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| US manufacturing and the troubled promise of reshoring | US manufacturing and the troubled promise of reshoring |
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| John Jeffers, 45, is a product of a former American dream that has been dying for decades. | John Jeffers, 45, is a product of a former American dream that has been dying for decades. |
| He grew up in Beaver County, Pennsylvania, a thriving industrial area on the Ohio river. In the late 1980s, he, like many of his childhood friends, took a job in a factory at the the Horsehead Corporation plant in Monaca, which produces both prime western zinc for brass-making and zinc oxide to make Michelin tires. Jeffers moved up to the highest-paid job in the plant and became the president of Local 8183 of the United Steelworkers. | He grew up in Beaver County, Pennsylvania, a thriving industrial area on the Ohio river. In the late 1980s, he, like many of his childhood friends, took a job in a factory at the the Horsehead Corporation plant in Monaca, which produces both prime western zinc for brass-making and zinc oxide to make Michelin tires. Jeffers moved up to the highest-paid job in the plant and became the president of Local 8183 of the United Steelworkers. |
| Now he's fighting to save 700 jobs as his plant, like so many others before it, faces a grim Christmas season in a few months' time: mass layoffs a few weeks before Thanksgiving and complete closure of the plant on New Year's Eve. | Now he's fighting to save 700 jobs as his plant, like so many others before it, faces a grim Christmas season in a few months' time: mass layoffs a few weeks before Thanksgiving and complete closure of the plant on New Year's Eve. |
| Horsehead, struggling with high electricity prices and the cost of new environmental regulations, failed to get tax incentives it wanted from the state of Pennsylvania to reduce its costs. The company is economizing – sending its prime western zinc plant operations to North Carolina, and downsizing to only one zinc oxide plant in Canada, close to Michelin's operations. | Horsehead, struggling with high electricity prices and the cost of new environmental regulations, failed to get tax incentives it wanted from the state of Pennsylvania to reduce its costs. The company is economizing – sending its prime western zinc plant operations to North Carolina, and downsizing to only one zinc oxide plant in Canada, close to Michelin's operations. |
| The diaspora of manufacturing jobs is an old story in the American landscape – but, as President Obama's optimistic speeches about the rebirth of manufacturing have shown, the old dream dies hard. Since 2010, a new buzzword has taken root: reshoring. | The diaspora of manufacturing jobs is an old story in the American landscape – but, as President Obama's optimistic speeches about the rebirth of manufacturing have shown, the old dream dies hard. Since 2010, a new buzzword has taken root: reshoring. |
| This bit of corporate jargon captures the hope that the golden age of factories will return with a bounty of well-paid union jobs and thriving local economies. There is a lot of lost ground. The manufacturing industry's share of GDP stands at a meager 11.5% – down from 28% in the 1950s – and it employs half the number of people it did in the 1980s. During the US recession of 2007 to 2009, manufacturing jobs were the hardest hit, with 2 million jobs lost in just 15 months. | This bit of corporate jargon captures the hope that the golden age of factories will return with a bounty of well-paid union jobs and thriving local economies. There is a lot of lost ground. The manufacturing industry's share of GDP stands at a meager 11.5% – down from 28% in the 1950s – and it employs half the number of people it did in the 1980s. During the US recession of 2007 to 2009, manufacturing jobs were the hardest hit, with 2 million jobs lost in just 15 months. |
| In his most recent state of the union address, Obama promised to make "America a magnet for new jobs and manufacturing", in part to boost the middle class. Studies suggest that a single manufacturing job has the potential to create two and half jobs elsewhere in the economy; the industry pays 20% more than the service sector for a similar set of employee skills and drives consumer spending and exports. | In his most recent state of the union address, Obama promised to make "America a magnet for new jobs and manufacturing", in part to boost the middle class. Studies suggest that a single manufacturing job has the potential to create two and half jobs elsewhere in the economy; the industry pays 20% more than the service sector for a similar set of employee skills and drives consumer spending and exports. |
| The buzz has been growing to a point of headiness: American giants including Apple, General Electric, Ford, Chrysler, Whirlpool, Lenovo and Caterpillar have all started setting up new plants or reinvesting in old plants in the US. The Boston Consulting Group predicted that up to 5 million manufacturing and related service jobs will be returning by 2020." | |
| The White House promised last year that major American companies like Ford will invest $16bn at home and add 12,000 jobs in the US by 2015. The president praised companies like Master Lock for revitalizing America's economy. "Right now we have an excellent opportunity to bring manufacturing back – but we have to seize it," the president said last year. | The White House promised last year that major American companies like Ford will invest $16bn at home and add 12,000 jobs in the US by 2015. The president praised companies like Master Lock for revitalizing America's economy. "Right now we have an excellent opportunity to bring manufacturing back – but we have to seize it," the president said last year. |
| That golden age, however, has in reality proven elusive. As the US adds a small number of jobs to a slowly-recovering economy, the number of people like Jeffers who are finding themselves out of work at a manufacturing plant is still significant. | That golden age, however, has in reality proven elusive. As the US adds a small number of jobs to a slowly-recovering economy, the number of people like Jeffers who are finding themselves out of work at a manufacturing plant is still significant. |
| Monaca is a prime example of the tradeoffs of reshoring: as the Horsehead plant closes and takes 700 jobs with it, a new Shell petrochemical plant will take up residence in the county. Community leaders are embracing it as a harbinger of the area's return to industrial glory. | Monaca is a prime example of the tradeoffs of reshoring: as the Horsehead plant closes and takes 700 jobs with it, a new Shell petrochemical plant will take up residence in the county. Community leaders are embracing it as a harbinger of the area's return to industrial glory. |
| It will take patience and a deep compromise: the Shell plant's construction is years away, and it will employ 225 workers compared to Horsehead's 700 employees, 500 of whom have union jobs. | It will take patience and a deep compromise: the Shell plant's construction is years away, and it will employ 225 workers compared to Horsehead's 700 employees, 500 of whom have union jobs. |
| For bigger companies, reshoring is less of a tsunami than a small wave. | For bigger companies, reshoring is less of a tsunami than a small wave. |
| Despite the impressive corporate names bragging about bringing their manufacturing operations back to the US, the scale has in reality been too small to make a real difference. The number of companies who have actually reshored jobs to the US is well below one hundred. | Despite the impressive corporate names bragging about bringing their manufacturing operations back to the US, the scale has in reality been too small to make a real difference. The number of companies who have actually reshored jobs to the US is well below one hundred. |
| The public relations benefits, however, are undeniable. | The public relations benefits, however, are undeniable. |
| "What these companies are doing is essentially image-building," says professor Richard B Freedman, co-director of the Labor and Worklife Program at the Harvard Law School. "It might also be that they would like to have some leverage in local politics by setting up these plants." | "What these companies are doing is essentially image-building," says professor Richard B Freedman, co-director of the Labor and Worklife Program at the Harvard Law School. "It might also be that they would like to have some leverage in local politics by setting up these plants." |
| That is why, among industry experts and executives alike, optimism is scarce that more companies will follow suit in reshoring American manufacturing jobs. | That is why, among industry experts and executives alike, optimism is scarce that more companies will follow suit in reshoring American manufacturing jobs. |
| The truth is that the center of gravity for many international manufacturing companies has long ago scattered from a single base in the US to a global melange of places with cheap labor and lower taxes. Many companies are hedging their bets. | The truth is that the center of gravity for many international manufacturing companies has long ago scattered from a single base in the US to a global melange of places with cheap labor and lower taxes. Many companies are hedging their bets. |
| "Some new factories are being set up to be close to consumer markets but I don't see a large trend in these companies returning to US shores," says Freedman. "While these companies were setting up plants in US, they were also opening new plants elsewhere." | "Some new factories are being set up to be close to consumer markets but I don't see a large trend in these companies returning to US shores," says Freedman. "While these companies were setting up plants in US, they were also opening new plants elsewhere." |
| While General Electric, for instance, added 10,000 jobs and set up new plants in the US in 2011, the company also erected new factories in China, India, and a number of other places. | While General Electric, for instance, added 10,000 jobs and set up new plants in the US in 2011, the company also erected new factories in China, India, and a number of other places. |
| "The global environment for manufacturing is changing in a way where we must innovate differently," says Sebastian Duchamp, a GE spokesman. 'Today, innovation has to be in the markets you play in, close to your customers; and close to access the best talent wherever it exists in the world." | "The global environment for manufacturing is changing in a way where we must innovate differently," says Sebastian Duchamp, a GE spokesman. 'Today, innovation has to be in the markets you play in, close to your customers; and close to access the best talent wherever it exists in the world." |
| GE, like other companies, is responding to the trend of what's called "mass customization", or making products to an individual customer's preferences. As a result, companies are finding it more suitable to have plants closer to their markets and to their research & development units. | GE, like other companies, is responding to the trend of what's called "mass customization", or making products to an individual customer's preferences. As a result, companies are finding it more suitable to have plants closer to their markets and to their research & development units. |
| For the US economy to become a hub of manufacturing once again, it needs more than just a few of its most famous companies returning to its shores. The National Association of Manufacturers, in a study carried out in 2010, argued that if the US is able to restructure corporate taxes, make tax credits on research & development permanent, and modernize US export controls, then it would be able to add a significant number of jobs to the manufacturing sector. | For the US economy to become a hub of manufacturing once again, it needs more than just a few of its most famous companies returning to its shores. The National Association of Manufacturers, in a study carried out in 2010, argued that if the US is able to restructure corporate taxes, make tax credits on research & development permanent, and modernize US export controls, then it would be able to add a significant number of jobs to the manufacturing sector. |
| One strain of thinking holds that the chief rival of the United States manufacturing sector is China. From 1991 to 2007, US imports from China grew by a staggering 1,156% – while, over the same period, the fraction of the US working population employed in manufacturing fell by a third. China accounts for 40% of US imports in luggage, toys and footwear, and 30% of apparel, textiles, furniture and electrical appliances. In 2000, average Chinese wages were 22 times lower than average US wages. | One strain of thinking holds that the chief rival of the United States manufacturing sector is China. From 1991 to 2007, US imports from China grew by a staggering 1,156% – while, over the same period, the fraction of the US working population employed in manufacturing fell by a third. China accounts for 40% of US imports in luggage, toys and footwear, and 30% of apparel, textiles, furniture and electrical appliances. In 2000, average Chinese wages were 22 times lower than average US wages. |
| Those who fear China's disruptive impact on US manufacturing believe Americans can take cheer from the fact that China's growth appears to be stumbling. Boston Consulting group reasoned that a more sophisticated Chinese economy has resulted in better-paid Chinese workers, which reduces the costs company can save by basing production there. At the same time, global fuel prices have tripled since 2000, making shipment of manufactured goods all the way from China an expensive exercise. That could make the United States a competitive alternative again for manufacturing, BCG argued. There is, however, a long way to go before China falls behind the US. | Those who fear China's disruptive impact on US manufacturing believe Americans can take cheer from the fact that China's growth appears to be stumbling. Boston Consulting group reasoned that a more sophisticated Chinese economy has resulted in better-paid Chinese workers, which reduces the costs company can save by basing production there. At the same time, global fuel prices have tripled since 2000, making shipment of manufactured goods all the way from China an expensive exercise. That could make the United States a competitive alternative again for manufacturing, BCG argued. There is, however, a long way to go before China falls behind the US. |
| There's still a significant difference between average US wages and Chinese wages remains significant. China's per capita annual income of $5,445, along with a quarter of its population still living in rural areas, contributes to cheap labor. And even if these jobs move away from China, they are more likely to end up in places like India, Bangladesh and Africa – where wages are even cheaper – than return to US shores. | There's still a significant difference between average US wages and Chinese wages remains significant. China's per capita annual income of $5,445, along with a quarter of its population still living in rural areas, contributes to cheap labor. And even if these jobs move away from China, they are more likely to end up in places like India, Bangladesh and Africa – where wages are even cheaper – than return to US shores. |
| It's not just the Chinese who are perceived as a threat. It's a very real risk that robots are taking American jobs. New manufacturing plants in the US may translate into more jobs for robots than humans. | It's not just the Chinese who are perceived as a threat. It's a very real risk that robots are taking American jobs. New manufacturing plants in the US may translate into more jobs for robots than humans. |
| Kathryn Harrigan, a professor at the Columbia Business School, says many companies relied for too long on cheap human labor instead of splashing out large amounts of money on automating their factories. | Kathryn Harrigan, a professor at the Columbia Business School, says many companies relied for too long on cheap human labor instead of splashing out large amounts of money on automating their factories. |
| "Now that some of that competitive advantage has eroded and automation is even cheaper," Harrigan said. "They are simply completing the transition that would have taken place earlier." | "Now that some of that competitive advantage has eroded and automation is even cheaper," Harrigan said. "They are simply completing the transition that would have taken place earlier." |
| Automated factories, however, require highly skilled workers, often with training in technology and computers. The US, with declining graduation rates, may not have a rich supply of such workers. | Automated factories, however, require highly skilled workers, often with training in technology and computers. The US, with declining graduation rates, may not have a rich supply of such workers. |
| "If we want American kids to get those jobs, then we will have to restructure our education system," Harrigan said. | "If we want American kids to get those jobs, then we will have to restructure our education system," Harrigan said. |
| Experts say that with structural changes in education and infrastructure, America can probably gain further competitive advantage and stay a leader in the industries of the future – biotechnology, nanotechnology, wind power, aerospace, next generation automobiles – especially in comparison to countries of similar economic stature. | Experts say that with structural changes in education and infrastructure, America can probably gain further competitive advantage and stay a leader in the industries of the future – biotechnology, nanotechnology, wind power, aerospace, next generation automobiles – especially in comparison to countries of similar economic stature. |
| That will take time, however, and the White House, Congress and corporate community have not made much progress on that front. | That will take time, however, and the White House, Congress and corporate community have not made much progress on that front. |
| None of the possible solutions – from educational reform to infrastructure investment – will come in time to help the workers at the Horsehead plant. As John Jeffers, the Horsehead union boss, winds down his fight to secure the future of his colleagues, he is also thinking about his own future. So far, Jeffers finds the job offers coming his way to be disheartening. "It doesn't feel like there are many jobs out there. In fact, all the jobs I have been offered so far have been worth $14 an hour instead of the $20 I was making at Horsehead," he says. | None of the possible solutions – from educational reform to infrastructure investment – will come in time to help the workers at the Horsehead plant. As John Jeffers, the Horsehead union boss, winds down his fight to secure the future of his colleagues, he is also thinking about his own future. So far, Jeffers finds the job offers coming his way to be disheartening. "It doesn't feel like there are many jobs out there. In fact, all the jobs I have been offered so far have been worth $14 an hour instead of the $20 I was making at Horsehead," he says. |
| He's considering going back to school to get a degree in computer technology. | He's considering going back to school to get a degree in computer technology. |
| "The job offers I'm getting are way worse than what I used to make at Horsehead," Jeffers says. "I'll basically have to start all over again if I want to work at a manufacturing plant now. I'm thinking about going back to school. Maybe study computers. That might help me find different kind of work." | "The job offers I'm getting are way worse than what I used to make at Horsehead," Jeffers says. "I'll basically have to start all over again if I want to work at a manufacturing plant now. I'm thinking about going back to school. Maybe study computers. That might help me find different kind of work." |
| • This article was updated on 1 August 2013 to correct figures given by the Boston Consulting Group. The March 2012 report originally cited in the story was later updated by the company. |