- The Washington Times - Tuesday, May 5, 2009

President Obama’s new Economic Recovery Advisory Board (ERAB) could become a invaluable source of policy advice, especially with the recession still deepening, and therefore the need for fresh thinking still growing. But none of the president’s efforts to seek outside economic counsel can reach their potential without filling at least one big gap in the administration’s advisory circles - the absence of domestic manufacturers.

ERAB’s makeup is a case in point. Headed by former Federal Reserve Chairman Paul Volcker, the panel contains members from many perspectives beyond what Mr. Obama calls the Washington “echo chamber.” But ERAB needs more than the academics, labor leaders, financiers, chief executive officers and former officials whom the president has appointed (along with a media representative and a major Realtor).

Like the rest of Mr. Obama’s advisory team, the board also needs adequate business representation from the economy’s real wealth-creating sector - the goods-producing industries that Washington has too long neglected and whose revival is essential to overcome a crisis born of overconsuming, overborrowing and excessive debt.

ERAB does contain two representatives from manufacturing - which dominates the goods-producing sectors. But the picks - Jeffrey Immelt of General Electric (GE) and Jim Owens of Caterpillar - head multinational companies whose top declared priorities do not include expanding output in the United States.

Two years ago, for example, senior GE executive Lloyd Trotter told an investor conference that by 2010, more than 50 percent of the company’s worldwide manufacturing would be performed outside the United States. As recently as 2002, that figure was only 28 percent. At the end of 2006, Mr. Immelt said that in five years, GE would likely at least double the share of its global purchases from low-income countries, like China and India, from the then-current level of 19 percent.

As Mr. Trotter explained: “Low-cost country savings are generally 20 [percent] every time we do it.”

As Mr. Immelt made clear, except for goods restricted by export controls, there are many other products “that we can move substantially outside the United States.” Mr. Immelt did specify that these offshored goods wouldn’t be sold only locally, but worldwide, including of course to U.S. customers.

Because the United States still represents nearly a third of the world economy and an outsize share of its consumption, it’s easy to see how Americans fit into this business model as customers. It’s much harder to see how they fit in as producers to any comparable extent. With America’s chances for recovery depending ultimately boosting production relative to consumption, Mr. Obama clearly needs to hear a fundamentally different manufacturing perspective.

Caterpillar doesn’t fit the bill, either - even though the president keeps touting its achievements (during a visit to its Peoria, Ill., headquarters) and its challenges (at the Group of 20 summit). For many years, the company has indeed kept a much higher share of its worldwide employees in the United States than most other U.S. multinational manufacturers. But it preserved U.S. jobs mainly by crushing its unions and slashing wages, down to near Wal-Mart levels for new hires. That’s a recipe for fixing Americans’ broken finances only if living standards fall even more dramatically.

Moreover, Mr. Owens lately has been moving many more Caterpillar jobs and production offshore despite these employee sacrifices. From 2006 to 2008 alone, according to the company’s latest figures, its U.S. work force rose by nearly 10 percent, but its foreign work force increased by more than 29 percent. As a result, the U.S. share of its global work force has slipped during this period from 51.5 percent to 47.4 percent. And during this period, Caterpillar’s foreign work force grew fastest by far - more than doubling - in predominantly low-wage Asia.

Caterpillar proudly reported exports of $16.15 billion from the United States in 2008 (though, like multinationals generally, it didn’t reveal its imports). But CAT’s overseas sales increasingly come from its foreign factories, meaning fewer growth and other direct benefits for the U.S. economy. Indeed, CAT’s final 2008 earnings release specified that its gains in China stemmed not simply from the nation’s construction boom but from “higher sales of locally produced wheel loaders.”

And the company has announced that new factories in China for engines, wheel loaders, motor graders, and hydraulics components are all on the way.

The GE and Caterpillar business model may one day stimulate growth and employment on net domestically. But America’s huge debt-generating trade deficits indicate that, to date, these multinationals’ offshoring activities have produced considerably more U.S. imports than exports. Thus, they have been a net drag on gross domestic product.

Unquestionably, the views of companies this large and international deserve to be heard by Mr. Obama, though their powerhouse Washington lobbying already guarantees this whatever official panels their leaders sit on. Moreover, some recent Immelt comments hint at a new commitment to domestic production. But the company remains far from walking this walk.

More important, the economy remains so weak that Mr. Obama can’t afford to wait for new priorities from Mr. Immelt or any of his peers. The administration urgently needs to start hearing consistently from executives fiercely devoted to producing, innovating, and creating good jobs in the United States, and boasting decades of experience in succeeding. The U.S. Business and Industry Council knows nearly 1,900 of them. It owns our member companies. We would be honored to recommend any of them to help the president put the economy back on track.

Alan Tonelson is a research fellow at the U.S. Business and Industry Council, a national business organization whose nearly 1,900 members are mainly small- and medium-sized domestic manufacturers. Author of “The Race to the Bottom,” Mr. Tonelson also is a contributor to the council’s Web site: www.AmericanEconomicAlert.org.



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