But one giant unknown clouds everything: China. Until now, its
booming U.S. exports have mostly displaced exports from other
countries. As China modernizes -- moves into more advanced
industries -- this could change dramatically. The combination
of low wages, a huge market and an artificially low currency
confers staggering competitive advantages. They constitute a
powerful magnet for foreign investment in many sectors, whose
output could subsequently be exported. Unless the currency
rises substantially, the United States could lose many
industries that, by all other economic logic, it shouldn't.
Therein lies the real threat of extinction or something close
to it.
Of course the Matrix would never mention the elephant in the
kitchen, the actual reason for U.S. decline: free trade policies.
rkm
--------------------------------------------------------
http://www.washingtonpost.com/wp-dyn/content/article/2005/10/18/AR2005101801215.html
washingtonpost.com
The Fate of 'Made in the USA'
By Robert J. Samuelson
Wednesday, October 19, 2005; A21
The question posed by the bankruptcy filing of Delphi Corp. --
the largest U.S. auto parts company -- is whether
manufacturing in America has a future. Or is it sliding toward
extinction? Viewed historically, the question is misleading.
It's true that manufacturing employment now accounts for only
one in nine jobs, down from one in three in 1950. But the
decline mostly reflects higher efficiency. Americans make more
things with fewer people. From 1990 to 2000, for example,
manufacturing output rose 61 percent while employment fell 2
percent, reports economist David Huether of the National
Association of Manufacturers (NAM). This is generally a good
thing. It frees more workers to produce services (software,
education, health care) that Americans want.
Of late, however, the news about manufacturing has seemed
particularly dismal. Since mid-2000, 3 million jobs have
vanished. Though overall corporate profitability has been
strong, manufacturing has until recently been a conspicuous
exception. From 2000 to 2004, the sector's profits averaged
only 60 percent of their 1999 peak. It's retailing, finance
(banks, stockbrokers) and real estate that account for big
profit gains. Finally, imports represent a growing share of
Americans' consumption of manufactured goods. In a recent
report, the NAM cites these figures for 2003: 35 percent for
motor vehicles and parts; 45 percent for computers and parts;
22 percent for chemicals.
Delphi's bankruptcy suggests that the whole auto-industrial
complex faces another wrenching shakeout. Delphi, once the
auto parts subsidiary of General Motors, was spun off in 1999.
The idea was to reduce GM's costs by forcing Delphi to compete
for its contracts and to sell to other companies. Since then,
Delphi's dependence on GM has dropped from about 80 percent of
sales to 50 percent.
The trouble is that Delphi isn't profitable. The entire
industry is caught in a cost-price squeeze. It needs price
discounts (aka "incentives'') to sell vehicles. In 2004, GM's
average selling price of $26,479 was $435 lower than in 2002,
reports the consulting firm J.D. Power and Associates.
Unfortunately, the resulting revenue pinches profits or pushes
high-cost producers, such as GM and Ford, into the red. True,
GM's distress (and hence Delphi's) stems partly from
unappealing vehicles that don't sell well even at lower
prices. Since 1999, GM's U.S. market share has dropped from
29.6 percent to 26.4 percent. But high labor costs are also a
huge problem. GM and Delphi's hourly wages average about $27
under similar contracts with the United Auto Workers (UAW).
Counting fringe benefits and retiree costs (health care and
pensions), these soar to $65 for Delphi and $74 for GM.
Since 1948, the UAW and GM, Ford and Chrysler have crafted
contracts that turned the companies into mini-welfare states,
providing above-average hourly wages (today's average for all
manufacturing: $16.60), rich fringe benefits and strong job
security. For example, laid-off UAW workers essentially get
full salary and benefits indefinitely. With limited
competition, companies could pass along common labor costs to
consumers and compete on styling and performance. No more. The
protected market has given way to imports and foreign firms
with nonunionized U.S. plants. Price competition is fierce.
Now comes the reckoning. The market and the welfare state
collide. According to the UAW, Delphi is seeking deep cuts in
both wages (to about $10 to $12 an hour) and total labor costs
including fringes (to $20 to $25 an hour). In an interview
with the Wall Street Journal, Delphi chief executive Steve
Miller indicated that once retirees become eligible for
Medicare at 65, he wants to eliminate any supplementary health
insurance coverage.
"If we do this right, Delphi will remain one of the world's
leading global automotive suppliers," Miller has said
separately. "Yes, with a smaller U.S. manufacturing footprint.
And with a more focused approach to selected product lines
where we can be the technology leaders. . . . If we do it
badly, Delphi may be broken up into small pieces, and America
will have lost some of its precious industrial treasures." GM,
Ford and Chrysler are also headed toward bankruptcy unless
they curb labor and "legacy" costs, he predicted. GM already
has 2.5 retirees for every active U.S. worker. Just this week,
it tentatively agreed with the UAW to trim retiree health
costs by a claimed 25 percent.
The fate of American manufacturing lies largely in American
hands. Of course, some labor-intensive production will go
abroad. But in many industries, job losses and cost-cutting --
though devastating to individuals -- can sustain production
and restore profitability. The U.S. steel industry now
produces more than in the 1980s, though it has lost two-thirds
of its jobs. Elsewhere, innovation and high-value
manufacturing should create jobs. Consider United
Technologies. It makes jet engines, elevators, air
conditioners and helicopters. Despite extensive foreign
factories, much skilled manufacturing remains here. On one
popular helicopter, air frames are assembled in the Czech
Republic; the high-value electronic systems and blades are
mainly American.
But one giant unknown clouds everything: China. Until now, its
booming U.S. exports have mostly displaced exports from other
countries. As China modernizes -- moves into more advanced
industries -- this could change dramatically. The combination
of low wages, a huge market and an artificially low currency
confers staggering competitive advantages. They constitute a
powerful magnet for foreign investment in many sectors, whose
output could subsequently be exported. Unless the currency
rises substantially, the United States could lose many
industries that, by all other economic logic, it shouldn't.
Therein lies the real threat of extinction or something close
to it.
© 2005 The Washington Post Company
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