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Our Jobless Recovery

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An Overdue Manufacturing and Industrial Policy

About the Author

Leo W. Gerard
Leo W. Gerard is international president of the United Steelworkers and a member of the executive council of the AFL-...
Leo Hindery Jr.
Leo Hindery Jr., chair of the Smart Globalization Initiative at the New America Foundation and an investor in media...

Also by the Author

Our economic recovery depends on a massive national plan aimed at full employment.

To avoid the further erosion of our manufacturing base, the Obama administration needs to make a radical break with previous policies. It must begin by enacting a national manufacturing and industrial policy that puts American workers first and is as neomercantilist as the policies of our major trading partners. Only an active industrial policy will be able to right the employment ship and create the millions of jobs needed in this important sector of the economy.

As part of this new manufacturing and industrial policy, the administration must be willing to:

•"Pick winners" in the economy and then support them, because all other developed nations and China do so every day. The administration has begun to move modestly in this direction with its proposals to encourage private investment in wind and solar energy and by making targeted federal investments in building retrofits, smart grids and meters, and clean transportation systems. But it needs to do much more if it is serious about creating comparative advantages in these and other industries.

•Fund a ten-year (not the current two-year) program of significant public investment to upgrade and rebuild our nation's infrastructure. Public infrastructure investments not only create jobs; they also facilitate private investments in our manufacturing sector by making them more efficient and productive.

•Adopt, consistent with WTO rules, "Buy American" requirements related to all federal procurement, especially procurement associated with new investment in infrastructure and green energy initiatives. Federal purchases make up about 20 percent of the economy, yet America is the only nation among the major developed nations and China without a significant "buy domestic" procurement program.

•Enact major corporate tax reform to make incentives for corporations to create jobs here and eliminate the incentives for them to relocate manufacturing and services abroad.

Complementary Trade Policies

A national industrial policy cannot succeed, however, without complementary trade policies that prevent other economies from gaining unfair competitive advantages. The trade deficits accumulated during the Bush administration--a whopping$4.8 trillion--were a major cause of the loss overseas of 5.3 million manufacturing jobs and more than 2 million service jobs; and they made the economy about $1.5 trillion smaller than it would otherwise have been.

We couldn't afford these economy-zapping job losses then, and we certainly can't afford them now. Even today's recession-shrunken trade deficit of 2.4 percent of GDP will subtract more from the demand for US goods and services than the stimulus plan will add, and in normal times our trade deficits consistently aggregate an even more economy-draining 5 percent or so of GDP.

The administration and Congress need to replace our decades of misguided trade policies with trade agreements that have meaningful labor and environmental standards and that forbid illegal subsidies and currency manipulation. They also need to dispense with "one size fits all" trade agreements that ignore significant differences in levels of development, forms of government and reciprocity. Specifically, there can be no compromise on these principles when it comes to the pending trade deals with South Korea, Panama and Colombia.

Most important, however, we need a fundamental re-examination of our trade relationship with China, which the new administration promised would occur early in this term.

China's massive trade surplus with the United States--a staggering $277 billion of manufactured goods in 2008 alone--is the result of China's severely undervalued currency, massive subsidies to its own manufacturers and elaborate policies to induce foreign corporations to shift their production facilities and technology there. These policies have cost us millions of jobs, and they will keep costing us jobs until they are fixed.

Challenging China over its unfair trade practices is not just necessary for the future of US manufacturing jobs; it is also critical for the world economy. The global economy simply cannot function if the third-largest individual economy runs current account surpluses on the order of 8 to 10 percent of GDP, as China has done consistently for the past few years.

Choosing a Fair Solution

In advancing an economic recovery program that makes job creation and the revival of US manufacturing its two principal goals, we will be making a choice about America's future.

Half of the nation's individual income today is earned by just the top 12 percent of taxpayers, many of whom have benefited directly or indirectly from the outsourcing of US manufacturing and service jobs, while the other half is earned by all the other 122 million taxpayers combined, most of whom have seen their wages stagnate over the past two decades. And even more sobering, the top seven-tenths of 1 percent of taxpayers alone earn a staggering 20 percent of the nation's income. All in all, this represents the greatest income inequality in the United States since 1928.

We can either focus our recovery efforts on creating full employment for those workers who are not part of that top 10 percent or so of taxpayers and on rebuilding the country's manufacturing base; or, as we have been doing for nearly three decades, we can concentrate on policies that mostly benefit the incomes of the wealthiest few.

Economically--and ethically--the choice is obvious.

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