized this and are promoting manufacturing. They sloughed off decades of socialist penury to embrace industrial capitalism, catapulting themselves into prosperity.

America once understood that. And the U.S. and California manufacturing sectors remain large, although declining.

The New York Times described how a decade ago Apple shifted its manufacturing from California and other states to China: “Apple executives say that going overseas, at this point, is their only option. One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.

“A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

“’The speed and flexibility is breathtaking’,” the executive said. ‘There’s no American plant that can match that’.”

These formerly were high-paying, middle-class jobs right here in the Golden State.

‘Arsenal of Democracy’

And it was America that showed the world how to build industries that can retool so quickly. The greatest example was the retooling during World War II. A manufacturing base that was almost entirely geared toward civilian production almost overnight became the Arsenal of Democracy.

Even in the 1970s, the auto industry quickly adapted to new environmental mandates from the federal government.

Today, that fast-change capability has been hampered by literally tens of thousands of pages of preposterous regulations, absurd tax policies and policy uncertainty.

In California, this anti-manufacturing attitude is at its worst. The belief of Brown and others among the Democratic Establishment that runs the state is that desirable private-sector jobs are those performed on a laptop. That makes California a utopia for computer nerds with 180 IQs. The rest of us — the folks who once supported families on middle-class manufacturing incomes — don’t have a place here.

This was shown dramatically during the November 2010 election. Proposition 23 would have overturned the anti-jobs AB 32, the Global Warming Solutions Act of 2006. Opponents branded it the “Dirty Energy Proposition.” The opposition included then-Gov. Arnold Schwarzenegger, who signed AB32 into law. His  personal worth was $700 million, which kept him insulated from the damage his policies did to ordinary people.

“Dirty Energy” means “dirty jobs” in manufacturing. The anti-23 campaign conned voters it believing that unless the “dirty jobs” were killed, it would “Jeopardize 500,000 jobs and $10 billion in private investment in California clean energy businesses.”

Well, where are those 500,000 jobs? Instead, of course, the state suffered the Solyndra scandal. Solyndra ripped off $535 million from federal taxpayers and $25 million in tax credits from California taxpayers.

The message misled voters sent to industry was: “We don’t need your stinkin’ dirty jobs! Send them all to China! We can live on welfare.”

‘Everything Else’

Bloomberg also ran a report on why America is anti-manufacturing. The author interview a Silicon Valley businessman:

“ ‘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, workforce 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’.”

Get that: The problem isn’t high American wages. We can compete there. I remember management guru Peter Drucker pointing out in the late 1980s that, when manufacturing drops below 15 percent of cost, it doesn’t matter where you locate a manufacturing facility. That’s because shipping costs are about 15 percent.

But what matters is government attitudes toward manufacturing: pro or con.

As was noted at the beginning of this article, the Chinese are obsessed with greasing the skids of manufacturing. You need it? They’ll do it. They’re gung-ho.

In America, manufacturing is “dirty.” You need it? Forget it! You’ll just pollute the environment. Besides, giving a decent wage to middle-class families just means they’ll procreate more polluters.

Detroit on the Pacific?

Except for Silicon Valley, California’s economy still is limping along. Will it become Detroit on the Pacific, a rusted-out hulk of a formerly great industrial state?

It probably won’t get that bad. The weather here is just too good. It’s like saying Cuba will become North Korea. Both have extreme socialist systems. But North Korea has harsh winters and tree bark to eat during a famine, while Cuba has beautiful tourist beaches year-round and the world’s best cigars.

Still, elements of Detroit obviously are washing across California. Our unemployment rate, although improving to 11.1 percent in December 2011, remains worse than Michigan’s at 9.3 percent. And the “hollowing out” of the manufacturing sector continues apace in both places.

A new documentary coming out in a couple of weeks is “Detropia,” about the industrial decline of the once great Motor City. Here’s a five-minute preview:

Think it can’t happen here? The preview shows scavengers grabbing steel and copper in abandoned buildings in Detroit. In a time of soaring gold prices leading to inflation, commodities are a hot item. The scavengers explain that raw materials used to make things in Detroit factories. Now, the wreckage of the previous prosperous civilization is salvaged, shipped to China, then returned to America and stocked on Wal-Mart shelves.

That’s also happening in California. According to CreativeSecurity.com, “Over the past several years, copper theft has reached epidemic proportions both in California, and nationwide. According to the U.S. Department of Energy, copper theft is a $1 billion problem that’s only getting worse.

“Increasing worldwide demand for copper and short supply has caused copper prices to skyrocket, reaching all-time highs within the past five years. At specific locations, such as commercial buildings and construction sites, copper metal can be found in abundance and is relatively easy to steal. Once stolen, it’s virtually impossible for authorities to track or recover from recyclers, making copper theft a low-risk, high-profit crime that many thieves can’t resist.”

Where’s Our Deng?

While researching this article, I came upon a report by the government’s National Public Radio about how China transformed itself from starving Maoist socialist paradise to global capitalist economic powerhouse. In 1978, a group of farmers in the village of Xiaogang agreed to defy the socialist authorities and regulations and re-establish competition. Soon, the farmers went from starving under socialism to prospering under a nascent capitalism.

They feared reprisals, even death, from the socialist government of China. But new Chinese leader Deng Xiaoping was eager to switch to capitalism. Reported NPR, “So instead of executing the Xiaogang farmers, the Chinese leaders ultimately decided to hold them up as a model…. The government launched other economic reforms, and China’s economy started to grow like crazy. Since 1978, something like 500 million people have risen out of poverty in China.”

Something similar will have to happen in America to revive manufacturing. Small bands of producers will have to band together and defy the regulations and taxes of Brown, Schwarzenegger, Obama and others — Republicans as well as Democrats.

So far, in California there’s no Deng to grasp the importance of capitalism and lead reforms that ditch the bureaucratic model. Instead, we have Brown, first elected to state office as Secretary of State in 1970, when Mao’s Cultural Revolution still was ripping up China. His obsession is to raise taxes to pay for the pensions of government workers.

But as China’s example shows, people can put up with a lot until they finally decide they’ve had enough and insist on a return to prosperity and freedom.

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  1. Dyspeptic Middle Aged White Guy
    Dyspeptic Middle Aged White Guy 25 January, 2012, 12:56

    Although I agree with the central theme of the article I am struck by the writers apparent enthusiasm for what can only be called wage slavery in the profiled Chinese factory. Hey John, how would you like to be rousted from your private leisure time in the company dorms and marched on short notice to your workstation to do a twelve hour assembly shift? Nice way to spend your personal time huh?

    Have you ever worked in a factory? Have you ever worked a twelve hour shift? Have you ever got your hands dirty doing anything for a living? Those of us who have can only shake our heads in disgust at the servile lives Chinese factory workers must lead in their company dormitories where every aspect of their environment is owned by their employer. This is worse than the company mining and logging towns common one hundred years ago in this country where workers were payed in company script which could only be spent in the company store. Try tempering your lurid enthusiasm for Chinese style autocratic crony capitalism with some respect for your fellow man.

    Reply this comment
    • CalWatchdog
      CalWatchdog Author 25 January, 2012, 13:44

      Dyspeptic wrote: “Hey John, how would you like to be rousted from your private leisure time in the company dorms and marched on short notice to your workstation to do a twelve hour assembly shift? Nice way to spend your personal time huh?”

      If I had suffered under Maoism, as the Chinese have, and seen some of my family starve to death during the Great Leap Forward, I would think today’s China a paradise. And unlike in America today, parents can see that the future will be better for their children.

      “Have you ever worked in a factory? Have you ever worked a twelve hour shift? Have you ever got your hands dirty doing anything for a living? ”

      I almost worked in a factory but the 1974 Depression in Michigan shut off that possibility when I was 18. Yes, I have worked with my hands. My grandfather, a master carpenter, and my father, a tool-and-die maker and U.S. Army ordnance veteran in WWII before he used the GI bill to become a lawyer, taught me a great deal. I worked on everything: cars, houses, furniture, you name it.

      I also served in the U.S. Army in an intelligence field unit over in West Germany. We had to maintain our own trucks and equipment at a time, 1978-82, when budgets were being cut. It wasn’t combat, but it wasn’t an office job, either. And in on field maneuvers in the Army, we worked many 12-hour shifts — and 20-hour shifts.

      Today, I often work 12-hour or 16-hour shifts, depending on the news cycle. It seems like all I do is work to pay taxes in this preposterous, high-tax, high-regulation, anti-business, anti-jobs, anti-manufacturing state and country.

      — John Seiler

      Reply this comment
  2. Jean Finet
    Jean Finet 25 January, 2012, 14:09

    Fact is, John, it is still slave labor in China. Workers living in dormotories roused in the middle of the night. Come ‘on. Saying it’s better than what was going on under Mao doesn’t make it any less injustice.

    The state does not need to adopt a pro-business attitude. It needs to adopt a pro-free market attitude. There is a substantial difference! Or are you just another corporate-state right-winger?!?

    Reply this comment
  3. CalWatchdog
    CalWatchdog Author 25 January, 2012, 16:27

    Jean: I don’t think it’s slavery. These people freely came in from impoverished rural areas to work in factories. China’s working conditions improve daily. It’s like the factories in England 200 years ago. Things still were better than on English farms. Farming is back-breaking work. Factory work, although difficult, is not as bad.

    No, I’m not “another corporate-state right-winger.” I’m against all these crony capitalists like Buffett and Romney and Goldman Sachs, who manipulate the system. Reforming the system doesn’t work. The only way to help is to reduce or eliminate the system by sharply slashing government. Then there’s nothing to manipulate.

    — John Seiler

    Reply this comment
  4. Beelzebub
    Beelzebub 25 January, 2012, 20:39

    Heh.

    China uses the slogan “Reform through labor”.

    A few years back Germany used the slogan “Arbeit macht frei”.

    In a practical sense, the two slogans are identical.

    But American corporations like Apple are promoting the slave labor. So don’t just blame China.

    If I were President I would slap a 100% tariff on Apple’s goods coming in from China – as a penalty for providing China with an unfair competitive economic advantage by outsourcing American jobs, promoting slave labor and destroying the world’s environment with untreated waste.

    Reply this comment
  5. queeg
    queeg 25 January, 2012, 23:33

    What is a MBA for?? mostly bad actors…globalists!

    Reply this comment
  6. CalWatchdog
    CalWatchdog Author 26 January, 2012, 13:03

    Mr. B wrote: “If I were President I would slap a 100% tariff on Apple’s goods coming in from China….” Sure, and destroy America’s most successful company.

    If you want to decry slavery, look closer to home. Americans pay 50% in taxes to a tyrannical centralized government that enslaves us all. We are taxed and micromanaged to death. And the government has run up $16 trillion in debt in our name, while debasing the dollar.

    In China, in 30 years, the “slave wages” period of industrialization will be over with and everybody will be middle-class or better. In America, we’ll just be more enslaved. They won’t have government debt because they run surpluses and hold *our* government debt.

    — John Seiler

    Reply this comment
  7. patrick
    patrick 26 January, 2012, 17:31

    The chinese aren’t slaves- slaves don’t get payed.

    Reply this comment
  8. Beelzebub
    Beelzebub 26 January, 2012, 23:07

    J. Seiler – I don’t disagree that American taxdollars are wasted on crap that should never get funded in the first place (wars, illegal migrants, government pensions, etc…) but that is a completely different topic than what is addressed in this blog.

    Apple and some other corporations claim to be American based yet most of the workers who assemble their products live in other countries. Apple and it’s subsidiaries employ 10x’s more workers in China than in the United States. At tne end of December Apple has $97B in cash and 2/3’rds ($64B) is held offshore. They don’t pay any US taxes on their products assembled in China. An iPhone has about $190 in hardware and $10 in Chinese labor. Yet the US consumer pays on average $660 for the average iPhone.

    So to evade US labor laws and environmental regulations – they offshore millions of US jobs overseas. promote slave labor, pay no US taxes on products manufactured in China then turn around and charge HUGE markups on their products to the American consumer.

    Seems to me that a company that calls itself ‘American’ should show some loyalty to the American people, especially when U/E rates are so high. Otherwise they should incorporate in China.

    You know how the game is played. Apple lobbyists buy off the politicians to get favorable tax breaks and other legislation for offshore production – basically screwing the ordinary American citizen. It’ll be a cold day in hell when I ever purchase an Apple product.

    The solution is simple. Hit all Apple with a 100% tariffs on all products manufactured in China.

    Reply this comment
  9. queeg
    queeg 26 January, 2012, 23:55

    without free trade….no big box stores…thousands of unemployed MBA’s…..woman shoppers become desperate and sick from withdrawals….inflation…end of obesity and it’s Bush’s fault.

    Reply this comment
  10. Buster202
    Buster202 27 January, 2012, 05:38

    Apparently some of the posters haven’t read the NYT piece where is says components that go into the I-phone are manufactured all over the world.

    The dissention always seems to be based on a All or Nothing argument – either it’s all in China or all here – and in either case all at slave wages.

    As is says in the article the wage cost of a completed wafer is somewhere between 10 to 15 percent of cost for a semiconductor fab. Why? Because it’s so capital intensive and uses so much power.

    And as for those 12 hours shifts – they are actually quite common here in the US. It’s called a 3/4 work week – 3 days on 4 days off – 4 days on 3 days off. Alot of people like that schedule.

    Further, if you look at California in particular, it has a nearly 10 percent “Use Tax” on the purchase of capital equipment”. There was a credit against it that was allowed to expire right around the time we were having those rolling blackouts in the early 2000’s. Buy a $2,000,000 semiconductor tester and the state is standing there with their hand out for almost $200,000. Buy a dozen and you are talking about some serious money.

    Finally, the state is rolling out solar power like carpet at 30 cents per kwh – all afternoon. While California is home to 70 percent of the nations solar panels it provides the state with only a fraction of 1 percent of it’s electricity.

    Industry relies on affordable and readily available energy.

    The average industrial rate in California according to “Electric power monthly” – a government website – is 10 cents per kwh. The average idustrial rate for every other state in the west is only 4 to 6 cents per kwh. That in some cases is a 100 percent green tax on the states power. And for some industrial concerns cost of power is a major cost consideration.

    So after the billions spent on green bureaucrats, rebates, incentives, and buy backs, you could literally unplug every solar panel at 2pm on the 4th of July and NO ONE WOULD NOTICE.

    Reply this comment
  11. David Unvert
    David Unvert 27 January, 2012, 15:18

    Look All,

    you people who can’t see the forest through the trees talking about the “poor” workers. Do you also think your grandparents were “slaves” because they got a dime a week for an allowance? Even though that dime bought a couple things at the 5 and Dime stores? Of course not. It WAS worth something…and the jobs in China are not ‘forced labor’ they are highly prized labor. In fact, you need a VISA to come from the farm to the city. TOO MANY PEOPLE want to come to the city!!!!
    We all sit here and and say “this view would be so much nicer without all these damn homes” when the fact is …you WOULD’T EVEN BE THERE LOOKING at the view if it were uninhabited.
    The idea that we should do what is “best for all” (except yourself) sounds great and be a martyr if you like. But what is actually best for ALL is for the economy to be buzzing along, and for Companies and the People (government) to work together…TOGETHER…to smooth out problems….and not focus on the perceived slights on the vocal tiny minorities that seem to control the majority.

    Reply this comment

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