Democrats and the Decline of Manufacturing in America

We have heard it for so long that most people assume it is true: the Democratic Party is the party of the working man, the hard-working blue-collar guy, the primary beneficiary of the manufacturing economy. Nonsense.

The reality is the Democratic Party is both a potent political force in the demise of the manufacturing sector and a primary factor obstructing any type of resurgence. The party has been controlled for decades by forces that in fact are destructive to that most American of enterprises, manufacturing.

The rhetoric coming from the party is certainly not representative of their true role. Their demons are, of course, the evil corporations that move plants overseas just to make more evil profit. Then there are more demons running unfair trading partners, the ones that act in deliberately predatory ways that take unfair advantage of the justly deserved high wages of the noble American worker. And all these demons work together under a master plan run by shadowy secret business/political organizations. Villains everywhere with only the Democrats and their friends actually working hard on the workers’ behalf. Despite some elements of truth, this propaganda has been remarkably effective in keeping voting blocks intact despite years of steady decline in manufacturing jobs. While the Democrats pronounce their fealty to the “working man,” they, possibly more than any other group in the last 20 years, have been responsible for the toxic environment that has so advanced the decline of manufacturing in America.

Manufacturing is indispensable not only in the structure of the American economy, but also in the very culture and fabric of American society. Since World War II it was the backbone of the tremendous advancement of the American standard of living during a period spanning barely 50 years. Manufacturing jobs allowed the low-skilled and semi-skilled worker to generate enough economic value to create remarkable wealth among the working class, something quite unique to America. An average factory worker could live in a good home in a thriving neighborhood, drive a new car, take vacations, own a boat, and send his kids to college, all on a factory wage. Manufacturing provides the basis for economic prosperity to the person who has no desire to go to college, prefers to work with their hands, or is simply not cut out for “knowledge” work, as Peter Drucker used to term it. In order for this to occur, conditions must exist for the worker to produce enough value per hour to support wages at the elevated levels needed in America. In addition, the business must be able to operate in an environment that allows it to do the things to make such value generation both possible and marketable.

All businesses, and manufacturing in particular, must have certain resources available in order to thrive. First, they require a steady source of workers that possess sound basic skills in math, reading, and language in order to operate effectively on the plant floor. In addition, the workers need to have a strong sense of responsibility and a work ethic; they need to show up on time, work their shift productively, and get along with co-workers. The abilities of the individual worker largely determine the most important dynamic in manufacturing: productivity and the constant need to increase output and lower costs. It is the source not only of profit and competitive ability of the company relative to its competitors around the world, but it is also the basic determinant of the level of compensation that can be afforded to the average wage earner. If the company has high productivity it can and usually does pay a higher wage. The reverse is also true.

Second, manufacturing businesses need to have the resources to acquire and update needed equipment and plant facilities. Manufacturers are capital intensive, that is, they require physical assets of plant and equipment that need to be purchased, maintained, and constantly upgraded to new technology. Cash flow generated by their activity must be available to build and expand capabilities and not be unreasonably siphoned off into uses not related to production. Nor can their earnings be taken in taxes, depriving them of needed investment capital in order to fund less productive social activities. Simply put, the resources needed to stay competitive are such that manufacturers are hard-pressed to support their own needs while at the same time pay for government adventures.

Third, businesses need a stable and predictable market environment in order to assess risks involved in various strategies and then to pursue directions that appear to have potential. The risk-taking attitude that built the massive auto companies, steel mills, and millions of homes relies on the confidence that a well-conceived and well-executed business model will find a market. The potential of significant financial loss unrelated to the actual market forces, as from the threat of legal profiteers, stifles the willingness to take commercial risks.

In summary, manufacturing businesses need good workers with basic skills, they need the ability to acquire and generate from within the cash resources necessary for extensive investment in assets, and they need a market environment that reasonably allows them to assess the risks and profit potential of their endeavors. Pretty basic stuff.

Unfortunately, the Democratic Party has allied itself and become totally beholden to a small group of special interests that obstruct these factors and, in many cases, actively seek to undo them. Let’s consider them one at a time.

Worker productivity

It is obvious to all but those in great denial that the Democratic Party is for all practical purposes owned by a few groups, most notably by the unions. Unions are certainly not in the business of enhanced productivity or increasing wages through increased value of production. Quite the contrary. Their goal is the highest possible level of pay without much regard for increasing the value of workers. That is why the auto companies were paying full wages to workers who were not working at all or who were retired or laid off. Grievance procedures in most union plants have the primary purpose of protecting the most marginal worker from discipline or replacement. Work rules frequently are designed to require the company to hire more workers than would otherwise be required, and hire them at high levels of pay. The resulting elevated pay unrelated to output is poison to manufacturing. It has played a significant role in the shrinking industrial base of America and is a solid impediment to its resurgence.

To make the case, one need only to look at the manufacturing industries that have all but become extinct in the U.S.: steelworkers, mineworkers, autoworkers, machinists, and all the offshoots of these industries. Factories and mills used to employ millions in Chicago, Detroit, Cleveland, Pittsburgh, and throughout the Rust Belt but are now almost totally gone. The industries themselves are still out there -- but just not here. In these union strongholds the companies simply could not compete when markets became very competitive and needs changed. While the company management should also be blamed for the decline, it is the industries where unions were the strongest that fell almost completely from our shores. Now the Democrats want to push through card check as a payback to their benefactors, making it vastly easier to organize more factories and putting even more jobs at risk. What conceivable line of reasoning would compel any company, foreign or domestic, to consider risking tens or hundreds of millions to build a plant only to have a high-wage, reduced-productivity workforce imposed on them? Would they consider building today, with Democrats in control of the government and a real possibility that card check could become law? The worker loses but the union bosses and their beneficiaries in Washington grow ever richer.

Unfortunately, it is not only on the shop floor that the corrosive forces of unions undermine basic manufacturing. As stated earlier, manufacturing provides the potential for the high school-educated to earn an above-average living. The workers, however, need to have abilities that used to be considered the very purpose of educating the young: reading, writing, and arithmetic. Would anyone argue that these skills are successfully taught in the educational systems of the urban areas most in need of manufacturing jobs? With dropout rates nearing 50% and “graduates” barely able to decipher their diplomas, the availability of qualified workers simply isn’t there. Instead, companies go overseas where even Bangladesh does a better job in basic education. It is certainly true that the unions are not totally to blame; politicians, parents, and others share an equal portion. However, it is the unions that spend millions to defeat voucher programs and protect the status quo. It is the unions that protect unqualified and poorly performing teachers and effectively block reforms that would reduce the flow of dues money to the union leaders.

In summary, unions are not evil, but they have become obsolete in an environment where managing productivity has become a cooperative effort shared by management and the workforce. Union goals of pay and benefits through force are self-destructive, as is the political activity that siphons tens of millions from their remaining members. To companies competing on a global basis, the productivity-wage rate balance is simply a rule that cannot be avoided. This is the reason nongovernmental union membership is in the single digits and declining. The remaining union organizations wield tremendous influence over the Democrats, however, and are seeking to force themselves into the workplace by political means. This will benefit only the union leadership at the expense of greatly reduced opportunity for those who would benefit most from a resurgent manufacturing sector.

Financial resources

In addition to a solid workforce, manufacturing requires the financial resources to support the physical assets needed for efficient production. Aside from stable capital markets and a favorable lending environment, business needs to be able to generate cash flows as a primary source of capital. Put simply, this means profits. Democrats have demonized profits for as long as they have been Democrats and treat profits as nothing short of greed and the exploitation of the helpless working class. By portraying profit and the profit motive in this evil light, Democrats have justified all manner of social mandates as essentially “free” to society -- a taking of immoral gains for moral purposes. Family leave, insurance mandates, environmental requirements, and a variety of race, gender, and sexual preference rules are but a few interventions.

These issues aside, tax levels and policies are the most influential factors in supporting or suppressing manufacturing activity. A manufacturing facility is not only expensive to establish, but it requires constant ongoing investment. Every dollar taken in taxes hurts the ability to do this and in turn diminishes the ability to stay competitive by investing in more productive technologies. The heavy industries of mid-1900s America all became relics when newer and more efficient global competitors emerged and they did not respond in kind.

Tax policy in America is among the most counterproductive in the world, with rates second only to Japan of all industrialized countries. Complex laws favor the connected few at the expense of a broad-based policy that encourages investment. With Democrat control of Congress and the presidency, anyone with any experience in business anticipates increased taxes and the loss of whatever incentives currently exist. In an environment where the taking of profits by the government is seen not only as justified but desirable, manufacturers choose other alternatives to investing in America and are then excoriated for “exporting jobs.”

At the core, the basic tax philosophy of liberal Democrats is in direct conflict with the needs of the manufacturing sector. At every turn, Democrats espouse the so-called social justice of taking profits and redistributing them to what they see as the exploited or disenfranchised, among other voting blocks. Through manufacturing jobs, however, the lower economic rungs have the potential to earn their way to a better life. They own what they have earned and become independent. The American middle class grew from this strata and vastly expanded while earning a standard of living unsurpassed in history. Tens of millions of average Joes were made wealthy by world standards through the industrial growth of less than one hundred years. The Democrats’ favored causes, the recipients of massive redistribution, have benefited how much? Regardless of the lack of results, does anyone really expect Democrats to change their tax favoring ways in order to promote manufacturing?

As an aside, there is one tax policy that actually might satisfy both the Democrats’ desire to grab taxes and businesses’ need to invest profits. Why not consider taxing only the profit that is actually disbursed out of the business and leave untaxed profits that are retained and reinvested?

Market environment

Finally, businesses need a stable market that allows them to assess risk and determine which of those risks are worth investing in. Stability means the market in which a business competes and the competence of the management should be the primary determinants of whether a business is successful. The presence of threat factors wholly outside the given market raises risk issues that are an impediment to the manufacturing sector developing otherwise favorable potential products. One of the most egregious examples of this factor is the cancer asbestos litigation of the past three decades. Thousands of companies, whose only crime was being a successor to the successor to the prior owner of a business that sold something using asbestos in 1972, have been destroyed to make a handful of legal parasites fabulously wealthy. Securities litigation, mega product liability claims, class action suits, and massive damage awards all threaten a manufacturer’s ability to earn the predictable cash flows needed to be successful and expand. All businesses, not just manufacturing, are held hostage by their own legal departments and the paranoia that emanates from them -- paranoia generated by a small but wealthy group of tort law pirates.

And who in government might be the tort lawyers’ best friends? And to which party do nearly all the mega-million donations go? And which party has provided a shield against tort reform, including the omission of reform in the current so-called health care reform bill? The president himself was candid enough to tell the AMA recently that he does not favor malpractice award limits. So the potential for devastating liability awards, often unrelated to merit or actual loss, goes on and makes their donors rich. It appears that one of the few rich people Democrats don’t hate is the tort lawyer who has purchased their service.

Manufacturing faces an environment where there is a shortage of good and qualified workers, a tax system that chokes off resources needed to exist and grow, and threats from lawsuits that could bankrupt them even in good times. All these conditions are protected by, and frequently enthusiastically promoted by, the Democratic Party of today. The party bears great responsibility not only for the decline in manufacturing employment but also for the very bleak outlook for that sector. America was built on manufacturing and there is no reason it can’t enjoy a solid growth in this sector in the years ahead. There is a collection of non-union auto plants in the U.S. that show us this can be done. With the Democrats in control, however, and because they have sold their souls to unions, lawyers, and the taxman to the exclusion of nearly all others, the poor and low-skilled will be left to grovel for the meager handouts afforded them by the party of the working man.