Manufacturing vs. politicians

At last month’s NFPA International Economic Outlook Conference, John Manzella, of the Manzella Report, spoke on “Labor, International Trade, and What’s Ahead,” an insightful talk to the 200-ish attendees, many of whom were manufacturing executives in the fluid power realm.

Manzella had few kind words for politicians on either side of the aisle, and I found that his breaking of some stereotypes was quite interesting — and a reminder that manufacturers shouldn’t necessarily be beholden to ideas from either political party. The better bet is to look at the historical data when planning future policy. Here are four of his main points.

1. We need more legal immigration. Manzella noted that we have job openings in this country like we really haven’t seen before: 10.1 million, “9 to 5” type jobs cannot be filled. That includes 1.9 million in trade, transportation, and utilities; 1.7 million in leisure and hospitality; 339,000 in construction; and 826,000 in manufacturing. When it comes to manufacturing, it’s estimated that a 2.4 million shortage will exist between 2018 and 2028, and Deloitte thinks that will cost companies $2.5 trillion in lost revenues. Plus, there’s a 60,000 shortage of truckers and long-haul drivers. Manzella said that we must recognize that knowledge is today’s only sustainable competitive advantage.

“One hundred-plus years ago, it was minerals and land,” he said. “Today, it’s knowledge and the ability of your workforce implementing technologies faster. That is today’s only sustainable competitive advantage … it is so very important to accept more legal immigrants. The California Fresh Farm Association told me they needed two things; inexpensive water and cheap labor, and they can’t get either. This situation is only getting worse. People talk about immigrants taking American jobs. Statistically, they really don’t. They actually help fill the openings, which we can’t possibly fill, even if we increased immigration significantly more.”

2. “Buy American” programs aren’t all roses. Who doesn’t like “buy American programs?” Politically, they sound fantastic, and Manzella said that some actually work, but when you look at the statistics, you’ll find that when you reduce the competition, due to a whole series of supply chain issues, you’ll have less competition and less production.

“Almost every study I’ve seen results in higher prices,” he said. “What do consumers and industry do when you have high prices? They almost always buy less. In the long run, those same workers and constituents you are trying to help — you actually hurt them. Again, one study after another, the prices went up. Purchasing went down, production went down, and you actually hurt those workers you were attempting to help.”

Manzella stressed that it’s very important that these sorts of programs are implemented in a way where it actually benefits the workers at hand.

“Globalization is like fire. It can keep you warm, cook your food, but burn your house down. It’s lifted millions of people out of poverty, and boosted standards of living. I believe that globalization has benefited the U.S. more so than almost any other country, but it’s not impacted all of us equally. It has left many people behind,” he said.

3. Look to Europe for job retention ideas. Manzella explained that we’ve got to invest more in education, training, and engagement. Even employee recognition events and group activities are important — anything you can use to build rapport.

“Once you attract those workers, the key is to keep them, and we’re finding it’s more and more difficult to do that; we’ve got to create strategies that breed happier, healthier, better educated employees that are more productive, and feel valued; they’re more likely to refer friends as a result because friends lead to referral programs. Offering more generous daycare options, which has been a strategy used in Europe for years (although it’s being subsidized to a much greater extent) has worked. You’ll see that young women’s participation in Europe in the workforce is much, much higher than the U.S. In fact, I spoke with a company that actually purchased a daycare center, and I was told the results were just fantastic in terms of getting more younger people at the firm.”

“For the first time in my life, workers now are really in the driver’s seat as opposed to the HR department,” he said. “Raising pay is always a great option, but for many companies it’s just impossible. I recently spoke to a group that provided cleaning staff to hotels. You may not necessarily be able to raise the wages too much higher, but they have different incentives, so it’s not by the hour, but it’s by how many rooms you cleaned that day — the metric side is slightly different, and very often beneficial to both sides. We’ve got to come up with a whole new set of strategies to appeal to this audience.”

“I know some companies have jets in the organization, and very attractive break areas, outdoor seating, walking trails, games, catered lunches,” Manzella explained. “Sometimes they even gave employees a happy hour, which is a little risqué with liquor, but whatever you can do to keep your workers there longer is important.”

4. Trade agreements are good for us. Manzella said that if he walked down the street and surveyed 10 people, the vast majority would likely tell you that free trade agreements are bad ideas. But he countered with the fact that the U.S. has 14 free trade agreements with 20 countries. Almost half of all our exports go to those 20 countries. He said that tells us when you implement trade agreements, and knock down foreign barriers, the U.S. comes out ahead.

“When you knock down a trade barrier, U.S. companies do exceptionally well. We don’t need fewer agreements. We need more free trade agreements because statistically, when we have these agreements, we do much, much better. Right now, there are more than 300 regional free trade agreements without U.S. participation. What is that doing to U.S. companies?” he asked.

Manzella said, that as an example, in joining the Trans Pacific Partnership, the U.S. could have helped create the rules in Asia. Instead, by backing out, it created a vacuum, and the Chinese like that. “They’re going to sit back and wait for us to make our next move,” he said.

He also noted that countries such as Brazil and India are highly protectionist. They run persistent trade deficits. When you look at countries like Germany, Switzerland, and Singapore, they have very low protectionist instincts, and they almost always run trade surpluses.

“I looked at a study not long ago of 125 countries over a period of about 14 years,” he said. “Those with the higher tariffs generally had smaller surpluses. Protectionism has severe consequences.”