The current issue of our magazine (a subscription makes a perfect gift!™) has a two-part cover-story package. One is Charles Fishman's "The Insourcing Boom," which concentrates on GE and argues that U.S.-based manufacturing companies are finding it more attractive to do more of their work within our borders. The other is my "Mr. China Comes to America," which says that increasing costs and friction of doing business in China, and shifts in technology that allow very rapid-cycle production close to the market inside the United States, will encourage new companies to do more of their manufacturing work here rather than outsourcing it to China.
Alan Tonelson, of the US Business & Industry Council, is a long-time friend with whom I have often agreed on questions of U.S.-Japanese trade frictions. He completely disagrees with the premise of these two articles. In the spirit of free-and-full discussion, I turn the floor over to him. I have a brief response at the end.
The Insourcing Boom that Isn't
By Alan Tonelson [right]
According to the two feature articles in December's Atlantic, manufacturing in the United States is making an historic comeback. In particular, changes in wages, energy costs, and technology around the world mean that China and other Asian locations no longer hold all the cards as manufacturing locations. Even better, large and small American businesses increasingly are recognizing that producing - and innovating - back in the United States has become their most lucrative option.
Moreover, both "The Insourcing Boom," by Charles Fishman and "Mr. China Comes to America" by James Fallows state that much more is involved than domestic manufacturing's cyclical rebound from an historically painful recession. As the former contends, the manufacturing revival "cannot be explained merely by the ebbing of the Great Recession, and with it the cyclical return of recently laid-off workers." In the latter's words, domestic industry's outlook is better today "than at any other time since Rust Belt desolation and the hollowing-out of the American working class came to seem the grim inevitabilities of the globalized industrial age."
Both authors provide numerous and seemingly impressive examples of insourcing and corporate start-ups that support these claims. They also present statistics on energy prices, U.S. and Chinese wages, and the post-2010 rise in American manufacturing employment. But neither gives their readers the most important information they need to know about domestic industry's current circumstances and future prospects - that virtually no national- or global-level data show that American manufacturing is even continuing its recovery from recession, much less stealing the march on Chinese and other foreign rivals. Indeed, nearly all of the most comprehensive statistics portray U.S. industry as still slipping further down the international ranks.
For example, during an historically sluggish American recovery, a U.S. manufacturing sector in renaissance mode should be growing faster than the rest of the economy. That was true in 2010 and 2011. But the out-performance is already over. This year, the entire U.S. economy has expanded by only 2.06 percent after inflation. Manufacturing output, however, has actually fallen - by 0.54 percent.
A manufacturing sector engineering a big secular rebound should be gaining share in its own home market - the world's largest single national market, and the one its companies should know best. Yet new government data analyzed by the U.S. Business and Industry Council show that more than 100 advanced domestic manufacturing industries collectively lost American customers to imports worldwide last year.
In 2011, foreign-based producers supplied a record total of 37.57 percent of total American purchases in industries ranging from semiconductors to pharmaceuticals to ball bearings to machine tools and dozens of other capital-and technology-intensive sectors. In 2010, when the industrial renaissance supposedly was stirring, the import penetration rate was 37.07 percent and in 1997 - the earliest data year - only 24.49 percent. In fact, imports accounted for half or more of everything Americans bought in nearly a third of these industries, including construction equipment, metal-cutting machine tools, laboratory equipment, turbines and turbine generator sets, and of course autos and heavy-duty trucks alike.
Companies losing market share rightly are almost never described as winners or viewed as promising. Do industries losing market share deserve better reviews?
Nor is the growth of exports compensating for these losses. Since plummeting during the Great Recession as American economic demand nosedived across the board, America's manufacturing trade deficit has rebounded much faster than the economy as a whole, and indeed hit a monthly record earlier this year. This shortfall's strong comeback is an especially important and bearish indicator of U.S. industry's global competitiveness, since mainstream economic theory teaches that trade flows are the means by which market forces create the optimal global division of labor. In other words, the countries that trade a given product most successfully are those that eventually will produce it most successfully, and vice versa.
The China story told by these data also clash with that told in the December Atlantic articles. As fast as imports worldwide have been grabbing share of U.S. advanced manufactures' markets, the inroads being made by imports from China have been much faster. And although these shipments started from a considerably lower base, they supplied more than six percent of all American purchases of these capital- and technology-intensive products last year.
As robustly as the overall U.S. manufacturing trade deficit has risen recently, the China deficit has recovered just as dramatically, and from a much shallower trough. In fact, so far this year, the manufacturing trade gap with China has increased more four times faster than America's global trade gap.
Signs of American industry's weakness also emerge from comparing its growth rate with those of leading competitor countries. Last week, the U.S. Labor Department reported that between 2009 and 2011, American manufacturing output expanded more slowly than industry in Germany, Sweden, Korea, Taiwan, and Singapore, and only slightly faster than manufacturing in Japan, whose industry is widely described as hemorrhaging competitiveness. These years of course cover the period when the U.S. manufacturing renaissance allegedly was well underway.
Data for China were not provided in this survey of high-income countries. Yet the consulting firm IHS reported this earlier year that in 2010 and 2011, America's share of world industrial output not only has fallen behind not only China's, but has been falling faster than that of the 27-nation European Union, whose economic problems are by now all too well known.
Other major problems with the articles revolve around insourcing claims themselves. Do the new investments in U.S. manufacturing mean that outsourcing has stopped or has slowed significantly? None of this essential context is presented. But last July, a major Bloomberg News investigation spotlighted a study reporting that continuing outsourcing neglected by the news media has entirely offset the job creation credited to insourcing.
In addition, improved American competitiveness is far from the only reason for insourcing. Scratch an instance of reshored manufacturing, and significant federal, state, and local government subsidies can often be found beneath the surface. For example, according to GE official Kim Freeman, the $800 million Louisville appliance investment detailed in "The Insourcing Boom" was keyed by $100 million in such supports. Over the last year, two New York Times articles have made clear that subsidies have been "increasingly important" spurs to new and retained domestic manufacturing investments.
Using taxpayer dollars to pay manufacturing companies to move or stay may make perfect sense in many cases. And certainly most of America's major trade competitors engage in such practices pervasively. But relying substantially on government inducements is likely a losing proposition for domestic manufacturing advocates. After all, industrial rivals like China, Germany, and Japan are financially strong. The United States remains saddled with enormous debts - many owed to these very countries, and is unlikely to win a worldwide subsidy competition.
American manufacturing still retains many strengths. Some of it, moreover, may boast considerable growth potential. But no one should underestimate the continuing weaknesses and challenges made clear by the most comprehensive, most detailed data. Without presenting this readily available big-picture evidence, accurately describing domestic manufacturing's present circumstances and realistically assessing its prospects simply is not possible.
Alan Tonelson is a Research Fellow at the U.S. Business and Industry Council, which represents nearly 2,000 small and medium-sized domestic U.S. manufacturers. The author of The Race to the Bottom (Westview Press, 2002), Tonelson contributes to the Council's AmericanEconomicAlert.org website, and can be followed on Twitter @AlanTonelson and on Facebook at Tonelsonontheeconomy.
I will leave to Charles Fishman any response to the specifics in his article. For my part I will say that I don't think Alan Tonelson engages the main point I was making.
As my article said, we have been through a relentless decades-long period in which every observable trend seemed to be, and was, working against the feasibility of manufacturing within the United States. Alan Tonelson and his USBIC have been in the vanguard in chronicling those pressures. But, I explained, people close to the factory-floor realities in both the United States and China told me that changes beginning to be visible now seemed likely to alter those pressures. I wrote the story because people whose track record and judgment about technological trends I have learned to trust, over the years, told me these changes were worth noticing. Since they were talking about shifts that are just getting underway, the early trends they were talking about would not be captured in past manufacturing statistics, even those from 2011.
If the pattern of decline that Alan Tonelson lays out still prevails in 2015 or 2018, then the people I quoted will prove to have been wrong. If the pattern changes, their explanations will be part of the reason why. Thanks to Alan Tonelson for laying out his case.
James Fallows is a national correspondent for The Atlantic and has written for the magazine since the late 1970s. He has reported extensively from outside the United States and once worked as President Carter's chief speechwriter. His latest book is China Airborne.
A new report details a black market in nuclear materials.
On Wednesday, the Associated Press published a horrifying report about criminal networks in the former Soviet Union trying to sell “radioactive material to Middle Eastern extremists.” At the center of these cases, of which the AP learned of four in the past five years, was a “thriving black market in nuclear materials” in a “tiny and impoverished Eastern European country”: Moldova.
It’s a new iteration of an old problem with a familiar geography. The breakup of the Soviet Union left a superpower’s worth of nuclear weapons scattered across several countries without a superpower’s capacity to keep track of them. When Harvard’s Graham Allison flagged this problem in 1996, he wrote that the collapse of Russia’s “command-and-control society” left nothing secure. To wit:
In a new book, the former Middle East peace negotiator Dennis Ross explores just how close Israel came to attacking Iran, and why Susan Rice accused Benjamin Netanyahu of throwing “everything but the n-word” at Barack Obama.
When Israeli Prime Minister Benjamin Netanyahu arrives in Washington early next month for a meeting with President Obama, he should at least know that he is more popular in the White House than Vladimir Putin. But not by much.
This meeting will not reset the relationship between the two men in any significant way, and not only because Netanyahu has decided to troll Obama by accepting the Irving Kristol Award from the American Enterprise Institute on this same short trip. The meeting between the two leaders will most likely be businesslike and correct, but the gap between the two is essentially unbridgeable. From Netanyahu’s perspective, the hopelessly naive Obama broke a solemn promise to never allow Iran to cross the nuclear threshold. From Obama’s perspective, Netanyahu violated crucial norms of U.S.-Israel relations by publicly and bitterly criticizing an Iran deal that—from Obama’s perspective—protects Israel, and then by taking the nearly unprecedented step of organizing a partisan (and, by the way, losing and self-destructive) lobbying campaign against the deal on Capitol Hill.
Some of Charles Schulz’s fans blame the cartoon dog for ruining Peanuts. Here’s why they’re wrong.
It really was a dark and stormy night. On February 12, 2000, Charles Schulz—who had single-handedly drawn some 18,000 Peanuts comic strips, who refused to use assistants to ink or letter his comics, who vowed that after he quit, no new Peanuts strips would be made—died, taking to the grave, it seemed, any further adventures of the gang.
Hours later, his last Sunday strip came out with a farewell: “Charlie Brown, Snoopy, Linus, Lucy … How can I ever forget them.” By then, Peanuts was carried by more than 2,600 newspapers in 75 countries and read by some 300 million people. It had been going for five decades. Robert Thompson, a scholar of popular culture, called it “arguably the longest story told by a single artist in human history.”
The leaderless GOP begins its search for a speaker anew, starting with a campaign to draft Paul Ryan.
First Eric Cantor. Then John Boehner. Now Kevin McCarthy.
Conservatives in and out of Congress have, within a span of 15 months, tossed aside three of the four men most instrumental in the 2010 victory that gave Republicans their majority in the House. When the leaderless and divided party gathers on Friday to begin anew its search for a speaker, the biggest question will be whether that fourth man, Paul Ryan, will take a job that for the moment, only he can win.
Ryan, the 2012 vice presidential nominee and chairman of the powerful Ways and Means Committee, has for years resisted entreaties to run for speaker, citing the demands of the job on his young family and his desire to run the tax-writing panel, which he has called his “dream job.” And he did so again on Thursday, within minutes of McCarthy’s abrupt decision to abandon a race he had been favored to win. “I will not be a candidate for speaker,” Ryan tweeted. Yet the pressure kept coming. Lawmakers brought up his name throughout the day, and there were reports that Boehner himself had personally implored him to change his mind.
A new tally of the those killed in Saudi Arabia last month makes it the deadliest-ever disaster at the annual pilgrimage.
The death toll in last month’s Hajj stampede in Saudi Arabia is roughly double the number that the country first reported, the Associated Press is reporting.
The Saudi estimate of the disaster was 769, but the new estimate, based on an AP count, suggests that 1,453 people died in the stampede. This new number would make it the deadliest catastrophe in the history of the event.
The Hajj draws roughly 2 million pilgrims to Mecca each year, an observance that lends its host, Saudi Arabia, unrivaled prestige across the Muslim world. It also saddles the kingdom with billions of dollars of costs and logistical considerations. Over the course of the past 40 years, several of the pilgrimages have been marred by deaths caused from stampedes, the collapse of infrastructure, violence, and fires.
What’s the balance between preparing students for college and ensuring they aren’t killing themselves in the process?
Kids who go to elite private high schools enjoy lots of advantages. They have access to the most challenging academic classes at reputable institutions, with staffs that are well-equipped to help them prepare for college. Parents pay an average of $10,000 per year to ensure their kids this privilege.
And yet the rigor that these opportunities demand can come with an extra cost for the students themselves. A recent study surveyed and interviewed students at a handful of these high schools and found that about half of them are chronically stressed. The results aren’t surprising—between the homework required for Advanced Placement classes, sports practices, extracurricular activities like music and student government, and SAT prep, the fortunate kids who have access to these opportunities don’t have much downtime these days. These experiences can cause kids to burn out by the time they get to college, or to feel the psychological and physical effects of stress for much of their adult lives, says Marya Gwadz, a senior research scientist at the New York University College of Nursing.
The United States, which accepts more refugees per year than any other country, has all but closed its door to the millions of Syrians who are part of the world’s largest refugee crisis since World War II. A recent decision to admit more Syrian refugees this year opened that door a crack, but the Obama administration insists that national security concerns constrain it from going further. Yet officials at more than a dozen agencies could not point to any specific or credible case, data, or intelligence assessment indicating that Syrian refugees pose a threat.
The officials generally funneled questions to the Department of Homeland Security.
“Certain groups have openly stated they will attempt to exploit the current situation with respect to large numbers of migrants seeking asylum in Europe and refugee resettlement,” said a DHS official, who spoke on condition of anonymity because department leaders would not authorize anyone to speak on the record about the threat assessment of Syrian refugees. “We must balance a very real threat with the potential propaganda value here.”
American politicians are now eager to disown a failed criminal-justice system that’s left the U.S. with the largest incarcerated population in the world. But they've failed to reckon with history. Fifty years after Daniel Patrick Moynihan’s report “The Negro Family” tragically helped create this system, it's time to reclaim his original intent.
By his own lights, Daniel Patrick Moynihan, ambassador, senator, sociologist, and itinerant American intellectual, was the product of a broken home and a pathological family. He was born in 1927 in Tulsa, Oklahoma, but raised mostly in New York City. When Moynihan was 10 years old, his father, John, left the family, plunging it into poverty. Moynihan’s mother, Margaret, remarried, had another child, divorced, moved to Indiana to stay with relatives, then returned to New York, where she worked as a nurse. Moynihan’s childhood—a tangle of poverty, remarriage, relocation, and single motherhood—contrasted starkly with the idyllic American family life he would later extol.
Forget the Common Core, Finland’s youngsters are in charge of determining what happens in the classroom.
“The changes to kindergarten make me sick,” a veteran teacher in Arkansas recently admitted to me. “Think about what you did in first grade—that’s what my 5-year-old babies are expected to do.”
The difference between first grade and kindergarten may not seem like much, but what I remember about my first-grade experience in the mid-90s doesn’t match the kindergarten she described in her email: three and a half hours of daily literacy instruction, an hour and a half of daily math instruction, 20 minutes of daily “physical activity time” (officially banned from being called “recess”) and two 56-question standardized tests in literacy and math—on the fourth week of school.
That American friend—who teaches 20 students without an aide—has fought to integrate 30 minutes of “station time” into the literacy block, which includes “blocks, science, magnetic letters, play dough with letter stamps to practice words, books, and storytelling.” But the most controversial area of her classroom isn’t the blocks nor the stamps: Rather, it’s the “house station with dolls and toy food”—items her district tried to remove last year. The implication was clear: There’s no time for play in kindergarten anymore.
In the name of emotional well-being, college students are increasingly demanding protection from words and ideas they don’t like. Here’s why that’s disastrous for education—and mental health.
Something strange is happening at America’s colleges and universities. A movement is arising, undirected and driven largely by students, to scrub campuses clean of words, ideas, and subjects that might cause discomfort or give offense. Last December, Jeannie Suk wrote in an online article for The New Yorker about law students asking her fellow professors at Harvard not to teach rape law—or, in one case, even use the word violate (as in “that violates the law”) lest it cause students distress. In February, Laura Kipnis, a professor at Northwestern University, wrote an essay in The Chronicle of Higher Education describing a new campus politics of sexual paranoia—and was then subjected to a long investigation after students who were offended by the article and by a tweet she’d sent filed Title IX complaints against her. In June, a professor protecting himself with a pseudonym wrote an essay for Vox describing how gingerly he now has to teach. “I’m a Liberal Professor, and My Liberal Students Terrify Me,” the headline said. A number of popular comedians, including Chris Rock, have stopped performing on college campuses (see Caitlin Flanagan’s article in this month’s issue). Jerry Seinfeld and Bill Maher have publicly condemned the oversensitivity of college students, saying too many of them can’t take a joke.