The last week of July the delegates to the Democratic National Convention in Boston had a job to do: to nominate a candidate for president of the United States. Significantly, on the very first night of their four-day convention, the delegates from all around the country heard from a disgruntled manufacturing worker, a person whose job was threatened by his company's decision to shift work from America to foreign soil. His appearance was beamed live from Canton, Ohio -- a Midwest city devastated by factory closings in a state both Democrats and Republicans consider vital to victory in the 2004 presidential race.
The worker's prime spot on the Democrats' convention agenda says something very significant about manufacturing, namely that manufacturing in America still matters. It has many faces, not only the face of the worker from Canton. It has many issues, and among them are the plight of workers fuming about the shift of production overseas, the small manufacturers who complain that unfair foreign competition is driving them and their employees from the marketplace, and manufacturers large and small who charge that the cost of doing business in the United States -- including a hefty burden of taxes and government regulation and taxes -- is driving them from the country.
For U.S. manufacturing, these are economic issues, they are management issues and they are employee issues. To be sure, for some the situation seems as simple as greedy, rich executives uncaringly taking jobs from well-paid Americans and giving them to poor foreigners. But in reality the situation is not that simple, nor are the issues solely economic, management and employee issues. They are also public policy issues. And the decisions made now and in the near future by both the private and public sectors will have profound and long-term effects on the quality and quantity of manufacturing in the United States, the international competitiveness of its companies, the competence of their managements, and the capabilities of their workforces.
In this third article of a six-part series of the U.S. workforce, IndustryWeek brings the issues that matter most to U.S. manufacturing, its managers and its workers into the middle of the presidential-election-year public policy arena.
The questions are ours. The answers are the candidates'.
But ultimately the judgments must be yours.
Most Important Manufacturing Issues
What are the most important public policy issues that must be addressed to ensure a strong economic future for manufacturing in the U.S.? Why are these the most important?
President Bush: According to a study published by the National Association of Manufacturers, external overhead costs from taxes, health and pension benefits, tort litigation, regulation, and rising energy prices add approximately 22% to U.S. manufacturers' unit labor costs (nearly $5 per hour worked) relative to their major foreign competitors. The costs are too high, and I have laid out a comprehensive six-point plan to reduce these costs.
My plan will strengthen the economy and create jobs by making health care more affordable and accessible; reforming the legal system to prevent frivolous lawsuits that increase the cost of doing business; promoting affordable, reliable, and secure energy supplies; streamlining government regulations, especially for small businesses; pursuing free and fair trade agreements that create jobs; and making tax relief for families and small businesses permanent. Taken together, these policies will lower the costs of doing business and allow entrepreneurs and business owners to spend fewer resources on bureaucratic hassles and more on creating jobs and raising salaries for workers.
Senator Kerry: John Kerry and John Edwards understand that providing for a strong economic future for manufacturing means reforming health care, making trade work for America, and cutting our budget deficit and freeing up more capital for investment.
Health care reform is needed to end the runaway costs of premiums and make businesses more competitive. Under George Bush, health care premiums have risen 40% -- making it harder for employers to hire new people, especially since manufacturers often [offer] some of the best health care benefits to their employees.
America should be engaged in the global economy, but one that works for America. Our manufacturing industries should never be put at an unfair disadvantage because our government is sitting on the sidelines instead of fighting to enforce our trade laws, including opening up foreign markets and preventing dumping, currency manipulation, and other unfair trade practices.
Kerry and Edwards have a plan to cut the budget deficit in half, restraining the growth of government spending, and paying for all their campaign initiatives. Cutting the deficit will free up more capital for productive investment by America's businesses. In addition, Kerry and Edwards support programs to encourage venture capital for small- and mid-sized manufacturing companies.
IW Analysis: Particularly by quoting the National Association of Manufacturers, Bush comes across as an "establishment" business executive. His plan, focused primarily on cutting costs, is not specifically targeted to assisting the manufacturing sector, but rather addresses the needs of the all business and in boosting the economy in general. Kerry, perhaps surprisingly, is relatively conservative on economic discipline.
What is your operating trade philosophy and how will it benefit U.S. manufacturing? Would you limit offshoring of U.S. jobs? If so, how?
Bush: We need to keep America the best place in the world to do business by remaining committed to free and fair trade and by ensuring a level playing field. Foreign companies recognize the quality of American workers, and that is one of the reasons why so many have chosen to locate plants here. More than 6 million Americans draw their paychecks from foreign companies, and these Americans are better off because we are an optimistic, successful trading nation. By keeping our markets open, we are helping American producers, businesses, and workers have the opportunity for free and fair trade. We are also creating the right conditions for our companies to compete with and outperform the world. And we are seeing results: American exports were at a record high in May. Sales of American-made automobiles, engines, and parts rose by 1.3% in May for another record high; industrial supplies, including chemicals and plastic materials, also hit an all-time high of $17.3 billion in May; and exports of capital goods, such as airplanes and industrial engines, climbed to $28.8 billion.
With 95% of the world's population living outside of the United States, exports are vital to the strength and the prosperity of the [nation's] economy. A retreat into economic isolationism would endanger our economic recovery, cost jobs, lead to higher prices for consumers, and put American companies at a competitive disadvantage.
Kerry: John Kerry and John Edwards believe that we need to make global trade work for America. A Kerry-Edwards administration will support U.S. manufacturing by ending tax breaks for companies who move jobs overseas and will cut taxes for 99% of corporations that keep jobs in America. The Kerry-Edwards plan will end a special break that allows companies to defer paying taxes on income earned abroad, closing the foreign tax deferral loophole that encourages companies to send jobs overseas. The savings will be used to cut the corporate tax rate by 5% and provide a New Jobs Tax Credit to manufacturers affected by outsourcing, giving them a break on federal payroll taxes for every new job created in America.
As president, John Kerry will use the full strength of our trade agreements and domestic trade laws, including anti-dumping, countervailing duties, and surge protections, to ensure that trade works for America. John Kerry will call for a 120-day review of all existing trade agreements and increased resources for trade enforcement.
IW Analysis: Bush glosses over steel import quotas and other actions taken during his presidency that call his commitment to free trade into some question. On the other hand, just by the use of such words as special break and loophole Kerry stands to alienate internationally-minded manufacturers before their executives and workers give the details of his proposals a serious look. Significantly, neither Bush nor Kerry says anything about comprehensive trade-related economic assistance for displaced workers and abandoned communities.
How do you address U.S. business leaders' concerns about the cost and scope of health-care coverage?
Bush: My Administration has acted to make health care more affordable and more available for families, workers, and small business owners. We have created health savings accounts, which combine flexible, affordable insurance options for small businesses and individuals with the opportunity to save money for out-of-pocket medical costs in a tax-free account. To reduce the burden of health care costs on small business owners and employees, I have proposed the creation of Association Health Plans, so small businesses can pool together to negotiate lower health care costs and provide health insurance to their employees.
I have also proposed $70 billion in tax credits to help working Americans buy health care coverage. And I am fighting rising health costs by rooting out fraud and abuse, working to eliminate frivolous lawsuits, and promoting wider use of health information technology to improve quality, reduce errors, and cut administrative waste.
Kerry: Skyrocketing health care costs place a dangerous burden on American businesses and make it harder for them to succeed. Since Bush took office, the cost of family health insurance has increased by 40% -- a total premium increase of more than $2,600. The Kerry-Edwards plan will provide up to $1,000 in premium relief for employers who do the right thing by offering their employees quality health coverage. [The] plan will help make health care more affordable for all employers and employees by helping out with certain high cost health cases -- providing approximately 10% in annual savings. The Kerry-Edwards plan will have the federal government pick up 75% of the cost of catastrophic health claims for employers, freeing up the capital they need to expand and create jobs.
The Kerry-Edwards plan will also cut administrative costs and eliminating waste, fraud, and abuse; enhance disease management efforts; improve the use of information technology to cut billions in administrative costs; make malpractice insurance more affordable by stopping frivolous lawsuits; and make prescription drugs more affordable through reimportation and other measures. All of these measures will improve health outcomes and expand access to affordable health care while reducing the burden of health care costs on businesses.
IW Analysis: Though this problem is more a legislative issue, the next president's leadership will determine the broad approach to addressing it -- and the two candidates outline very different approaches. Bush favors limited government involvement, pushing tax and legislative changes designed to help employees shoulder an increasing share of rising health insurance premiums while also helping small business gain the negotiating power that big employers have long enjoyed. Kerry calls for the federal government to take an active role in financing health-care insurance.
How do you respond to U.S. business leaders' concerns about the burden and cost of litigation?
Bush: Our nation's litigation system is broken, and consumers, small business owners, and employees are paying the price. We need reform that is fair and just, that ensures every person has his or her day in court, and that prevents baseless litigation from hindering our economy's growth.
Trial lawyers are clogging the courts with frivolous and junk lawsuits, driving up the cost of doing business and costing Americans their jobs in health care. Junk lawsuits jeopardize access to care for America's families. I have proposed a medical liability reform plan that will reduce the number of frivolous lawsuits, lower health care costs for businesses and employees, and help maintain strong doctor-patient relationships. My proposal would ensure that injured persons are fully compensated for their economic losses, while reasonably limiting non-economic damages to $250,000. Reasonable punitive damages are available in egregious cases and my proposal requires judgments to be paid in proportion to fault. I support legislation that will eliminate the waste, inefficiency, and unfairness of multiple overlapping class action cases by making class actions removable to Federal courts when a certain level of damages [is] at stake. The legislation also includes a consumer class action bill of rights to ensure that the benefits of class action settlements go to the people who are injured rather than to wealthy trial lawyers.
Finally, we must pass a plan for asbestos litigation reform that protects victims with asbestos-related injuries while preserving the security of dozens of companies and tens of thousands of jobs.
Kerry: John Kerry and John Edwards will work to ensure that our legal system is working to establish the rules and incentives that are needed for the economy to function -- without wasting time or money. One way we punish wrongdoing and deter misconduct is through our courts. Our courts -- and in particular, the juries of regular citizens at their heart -- play a central role in making sure that even the most powerful interests are held accountable, and even the most vulnerable people have protections. At the same time, there is no question that abuses of our legal system have hurt companies and individuals who are acting responsibly. Frivolous malpractice lawsuits and class actions waste good people's time and money. That's wrong, and John Kerry and John Edwards support reforms that prevent and punish these abuses -- while at the same time preserving the principles of responsibility and fairness that make our system work.
IW Analysis: About the only thing the two candidates agree on is that reform is necessary. Bush says the jury system is part of the problem and seeks limits on how much they can award plaintiffs. Kerry says the jury system is part of the solution.
What provisions in your energy policy would help ensure a healthy future for U.S. manufacturing?
Bush: One of the most pressing challenges facing manufacturers today is the high cost of natural gas. The manufacturing industry uses nearly 40% of the nation's natural gas to meet its energy needs. In my National Energy Policy, I called for increasing environmentally responsible domestic natural gas production to reduce energy costs, which will help U.S. manufacturing stay competitive in the global marketplace and prevent good-paying jobs from moving overseas.
My Administration has implemented several initiatives to help reduce costs and increase domestic production. My 2005 budget includes $104.4 million for the Bureau of Land Management to continue making significant progress in reducing permitting backlogs and expediting access to energy resources, including natural gas. Also, this year I announced new incentives for natural gas development in hard-to-reach areas of the Gulf of Mexico. Those incentives will save American consumers an estimated $570 million per year and create as many as 26,000 jobs. Finally, my Administration continues to work with Congress to encourage and accelerate construction of a commercially viable Alaska natural gas pipeline to bring new domestic natural gas supplies to the continental United States.
Our country needs a national energy policy and I will continue to push the Congress to pass my policy.
Kerry: John Kerry and John Edwards' energy plan will embrace a simple but revolutionary goal: harnessing new energy sources to power the world we live in. Kerry and Edwards are committed to stimulating investment in new renewable energy throughout the nation, creating jobs and lifting incomes in rural areas as well as in the high tech and manufacturing sectors. With a strong domestic renewable energy industry, the U.S. economy will benefit from this industry's large export potential.
As president, John Kerry will establish a New Energy and Conservation Trust Fund that will be capitalized by existing oil and gas royalty revenues and dedicated to accelerating the commercialization of innovative technologies, such as the manufacture of more efficient cars and trucks, the development of biofuels, and the creation of a clean, secure, hydrogen-based energy economy. Kerry and Edwards have outlined a comprehensive energy plan that will reduce oil dependence. Their plan will tap America's initiative and ingenuity to strengthen our national security, grow our economy, and protect our environment.
IW Analysis: The Bush administration stands firmly on the side of spurring production of existing energy supplies, focusing on addressing the immediate problem, and this begs the question: What is Bush's proposal to address the energy needs of the future? Kerry casts his lot with new energy sources, addressing future needs, but leaves unanswered how he would address manufacturers current concerns.
How do you respond to U.S. business leaders' complaints about the burden and cost of complying with federal regulations?
Bush: Decreasing the regulatory burden on our nation's businesses is a critical part of my plan to stimulate the economy, create jobs, and foster prosperity for all Americans. Excessive paperwork and bureaucratic regulations can hinder a company's ability to do business by diverting funds that could otherwise be used to invest in new equipment, hire new workers, or increase wages. I am pursuing a "smart" regulation agenda, which involves modernizing existing rules and adopting new rules only when justified by sound science, economics, and law.
We are seeing results. We have reduced regulatory costs and are saving money for business owners. The average annual economic cost of new regulations under my Administration is 75% less than it was under the previous Administration. And the overall burden of government-mandated paperwork declined in 2003 for the first time since 1996.
Kerry: John Kerry and John Edwards will implement regulatory reforms that are pro-market and pro-consumer. Too often, the Bush Administration has used regulatory reform to bail out corporations rather than promote true competition. As a result, regulations are standing in the way of efficiency. Overregulation is an unnecessary burden on businesses, and a Kerry-Edwards administration will see that regulations are adequately reformed to make it easier for manufacturers to compete.
IW Analysis: With both campaigns committed to reducing regulations, the matter comes down to which regulations and how to change them. Unfortunately, the candidates' answers are long on generalities and short on specifics. Among the omissions, neither candidate mentions the advisable scope of U.S. antitrust rules in the context of a global economy.
Big Vs. Small Companies
How do you respond to those executives in small- and medium-sized manufacturing companies who assert their public policy needs are different than those of the multinationals.
Bush: The needs of small and medium businesses are different from the needs of multinationals. And our policies have reflected these differences whenever possible. I know that small businesses are vital to our nation's prosperity and are responsible for creating more than 70% of new jobs. I have acted to help small businesses and the people they employ by reducing taxes, encouraging investment, and removing obstacles to growth.
Because we passed the most sweeping tax relief package in a generation, more money is in the hands of small business owners who are investing it in new equipment and new workers. By quadrupling to $100,000 the amount that small businesses can expense on things like computers and machinery, and by sending the death tax on its way to extinction, entrepreneurs can invest more in ways that benefit their employees and strengthen the economy. And because 90% of small businesses pay taxes at individual rates, the across-the-board income tax cuts have extended relief to 25 million small business owners and entrepreneurs. If Congress fails to act and make this relief permanent, many of those small business owners will see their taxes increase.
Kerry: Kerry and Edwards are committed to listening to the needs of both large and small manufacturing companies. The needs of small and medium-sized manufacturers are different from those of multinationals, but they do not need to be mutually exclusive. The interests of multinational companies will not be met at the expense of smaller companies. As the former Chairman and current Ranking Member of the Senate Small Business and Entrepreneurship Committee, John Kerry has been a national leader in promoting small businesses growth and will continue to do so as president.
IW Analysis: Bush focuses on what he's done. Kerry is vague on the future.