Leo Gerard and David Rubenstein: ‘U.S. Manufacturing: The Key to Reviving the Economy’

Shakespeare wrote “Misery acquaints a man with strange bedfellows.”  The current state of the economy certainly can be credited with bringing together a motley array of politicians, businessmen, financiers, and local leaders.  One such odd couple has just penned a blog entry on The Hill’s Congress Blog. United Steelworkers President Leo Gerard and The Carlyle Group Co-founder David Rubenstein have joined up to voice their opinion that the key to America’s economic recovery lies in it’s manufacturing sector. The following excerpt pertains to the announced stimulus package:

the key to success of the stimulus is maximizing the economic activity generated by each tax dollar spent. The more money spent in the manufacturing sector, the greater the economic benefit. Manufacturing multiplies the spending because it has a ripple effect through the economy. That’s why it’s so important to concentrate the expenditures on products with significant domestic value added, which will more quickly generate more jobs and economic benefits.

Manufacturing is the bedrock of our nation’s gross domestic product, producing approximately $1.40 of additional economic activity for every $1 of direct spending in the sector -– more than all other U.S. industries. Here’s how this “multiplier effect” works: Every dollar spent on a manufactured product pays wages and benefits to company employees, buys raw materials and purchases supporting products and services such as forklifts and shipping. The suppliers of the raw materials and supporting products, in turn, pay wages to their employees and purchase raw materials, supplies and services -– and so on. And all along the way employees use some of their wages to buy products and services for themselves. Of the incremental spending generated by the multiplier, roughly 60 percent is spent in other sectors, meaning everyone from retailers to teachers to healthcare workers benefits from manufacturing activities.

I agree with much of what they wrote, but it’s also important that not only should a good portion of the stimulus be focused on manufacturing (particularly via infrastructure), but other steps need to be taken to improve the sector as a whole. Quite frankly manufacturing in the U.S. has been treated like a neglected stepchild for years now. The amount of venture funding directed towards modern, lean manufacturing technologies has paled in comparison to other sectors. If cleantech was taken out of the picture, venture dollars towards businesses that actually make, build, and produce things would be increasingly nonexistent. This has led to a noticeable loss in competitive edge for many American manufacturing companies. I personally have seen plants in other parts of the world that are one, or even two, generations ahead of their American counterparts.

I know of one Midwestern startup run by mechanical engineers (yes, some actually do still exist in the U.S.!) that was developing a technology for the pneumatics industry and after a great many non-responses from VCs they came to the stark realization that their best options for funding were either via a corporation or through being financed from abroad. Maybe it comes from having grown up in the “Rustbelt“, but I personally find this disheartening.  Of course all of this is mute unless U.S. manufacturers can be allowed to get their crippling legacy costs in check.  But that’s a another debate for another time.

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