If the U.S. is to return to its former glory days of 'making stuff,' then manufacturers need to let their voices be heard, says Gregory S. Babe, president and CEO of Bayer Corp. and Bayer MaterialScience LLC.
In his keynote speech, "The Importance of Strengthening U.S. Manufacturing," at the IW Best Plants conference that took place April 3-6 in Atlanta, Babe pointed out that the sector is in trouble.
"Your father, like mine, built stuff. It's what we do. It's what gets us out of bed in the morning," Babe said.
However manufacturing could become a lost art, if we don't act quickly, Babe explained. In the chemical industry, for example, plants that cost more than $1 billion are now almost exclusively built elsewhere. With 96% of all manufactured goods containing chemicals, this is not a good development, Babe said. Dependence on foreign sources for chemicals, like dependence on foreign oil, is not sustainable, Babe warns.
Employment in the chemical field has dropped to 780,000 from 1 million. And these chemical jobs support four million suppliers.
However employment in manufacturing is trending upwards, he said, citing the fact that in February 33,000 jobs were added as well as 17,000 in March. The ISM output index hit its highest level in last seven years.
The momentum is there but the rest of the story depends on public policies on trade, taxes and energy, Babe says.
"When we look at the long term, the events that impact our success, only 12% are within our control. Therefore we must reach outside of our factory doors to impact these decisions," Babe says.
While some propose to increase taxes as a way to improve our economic situation, Babe disagrees. "We can't tax our way to prosperity and we can't wall out our competitors."
The framework for retuning to 'making stuff', Babe contends, can be found in Dr. William Bernstein's book, The Birth of Plenty. For wealth to be present there needs to be four key components: Property Rights, Scientific Rationalization, Capital Markets and Efficient Transportation and Communications.
In the area of Property Rights, Babe feels that the U.S. tax system is an obstacle to innovation, investment and job creation. "Our tax rate of 35% is the second highest of the OECD countries. Only Japan's rate is higher than ours and most countries are lowering their rates."
Another area of improvement is the R&D tax credit which needs to be made permanent. Since 1981 it has expired twelve times. Once a world leader for R&D tax incentives we are now ranked 17th among OECD nations.
"With regard to capital markets the government needs to implement new financial reforms that will give the banks the certainty they need so they are able to lend money and create jobs," Babe said.
In the area of transportation we need to invest in our infrastructure. He cites a study by the Milken Institute that details how investment in infrastructure would lead to job creation and overall wealth.
Given the ability of these factors to dramatically impact the sector, Babe calls for action. "We must start a conversation and keep it going. We need to talk with elected officials and thought leaders and regulators. We need talk with the general public and our employees."
While organized groups such as the American Chemistry Council and the National Association of Manufacturing are lobbying for manufacturers, "we shouldn't leave it to them to carry all of the water for us," Babe says.
"Consider forming a PAC to support candidates. Write op-eds. Keep a dialog going with customers and suppliers and employees."
"Employees can be the best ambassadors for political change."
Babe says that Bayer educates its employees through meetings that present all sides of an issue. He then asks them to become actively engaged. "Legislators pay very close attention to letters and calls they receive from the constituents."
The decline of manufacturing in the U.S. isn't an historical inevitability, Babe says. "In fact history teaches us that prosperity really is a choice. We can affect the factors that encourage economic growth or we can discourage them. The only question is whether we have the determination and the political will to keep it alive in America."
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