Politicians say we have the most productive workers in the world. They don't know what they're talking about.
Still, it’s important to realize that not all productivity gains are illusory. The truth is, there are still plenty of U.S. companies that find it more cost-effective to boost their domestic productivity by investing in new equipment and training workers. With better statistics, we might even be able to identify which industries have the highest prevalence of these “domestically productive” companies—and thus identify the sectors where American workers are actually competitive on the global stage (or could be made competitive with a little investment). But as it is, we are left with anecdotal glimpses of the competitive landscape.
In an unusual coincidence, for example, the Hanover, New Hampshire, region has long been home to two of the world’s leading manufacturers of plasma torches and cutting systems—powerful tools that are used, for instance, to cut plate steel for trucks and bridges. This is a global market, where much of the high-end demand comes from infrastructure investment in developing countries such as China. But the two companies have gone about competing in dramatically different ways. One company, Hypertherm, has focused on boosting productivity at its New Hampshire facilities. By investing in new equipment and continually improving its workflow, it has been able to remain competitive with overseas rivals without significant offshoring. “We looked at doing some manufacturing in China,” says Evan Smith, the general manager of Hypertherm. “It didn’t make sense for us.”
Instead, Hypertherm—which ships two-thirds of its output overseas—is actually expanding facilities in New Hampshire. The company is constructing a new building just down the road from its current headquarters to help house some of its 1,000 employees.
Meanwhile, just a few miles away, their rival company Thermal Dynamics recently announced plans to move its New Hampshire plasma system manufacturing operations to Texas and Mexico by December 2011. According to the company’s press release, the move, affecting about 100 workers, was “critical to our ability to better serve our customers and grow our business profitably.” Thermal Dynamics’s parent company, St. Louis-based Thermadyne, declined to comment further.
Presumably Thermal Dynamics’s shift of plasma torch production to Mexico will cut costs and improve the company’s profit margins, even as the number of domestic workers falls. If the assembled plasma cutting systems are shipped to the U.S. before going to customers, the government’s economic statistics will register a gain in manufacturing productivity.
Nevertheless, from the perspective of the New Hampshire and U.S. economies, there’s a big difference between Hypertherm’s and Thermal Dynamics’s approach. By focusing on domestic productivity growth, Hypertherm encourages more hiring in New Hampshire and more exports from the U.S. By relying more on supply chain productivity gains, Thermal Dynamics’s products may become more globally competitive, but the main beneficiaries may not be U.S. workers.
How, then, can we become a nation where it makes economic sense for more companies to behave like Hypertherm and invest and create jobs in the U.S.? As is often the case, the first thing we need is a better understanding of the problem. We honestly don’t have a clue about what’s really going on in the U.S. economy. What’s worse, we think we do.
Often, despite all the signs that the blood is draining out of our economy, and particularly our manufacturing sector, our highly problematic national productivity statistics can make it seem like we already live in a nation full of Hypertherms—companies honing their operations at home. Journalists and politicians can easily enough find examples of companies that are genuinely increasing efficiency of their U.S. operations, and generalize these examples to the entire economy. A mostly upbeat April 2011 Associated Press article, for example, attributed the weak job market to rising productivity, claiming that “U.S. workers have become so productive that it’s harder for anyone without a job to get one.” The proof? National productivity statistics, plus one example of a plastics company that was able to produce a part with fewer people. The growth of global supply chains was not mentioned.
Both President Obama and his Republican rivals seem to have fallen prey to the same illusion. “We still have the best workers and farmers, entrepreneurs and businesses, students and scientists,” Obama repeated, with variations, as he cruised through Minnesota, Iowa, and Illinois this past summer. Or as Mitt Romney told Ohio factory workers in July 2011, “Our workers are the most productive in the world—so trade ought to be good for us.”
On the campaign trail, these words represent not just a flattering slogan but an economic diagnosis and policy prescription. According to the theory implicit in this kind of talk, the U.S. has no fundamental long-term competitiveness problem: American companies have honed their competitiveness by shaking off unnecessary workers and low-value businesses, and will be ready to hire once the global economy recovers.
In the minds of Obama and his team, the big problem is insufficient demand, and the appropriate short-term policy response is fiscal and monetary stimulus. In the long term, the best thing Washington can do is enact policies that prepare American workers and small businesses to take advantage of those opportunities and continue touting the virtues of free trade and future growth. On the other side of the aisle, the Republican presidential candidates and congressional leaders are identifying high taxes and pervasive regulations as the main causes of our economic problems. From this perspective, if only government would get out of the way by cutting taxes and reducing regulations, the private sector would bring prosperity to everyone through high productivity growth.
Both sides suffer from the same fundamental blindness. To shake the American political debate out of this bipartisan rut, the first order of business is to run an industry-by-industry “competitiveness audit,” as the Progressive Policy Institute has proposed in a recent policy brief. Such an audit would compare the price of selected imported goods and services and their domestic equivalents. This would allow us to identify which U.S. industries are in the lead, which ones are close to being competitive, and which ones are out of the running. It would require some extra spending for the Bureau of Labor Statistics, whose able but chronically underfunded personnel would be the natural candidates to carry out the audit, but it wouldn’t cost that much to run a pilot program on selected goods and services. Armed with this information, government statisticians would finally be able to distinguish between domestic productivity gains—which lower the cost of U.S. production—and supply chain productivity gains—which take advantage of declines in the cost of overseas production.
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