People are talking about reviving U.S. manufacturing with a new wave of tax incentives. But let's look at how rural America fared with the old wave.
For the past year or so, there’s been increasing talk of rebuilding the country’s manufacturing base. In principle, it is a good idea as long as it’s sustainable for everyone involved.
The White House turned up the buzz in January when, during his State of the Union Address, President Obama outlined proposals to incentivize U.S.-based manufacturing as part of a strategy of global competitiveness.
Buoyed by the success of helping to rescue the auto industry, especially General Motors, Obama mentioned manufacturing a lot in his speech, at least 14 times by my count.
Citing recent improvements in the country’s manufacturing economy, including increased employment, Obama noted in a Kennedy-esque way, “We have a huge opportunity, at this moment, to bring manufacturing back. But we have to seize it. Tonight, my message to business leaders is simple: Ask yourselves what you can do to bring jobs back to your country, and your country will do everything we can to help you succeed.”
Obama’s blueprint included tax-policy carrots and sticks to end deductions for companies that outsource jobs: a bigger tax cut for American manufacturers, including a doubled tax deduction for high-tech firms, and a basic minimum tax so that companies could not avoid taxes by moving jobs and profits overseas. Revenues gained by ceasing some business deductions would be used to help those companies that bring jobs back to the U.S. or choose to stay here and hire here.
The proposed policy could have a positive impact on smaller cities and towns in rural regions. Under Obama’s plan, firms that relocated in communities hit hard when a factory left would get government aid to finance a new plant, equipment, or training for new workers.
When I hear about additional federal incentives for manufacturing, it makes me blanch. The president’s intentions are good. But this is merely another expansion – at the national level – of the highly questionable and problematic model that dominated state economic development policy post World War II: a strategy of incentives and tax breaks. By the 1960s, this trend had become a full-fledged “War between (among) the States.”
According to its critics (of which I am one), a policy of widespread business-tax breaks shifts the tax burden to workers and constitutes part of the current threat to state budgets.
Since the 1970s, leaders of manufacturing and financial firms have broken the deal that they made with state governments and U.S. workers, to establish and maintain job security. They deliberately chose to eliminate millions of industrial jobs across rural and urban areas of the United States, despite state and local aid, coupled with federal incentives.The oft-cited reasons for the deal-breaking include global competition and the ready ability of businesses to move capital from one place to another. These corporate decisions came in the face of rising energy prices and increasing concerns about the environmental impacts of transglobal shipping by water and air. They also caused staggering oppression of low-paid workers in poor countries and lower wages in the U.S.
Manufacturing technology also played a significant role in replacing factory workers. But not all of the displaced workers were unskilled. Some were highly skilled, including metal fabricators, machinists, and tool and die makers, as well as support staff, including floor and middle managers whose work worlds were turned upside down when factories closed.
The human, community, economic, and environmental impacts, justified with the bland terms of “globalization” and “technological progress,” were brutal:
• Across America, too many workers and their families were shattered, driven into poverty at worst and lower wages at best. Assistance for them, such as retraining, tended to be stopgap, even as businesses continued to receive tax breaks to move jobs around. In addition, workers lost pension and health benefits as corporations were merged, laid off workers, shut down factories and increased their profits.
• Smaller communities that depended on manufacturing firms were decimated as long-distance profit-seekers played an impersonal corporate board game that gobbled up businesses and reassembled them into ever-larger conglomerates. The results were plant closures, layoffs, or management farther removed from localities.
• Communities not only lost workers’ wages but also the potential for local and regional support by companies for public good through tax dollars and philanthropy.
• Profits from the buying and selling of corporations concentrated more wealth into fewer hands, spurred by capital gains tax reductions that for the most part benefited urban investors. Corporate profitability, which once had community and regional ties, was transferred increasingly to more distant shareholders and savvy investors who created and manipulated highly sophisticated and incredibly risky debt instruments.
• While consumer prices were moderated in some ways by globalized manufacturing, wages for most U.S. workers have been stagnant or falling, stifling consumption and seriously weakening the overall economy.
• The wholesale abandonment of factory sites left communities with toxic brownfields, open eyesores that, when money does become available, are remediated with public funds, not by the companies that left the mess. This rebuilding puts an additional strain on government budgets.
Manufacturing does pay relatively high wages. This is why states launched industrial development programs. Yet, numerous studies have suggested that these efforts offered mixed results at best.
So, some questions for the president, as well as would-be presidents who espouse new incentives for U.S. manufacturing:
• Can the leaders of corporate America who abandoned American workers and their communities be trusted to use these tax benefits in the way they are intended?
• Will the subsidies create good jobs in the short and long runs? Or will they simply become a source of increased shareholder profits or tools businesses can use to hold the country hostage to demands for even more tax breaks?
• Will there be ironclad and heavy penalties for breaking the jobs-creation deal or for taking shortcuts on environmental regulations?
• How will workers be subsidized with high-quality training?
• Will the incentives promote green and sustainable businesses and industries, especially for rural areas?
Rebuilding our manufacturing economy has potential benefits. But how this is done matters. President Obama needs to redress injuries to communities and to workers who have been victimized by policies that left them abandoned and isolated. He needs to reconstruct the post World War II bargain that corporate America broke with our governments and our workers.
In short, the renewed manufacturing policies need to be humane. They need to be green. They need to benefit rural areas.
As for corporate leaders (only dreaming here), it’s time they showed a little patriotism.
Timothy Collins is assistant director for research, policy, outreach, and sustainability at the Illinois Institute for Rural Affairs at Western Illinois University in Macomb. Opinions expressed here are his and his alone.