Manufacturing Jobs: Remarks of Senator Levin before the Detroit Economic Club: 05/01/06
Remarks as prepared for delivery
Thank you for that very kind introduction. I always look forward speaking at the Detroit Economic Club. Not only is it one of the premiere public affairs forums in the nation, but for me being here is being home.
It is wonderful to be with so many old friends and some new faces today. At the Detroit Economic Club, the audience is knowledgeable, the discussion is lively, and the questions are anonymous – the perfect combination for a lasting relationship.
I also enjoy speaking here for the opportunity it affords me to think a little bigger, a little more broadly, than the everyday. Today I want to use that opportunity to discuss a vital long-term project that could have cascading benefits for the nation and for the planet.
For years, we have repeated as a mantra that America is the world’s lone superpower. Some have gone so far as to say we are a “hyperpower.” But today, that status is more at risk than at any time since the end of the Cold War. We are bogged down in a long and costly war in Iraq. We are hemorrhaging manufacturing jobs. Religious extremists threaten our security. And India and China are rising to assume the economic power that springs from hitching their enormous populations to the global economy.
These challenges are not a cause for pessimism, but they should be a call to action. At difficult times in our history, America has acted with firm purpose. Whether it was saving the world from tyranny during World War II or staring down the communist threat during the Cold War that followed, America has been at its greatest when the stakes are at their highest.
45 years ago, President John F. Kennedy faced the Soviet surge into space. He responded to that challenge by launching the Apollo program – a bold national mission to put a man on the moon by the end of the decade. And because he did, we did.
Today, I want to talk about a long-term, Apollo-like effort to meet many of the greatest challenges of our time. It begins with an issue that has hit Michigan hard – the loss of millions of manufacturing jobs.
Economy and Jobs
As we have seen firsthand in Michigan, our nation is hemorrhaging manufacturing jobs. America has lost 2.8 million manufacturing jobs in the last five years, and nearly 180,000 of those jobs have been in Michigan. In fact, Michigan has lost nearly one out of every three manufacturing jobs we had in 1999.
Not only is this bad for the affected workers, it is a crisis for the country because America’s economy and well-being are directly linked to the health of our manufacturing sector.
If that statement sounds strong to you, then you heard me right. We cannot speak strongly enough in defense of manufacturing. We cannot give in to the canard that says we only need an economy based on services and technology, and the only things we need to build are websites and Wal-Marts that retail foreign-made goods.
The fact is that the rise and fall in the number of manufacturing jobs in America is directly related to the rise and fall of median family income. Between 1993 and 2000, the number of manufacturing jobs rose and so did median family income. Between 2000 and 2004, manufacturing jobs fell, and so did median family income.
Manufacturing has also historically been a major contributor to American economic growth. Even during the boom of the 1990s, which was largely seen as driven by technology companies, manufacturing accounted for 22 percent of economic growth. And, aside from the computer industry itself, Silicon Valley’s number one private sector customer for its computers is the auto industry.
A New Apollo Program
To revitalize our manufacturing sector, we need to revitalize our auto industry, which has led before – as an engine of the economy and a driver of new technologies – and can do so again. We need our own moon shot – our own Apollo program – for this generation: a comprehensive initiative to produce, in the near term, a large number of vehicles that are capable of operating on alternative fuels, and to create, in the long-term, the leap-ahead technologies that will boost our auto industry and help end our dependence on imported oil. And we must provide the resources to match that vision.
This initiative must involve industry, academia, and government in an active partnership. Here are some critical steps that must be taken:
For the near term, we need to vastly increase the availability of flex-fuel vehicles, which can run on either gasoline or an ethanol or biofuel blend, and increase the availability of the fuels themselves. We need to exploit this existing technology to the fullest because America does not have enough domestic oil to meet our current needs, but we do have huge amounts of renewable resources that can produce ethanol and other biofuels.
We now produce ethanol in the United States primarily from corn and other feedstocks, but with leap-ahead advances in technology we could also produce ethanol from cellulosic materials, such as recycled paper, grass, or even fast-growing trees. Making that leap to those type of materials is critical for achieving overall reductions in carbon dioxide emissions. To accelerate and leverage efforts of industry and academia, the government must invest heavily in the research and development of this technology and the fuel it uses.
There are six million vehicles on the road today capable of running on the 85 percent ethanol blend called E-85. Of those, however, less than five percent actually use E-85, in large part because of the 170,000 gas stations in the United States, only 600 sell E-85. That’s less than half of one percent of all gas stations. We could adopt a relatively short-term goal of having the majority of the 17 million vehicles sold each year be flex-fuel vehicles that can run on E-85, and by providing tax incentives for the installation of pumps for ethanol refueling at large numbers of gas stations in an attempt to assure that the ethanol fuels they can run on are widely available.
But that attempt may fail if the oil industry doesn’t co-operate, and won’t install ethanol pumps at its gas stations. Ethanol competes with the oil industry’s own gasoline and gives flex-fuel vehicle owners the choice between the two fuels. So it may require a government mandate requiring oil companies that own, say, 50 or more fueling stations, to pump ethanol at stations with four or more pumps. Or it may take a large tax incentive to bring in new, independent ethanol stations.
All in all, by significantly increasing production of flex fuel vehicles and ethanol, there is a relatively short-term opportunity to provide an alternative to gasoline for tens of millions of vehicles – an alternative which could drive down the price of gasoline, and which is far better for the air (emitting perhaps 15 percent less carbon dioxide using corn-based ethanol and up to 75 percent less carbon dioxide if we can develop ethanol from materials like recycled paper and grass.)
But, again, this relatively short-term boost toward energy independence and reduced use of fossil fuels works only if there is a major boost in ethanol’s availability and if its distribution and price aren’t manipulated by the oil industry.
There’s another threat to this scenario. If a serious competitor, like ethanol and a growing number of flex-fuel cars that can use it, appeared on the horizon, OPEC could drastically increase the supply of oil, thereby lowering its price and undercutting ethanol’s competitiveness. If OPEC succeeded in that tactic, as it has before, it could go back to manipulating price and supply once its monopoly position is restored. Our government would need to be authorized to prevent such OPEC monopolistic action from succeeding with even higher subsidies for ethanol than exist today. But if America is going to fight back, and control our energy destiny, we must give OPEC a run for its money. Only we the people, acting together through our government, can do that.
That’s all about one relatively short-term way of promoting US manufacturing – production of flex-fuel vehicles and the alternatives to fossil fuels they can utilize. For the longer term, we need to invest in partnerships with the auto industry to develop advanced technologies that go way beyond anything proposed so far. Through joint industry-government R&D, we can unlock the enormous promise of hydrogen and fuel cells, advanced hybrids and clean diesels, advanced batteries, and other technologies. And when we combine these advances with using ethanol and other biofuels instead of gasoline, the benefits could multiply exponentially.
To promote further the development and production of these technologies, we also need to make far-reaching changes in the tax code. We should provide domestic manufacturers with a refundable investment tax credit for re-equipping or expanding existing plants to produce advanced technology vehicles or parts. Without federal tax incentives, the investments needed to develop advanced technology vehicles will be prohibitively expensive for our domestic manufacturers. And we will never get to a hydrogen economy – the ultimate goal – without tax incentives for developing the necessary hydrogen refueling infrastructure.
Beyond Bailout
Pursuing an Apollo-size vision and paying for it will not be easy. There are many who would stand in the way or reach for the old excuses for inaction. That’s why the first step in achieving this vision must be changing perceptions about the proper role of government in promoting manufacturing.
The debate on manufacturing is haunted by what I call the “killer B” word – bailout. When that word is used, we are put on the defensive. So let’s go on the offensive on the need for aggressive government policies. Government policies supporting other sectors aren’t called a bailout.
There’s a tariff of up to 48 percent on imported footwear, but it’s not called a “footwear bailout.” There’s a 64 percent tariff on imported infant formula but no “infant formula bailout.” And there’s a 132 percent tariff on imported peanut butter – and that’s not peanuts – but no one calls it a bailout. By the way, the tariff on peanuts? Up to 164 percent. Our support program for dairy farmers costs $500 million a year. It’s not called a bailout – it’s a dairy support program.
The inconsistency is even worse when you consider what foreign countries do for their industries, including their automakers. Germany doesn’t call it a bailout when it provides $18 billion in direct assistance to its industries, nor does Japan when it offers billions in assistance for small and medium-sized manufacturers.
What our manufacturers need – and what an Apollo program would provide – is simply a level playing field, not a bailout. You’ve heard that before, but we need to say it again. And again. And again, until our manufacturers are operating on a level playing field.
Our domestic manufacturers are currently playing uphill at a huge competitive disadvantage. Billions in health care costs for both workers and retirees cut sharply into our automakers’ bottom lines. We need to find a different way to deal with legacy costs taken on by industry in a radically different economic climate. A true Apollo-like program could remove some of the burden of health care by having the government pick up a significant share of catastrophic health care costs, say annual costs above $30,000. And surely the manipulation of currency exchange by foreign governments – which subsidizes their exports and restricts our exports – must be attacked directly. Japanese currency manipulation, for example, means that a $20,000 car imported from Japan has essentially been subsidized by between $2,400 and $7,000, depending on how undervalued the yen is. A new Apollo program would direct the President to begin bilateral and multilateral negotiations with any nations engaged in currency manipulation, and to initiate trade action under domestic or international laws if no resolution can be reached through those talks.
We also need to force open export markets for our products blocked by trade barriers by threatening reciprocal restrictions, and meaning it.
The notion of a level playing field has been traced all the way back to the Book of Kings, where it is written: “Their gods are gods of the hills. That is why they were too strong for us. But if we fight them on the plains, surely we will be stronger than they.”
If our automakers are fighting on the plains, they can compete. Period.
Catching Up to Asian and European Support for Manufacturing
To level that field, we need to be clear that our companies are not up against foreign manufacturers; they are up against foreign governments. The first task of a new Apollo program would be Catching Up to Asian and European Support for Manufacturing. The catchy acronym for that is: CUAESM. (I’m not known as glamorous – my acronyms aren’t either.)
Just listen to the President of India in his recent address to Parliament: “My government intends to launch a Ten Year National Manufacturing Initiative to make the manufacturing sector the prime driving force for employment and economic growth.”
Or German Chancellor Angela Merkel, in her policy statement in the German Bundestag: “Without its car industry, Germany today would no longer be such a high tech country.”
Now I’d like to compare that with what President Bush said about manufacturing in the State of the Union message. I’d like to, but I can’t. The President did not mention manufacturing in his most important address of the year.
The Administration has actually moved in the opposite direction. The Manufacturing Extension Partnership has created more than 100,000 manufacturing jobs, but the President wants to cut its budget in half. The Advanced Technology Partnership offers an eight to one return in economic activity on our investment in it, but the President wants to eliminate it.
We need to change directions. We need an activist federal government that fights as hard for our manufacturing industries and jobs as other countries fight for theirs. Our manufacturers don’t need a bailout, but we do need to Catch Up to Asian and European Support for Manufacturing – CUAESM.
By this point, you are probably thinking to yourselves, “This all sounds well and good, Carl, but how are we going to afford it?” My answer is: We should fund this vital national project by ending the tax avoidance schemes used by too many U.S. corporations and wealthy individuals, particularly those schemes which transfer hundreds of billions in income to shell companies in tax haven countries.
For example, Enron had 881 offshore subsidiaries, 98 percent of which were incorporated in tiny island nations, where there was no real economic activity engaged in by the shell corporations, only avoiding taxes. Nearly 600 of these subsidiaries used the same post office box in the Cayman Islands. The major accounting firm KPMG aided and abetted tax avoidance in the billions by peddling illegal tax shelters that had had no economic purpose.
We can make the investments in innovation and infrastructure I’ve called for today for about $15 billion over the next five years. And we can raise more than twice that much by ending tax avoidance schemes and collecting the taxes due. How can we afford to embark on this new Apollo program? How can we afford not to.
Security
The benefits of a new Apollo program will help address two other immense challenges. Indeed, when you consider the most pressing problems we have, it is striking how many of them can be ameliorated with this one policy of support for manufacturing. From a policy perspective, developing new vehicles that run on alternatives to oil is a silver bullet that will slay many beasts. Or, to use a gentler metaphor, it is a triple play, or a three-fer.
Investing in advanced flex-fuel autos and ethanol, and developing leap-ahead advanced vehicle technologies is not only good for our manufacturing base, it is critical for our security. The struggle over energy supplies is a great and growing source of friction in the world. Today, we depend on a highly unstable region for the oil that our economy is so dependent on, and we have been forced to make alliances with countries that do not share our values.
Iran’s leader believes he has us over a barrel – an oil barrel. While the world will hopefully unite to prevent Iran from getting a nuclear weapon, if we act aggressively we can take away the oil weapon Iran and OPEC and others aim at the heart of our economy. By tapping the vast renewable bio-resources of our own Midwest and elsewhere instead of the oil in the Middle East, and by investing heavily now in future technologies, we can change the dynamic of oil politics and end the strategic chokehold the oil-producing countries have on us and the rest of the world.
We can also finally end our dependence on countries whose values are antithetical to our own, such as Equatorial Guinea, the third-largest oil producer in Africa. The State Department says Equatorial Guinea’s “government continue[s] to commit or condone serious [human rights] abuses.” Yet, a few days ago, Secretary of State Condoleezza Rice posed next to the President of that country, and welcomed him as America’s “good friend.” That picture and her words turned our stomachs, and it should add some more steel to our backbone for developing alternatives to oil.
Iraq
Right now, we are engaged in a war in the Middle East that has its roots in our demand for energy. Saddam Hussein ruled through fear, but his regime’s power came from the vast quantities of oil that he controlled. The war has cost 2,400 American lives and more than $300 billion and rising. While most of my remarks today are about how we can end the dependence on foreign oil that helped lead to this morass, I want to detour for a moment to discuss how we can extricate ourselves from Iraq, hopefully leaving it in better condition than we found it and not as a breeding ground for terrorists. (This will also keep me honest by matching the speech title I sent the Economic Club a month ago with what I say today.)
On my recent trip to Iraq, our military leaders again told us what they have been saying for years: There is no military solution to the violence in Iraq and no way to defeat the insurgency without a political solution among the Iraqis themselves. To stop the dangerous drift toward all-out civil war in Iraq, we must grasp that it is an Iraqi political solution, not an American military solution, that is lacking.
One useful step was taken a week ago when the Iraqis, after a four month delay, designated a new prime minister. Iraq now faces two great tasks with two rapidly-approaching deadlines that they set for themselves in their constitution: putting together a unity cabinet within 30 days, including an interior minister, a defense minister, and an oil minister, and recommending changes to the constitution within 4 months.
A unity cabinet is essential for the new government to succeed in Iraq. An independent minister of the interior, for example, is critical for standing up an independent police force, untainted by sectarian militias whose loyalty extends only to their sectarian leaders. Likewise, the current Iraqi constitution is a divisive document that is not accepted by all three main ethnic groups in Iraq. It needs to be amended to become a unifying framework for the future of Iraq.
Last week, I introduced a bipartisan amendment in the Senate that would put significant pressure on the Iraqis to stick to their own, constitutionally-imposed timeline. We urge the President to clearly condition the continued presence of American forces on the Iraqis meeting their self-imposed deadlines.
We cannot dictate to the Iraqis who their leaders should be or what compromises they should make, but we can make clear the stakes if they fail to meet the two deadlines they have set for themselves: that our continued presence depends on their doing so.
Environment
That is my abridged version of how we can maximize our chances of success in Iraq. But my theme today is not our near-term strategy in Iraq but the initiative that will make us less dependent on the resources of that volatile region. So now I want to return to the Apollo program to promote advanced auto manufacturing in America and to its third great benefit: environmental security and the very survival of our planet. By developing advanced vehicles and accompanying energy alternatives, we can hopefully avoid the environmental disaster that otherwise is our future.
Nearly all of our scientists agree that climate change is occurring, primarily because of our use of fossil fuels, and that it is a threat to the planet. Climate change is a global problem, and it must be addressed globally, through international treaties and agreements that include India and China. But we must lead, not be dragged along.
Leadership requires the vision and the will to finance that vision. Federal support for technology development – across a wide spectrum of vehicle technologies – with a minimum of federal mandates, can significantly reduce greenhouse gas emissions which are the product of our fossil fuel consumption. It will take willpower and resources, but the resources would be a fraction of the cost of the Iraq war. And the environmental future of our planet requires us to exercise that willpower and invest the resources.
A National Decision
This new Apollo program will require new ways of thinking about manufacturing and new leadership from the federal government. Achieving this vision and financing it will require us to come together as a people to agree on this course and to accept this challenge because it is time to write a new chapter in American history.
The United States began as an experiment in self-government and religious liberty, and that founding in freedom inspired the world. We then pushed west and built railroads across a continent. We overcame a great depression, won two world wars, and put a man on the moon.
Now, we need to do the work that has fallen to this generation. Three streams – our economy, our security, and our environment – are converging into one great river – one clear new direction for our country. Earlier generations of Americans would have set out to harness that river, and we should too.
A new Apollo program to produce advanced automotive technologies, renewable non-polluting energy sources, and energy independence is our opportunity and our responsibility. It should also be our legacy to the next generation of Americans.