Fighting for the future of U.S. manufacturing: American companies need relief and support

Chief Executive, The, August-Sept, 2005 by John A. Luke, Jr.

There is much discussion today about how to re-energize the American economy. A good place to start would be our economy's heart and soul--manufacturing. At $1.4 trillion a year, manufacturing represents some 13 percent of gross domestic product, and it brings with it a powerful multiplier effect. It creates the infrastructure that provides good paying jobs, which, in turn, support other jobs and services such as construction, transportation and retailing.

The global economy obviously has shifted in a way that has altered the playing field. Lower costs and advances in transportation and communication have made it possible--even necessary in some cases--for U.S. manufacturers to operate in Asia, Latin America and Eastern Europe.

So we have to ask, "Can manufacturers based in the U.S. compete successfully in this changing global marketplace?" The root of our challenge is not simply low cost labor. We also carry other heavy non-production costs, money spent that has nothing to do with making or distributing goods. Today, those costs are more than 20 percent higher than our nine major trading partners, according to research by the National Association of Manufacturers (NAM). Confronting these costs requires engagement across industry and support at all levels of government.

First, we need to rein in the rising costs of litigation, which represents an annual burden of almost $250 billion to manufacturers, according to NAM. The enormous expense and uncertainty of litigation along with excessive awards drive up insurance and health care costs, and ultimately discourage healthy risk-taking. The recently enacted tort reform law is a step in the right direction.

Second, we've got to reduce red tape. Compliance with federal, state and local regulations costs $160 billion each year, or more than $8,000 per manufacturing employee. Regulations to preserve the environment, to protect consumers and enhance the health and safety of our workers are important. But many are obsolete, bureaucratic, overpriced or simply futile.

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Third, we must lower our tax burden. U.S. corporate taxes are among the highest in the world. Unlike other developed countries, we tax our companies on their worldwide operations. A study by NAM last year found that the U.S. corporate tax burden, relative to our nine major trading partners, reduces our competitiveness by 5.6 percent a year. Last October, President Bush signed a bill that repeals some very damaging export tariffs. That's a great start. But we need more.

There are two other essential elements of attempting to invigorate our economy: energy and education. We need government to inspire research and development to meet our future energy needs, and reward companies for lever-aging alternative fuel sources. And, we have to dedicate more resources to educating our young people and retraining adult workers.

We also need to rationalize our trade policy and assure that we level the international playing field. Every country acts (or declines to act) to benefit its own manufacturers and traders. We need to be clear, comprehensive and assertive as we work with our trading partners around the world to ensure trade is fair and free.

U.S. manufacturers have learned to compete globally, but they need relief and support. Employees and executives alike must have a clear voice in the policy debate. The Business and Industry Political Action Committee's Prosperity Project is an excellent program which educates employees about public policy and encourages them to voice concerns or support over specific legislative issues to get the attention of federal, state and local representatives. A member of Congress may or may not be impressed by a call from a CEO, but if that call is backed by cards, letters and emails from thousands of company employees, the effect can be powerful. We are clearly in a new world order, and our challenge as a nation is to respond swiftly to this new reality.

John A. Luke Jr. is chairman of the National Association of Manufacturers and CEO of MeadWestvaco in Stamford, Conn.