Make it in America

Andrew N. Liveris is an accomplished executive.  Trained as a chemical engineer, he has spent his entire career at one company, working across every important business function including manufacturing, engineering, sales, marketing and general management. He now holds the top position at one of the world’s largest manufacturing companies.  The Dow Chemical Company generates $57 billion in annual sales while employing over 54,000 people at 188 manufacturing sites in 36 countries.  Now that’s a manufacturer.

Mr. Liveris is also an author who has written a book about manufacturing called Make it in America: The Case for Re-inventing the Economy (Wiley 2011).  He traces the crisis in American manufacturing to what he describes as our country’s resignation to allow foreign countries to win at manufacturing while the U.S. evolved into services, and our failure to focus on manufacturing as an important national objective. He emphasizes the economic multiplier effect and the creation of technical innovation as two of the most important benefits flowing from a strong manufacturing sector, and he rebuts the notion that productivity improvements explain the last decade’s dramatic job losses with evidence that manufacturing productivity has remained stable.

Liveris gives numerous examples of the incentives foreign countries give to manufacturers, from free land to tax breaks to financial grants to speedy project approvals.  It’s not really the low wages that attract manufacturers overseas, he says, it is the open arms and economic incentives: these countries are paying manufacturers to open up plants there.  Liveris also observes that America’s sky-high corporate tax rates and suffocating regulatory environment help drive manufacturers away.

Identifying the importance of the energy sector to the national economy, Liveris looks toward the future and selects the green energy sector as an opportunity for manufacturers.  He notes the large commitments Germany and China have made to promoting this sector, in line with what many describe as the need for more “advanced manufacturing” in this country.  Here he begins with his prescriptions for how to fix the lowly state of American manufacturing, recommending that we make leadership in renewable energy a national goal.

Liveris makes some other specific recommendations: encourage technical education and change immigration laws so we have plenty of engineers, scientists, technicians; rehabilitate and modernize our physical infrastructure; and expand our free trade agreements to encourage more manufacturing exports.  He also wants to lower corporate tax rates and increase R&D through tax credits and government spending. He proposes a complete re-working of our regulatory system and wants lower energy costs through increased efficiency and greater supply of natural gas.

Liveris’ heart is certainly in the right place – his passion for manufacturing is palpable.  Although a native Australian, he also clearly loves his adopted country and genuinely believes that an emphasis on manufacturing is the right strategy for this country.  Many of his recommendations are absolutely meritorious and give no offense to notions of liberty and economic freedom: better technical education, more immigration of skilled workers, promoting free trade, lower tax rates, revamping our regulatory morass, and getting out of the way of the energy sector.

There are parts of the Liveris program, however, that are simply full-throated industrial policy: picking specific industries as winners and losers, using the tax code for programmatic purposes, and imposing government mandates to change market outcomes. It is fair to point out that under Liveris’ leadership Dow Chemical has made substantial bets on green energy, from the plastics used in windmills to its own solar panels, and that without huge government subsidies these industries are dead.  It is ironic the book notes “that massive national investment of $15.4 billion has created a U.S. solar manufacturing industry that today employs just 10,000 people.”  And he wants more of this?

His proposed “national infrastructure bank” sounds like a good idea until you consider that most infrastructure outside of highways is largely owned and funded one way or another by the private sector – from gas pipelines to railroads to cargo ports to electric transmission lines.  While some infrastructure can be seen as a public good, there is danger in using government money to choose the favorite project of the moment.  And we need to stop using the tax code for anything but revenue generation, even for worthy activities such as R&D or education.  If it’s a good idea, just spend the money and stop hiding it in the tax code.

It is not entirely accurate to say that the U.S. does not have a national economic strategy simply because it does not have a national manufacturing strategy.  At the macro level we devote huge sums to national defense in large part so global commerce can take place; we outspend the world in the health care sector and have achieved technical leadership as a result; and our foreign policy has emphasized the establishment of democratic and free-market trading partners. At the micro level we choose favored sectors for special benefits, such as agriculture, housing, or the latest interest of our elected officials. Our strategy also includes imposing substantial costs on producers to support environmental, safety, and social welfare objectives.  This may not be much of a national economic strategy, but it’s what we have, and Mr. Liveris is right to tell us we need to come up with a different strategy, specifically one that is more helpful to manufacturing.

Make it in America is an important contribution to the debate about how our government should control economic activity.  Andrew N. Liveris tells the story of modern American manufacturing on the global stage with insightful examples from his extensive business experience.  Many of his recommendations are sound, and if implemented, would put American manufacturing on the path to a more hopeful future.

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