It's time for policy makers to play hard ball with multinational corporations that outsource manufacturing, design and R&D jobs. If they don't, manufacturing will cease to be the engine of U.S. economic growth.
All those manufacturing jobs the sultans of Silicon Valley shipped to Asia are not coming back. Months before his death last year, Apple’s Steve Jobs made that clear to President Obama during an industry dinner in California, according to a sobering account published by The New York Times (“How the U.S. Lost Out on iPhone Work”).
The reason those jobs making consumer devices are gone for good, the Times reported, is that the U.S. manufacturing base has failed to evolve, the Asian supply chain for electronics is superior to ours, and American workers are unwilling to live in company dorms and pull 12-hour shifts for $17 a day. That’s how they do things in China at manufacturing behemoth Foxconn, assembler of the iPhone and many other consumer electronic products.
Foxconn is Exhibit A in the debate about the decline of U.S. manufacturing. As the Times article notes, nothing like it exists in the States. (That’s a good thing, Apple’s critics say, since the 230,000 Chinese workers at “Foxconn City” are barely better off than slave laborers.) “The scale [of Foxconn City] is unimaginable,” one Apple executive told the Times.
Apple and other consumer electronics companies insist they have no choice but to outsource manufacturing of their products to companies like Foxconn. While the Times article buys Apple’s line that making the iPhone in China is not about the cheap labor, it is a fact that Foxconn can build a plant (with the help of the Chinese state) and hire thousands of workers at the drop of a hat.
Apple’s central argument for assembling the iPhone in China is that Asian factories can scale up and down faster. The Asian supply chain for funneling all the components that go into an iPhone, like the fancy glass display, has left the U.S. distribution network in the dust. If Apple needs a glass-cutting factory for iPhone displays, Foxconn will build it. Thousands of rubber gaskets? The factory is next door. A million screws? That factory is a block away.
Little of this is news, but placed in context it helps to explain the collapse of U.S. manufacturing of high-margin consumer electronics gear. The president wants to reestablish a U.S. manufacturing base for such products. In Apple’s case, aside from a few thousand jobs in Austin, Texas, where Samsung makes the A5 processor at the heart of the iPhone 4S and iPad 2, that isn’t going to happen. Without some prodding, it won’t happen at Apple’s competitors, either.
So where do we go from here? The outlook for U.S. manufacturing and the high-paying jobs it once provided is, frankly, grim. There is no new engine of economic growth on the horizon. Globalization has provided U.S. corporations with ample political cover to lay off engineers and other skilled workers, pull up stakes and move their operations to Asia.
Few would argue that Apple or any other U.S. company has a responsibility to hire American workers if they can assemble products for less overseas. But these same technology companies continue to plead for “reform” of the U.S. visa programs so they can hire more foreign engineers and “tax holidays” so they can bring back profits from overseas operations.
Would those profits be invested in U.S. manufacturing facilities? It’s unlikely, given that many tech companies are already sitting on piles of cash and have shown no interest in hiring more engineers.
One government incentive that makes sense, albeit not in its current form, is the U.S. R&D tax credit. As a recent National Science Foundation study warns, the U.S. multinational corporations that have steadily outsourced manufacturing and design jobs are increasingly outsourcing R&D. The annual NSF survey of science and engineering employment found that U.S. companies nearly doubled overseas R&D employment between 2004 and 2009. If that trend holds, the game is over.
The R&D tax credit as currently fashioned has not stemmed the offshoring tide. If the credit is increased and the program is made permanent—as the tech industry has long demanded—the highly profitable companies that benefit from it should be required to invest in U.S. manufacturing, design and R&D facilities.
Further, if it’s true that U.S. companies can’t find skilled U.S. engineers to lay the groundwork for scalable manufacturing—and that’s a big “if”—then U.S. workers must be retrained. The tech companies receiving R&D tax credits should be required to assist in that effort through college scholarship and technical training programs, while looking for ways to develop new, flexible manufacturing processes—here, not in Shenzhen. That’s preferable to shifting the entire burden of training new U.S. engineers onto the government, as Jobs reportedly told the president. And the last time I checked, Apple was in a position to help.
In other words, it’s time for the timid Obama administration and our do-nothing Congress to play the same game of hardball that corporations play every day in global markets. A national manufacturing policy would be a far better strategy than a trade war. Let’s compete with China, not litigate.
In his election-year State of the Union address, the president laid out a “blueprint for an American economy that’s built to last.” He provided few details, but we need to see the schematics soon. Failing to shore up our manufacturing base would relegate the United States to service-economy status, and that would do future generations a great disservice.
Manufacturing has a ripple effect across the supply chain. It creates many more jobs than the service industries do. It is the engine of economic growth. Without it, wages decline, innovation stagnates and America becomes a nation of Wal-Marts and Targets. That’s still better than a land of Foxconn Cities. But the standard of living for the next generation could decline for the first time since the Great Depression.
We think it’s time for America to get back to work making stuff. But the engineering profession is at the heart of this make-or-break debate, so we want to hear what you think.