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IS
DEINDUSTRIALIZATION
INEVITABLE?
REBUILDING AMERICA’S INDUSTRIAL BASE IS ESSENTIAL FOR MAINTAINING OUR COUNTRY’S
living standards and restoring the American Dream for future generations.
Today we must borrow an unsustainable two billion dollars a day to pay for the
goods we consume that we do not produce as a nation. Eventually, we must
either produce more of what we consume, or be forced to consume less. Our
national competitiveness is eroding despite the fact that American manufac-
turing workers are the most productive in the throughout its history. It is a vital engine for
world. As a high–wage country in a rapidly glo- economic growth, generating good jobs and
balizing world, we must restore our competi- guaranteeing a high standard of living for
tiveness by developing a national industrial America’s working families. It is a mainstay of
strategy centered on innovation. Such a strat- state and local economies, providing both jobs
egy requires raising the level of public and pri- and tax revenues for essential public services.
vate investment, harnessing the distinctive tech- Manufacturing jobs create as many as four other
nological and organizational capacities of U.S. jobs in local economies, and the earnings and
manufacturing companies, and developing the benefits of those workers exceed those of work-
skills of American workers. ers in services and other sectors. In addition,
Manufacturing has been the foundation of manufacturing is the leading industrial sector
the nation’s economic and national security in providing health care benefits. The sharp
19.0
18.0
Millions of jobs
17.0
16.0
15.0
14.0
13.0
Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan-
75 77 79 81 83 85 87 89 91 93 97 99 01 03 05
there was no perceived opportunity. Just as pansions. The foreign direct investment (FDI)
troubling is the precipitous decline in domes- flow into China reached $62 billion a year in
tic manufacturing investment, which fell nearly 2004 and continues to soar. Seventy percent of
17 percent in real terms from its peak in 1998 China’s FDI is in manufacturing, with heavy
and 2004, while investment in manufacturing concentration in export-oriented companies
structures declined 44 percent over the same and advanced technology sectors. Contracted
period. At the same time, many of the same (future) FDI projections are more than double
firms are making record offshore investments the actual level today, with U.S.–based firms
in R&D, engineering, design, and production leading the way. R&D, engineering, design are
jobs. all part of the manufacturing investments and
The investment flows portend future pro- jobs that the Chinese government is aggres-
duction and exports to the United States. sively pursuing.
Apologist claims that outsourcing is matched The startling loss of 40,000 manufactur-
by insourcing (foreign investment in domestic ing establishments and over three million ex-
manufacturing) are meant to mislead. The perienced workers underscores the damage to
insourced investments are overwhelmingly a our national security. All of these establish-
mere change of ownership that does not result ments and workers were part a greater indus-
in new jobs and production facilities here. Not trial base that met both commercial and de-
so in China, where these are startups and ex- fense needs. The factory floor serves as a source
L
from the overseas operations. Similarly, a com-
ONG BEFORE NAFTA, W ALL STREET AND MUL-
pany can fund its foreign operations by bor-
tinationals saw the internationalization of
rowing money in the United States and mak-
production as the way to maximize profits by
ing an equity investment in its foreign subsid-
any means necessary. What NAFTA did do was
iary. Interest on the loan gives rise to a U.S. tax
seal the deal on a trade policy designed by Wall
deduction even though there is no U.S. tax on
Street and multinationals to assure their lever-
the income from the investment while the in-
age over workers and countries through inter-
come remains overseas.”
national wage, tax, and regulatory arbitrage.
Trade, taxes, and the absence of a compre-
The agreement cemented the asymmetry of our
hensive health care system are a deadly combi-
trade policy—protecting intellectual property
nation. Our competitors either have national
while ignoring workers’ rights—while assuring
health care systems for all their citizens, or none
the mobility of capital protection for those in-
at all. When it costs GM $1400 more to manu-
vestments. Unlike the postwar approach with
facture a car in Detroit than it does across the
Europe and Japan that provided constitutional
river in Windsor, Ontario, it’s a big problem.
guarantees of workers’ rights to organize and
Health care has undermined bargaining power
bargain collectively, which resulted in power-
for wages in every sector as it has become the
ful union counterweights that promoted social
number one issue in every negotiation. And 45
agendas and challenged the might of capital
million citizens without any health insurance
markets, NAFTA did not empower workers; it
at all is a national disgrace that imposes addi-
simply paved the way for the normalization of
tional costs on existing employer coverage.
relations with China (PNTR), its entry into the
WTO, and a continuing string of bad trade
PAYING THE PRICE
agreements, most recently CAFTA (Central
American Free Trade Agreement).
Our trade policies have a soul mate—U.S. T HIS YEAR THE TRADE DEFICIT GREW ANOTHER
O
China. Business writer Eamon Fingleton has VER THE PAST THREE YEARS , THE IUC HAS
documented these differences: “Unlike the worked to develop an agenda for the revi-
United States, Japan believes in managing its talization of American manufacturing. It is far
trade. Although Japanese officials recognize from complete but it provides a roadmap for
that consumers can benefit from trade, they further development. It involves both social
also recognize that people need jobs and in- policy as well trade, tax, investment, and labor
comes before they can consume. Thus where policy. It pits us directly against the Wall Street
imports might pose a significant threat to Japa- agenda.
nese jobs, the Japanese government works to Our international trade policy needs to
minimize the damage. Besides influencing the stop Wall Street’s globalization agenda that has
pace of outsourcing, Japanese policymakers been imposed through our trade deals. Con-
ensure the trend does not entail the leakage gress should call a halt to any new trade deals
abroad of the nation’s key production technolo- until the trade deficit is reversed and ensure that
existing trade laws like the U.S. Trade Act
of 1974 (amended in 1988 to include work-
Congress should call a halt ers’ rights) are enforced. Any new trade
to any new trade deals agreements must have enforceable ILO la-
bor standards as well as environmental
until the trade deficit is standards. The U.S. government should
press the WTO to adopt core labor stan-
reversed … dards. And we need to enforce the same
labor standards at home, beginning with
gies. Thus individual corporations are not per- Congress passing the Employer Free Choice Act.
mitted unilaterally to transfer advanced tech- Tax policy needs to be turned upside down
nologies to foreign operations.” and structured to encourage domestic invest-
The fundamental lesson for the United ment in production. The first step is to abolish
States here is that manufacturing is a prized the current system of deferrals, tax credits, and
sector in both developing and highly industri- accounting rules that encourage outsourcing.
alized nations. Our competitors value the jobs, New policies should also assure that invest-
income, and economic diversity manufactur- ments made directly with public finds and in-
ing brings, and they aggressively pursue na- directly through taxes credits result in domes-
AFL-CIO 2005 convention resolutions: An centives for Moving Jobs Offshore,” by Rep.
References
Economic Agenda for Working Families and De- Charles B. Rangel and John Buckley, Democratic
mocratizing the Global Economy. chief tax counsel staff, http://www.house.
h t t p : / / w w w . a f l c i o. o rg / i s s u e s / j o b s gove. ways a n d m e a n s _ d e m o c rat s / t r a d e /
economy/manufacturing/iuc. tax_subsidies_for_jobs_outsourcing_sent_to_
Apollo Alliance, http://www.apollo bna.pdf.
alliance.org. U.S. China Economic and Security Review
AFL-CIO Working for America Institute, Commission, www.uscc.gov.
http://www.workingforamerica.org. USCC 2005 Annual Report to Congress.
Manufacturing Skills Standards Council, Paul A. Samuelson, “Where Ricardo and Mill
http://www.mssc.org. Rebut and Confirm Arguments of Mainstream
Justice for All: Workers Rights in China, Economists Against Globalization,” Journal of Eco-
http://www.solidaritycenter.org. nomic Perspectives 18, no. 3 (Summer 2004).
Eamon Fingleton, “Can Anyone Compete John Cassidy, “Winners and Losers: The
with China?” http://www.unsustainable.org. Truth About Free Trade,” The New Yorker, August
“Current International Tax Rules Provide In- 2, 2004.