Presentation: Bob Baugh, Executive Director , AFL-CIO Industrial Union Council

(Slide 1- IUC logo)

Our unions and their members have grave concerns about the future of manufacturing and the economy.  There is something fundamentally flawed with the businesspractices of our largest corporations.

Over the past decade a dominant business model, supported by government trade and tax policy, has emerged in the American economy that promotes the outsourcing/offshoring of American manufacturing. The loss of our manufacturing capacity – the intellectual and technical capability to make things – is a profound threat to the nation’s economy and our national security.

Bush and Greenspan: The Price of Deception

(Slide 2)

Earlier this year Senator Harry Reid, the Senate Democratic leader, called Alan Greespan a political hack. He took a lot of heat for speaking out.

I applaud his candor. In fact I think he was generous.  I think Alan Greenspan is the high priest of duplicity and doublespeak. He is a cheerleader for outsourcing.  He is dangerous.

He has been an administration mouthpiece, promoting outrageous tax relief plans for the wealthy that have turned into the largest budget deficits in our history. He proselytizes for free markets and the trade agreements that have resulted in the largest trade deficits in history. Then he warns Congress that these deficits are unsustainable and pushes the cutting and privatizing social security as an answer. 

Think about what he said last summer at the Senate Finance Committee hearing on China trade. This was some Fourth of July greeting:    “There is no credible evidence exists that reevaluating the Chinese yuan will result in any increase in US manufacturing jobs.”  That’s what Alan Greenspan said as he denounced “protectionist” Senate bills from Schumer, Stabenow, English and others. 

He claims China’s deficit is caused by an increase in final assembly work sent there from other Asian nations, and revaluation would only send this work on to other low-wage countries, not ours.  Of course, that neither accounts for the massive overall deficit increase beyond China nor does it explain that 60% of those imports are from U.S. firms.

Greenspan did admit that a revaluation by China would force similar actions by other Asian nations, but disavowed any direct action to force it as “protectionist, dangerous, an interference with the free market.”  “Philosophically,” he agreed,  “leverage is useful” but had no idea what that might be. Neither did the Treasury Secretary, John Snow, when he finally chimed in. 

In fact, Secretary Snow had previously explained away the trade deficit saying that “it is a sign the American economy is doing well.”  That is like General Motors announcing that a 20% decline in sales is a sign that business is good.

What a pair.

According to them … we really can’t do anything that would make a difference and if we tried that would be bad but, philosophically, having leverage is good although no one has a clue as to how or what might be done. 

He loves the free market. He loves free trade. He doesn’t give a damn about manufacturing. He lies …

And our fawning press follows Greenspan’s every word, Wall Street awaits his every signal … I am waiting for the headline “Chairman Farts … Markets Rally on the News of Greenspan’s Gastric Relief”

Why all this about Greenspan?  … because of the role his office plays in the assault on workers, unions and our manufacturing base.  Nor is he alone.  Consider the fact that Bob Rubin, Clinton’s Treasury Secretary, ignoring the last five years praised Greenspan for keeping the deficits in line.  This is a bipartisan problem. It is a Wall Street problem.

The Policy Squeeze Box: The Wall Street Agenda (Slide 3)

Greenspan and the Federal Reserve represent just one side of a policy/ideology box that has overwhelmed the working families of this nation. It is driven by their “free market” ideology -- free trade, deregulation, privatization, labor market flexibility (a nice way of saying no rules, no regulations, weak unions), and monetary policy that focuses exclusively on inflation not employment.

Workers, unions, our entire economy is trapped in this box and the ideologues and bankers are squeezing it as hard as they can.  It has been twenty five years in the making.

I will talk about this some more later in the presentation but I want to set the stage in real terms and talk about what has been happening to manufacturing and other sectors of the economy.  

The economic reality of the past four years has been painful and dangerous to the long-term interests of the nation. Manufacturing matters to our economic and national security.

The Selling of an Ideology, The Cost of the Market …(Slide 4)

This may be a cartoon but it tells a troubling story.

This Administration has a mantra.  Over and over we are told that government can do no good, the “market” is the answer --- it the answer to everything --- The market, “competition.”  will fix health care -- the free market is best for international trade m -- the market can help social security and pensions.

Oh yeah?

Remember all the talk about the new economy.  Just five short years ago it was supposed to be all computers, information technology, lots and lots of new great jobs in a never ending high wage service economy?  Clean jobs were to replace all those dirty ones.  It only takes some education to fix things.  And then the bubble burst.

Free trade promised even more on a worldwide scale. Deals like NAFTA, China and the WTO would create more great jobs at home, open markets, close our trade deficit, lift our trading partners out of poverty, and solidify democratic reforms there. It would be a “pro-growth/pro-jobs” never ending cycle of prosperity for everyone.  Wow!

It was meant to sound very appealing. There was just one problem. It didn’t work.

This is the new economy.

Here is how this global shift, this so called “free trade” competitive economy has played out over the past four years.  The truth is outsourcing driven by trade, tax and manufacturing policy is undermining our economic future. 

Manufacturing Matters (Slide 5)

Manufacturing means Good Jobs, Healthy Communities, Economic Security and National Security

Most important is the broader role manufacturing plays throughout the economy:

1. Productivity leader
2. 2/3 of all R&D investment
3. Primary source of innovation
4. Leading purchaser of new technology
5. Leading purchaser of financial and technical services
6. Leader in new work org and processes
7. Opportunity: economic ladder with rungs at all levels

The entire economy pays a price for the decline manufacturing. 

The Cost of the Free Market Ideology (Slide 6)

Consider the impact of our failure to act on national health care. Ideology killed the last attempt a dozen years ago. Today health benefits are viewed as a competitive disadvantage.

They are in manufacturing when $1400 of every car General Motors makes goes to covering health costs.  Our lack of a national health care system works against us.

And we pay a lot more - $4,800 vs  $2,800 for Germany in per capita expenditures- and for a lot of overhead (maybe 30 %) in our balkanized  “competitive health care system”

Domestic firms that offer full benefits are at a disadvantage to firms who offer only catastrophic coverage or none at all.  Internationally we are at a disadvantage to other industrialized nations that have social insurance systems and developing nations with none at all. 

Low wages and no benefits are a magnet for outsourcing. 

Yes, the competition is killing us.    There’s more …

Remember this line as I run through some numbers:

The seed corn of our future is being invested in someone else’seconomy.  (Slide 7)

The 2004 and 2005 trade picture is a disaster

• A $618 billion overall trade deficit and a $666 billion deficit in goods.
• It would take a 150% increase in our own exports just to stay even with the 2004 deficit
• The overall deficit in 2005 is headed toward $750 billion – more than 6 per cent of the GDP.  It’s outrageous, it’s unsustainable and it is dangerous. 
• The trend in trade deficits all bad:  manufacturing is the biggest by far but the other parts of the trade pie that were supposed to help are all in trouble.  Advanced technology now in deficit, agriculture went into deficit last few months of the year; services surplus has been halved in the last four years to less than $50 billion. 

(Slide 8)

If empty cargo containers were a product they would be our largest exportto China.

• In 2004 the trade deficit with China skyrocket to $162 billion, a 30% increase in one year. That’s about double what it was in 2000.
• This is the largest bilateral trade deficit between any two countries in the history of the world and the Economic Policy Institute estimates it has cost us 410,000 jobs in the past two years.
• The 2005 deficit with China continues at a record pace. It is on target to exceed $200 billion.
• We ship empty containers and raw materials to China. They ship back finished products --  60 % of these imports are made in China by American firms.
• Of the top fifteen U.S. exports to China, three are “ waste and scrap”; four are raw materials or agricultural products; six are parts, some of which will presumably be assembled in China for later export; and only two are clearly finished assembled products; and only two are clearly finished assembled products (aircraft and computers)…. And these are going with 70 % of the Boeing 7E7 being offshored.

(Slide 9)

• We Lost of 2.9 million manufacturing jobs over past 4 years (3.3 million since 1998)
• The manufacturing loss was felt everywhere hitting minorities, rural communities and the south harder per cap
• 575,000 rural factory jobs disappeared, 12 % of the total loss.  It hit food, textiles, apparel, lumber, furniture, paper industries largest losers.  All rural, southern with many minority workers

And consider this.  Over the past four years:

• Low income and no income families grew with 3 million more in poverty.
• 5 million more without health insurance.
• The percentage of firms providing health insurance declined by 4% …. 65 to 61%

Connect the dots … There is a direct relationship between the loss of 2.8 million manufacturing jobs and the millions of people without coverage.  Why … because as a sector manufacturing provided as the highest percentage of employer provided health care, full coverage family health care.

The increase in the numbers of uninsured also has an impact on the existing health care system and the increasing costs of existing insurance programs.

Yes, the market, the competition, has a price.

(Slide 10)

The so-called expert, economists and business writers remain in denial and continue to perpetuate the “myths of manufacturing” like: the job loss is due to productivity not trade/outsourcing, those only play a minor role and manufacturing doesn’t matter as much in today’s economy.

Wrong… Here’s what we found in a series of state studies.

• Studies by the Industrial Union Council of four states shows over 50% and up to 80 % of the manufacturing workers receiving WARN notices in those states in the past four years were lost their jobs due directly to trade.
• The replacement wages for the workers able to find employment falls far below the jobs that left.

There’s more to this jobs story. It’s not just about the skilled frontline worker. It’s about the infrastructure of manufacturing being decimated.  Manufacturing has become the canary in the coal mine for other sectors of our economy.

In the past outsourcing and trade were considered a cancer upon manufacturing. Sadly as the service, advanced technology, the pubic sector and others have learned in recent years this is not a cancer …it is a virulent disease.  And, it is spreading.

(slide 11)

After four years we are still in a job loss recovery… especially in manufacturing. Overall the country is  just now back to the number of private sector jobs that existed when President Bush took office but the jobs being created do not measure up to the jobs we have lost.

• The economic recovery that supposedly began in 2001 hasn’t for most of the nation’s workforce. Real wages actually declined last year and last month. Projected increases are at the lowest levels in decades.
• There is no real recovery in manufacturing. We also lost more manufacturing jobs in June and July.  We lost jobs in 56 of the last 60 months. 24,000 more lost in June.
• Unemployment sits around 5 % with record numbers of people falling off the charts.  A new paper produced by the Federal Reserve documents this and suggest the real unemployment number is 8% or more.

(Slide 12)

The jobs that have been created underscore the troubling foundation of this recovery.  Most are in non-traded sectors and in lower wage and part time work.

Let’s look at what happened in July.

The BLS reported a 207,000 increase which is good news but manufacturing hours worked declined again in July. It was the fifth decline in six months, bringing the index back to ‑9.14% below its level when the current cyclical recovery began 44 months ago in November 2001. Hours worked in manufacturing have never before declined after more than two months of recovery.

We are in a chronic pattern of job growth almost entirely in industries with little or no exposure to outsourcing, import competition or export potential.

Jobs in July included:

• restaurants and bars (30k,) healthcare (29k,) local schools (18k,) clothing & accessory stores (13k,) real estate (12k,) department stores (10k,) general merchandise stores (10k,) car dealerships (10k,) building maintenance (9k,) and for passenger ground transportation (9k.)
• A gain of 33k Professional and Business Services jobs is misleading. Building maintenance accounts for 9k of these jobs with management and technical consulting (6k,) architects and engineers (5k) – mostly Defense or construction-related-accounting for most of the rest.

The US has apparently lost the ability to create high productivity, high value-added jobs in tradable goods and services. The ladders of upward mobility are being dismantled by offshore production for home markets and outsourcing of knowledge jobs.

(Slide 13)

The Bureau of Labor Statistics documented the symptoms:

• Engineering unemployment hit 7% in 2004 … the highest ever. Even in the worst of times in the early 1980’s it never rose above 3%
• BLS estimates the loss of 221,000 technical/engineering jobs 2001-2004: computer programmers, electrical and electronic engineers, etc.
• Call centers in India $5.1 billion, 350,000 employees, growing 40 percent annually …. IT services exports at $11.2 billion and growing 30 percent
• Science and engineering enrollment is declining while more and more companies announce offshore R&D and engineering centers to compliment and expand their existing manufacturing capacity in those countries

(Slide 14)

The investment patterns tell the same story. Major investment in China in greenfield, joint venture and contract manufacturing. Stagnant investment at home and foreign investment here that is about ownership changing hands not new jobs.

The China investment is all about new jobs through start ups, joint ventures and contract production for products for the American marketplace. On the other hand, the so-called foreign direct investment in the United States that trade advocates love to call insourcing, with few exceptions, is about change of ownership. It is Damlier buying Chrysler. It is not about new job creating investment in our economy.

The diagnosis is sobering.

The loss of skilled workers, R&D, engineering, design, etc. means the next best idea,

The next best idea,

The next innovation,

the next generation of products,

the next investment …

will be made in somewhere else, not here. 

The loss of manufacturing capacity – the intellectual and technical capability to make things – is a profound threat to the nation’s economy and our national security.

Look! The seed corn of our future is being invested in someone else’s economy

It also affects how every other business operates here.  Some play both sides of the street.

At home we are competing for less and less

(Slide 15)

Outsourcing is a disease that kills jobs here while undermining the health of those that remain. Some firms actively engage in both all in the name of competition and consumers.

It used to be that that big firms could be counted on to supply health care coverage. Now that has been turned upside down and the share of uninsured at large firms is growing. … yet another competitive trend.

• The number of uninsured in large firms has grown from 25% in 1987 to 32% in 2003.

Ironically, that coincides with the rise of America’s largest corporation, Wal-Mart.  A company that dwarfs entire national economies with over 1.2 million employees and an annual revenue that amount to 2% of the US GDP, and astounding $289 billion last year.  

They used to advertise that their products create American jobs.  Today over 60 per cent of their products are made in China.  In 2004 they imported $18 billion in goods from China, more than 12% of that trade deficit.  They require their vendors to manufacture overseas so the smiley face can bring us lower prices. 

(Slide 16)

But, seeking lower prices is not just a phenomenon of the retail practices. The truth is WalMart’s slogan should really read,  “Always Lower Wages and Benefits, Always.” 

• They pay lower wages and offer less work hours than comparable competitors -- 28 hours is considered full time work.
• Fewer workers are insured at WalMart, 41 percent vs 66 percent in large firms
• Their workers pay for more of their premiums than at other large firms
• The company spends less than half of what most firms do on health insurance even in the retail industry.  They even like to brag about the limits of their coverage

This is how one of their executives described their heath insurance plan.

• “What you get for that (worker premium payments, deductibles and co-pays) is an outstanding catastrophic medical plan.”

The health of American workers has become the price of competition as …

Wall Street looks to set the bar even lower

(Slide 17)

Costco is another successful big box retailer that has a number of units organized by the IBT and UFCW.  They offer better wages and benefits than Wal-Mart but see how that is viewed:

“From the perspective of investors, Costco’s benefits ($10/hour starting wage, 90% paid health benefits after 3 months for full-timers, after 6 months for part-time) are overly generous.  Public companies need to care for shareholders first.  Costco runs its business like it is a private company.” – Bill Dreher, Deutsche Bank Securities

As labor and management we will work hard at negotiating solutions to the problems we face.  But, the failure of our trade policies and health care system cannot be fixed by collective bargaining alone.

WalMarts international outsourcing and domestic wage/benefit  squeeze is a one two punch at the economic heart of our economy --- workers and income. 

According to the free traders that’s life, that’s the glories of the free market at work … Wal-Mart, China, trade deficits, the loss of manufacturing -- it’s all OK because the consumer is the winner

From our side, this international “free market competition” based on the repression of workers rights and human rights, weak environmental standards, currency manipulation and more is a sledge hammer used to pound American working class into line. 

This is a crisis for domestic manufacturing, for the nation, for our states and our communities.

Who is this unrestrained “free market” accountable to?

Has economic ideology trumped common sense? 

Where is the national interest?

The leading free trade apologist, Jagdish Bhagwati of Columbia University brushes it all off taking the “what me worry” approach. He says no need to concern ourselves about the trade related job loss because “the numbers are small compared to the size of the economy.” I can just imagine him as captain of the Titanic. He’d be telling the passengers “… no need to worry, it really is such a small hole compared to the size of the ship.”

However, other long time trade proponents have begun to ask those questions.

Recently the godfather of modern economics, Paul Samuelson (and Baghwhati’s mentor) spoke out criticizing the economic orthodoxy of free trade.  He said the proponents of the trade agenda “offer only opinion not facts in support of their case” and he warned “first world nations can be and are hurt by this approach unless it is carefully managed.”

Then there is this from Paul Craig Roberts a former Reagan Treasury undersecretary and free trade proponent:

“In a word, American capitalism is destroying itself by dismantling the ladders of upward mobility that have made large income inequalities acceptable. By rewarding themselves for destroying American jobs and manufacturing, engineering and scientific capabilities, US executives are sowing a whirlwind. American political stability will not survive the turning of an American university degree into a worthless sheet of paper. Libertarians and free market ideologues who rejoice in freedom should open their eyes to freedom’s destruction.”

Yes, something has gone terribly wrong. 

The Wall Street Agenda: The Squeeze Box

(Slide 18)

I opened this presentation by saying the corporations have put us in a box and they are squeezing. 

This is the box. It is a corporate agenda that has been put in place over the past 25 years under Democratic and Republican administrations. 

Its four sides are the policy framework we are trapped in.

Covering the top and bottom are the two articles of faith that hold the four sides together.

One article says:

the market is all knowing,

the market is all good,

the market can fix anything, 

the market is the answer to all our problems,

the market is free, and

the market means freedom.

The other says:

government is bad,

government is the problem,

government should get out of the way, and

government can’t do anything right except for the

government making the market  the answer

Jimmy Carter started it with trucking and airline deregulation while Paul Volcker had the Federal Reserve declare war on inflation.  Today even when no one can find inflation we declare war on the “fear of inflation.” Employment is no longer a national policy objective … protection of capital is.

Reagan followed by attacking government, taxes and regulation (which became mantra of modern republican party) while promoting privatization and labor market flexibility beginning with PATCO.  Think about it … labor and government were declared enemies of the state and the market its savior.

Bush I continued Reagan’s regulatory push. And Clinton opened the globalization door pulling along enough Democrats in Congress to pass NAFTA and PNTR.

Now under Bush II it’s a full scale assault on every side. 

(Slide 19)

It’s been a long drawn out process, hitting different sectors at different times, making it difficult for everyone to see beyond their own immediate problems  (e.g. Man/trade, public sector/privatization, private sector/deregulation).

It means we have been less united than we need to be. Too often we operate in silos only able to deal with the immediate problem in our own sector.   

But its been operating as a complete package. Each and every sector, every union, every working family and their communities are under attack. 

All of us, unions from each and every sector have been put in this box. And their global corporate agenda is being used as a vice to squeeze us even harder. 

What do I mean? 

They are pushing the same agenda on the world.

They call them trade agreements but it’s the same noxious brew of free trade, privatization, deregulation, labor market flexibility and control over monetary policy. They promote it and have our government negotiate it for them.

Then they use the cheap labor, repression of rights, weak standards, currency manipulation as the sledgehammer back home … wage freezes, concessions, benefit cuts and more. They treat us like lemmings as they run us off the cliff

We can’t organize our way out of it.

We can’t bargain our way around it.

It needs to be torn down

We must lead the way.  Locally and nationally.

Leadership, Public Policy and the Price of Competition

(slide 20)

We have a failure of leadership at the highest level.

A picture is worth a thousand words and this one says it all. It was taken two years ago at a distribution facility in St. Louis.  Under the duct tape it says “Made in China.”

There is something rotten in our nation’s capitol.  The “national interest” is now shaped by the so called “market forces” and defined by our multinational corporations.

The policy box shapes all the answers to the crisis in manufacturing and the economy

• More trade agreements, CAFTA, FTAA, Thailand and more … all the while ignoring the elephant in the room, China. 
• Labor market flexibility: overtime, no unions/employee free choice.
• Privatization and Deregulation i.e. Tort reform.
• Medicare reform that will cost a trillion dollars and prohibits government from negotiating lower drug prices through its purchasing power. Then they move to stop our citizens from buying drugs in Canada, a country that does use its purchasing power. My mother-in-law had it right. She said to me “who is the government trying to fool, if those drugs in Canada are so bad there would be a bunch of dead Canadians laying around up there.”
• A Social Security crisis that will be fixed by privatization.  Never mind that that has nothing to do with addressing the 2042 shortfall.  In fact, it exacerbates it unless we come up with another trillion or two to correct the shortfall that privatization would create.  That’s what you get when you remove two thirds of the 6% payroll contribution workers make to the social security trust.
• A pension reform that threatens to undermine all defined benefits.

When I add these all up I feel like I’ve gone with Pink Floyd to the Dark Side of the Moon and the loonies are in charge.  This accounting wouldn’t pass muster with any Accounting Standards Board

So I have to ask:

Is this about the price of competition or is this the price of ideology?

The Price of Competition: A Real Ownership Society

(Slide 21)

What Government Should Do: The IUC Agenda

• Freeze trade deals until deficit eliminated: CAFTA, Thailand, China currency – enforce our trade laws
• Stop encouraging outsourcing
• “Buy American” for national security
• Invest in manufacturing (Apollo and more)
• Organize National Health Insurance
• Protect retirement security: PBGC and SSI
• Let workers organize … here and abroad: Employee Free Choice Act

(Slide 22)

Think Globally and Act Locally

There are also things that can be done at the state level to make your voice heard in this discussion. You should have a say on the trade policies this nation pursues. You should demand they be more responsive and strategic than they currently are. Your state’s and communities have a stake in the success of domestic manufacturing.

Here are a couple of examples of ways in which states are helping address national concerns.

• Our Jobs, Trade and Democracy Act is based upon the actions Governor Rendell is taking in Pennsylvania to create and office of trade compliance to help businesses and workers. Our act would also generate the jobs impact information needed for legislators to make informed decisions. It would also involve the legislator in democratic decisions about a state signing on to a trade agreement.
• Procurement laws: It matters how the State invests its money.  In most economies the state's is one of the largest buyer of goods and services and does all kinds of things. Do your tax dollars support local and domestic industry thus reinvesting your money in our economy, not in somebody else's.  Is your state privatizing and outsourcing work?
• Health Care: States are experimenting: CA, WI, OR … they may help provide the direction for a national reform

(Slide 24)

In closing let me agree with one thing the president has said.  We do need an ownership society. 

The question is who really owns it?  That is self evident.

There is price to free trade.  There is a price to our ideology driven economics. There is a price to the free market. And, there is a price to competition. 

Here is a simple truth that the ideologues ignore at our peril … if we don’t make things we have nothing to trade. If we have nothing to trade can never solve the trade deficit. The trade deficit

The working families of this country are paying that price. They have mortgaged the future with our income, our health and our jobs.  Telling us we reap the benefit of cheaper goods at Wal-Mart is not an answer. It is an insult.  It is dangerous.

It’s time for common sense to overrule economic ideology. It is time for an ownership society where those that pays the price makes the rules.

Slide (23)

I encourage you to visit our web page at www.aflcio.org/manufacturing  Look here for more information about our agenda. Make it your agenda.