French author Victor Hugo once wrote that invading armies could be resisted, but invading ideas could not. The spirit of this remains in the English version, which is that “Nothing is more powerful than an idea whose time has come.”
Powerful ideas, though, like powerful people, all begin their lives as helpless creatures, totally dependent on others to nurture and sustain them.
One economic idea that is still in its infancy is “insourcing”: bringing back to the U.S. jobs that had been outsourced to foreign countries. We don’t know who started it, but it is an idea that seems to be gaining strength in our economy.
Insourcing is particularly visible when it occurs in manufacturing. The outflow of this sector’s jobs overseas has been so steady that it has become “normal.” Most people believed that it would stop only when the last manufacturing worker in America was finally laid off.
But, amazingly, in the midst of our own recession, a combination of economic factors — rising transportation costs, rising wages in developing countries, decreasing labor content and others — changed the picture for manufacturing. A few companies saw advantages in purchasing from American sources or, in some cases, having their own domestic production facilities. Communities noticed a trickle of manufacturing jobs coming home.
In President Barack Obama’s State of the Union address, he spoke of the importance of manufacturing to the American economy. To underscore that point he announced a set of policies and programs to encourage manufacturing jobs in the United States.
It sounded like one of those rarities in government policy: a great idea combined with perfect timing.
By itself, a manufacturing renaissance is a great idea. It may not ever be the jobs engine that it once was, but its growth can provide solid, satisfying jobs and income for a very large number of Americans. Even better, a healthy manufacturing sector can reduce the national embarrassment of our country’s total dependence on distant strangers for everything we wear, touch, use and need for our lives and work.
Over the last century and a half, manufacturing transformed our country, brought it a level of prosperity unprecedented in the history of civilization, and distributed its bounty in a way that opened up opportunities to broad swaths of our population.
Like a lot of other things, though, manufacturing hit its peak over thirty years ago. Manufacturing in the U.S. is very different today. It is higher tech, more capital-intense and requires fewer, but highly, skilled workers.
Important in the president’s list of programs, at No. 2, is a reshuffling of the tax incentive for domestic production. To keep it revenue neutral for budget purposes, the tax incentive will be taken away from oil production and given to “advanced” manufacturing technologies. How that will promote manufacturing jobs insourcing is a little fuzzy, but it will certainly promote the import of oil in a world market that grows more unstable every day.
While the entire set of programs seems unfocused, the biggest single problem is with the most prominent: No. 1 on the list. It seems to reflect someone’s dream world of permanent job security rather than an honest effort to encourage domestic manufacturing.
The No. 1 program is divided into two parts: the good, smart part and the part that is neither of those things. The good part is that firms will receive a 20 percent tax credit for the expenses of moving jobs back home to the U.S. That is a positive incentive that will help. Maybe we should even increase it. It couldn’t hurt.
The other part, though, is dangerously thought-free. It would end the tax deductions that companies take when they shut down a production facility in the U.S. and move the operation overseas. That sounds like a good idea.
What the White House thinkers apparently didn’t consider, though, is that companies would then run the risk of being trapped in their own unprofitable factories. This kind of provision may actually encourage firms to prefer overseas facilities and suppliers from the start, which would reduce manufacturing operations and jobs here instead of increasing them.
Building barriers and adding restrictions to the manufacturing industry we are supposedly helping mocks both history and economics. As Ronald Reagan said in 1986, “there’s only one part of the world and one philosophy where they have to build walls to keep their people in.”
It never works. Besides, we don’t want to be that kind of country.
The insourcing of manufacturing jobs is an idea whose time has already come … with no federal help. The best course is to stay out of the way. If we simply can’t resist meddling, we should focus on incentives and forget about punishments and building walls.
James McCusker is a Bothell economist, educator and consultant. He also writes a monthly column for the Snohomish County Business Journal.
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