Bringing Manufacturing Jobs Back: A Policy for America’s Future

By Gene Quinn
June 16, 2014

By and large we are exporting our intellectual property so foreign companies and subsidiaries around the world can engage in manufacturing.  Unfortunately, when manufacturing exits a country R&D funding dwindles in direct response, thereby creating an enormous problem. This has been and will continue to be an acute problem for the United States moving forward. With countless manufacturing jobs already gone what the American economy thrives on is intellectual property, particularly in the form of innovation.

This is an issue that has come to mind are the result of a recent article in POLITICO titled As factories die, income gap grows. This article starts by telling the tale of a married couple from Reading, Pennsylvannia, Dave and Barbara, who back in 2008 were making $22 and $19 an hour respectively working for Baldwin Hardware, a unit of Stanley Black & Decker Corp. Layoffs came, long term unemployment followed, and now the couple are among the tens of millions of Americans who are under employed. They had to run through all their retirement savings to stay afloat, and now they each make $10 an hour; Dave as a janitor and Barbara cleaning houses while she looks for something permanent. 

The American story of lost manufacturing jobs dates back for decades. Bruce Springsteen’s song My Hometown, which is actually about my hometown of Freehold, New Jersey, immortalized the tale of a textile mill closing down, jobs leaving and never coming back, which leads to vacant stores throughout the town. The line ? Foreman says these jobs are going boys and they ain’t coming back” ?has proved to be eerily prophetic, repeated in once thriving manufacturing and industrial communities all across America. 

It doesn’t need to be this way! There is something that can be done, but turning the economy around requires our leaders to consciously focus on facts and reality rather than politics, myths and fear-mongering.

Would it surprise you to learn that China has but a 3.5% cost advantage for manufacturing compared with the United States? Regulations, taxes and an environment that makes it practically impossible to start a new business creates the disadvantage, and thoughtful policies to revitalize U.S. manufacturing would produce dividends, lead to a broader middle class, provide an economic boon to the entire country and lead to greater national security because we wouldn’t be relying on foreign producers for everything, like we are today.

If you don’t believe that a thoughtful national manufacturing policy is the answer then you need to read Great Again: Revitalizing America’s Entrepreneurial LeadershipA central and often repeated theme of Great Again is that America’s decision to give up on manufacturing has not only caused the obvious problems associated with job loss, but it has and is causing an enormous loss of intellectual property assets as well. The author, Hank Nothhaft, who was an extremely successful start-up CEO in Silicon Valley with many years of experience, quotes what Harvard Business School Professors Willy Shih and Gary Pisano told him: “decades of outsourcing manufacturing has left U.S. industry without the means to invent the next generation of high-tech products that are key to rebuilding its economy.”

Nothhaft explained it this way in a speech in January 2011 in Washington, DC, at the Innovation Alliance Conference:

For 30 years now we have all been fed the carefully cultivated myth, that so long as America did the creative work, the inventing, then we can let other nations like China do the so called grunt work, the manufacturing. Simply, we would think; they would sweat. So we let manufacturing go and in so doing we lost the greatest economic force multiplier in history. For manufacturing not only supplies middle class incomes to the three-quarters of all Americans without a college degree, it also creates up to 15 additional jobs outside of manufacturing for every position on the factory floor.

Every engineer in the world knows that innovations don’t always (if ever) ramp up from the micro level to the macro level as one might predict.  So when we outsource manufacturing we are handing over the follow-on innovation that will take place on the factory floor.  Therefore, by outsourcing manufacturing to the lowest bidder abroad not only have we destroyed the working middle class in America, but we are increasingly turning over our last economic advantage.

Short-sighted decisions by CEOs and the lack of any leadership, let alone meaningful leadership, in Washington, DC, has placed America on the path of economic ruin. The lack of manufacturing in America coupled with the increasing loss of associated intellectual property and innovation explains the “new normal,” which is represented by stagnant growth, high unemployment and substantial under employment. And don’t give me the government-line about how unemployment has dropped. The only reason unemployment has dropped is because people give up looking for work. The employment participation rate is just 62.8%. It hasn’t been this low since 1978. To get a sense of just how bad this is take a look at this chart, which shows the labor participation rate since 1978. The trajectory continues down at an alarming rate.

Unfortunately, the collective narrative supports the erroneous conclusion that there is nothing that the United States can do to turn things around on the manufacturing front. While simply untrue, our political leaders have so far not wanted to offer a business friendly environment calculated to make America a strong manufacturing nation once again. According to Nothhaft, “It’s the U.S. government’s myopic policy, not China’s lower payroll costs, that make our nation uncompetitive in the all-important solar and other high-tech manufacturing sectors.”

In Great Again Louis Vintro, vice president and general manager of the semiconductor product division at equipment maker ESI explains: “What we see from our data is that China has a roughly 50 percent advantage in labor costs. But since labor represents an average of only 7 percent of operating costs across all of the semiconductor sectors, that means China has a 3.5 percent overall cost advantage.”

But with that 3.5 percent Chinese cost advantage comes uncertainty.  The United States still offers a solid rule of law and there is not the political unrest here that could (and likely will) emerge in China as the rising middle class wants more and demands freedom.  But even this 3.5 percent advantage can be closed, as Nothhaft explains: “If you take as a guide the roughly 30 percent tax that Intel has paid in recent years on 10 percent operating profit, that would mean a 3 percent lower cost of operating a plant here. Add in an enhanced, permanent 20 percent R&D tax credit equal to what other nations offer… and China’s advantage drops to 1 to 2 percent.”  At 1 to 2 percent advantage is it worth the headaches of doing business in China?

What America needs to do is clear. Congress and the President need to work together to reduce taxes on manufacturing in the United States. Approval processes for everything at every level need to be streamlined. R&D tax credits should be increased. Job killing regulations, as well as regulations that given incentive for companies to decrease hours, need to be repealed. And, it shouldn’t have to be said, but making electricity cost more by killing coal fired power plants without any viable alternative technical solution is just idiotic, as is not moving forward with the Keystone pipeline, which would create jobs and reduce our dependency of oil from outside of North America.

A proactive manufacturing policy is what the United States needs, but will it be what the United States gets? It seems doubtful. When 82% of Americans think the Keystone XL pipeline is in our national interests and politics still stand in the way how could you think for a minute that our leaders would even consider common-sense, entirely reasonable solutions aimed at fostering an American economic recovery?

Folks like David and Barbara no doubt would benefit from a forward looking manufacturing policy, and so would everyone. An undeniable truth, whether literally or figuratively, a rising tide lifts all boats.

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and President & CEO ofIPWatchdog, Inc.. Gene founded IPWatchdog.com in 1999. Gene is also a principal lecturer in the PLI Patent Bar Review Course and Of Counsel to the law firm of Berenato & White, LLC. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 11 Comments comments.

  1. Benny June 17, 2014 7:52 am

    No simple answers here.
    As a manufacturer, we outsource to “offshore manufacturing” (the politically correct term for China) assembly which requires unskilled, manual labor (such as assembling cables and connectors). We keep in house manufacturing which requires either automation or close quality control.
    The salary we pay our employees represents about 60% of the total labour cost, and it is the “salary cost”, not the “salary” that we compare to offshore costs.
    The bottom line is, we could bring our manufacturing “back home”, but that would entail an increase in cost, which translates to an increase in price to the customer, which means we would lose market share to anyone who moves their manufacturing offshore.
    The 3.5% saving you mentioned translates to about 15% in sticker price, enough to knock us out of the market. The economics are driven by the short term interests of the consumer, rather than the long term interests of society.
    Of course, it’s not just a US problem. The same holds true for the EU.
    How many of you are willing to pay at least 10% more for a product simply because it is made in the US?

  2. Adam Robinson June 17, 2014 9:58 am

    Labor participation rate is a sign of aging baby boomers and a massive generational shift where they are retiring. We will have MORE citizens NOT working, because they retired. Simply pointing to labor participation rate is not a sign things are in decline long term. Why is it that people tend to ignore that things are ACTUALLY growing? It’s a different world, and we must consider ALL things, not various graphs. I mean, should all things be the same as 1985? Yeah, let us go BACK in time and LIVE the GLORY DAYS!

  3. Adam Robinson June 17, 2014 10:01 am

    I do agree however that we could have a more friendly manufacturing tax policy. But, also, who said we gave up on manufacturing? Did you not just see these manufacturing hubs get created? Look, I know..I know…you want it to be JUST like when Springsteen was popular! We should all be wearing cut blue jeans.

    You should really get past the fifth stage of grief and accept the fact that manufacturing jobs, in the way they were, are never coming back. AND THAT IS OK. There will be HIGHER LEVEL skills and better paying jobs, and not the route mundane tactical work of factories. Innovation and talent management, with a friendlier tax policy, is what is needed. Not lamenting that jobs aint the same as when I was younger. Can’t wait till the Millenials are really the force of the economy. Baby Boomers really need to LET GO OF THE PAST and embrace the future.

  4. Benny June 17, 2014 10:07 am

    Adam,
    We are way off topic by now. What we should consider is re-distribution of employment. Manual manufacturing jobs will not return to the US (or the EU) because there is no economic incentive for this to happen. “Bring back manufacturing” is an empty echo. On the other hand, the availability and affordability of cheaply produced products has increased the job opportunities in marketing and retail. Where I live, in many cases factories which have closed down have been replaced by malls, not wasteland.

  5. Adam Robinson June 17, 2014 10:10 am

    I am on board with that notion. I don’t think direct manufacturing jobs will be at the levels at it’s peak, maybe percentage wise, ever again.

    I do agree though that if there is not a redistribution of jobs (and labor participation rate is not a good metric due to the Baby Boomer issue…at least for now…but could be more telling when Baby Boomers are not such a large percentage of population) to other sectors, like retail, technology development, etc., then we are ultimately failing.

    Also, math for a Captcha…I like it!

  6. Daver June 17, 2014 11:56 am

    Thank you, Gene, for bringing to the fore a very important issue to the long term well being of USA and its citizens. Closer scrutiny of the causes of migration of manufacturing from USA to foreign countries will reveal that labor cost was not the only issue. For example, environmental and OHSA-type regulations were certainly contributors as well — ask yourself why so many USA foundries are no longer in business and why many cast iron products are made in Taiwan. Many USA business executives have stated that the regulatory environment in USA today is a greater impediment to manufacturing in USA than is the cost of labor. I used to be IP counsel for a major supplier of aerospace systems and components to manufacturers and operators [airlines and military units of governments] of all categories of aircraft, that had in-house both engineering and manufacturing operations in USA and multiple foreign countries including Canada, several in Europe and others in India and SE Asia. Where to make various components and where to assemble the final system to be delivered to the customer was never a simple matter, even for items designed to be useful only on commercial aircraft as contrasted with military potential that are subject to much greater government controls. The goal was always to deliver product, e.g a landing gear set, at the lowest cost. Despite the cost of highly skilled labor [e.g. NC qualified machinists] in Poland then being less than ten percent of that in USA or Canada and some of the other European countries, Poland did not come to be the manufacturing location of choice relative to other locations due to other factors. In one instance, only the Russians could produce the large titanium forgings needed.

  7. Anon June 17, 2014 12:41 pm

    Benny’s point is correct – but even more than that as factor costs are ever present, and even China will see a loss of jobs as they progress up the “modernization” scale (any student of the history of patent law can see this effect). Corp’s have no loyalty to ANY nation, and if Burma can beat out China for overall cost factor, there then the type of jobs will go there.

    Benny also reveals an ameliorating factor in “jobs that require quality.” Mere wage is not fine enough a metric, as cost factor decisions are more sophisticated than that (I know as I made such decisions in my previous life).

    There is more than a bit of hypocrisy from Americans at large, as the way the world operates reflects in no small part our actual voting with our wallets. While we (the Roal We) will say all the politically correct “green” save-the-environment things here in the States, we vote otherwise by deciding on products from a strict cost sense, and putting our votes to those who put their cost factors in places that are cheaper because of the lack of environmental regulation (and wage regulation). Where exactly is the greatest degree of poisoning the earth taking place today? We vote FOR toxifying our planet because we want that lower price.

  8. Jeff Grayzel June 17, 2014 2:22 pm

    Very well written Gene. I hope this gets published beyond IPwatchdog — it deserves to be. I suggest submitting it as an op-ed to newspapers around the country.

  9. Anon June 18, 2014 8:14 am

    Gene,

    Is your site undergoing denial of service attacks? I have had difficulty accessing the site with both Explorer and Chrome. Further, every one of my posts are still hitting the “moderation filter.”

    If such are attacks in retaliation for your pro-software patent stance, would the attackers realize that they are only vindicating your position by so attempting to shut down your reasoning?

  10. Gene Quinn June 18, 2014 5:50 pm

    Anon-

    I don’t think we were experiencing a denial of service attack earlier today, although we have apparently had something like that previously. Today seemed to be a problem with our PHP handler, which seems to have been resolved.

    If it isn’t one thing it is another. We are working to get ahead and stay ahead, but it hasn’t been easy. As one problem gets handled the solution doesn’t always seem to be compatible.

    With all of this and how difficult it has been to keep things running in light of hacks, comment spam, denial of service, it is comical that anyone could with a straight face ever think that software is obvious. I can tell you with great authority that very little is intuitive or obvious. As far as what Justice Kennedy said during oral arguments of Alice, it is laugh out loud funny about how little he knows. Yeah, just articulate what you want to a high school student and they can code it up. Breathtakingly naive!

    -Gene

  11. Anon June 18, 2014 10:35 pm

    Thanks Gene,

    To Kennedy’s quip I would (have wanted to) shot back with the last sentence of 35 USC 103 and ‘gently’ reminded the Court what happened prior to 1952 that instigated the birth of that section – respectfully, of course.