Can U.S. Manufacturing Be Revived?

A Report on an Asia Times Webinar with Dr. Robert Atkinson

By Nancy Spannaus

July 30, 2020—The debate on whether American manufacturing can be revived was taken up July 28 in a webinar sponsored by Asia Times, a major pan-Asia digital news platform. Featured speaker Rob Atkinson addressed the topic “Can U.S. Manufacturing Make a Comeback?” He painted a grim picture of the current state of the industry, and very cautious optimism about prospects for progress in the immediate future.

Atkinson is an author and head of the Washington thinktank, the Institute for Innovation and Information Technology. He has been involved in economic policy for three decades, including serving on various commissions in Bush, Obama, and Trump administrations, and clearly is very knowledgeable about both the on-the-ground realities of the manufacturing business, and the politics around it. The event was moderated by Asia Times Deputy Editor David P. Goldman.

Can U.S. Manufacturing Be Revived?

Dr. Robert Atkinson during his July 28 webinar (screenshot)

As Dr. Atkinson indicated, the United States is seeing a significant break from the traditional fight between the ideologues of the right (laissez-faire) and the left (just print more money) which have dominated the economic debates for decades. There is an emerging bipartisan grouping which is crafting policies to “re-shore” the supply chain, revive manufacturing, and promote innovation through such measures as improved tax credits for R&D and incentives for capital spending. This grouping includes institutions such as the American Compass and the American Affairs Journal, and is reflected in publications such as the American Conservative and in some bipartisan alliances in Congress.

In a major article published in the American Affairs Journal in May of 2019, Atkinson and noted historian Michael Lind identify their brand of thinking as “developmental economics” in the tradition of Alexander Hamilton, and cite his Report on Manufactures as a seminal document in defining this mode of thinking.  In this talk, unfortunately, Atkinson made no reference to Hamiltonian thinking, and, in response to questions, even downplayed the necessity for a major upgrading of U.S. infrastructure to accompany a manufacturing revival. I’m in favor of infrastructure spending, he said, but “it’s not a magic bullet.”

Yet transformative infrastructure development – exemplified by roads and canals in Hamilton’s day, electrification in the 20th Century, and high-speed rail in our age – lies at the core of Hamiltonian thinking about increasing productivity of the economy, and thus establishing the basis for broad prosperity. Achieving it, of course, demands a financial system oriented to promoting long-term, low-interest investments, and federal government backing, as in the National Bank model Hamilton pioneered. (For more on the Hamiltonian program, see my book Hamilton Versus Wall Street, The Core Principles of the American System of Economics.)

The Grim Reality

Atkinson began by providing extensive details on the decline of U.S. manufacturing, starting with the collapse of major American tech companies which used to dominate their fields worldwide, Lucent and Intel. These “iconic failures,” he said, come on top of the downward fortunes of IBM, HP, GE, and the Big Three auto companies over recent decades.

Factory closures like these point to the real crisis behind the crisis.

Turning to the broad overview, he reported that while U.S. GDP as a whole had increased 22% from 2007 to 2019, manufacturing output had gone down by 3% in the same period. In advanced technology areas, manufacturing output is 6.5% lower than it was in 2008.

The reasons he identified were the policies that have led to an unprecedented decline in productivity. The ones he pinpointed were the failure of government to encourage companies to invest in capital expenditures, and in research and development. Twenty-seven other countries have more generous tax incentives for R&D than the United States, and the 2017 Republican tax bill actually made them worse. In addition, where other countries provide incentives for capital expenditures, the United States does not. (President John F. Kennedy, notably, did.)

The result is rampant “short-termism,” which Atkinson said was “forced by the financial system.” (One concrete example, he said, was the time the financial analysts told Lucent to get out of manufacturing.) The economist class of the United States and the United Kingdom is in a class by itself, he noted; these economists believe that the markets are “all-knowing.” Without naming names, he cited a leading policy maker in Washington who, when asked how much manufacturing he was willing to lose in the economy as long as profits continued to go up, he said “all of it!” After all, money is money, right?

Atkinson (along with anyone else who is sane) obviously doesn’t agree. As he said in answer to questions later, he believes the United States must have a manufacturing base for two primary reasons: first, national security (with a heavy stress on military capability); and second, the need for trade competitiveness (i.e., to avoid deficits and adverse financial consequences).

Can U.S. Manufacturing Be Revived?

Employment in manufacturing vs. other industries (DOD report)

In fact, there are much broader fundamental reasons manufacturing is required for a nation to prosper. As Hamilton emphasized, every nation should have the ability to feed, clothe, and house itself, as well as provide national defense. To do this with a growing population requires continuous scientific and technological progress, which is actualized through manufactures. And indeed, the world will benefit if that progress is shared with other nations, to raise their standards of living as well. Progress does not require conflict with other nations.

But, back to the webinar report.

Is There Any Good News?

Atkinson’s own proposals for dealing with the manufacturing decline have been well publicized in op-eds and elsewhere, and were repeated in his discussion. He wants to see a major increase in the tax credit for R&D, and incentives in the tax code for investment in capital equipment. His major emphasis is on spurring innovation, especially in the areas of 5G, robotics, and education of a workforce qualified for these high-tech areas.

The COVID crisis has served as a “wake-up call,” he noted, and some political forces have begun to move in the right direction. Among the signs of hope he described are some of most recent proposals by the Biden campaign and some bipartisan initiatives in Congress. Biden has rolled out a “Made in America” plan with incentives and mandates that Atkinson thinks are appropriate, if they penalize China (among others), but not our “allies.” Biden’s plan also includes a $300 billion fund for innovation, and a major push for restoring crucial supply chains (as in hospital equipment) within the United States. Atkinson pointed to bipartisan legislation now before Congress which calls for funding advanced R&D, and for creating an “Endless Frontier” fund for research in areas such as robotics, both of which he supported.

High-tech manufacturing in action. (DOD report)

While praising President Trump for being the first recent President, in contrast to the rhetoric of Obama and Clinton, to bluntly insist that manufacturing matters and must be saved, Atkinson said this nonetheless represented more talk than action.  There have been marginal impacts from the tariffs on China, but the imports have primarily just shifted from China to places like Mexico and Vietnam.  But he was encouraged by the defense establishment raising the alarm, and the emerging battle in the Republican Party, led by the likes of Sens. Rubio, Hawley, and Young, against the market fundamentalists who have written off manufactures long ago.[1] That Republican camp will win the battle, he opined, especially if Trump loses in November.

The problem with this approach, of course, is that it demands a focus on the “enemy” in the form of China, or Russia and other states. For example, in discussing the gaps in the supply chain that the COVID crisis exposed, Atkinson did not mention that we had taken down our productive capacity to produce masks, ventilators, et al., shut our hospitals, etc. Instead, he peddled the story that China had refused to sell us these items, in order to protect themselves!  If this was true at the beginning (before the virus was rampaging here), it certainly didn’t last long; it is well known that China has supplied massive amounts of PPE, not to mention medical expertise, to many nations in need, including the United States, over recent months.

The real good news, I would argue, lies in the fact that the debate over reviving manufacturing has finally begun, in the context of a renewed interest in the ideas of Alexander Hamilton, as a way of addressing the current concatenation of crises (financial, economic, social, and medical) in the United States. The seriousness of the effort is reflected in the growing organizing around H.R. 6422, a Hamiltonian proposal for a National Infrastructure Bank, which was introduced into the Congress this spring.

Construction on California’s high-speed rail project has already begun, but secure funding is needed.

Combined with bringing Wall Street under control, this bill’s success can indeed assure that manufacturing is revived, for the benefit of not only our country, but the world.

 [1] See my post on the Alliance for American Manufacturing’s webinar which featured Rubio and Hawley on reviving manufacturing: https://americansystemnow.com/industrial-buildup-not-war-on-china/