Partha Chakraborty-

“Folks, where is it written that [we] can’t once again be the manufacturing capital of the world?” – President Biden in April 2023 on a tour of a Cummins plant in Minneapolis making clean power products.
The art and practice of shaping up domestic industrial production, aka “Industrial Policy,” is as old as the country itself. Hamilton favored protection for US manufacturers to help them compete against the UK. The 1920 Jones Act still requires goods shipped between American ports to travel on U.S.-built vessels as a way of preserving a shipbuilding industry and naval readiness. In the 1950s and 1960s, the Pentagon and NASA helped draw capital into nascent technologies, from jets to lasers. President Kennedy implemented quotas to protect the domestic textile industry and Trump used tariffs to protect steel and aluminum. Trump Administration took the model of “induced demand” to a significantly elevated level with “Operation Warp Speed” that spent billions, successfully, in a fight against COVID-19 pandemic, and imposed punitive tariffs.
Biden adopted Trump’s doctrine of utilizing taxes/rebates, subsidies, and regulations to systematically shape the economy, investing in and buying things made in the USA; this level of political intervention in productive activities typically left to private sector is unprecedented in peace time. Chips and Science Act is funneling USD 53 billion toward semiconductor manufacturing and development. The Inflation Reduction Act might ultimately offer $1 trillion in aid to renewable energy. The Energy Department has $400 billion in lending authority at its disposal. “You could cut and paste some of Trump’s trade policies, and they’re now the Democratic platform,” commented Scott Paul, President of the Alliance for American Manufacturing, a lobby group.
Of the USD 53 billion in CHIPS Act, USD 39 billion is for domestic manufacturing facilities and USD 13 Billion for R&D, adding chips to defense, aerospace, and communications for sectors where the Govt. intervenes in favor of domestic production. Three top global chip manufacturers, Taiwan Semiconductor, Samsung and Intel already announced plans for new facilities in TX, OH and AZ. USD 39 billion earmarked for factories pales in comparison to the USD 3 trillion that, according to a 2021 report, semiconductor companies were expected to spend on capital expenditure and research and development over the coming decade. Companies receiving funds also must agree not to engage in “certain significant transactions” involving existing chip production capacity in China or in other “countries of concern.” Intel announced plans to sell its flash manufacturing plant in Dalian, China for USD 9 billion. Semiconductor Industry Association (SIA) called this Chips Act a “historic opportunity.”
Biden’s Infrastructure Investment and Jobs Act is “driving a boom in large-scale infrastructure,” wrote Ellen Zentner, chief U.S. economist for Morgan Stanley; in addition to infrastructure, “manufacturing construction has shown broad strength.” Nearly 35,000 projects have been awarded funding under Biden’s infrastructure law, according to the White House. As a result of these unexpected swells, Morgan Stanley now projects 1.9% GDP growth for the first half of this year, nearly four times higher than the bank’s previous forecast of 0.5%. Economy continues to add jobs, 1.67 million added this year through June, while headline inflation dropped from 9.1% in June’22 to 3% a year later, both consumer spending and consumer confidence remain strong. “It’s not an accident, it’s my economic plan in action,” Biden told a crowd of mostly union workers Thursday at the latest stop on his nationwide record-burnishing tour. “Together, we’re transforming the country.”
As the US committed USD 1.5 trillion, about 5% of her GDP, in various programs in the last three years, rest of the world is not staying put. China’s economic miracle has been scripted on languages of explicit and implicit, but zealously enforced, industrial policies for decades. Make in India program of Modi administration aims to yield 25% of the value added in the GDP from manufacturing sector by 2025. According to an estimate by The Economist magazine, global share of manufacturing in the GDP dropped from 19% in 1997 to about 16% today. Even in China and in India share of manufacturing as a share of GDP remained about the same over last three decades, and slipped slightly in recent years. That may be good news as it coincides with a very significant rise in services sector in both countries – a sign of economic vitality and social upliftment. Programs inspired by similar desires abound the world, from the UK to Africa, from France to South Korea, and beyond. Even these may be a small potato when it comes to replacing entire capital stock of the economies to make them more resilient. It is estimated that replacing aging electric grids alone will take USD 4 trillion of new investment by 2030, a whopping 4% of global GDP.
Human history is rich with tales of industry lifting millions out of abject poverty to a semblance of comfort. Stories have been retold across Europe and America, and more recently in South and East Asia, especially China. Manufacturing provided solid jobs less subject to nature’s vagaries, resulting in sizeable middle class that further weakened the power of feudal lords. Even today manufacturing is a driver of economic growth; especially resource and transportation related sectors are both leading and concurrent measures of economic activity. Replacing capital stock to adopt newer technologies or opportunities require manufacturing – today’s aspirations of a green and more resilient economy will come to naught if manufacturing fails to keep up, globally. Often manufacturing is a driver of innovation itself, per Willy Shih and Gary Pisano, who coined the phrase “learning by manufacturing” in a Harvard Business Review article. All of this translates to better jobs – manufacturing jobs typically offer a premium to similarly skilled jobs in the services sector, reflecting specific training needed, existence of unions and economic reality.
Global tensions have renewed the geopolitical imperatives for manufacturing. “A national security vulnerability that is untenable” noted Gina Raimondo, the US Commerce Secretary, over 90% of advanced chips come from Taiwan; her department has explicitly a key goal of CHIPS act as “reduce chokepoint risks flowing from geographic concentration,”. Treasury Secretary Janet Yellen has referred to this vulnerability as an “externality.” “Aggressive and outward facing industrial policy” reconciling onshore and offshore supply chains with broader economic and social agenda of the administration. National security and supply chain resilience goals are commingled with administrations social policy goals – companies are required to share some of the profits with the government, limit share buybacks and dividends. Companies are expected to use union workers and American made steel for the construction of factories, and provide affordable child-care “to ensure companies that receive funding are holding up their end of the bargain.” “We are not writing blank checks,” added Secretary Raimondo.
Not everybody buys the narrative. “History suggests that in the U.S., industrial policy has been most likely to succeed with a well-defined objective, such as putting a man on the moon or developing a Covid vaccine. It has been least successful when aimed at reversing economic decline or pursuing scattershot social and regional development objectives.” Says Greg Ip for the Capital Account in The Wall Street Journal. Many economists are not buying the idea. Mr. Ip adds in the same article, “Industrial policy, often called “picking winners,” is sometimes seen as un-American by elevating the judgment of politicians and bureaucrats over that of the free market.” Former US Treasury Secretary Larry Summers commented that “I like industrial policy advisers how I like generals. The best generals are the ones who hate war the most but are willing to fight when needed. What I worry about is the people who do industrial policy love doing industrial policy.” Even buoyant consumers are not attributing credit to the administration. The latest CNBC All-America Economic Survey found that just 37% of respondents approved of Biden’s handling of the economy, while 58% disapproved. Only 20% of Americans agreed that the economy was excellent or good, while a whopping 79% said it was just fair or poor, CNBC’s poll found. CNBC poll parallels what a Wall Street Journal poll found in April – more people disapproved than approved of his handling of infrastructure by 3 points. Among those who were undecided in a hypothetical match between Biden and Trump, only 10% approved of Biden’s job performance on infrastructure whereas 70% disapproved.
A USD 90 million Texas project can be a good lesson. Stanley Black and Decker, a USD 17 billion turnover behemoth in industrial tools, The Forth Worth factory, announced in 2019 with much fanfare as part of its “Made in the USA with Global Materials” slogan, was supposed to employ 500, but had only 175 when the company announced plant’s closure 3 ½ years later. According to The Wall Street Journal, “The property is now advertised for sale.” It was not the unions, not the regulatory state, not even the AI. The company built a largely automated production line with new technologies, hoping to beat its own Asian production lines in cost. That did not happen. Exacting demands of the clients would have none of the shoddy work done in the automated lines, forcing rework, therefore not producing the savings promised. People often have expertise and flexibility machines cannot match, commented Julie Shah, MIT professor and roboticist, “It’s really easy to undervalue the judgment and experience that someone brings to what seems to be like a fairly simple task.”
Prof. Shah echoes a long-held view for me – that humans are essential even in a highly automated, AI-enabled, field of manufacturing. That retooling an economy for growth can never be done without retooling the humans with tools of success, and with skills that match the needs of the society. What we do not talk about much is what I consider is a most significant weakness of US – that we are not focusing enough on basic education, that it is important to learn how to turn a lathe. Educate yourself a professional goal in mind, I offer, and learn the basic skills needed. There will be plenty of time to dabble in generalities, “that vision thing” included. What makes or breaks for the country, and yourself, is what you can do in practice. In the context of US industrial rebirth, it means – truly – to learn to turn the (CNC) lathe and rolling machine, learn to keep focus through thousands of repetitions every shift, learn to show up on time and punch in.
Stanley, Black & Decker’s Fort Worth plant improved its output as workers learnt to use the automated lines, and kinks were ironed out. That was too late and markets had already decided its fate. Without upfront commitment to massive reskilling any dream for rewiring US economy will face the same reality, I reckon.
Riz Ahmed, playing Ruben, a drummer, in his 2020 movie “Sound of Metal”, slowly turns deaf and starts dreaming of the dull and the deafening, the clank and the clap, the whoosh and the whisper. The US, and the world, are dreaming of sounds of metal on the factory floor. I am afraid that we may lack the skills, temperament, and a strength in numbers, just like Ruben’s ear implants distorted reception.
Tired of it, Ruben gets rid and sits in silence at the end. That silence will be a deafening monstrosity for the US economy; and this midsummer night’s dream of an industrial rebirth, just another dumb charade.