“Not only the wealth, but the independence and security of a country, appear to be materially connected with the prosperity of manufacturers. Every nation, with a view to those great objects, ought to endeavor to possess within itself all the essentials of national supply. These comprise the means of subsistence, habitation, clothing, and defense” – Alexander Hamilton
By Ilya Galak and Michael Califra
The biggest and most immediate threat to the health of out national and local economy is the sick state of the middle class.
This nation is the wealthiest the world has ever known. It became an industrial power, then a superpower because of its ability to manufacture things. Yet we have let that base of our prosperity slowly erode as the investor class, in search of ever higher profits, abandoned American workers in favor of cheap labor overseas.
Once the envy of the world and the great engine of prosperity that drove our national economy, the American middle class has been under pressure for more than thirty years. The offshoring of good-paying manufacturing jobs along with decades of stagnant wages and rising costs of everything form energy to health care and a college education has left millions of Americans one economic shock away from tumbling out of the middle class.
Every time an American job is outsourced to China or other slave-wage counties the American economy loses the spending power that worker’s job generated. Every time an American worker is forced into a low-paying service job, that worker’s disposable income shrinks, making it harder to stay in the middle class and decreasing demand across the economy. The result is a middle class that has been hollowed out, is mired in debt, and a national economy that grows through the formation of asset bubbles instead of wage-led growth. When those bubbles pop, as they inevitably do, more middle class wealth is destroyed and more people are thrown into the ranks of the working poor.
All this has turned the United States into the country with the highest income inequality of any advanced nation; a country where the gap between the wealthiest and everyone is else larger than it’s been since the Gilded Age.
The loss of manufacturing has been particularly brutal for New York State. Between 1970 and 2011 the Empire State seen a more than 75 percent decline in manufacturing jobs – from 1.8 million to 458,000. Since the year 2000, NYC has lost more than 100,000 manufacturing jobs. What does that mean for the middle class or people aspiring to it? According the New York State Department of Labor, the average annual wage for a manufacturing worker is over $53,000, compared to $36,000 for retail work and $24,500 for employment in food service. In other words, a plunging standard of living.
This is a situation that cannot continue without a devastating end. The further concentration of wealth at the top income brackets combined with the shipping of our prosperity abroad, often to countries with regimes known for abusing their own people, are not good for our democracy; the loss of the economic mobility that was once the hallmark and great achievement of the American civilization will invariably lead to disillusionment, alienation and social unrest if not addressed. And there is simply no way to address these issues without bringing back manufacturing or a developing a plan to replace lost jobs with new industries.
Yet that bleak future is not inevitable. The good news, as more and more companies are finding out, is that making it in the USA is good for businesses. An often-cited 2011 study by the consulting firm Accenture, which included a survey of 287 major companies, found that nearly half are plagued by “cycle or delivery time” problems and quality issues due to offshoring.
An advantage of “Made in the USA” is that it domestic production makes companies more nimble and better equipped to meet their customers’ needs. For example, instead of shipping more cars from Germany and Japan to meet growing U.S. demand, it made sense for BMW and Nissan to build plants in South Carolina and Tennessee. Those economic realities have meant a mini renaissance for American manufacturing. But while manufacturing gained about 530,000 jobs nationally between January 2010 and December 2012, America is still 7.5 million manufacturing jobs down from its last peak in 1979. Much needs to be done, especially in New York State. New Yorkers are tired of watching helplessly as manufacturing comes to the US only to bypasses our state only to settle elsewhere. If we can’t compete with South Carolina and Tennessee, how can we hope to compete with the Chinese? Yet Albany seems to have thrown in the towel when there is no reason to. As New Yorkers we should not be satisfied with a slow return to the label, Made in the USA; our goal should be the label, Made in New York by New Yorkers.
How can we bring manufacturing back to the Empire State?
1- Albany should unleash its purchasing power on New York State. NYC and NYS spend billions of dollars each and every year on construction projects. We should require that all procurement contracts go first to NYS businesses through a transparent bidding process. If there are no businesses in the state that can fulfill the contracts we should mandate that out-of-state manufactures set up shop in the state if they want our business. If a company located in Texas, for example, wants a NYS contract, they should be required to open a manufacturing facility here and produce everything for in state, or at a minimum assemble it here.
2- NYS needs to shamelessly court companies – domestic and foreign – to get them to set up shop in the state and help them expand when they get here. Other states do this. Alabama recently lured Airbus as the location for its new North American assembly plant. Did New York State, with its proud aviation heritage, which includes the design and manufacture on Long Island of the only spacecraft ever to land humans on another world, even try bringing Airbus here? We should not be settling for the low-paying service jobs casinos bring when foreign industrial corporations are setting up large manufacturing facilities in other parts of the country. Yes, competing against the South and Midwest is tough, but there is more to attracting industries than just low wages. Just look at Germany’s manufacturing success. The country’s manufacturing sector is among the world’s best, employing one-fifth of German workers while paying an average of $46 an hour (versus $33 an hour here). New York offers access to great universities and the educated labor force they produce in addition to our world-class research facilities and fine shipping infrastructure just to name a few of the advantages NY has over other states. Albany has been touting a decade of tax advantages for companies that set up shop in certain areas of the state. That should be expanded to the entire state if manufacturing is involved.
3- Attack the "dark side" - business practices such as bid rigging, outright extortion and other illegal practices that drive up the costs of doing business in New York. If we are going to revive manufacturing here, we must not only be prepared to upset established business practices that have been producing headwinds for investment, but also revise the State's antiquated and complex procurement laws and regulations, which prohibit many companies from competing to do work with the NYS and local governments. Construction regulations, too, need to be reformed. Contractors should be required to conform to, but not exceed, local building, electrical, mechanical and fire codes. In circumstances where a project might not be covered by local codes, the US code should apply. It is also important for NYC, and all other cities in the State, to revamp complex, arcane, and redundant construction regulations that have grown voluminous over decades, yet add nothing to safety. These unnecessary regulations drive up construction costs, which are then passed on in the form of higher rents, giving businesses, and people, yet one more excuse to locate elsewhere
4- New York should also end the practice of contracting foreign companies to do the work American companies can do, as the MTA did when it contracted Chinese companies for the Verrazano Bridge and Staten Island Expressway projects.
5- Bring MARS to NY. Establish an independent, privately-financed agency: NYS Made in America Rating System* (MARS) to develop minimum standards qualifying products as Made in USA, and the NY State for all companies doing business with NYS. MARS would be similar to the UL rating of manufacturing companies and to the LEED rating system for sustainable buildings. A minimum rating should be a required for public construction projects in NYS. Full transparency and the requirement that MARS be a strictly independent rating agency are crucial. Its board of directors should include representatives from taxpayers’ organizations, manufacturers, trade unions, developers and City and State officials. Ratings should include minimum content provisions to qualify for the label “Made in NYS” and “Made in USA” and products earning those labels should be preferred in NYS. (*More on MARS after conclusions.)
6- More efficient use of state subsidies. A recent report by the Alliance for a Greater New York showed subsidy spending is largely uncoordinated and inefficient, with the state’s regional economic development councils coordinating only about 6 percent of the $7 billion spent each year in New York on corporate tax subsidies. According to the findings, big businesses were most likely to take advantage of multiple, uncoordinated subsidy programs. For example, Target Corp. is currently receiving 14 separate subsidies across New York for their retail stores and warehouses, and this only takes into account the seven programs with regional data. Only a tiny fraction of New York’s businesses are accessing economic development subsidies. The report determined that 96 percent of businesses are shouldering the tax burden for the 4 percent that get the subsidies. That is not only unfair, it is unproductive. The state should not be spending so much to subsidize low-wage service jobs; it should be using that money to invest in new industries such as renewable energy that will generate the good-paying manufacturing jobs we need
These are just preliminary suggestions. Some with be determined to have more public policy value than others when details are further hammered out. But if we are going to rejuvenate New York State’s economy we must provide the jobs that can resuscitate, sustain and expand our middle class. If we want our population to grow, bringing with it not only talented and innovative people, but increasing and not decreasing clout in Washington, we need to change the way we’ve been doing business. We need manufacturing jobs as soon as possible. We can not wait. As a group we are independent; we are Democrats and Republicans. We are all working and supporting families. We have become engaged in this effort because of our love for New York, and our alarm over the war that has been waged on the middle class in this country. We are looking for leadership from our elected representatives, but we are also determined to build a movement from the bottom up that will again make New York the Empire State.
“Manufacturing is more than just putting parts together. It’s coming up with ideas, testing principles and perfecting the engineering, as well as final assembly” – James Dyson
MARS NY RATING SYSTEM
THE MAIN GOAL of the Made in America Rating System is to push the establishment of environmentally friendly assembly facilities in NYC / NYS. A MARS rating is valid for one year only. The rating system can be changed each year, if required to bring more manufacturing jobs to NYC / NYS
With MARS of NY unique rating system could guarantee that the state’s consumers are getting what the product’s manufacturer is claiming. It would use a 6-level grading system based on a domestic content percentage and place of assembly as shown below.
“Empire State-AAA” Rating – the product is 100% “Assembled in NY” and 100% of raw material are American
“Empire State -AA” Rating – the product is 100% “Assembled in NY” and at least 60% of raw materials are American
“Empire State-A” Rating – the product is 100% “Assembled in NY”
“USA -100” Rating – the product is 100% “Assembled in USA” and 100% of raw materials are American
“USA 60” Rating – the product is 100% “Assembled in USA” and at least 60% of raw materials are American
“USA” Rating – the product is 100% “Assembled in USA”