Editorial


 

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It's Time to Awaken the Sleeping Giant

By: Brad Kuvin

Tuesday, September 01, 2009
 
In the August 10 New York Times article celebrating General Electric’s recent commitment to build two new U.S. factories, local union leader Jerry Carney is quoted as saying: “We haven’t had a new product here (in Louisville, KY) since the 1950s. This new product (a hybrid electric water heater) has awakened a sleeping dinosaur. It gave us life.”

It’s interesting that Carney refers to U.S. manufacturing as a sleeping dinosaur—long extinct—rather than, say, a sleeping giant or sleeping gorilla, hence my paraphrased title for this Editorial. U.S. manufacturing is in fact not extinct, but merely hibernating. As it awakens, it will be hungry, for materials, equipment, automation and trained—perhaps retrained—workers.

Carney spoke in the wake of major labor concessions won by GE that include a two-tier wage structure where new GE workers will earn substantially less (37 percent less) than most current workers. GE’s new Louisville plant—taking over work now being done in China—will employ 420; the firm also is building a battery plant in Schenectady, NY.

Unfortunately, the fine print says that GE’s commitment to its new U.S. plants is for a brief—very brief—two years. After that, there are no promises. But, the fact that the Louisville operation will take over work from China represents yet one more reshoring (work contracted to a supplier oversees that is brought back to the United States) victory for U.S. manufacturers.

As noted in a recent San Francisco Business Times article, “companies are reshoring manufacturing…for reasons that vary as widely as the types of goods returning to American factory floors.” The article describes why CP Lab Safety recently shifted production of more than 80 of its products to a California contract manufacturer, after more than seven years of using a contract manufacturer in China. “In the U.S., you can manufacture on a cost comparable to China,” says company CEO Kelly Farhangi.

GE evidently agrees, albeit with major union concessions. But all in all, I applaud the Louisville local of the International Union of Electrical Workers—Communications Workers of America, which accepted a two-year wage freeze in addition to the lower wage tier for new employees. For his part, GE chief executive Jeffrey Immelt hasn’t taken a pay raise since 2005, according to The Financial Times; instead, his take-home pay dropped by 64 percent in 2008 versus 2007.

In order for the sleeping giant that is America’s manufacturing engine to awaken, the cost structure must change. Yes, pay cuts—often very deep cuts—hurt badly. But, in the short term, they beat the alternative: extinction. To save the jobs that remain and help companies awaken and grow to a point where they can rehire, reduced wages for those working in manufacturing, at every level from the CEO all the way down, represent a much better alternative than watching manufacturing jobs completely disappear—like the dinosaurs did.

Over the long term, of course, cost reductions won’t cut it. All of the cost cutting that’s occurred in our industry will only hold up for so long; GE’s two-year timeframe seems about right to me. As the recession weakens and business picks up, GE and others hoping to ride the wave must focus on offering value. Feed your hibernating company by focusing on generating new business and extending your business offerings in ways you might not have thought about before. Our newly restored U.S. factories will have fewer “routine” jobs than ever before. In their place should be jobs conceived for people who innovate and create—designers and engineers, researchers and developers—and for the people who advance and expand their skills to meet new challenges.

 


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