G.E. CEO Immelt’s Comments a Glimpse into Economic Policy?

http://www.reuters.com/article/businessNews/idUSTRE55P4ZT20090626

General Electric CEO Jeffrey Immelt was in Detroit on Friday to announce the opening of a new G.E. facility intended to boost G.E.’s U.S.-based manufacturing and software development.  In prepared remarks, Immelt said that a rebirth of manufacturing was critical to the U.S. economic recovery and called for a doubling of manufacturing employment in the U.S.:

General Electric Co Chief Executive Jeff Immelt said on Friday the United States needs to refocus its economy on manufacturing and exporting if it wishes to recover from a brutal recession.The world’s largest economy can no longer count on consumer spending to drive demand, nor can it rely on Wall Street financial wizardry if it wants its population to continue to enjoy a high standard of living, the head of the largest U.S. conglomerate said.

“We should clear away any arrogance, false assumptions, or a sense that things will be ‘OK’ just because we are America,” Immelt told the Detroit Economic Club. “Our competitive edge has slipped away and this has hit the middle class hard.”

The U.S. should work to have manufacturing represent about 20 percent of employment, more than double its current level, he said.

Immelt then followed with an unusual “mea culpa” for G.E.’s role, and indeed the role of corporate America in general, in ruining the manufacturing sector of our economy.

“In some areas, we have outsourced too much,” Immelt said, according to a copy of his prepared remarks. “We plan to ‘insource’ capabilities like aviation component manufacturing and software development.”

The United States needs to reduce its reliance on financial services to drive economic growth, Immelt warned.

“While some of America’s competitors were throttling up on manufacturing and R&D, we de-emphasized technology,” he said. “Our economy tilted instead toward the quicker profits of financial services.”

This story may have received little coverage beyond Southeast Michigan, but it’s significant because elements of his comments seem to emanate from somewhere well beyond Immelt’s pay grade.  His call for manufacturing employment in the U.S. to more than double to 20% of the U.S. work force (as of May, it’s approximately 12 million, or about 9% of non-farm employment of more than 132 million) may be a glimpse into economic policy discussions that the Obama economic team has had with major U.S. corporate executives.  As CEO of a company that’s a significant beneficiary of contracts with the U.S. government, it’s unlikely that Immelt would delve so deeply and specifically into U.S. economic policy on his own and risk the ire of the administration without knowing that his comments are in alignment with current administration thinking. 

So I believe this is a signal of a major shift in U.S. economic thinking and policy.  Regardless of whether you’re Democrat or Republican, or how you feel about the Obama administration, you have to recognize that this is a departure not just from the economics of the previous Bush administration but from administrations, Democrat and Republican, dating back several decades – thinking that the loss of manufacturing was no big deal and that it could simply be made up with gains in high tech, financial services, services in general, or whatever was in vogue at the time.   

That’s the good news.  But, if you read the full article (link included above), you’ll see that Immelt blames the decline in manufacturing on a loss in our competitive edge.  That may also reflect the thinking of the Obama administration.  If so, while there is some truth to such a statement, it implies that we can simply “compete” our way back to being dominant in manufacturing.  That would also be consistent with his administration’s statements disavowing the use of protectionist measures in correcting trade imbalances.  Such an approach is doomed to failure because it fails to recognize the role of population density disparities in driving trade imbalances and manufacturing job losses.  Obama may see the need to eliminate the trade deficit and restore the manufacturing sector of our economy but, without real action on trade policy, including protectionist measures such as tariffs applied to imports from badly overpopulated nations, it’ll never happen.  The question is, how long is Obama willing to stick with a failed policy based on faulty economics?

Immelt’s comments and the creation of 1100 jobs in Michigan is welcome news, but they amount to nothing more than a single breath of fresh air into the face of a hurricane of economic headwinds.  We need real action on trade policy by the administration, not just talk.

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7 Responses to G.E. CEO Immelt’s Comments a Glimpse into Economic Policy?

  1. mtnmike says:

    Pete,

    Good to have you back. Thought provoking articles and discussion is our only hope at this point and time.

    Your two new pieces seem to conflict in some ways. Allowing the landscape to remain unchanged in the North Woods and creating greater manufacturing in the U.S. are incompatible.

    The U.S. cannot support the growth necessary to domestically absorb high level manufacturing without marching to the mantra of population growth and the harvesting of additional domestic resources.

    At the same time, the remainder of the world lacks the ability to absorb U.S. manufactured goods from both monetary and population density perspectives.

    In other words, we are back at square one arguing with the laws of natural physics. The law of diminishing returns is rigid and goes about its cruel work totally emotionless.

  2. ClydeB says:

    Hope you had a refreshing break. Now get back to work.
    Not every one sees the GE announcement positively. One comment, from a GE insider, is that Imelt is ‘sucking up’ in order to get a greater share of the money flowing from Washington.
    I suspect the several communities where the new GE employees will live can recover a portion of the $60 million MI is pouring into the project, but we, the rest of the tapayers, stand little chance of benefitting from our investment. In my opinion, it would have been far better to invest in a basic manufacturing enterprise that produces goods for commerce using MI workers. A significant percentage of these new jobs will probably be filled by temporary imported workers.

  3. Pete Murphy says:

    Mike, I think there’s some element of truth to what you say about contradictions. But the development pressures I see in the north woods of Wisconsin are due almost entirely to population growth – especially the growing ranks of the retired, building summer homes. Even if there’s a rebirth of manufacturing in the U.S., few will be looking to locate factories up there, so far from markets and labor forces. There’s plenty of vacant factory space in cities like Detroit. Stop the population growth and the development pressures up there will stop as well.

    I don’t agree that growth will be required to support a rebirth of manufacturing in the U.S. Even before the recession, we had millions of people out of work, ready, willing and able to provide the labor force needed. And we don’t need foreign markets. All we need is to start making all of our own products – virtually everything you see on the shelves of every retailer.

    But beyond all of that, unemployment could be reduced even further by shrinking our population. That’s why I favor both a rejuvenation of our manufacturing sector and reductions in our own population.

  4. Pete Murphy says:

    You’re probably right, Clyde, that there may be some element of sucking up to the administration going on here. And this new facility that will employ 1100 people is a token gesture compared to the restoration of the manufacturing sector that we really need.

    I hope you’re wrong about G.E. staffing it with foreign workers. Michigan is awash in engineers and software developers, but any of us can be forgiven for being cynical after corporate America’s long track record of using cheap foreign labor to hold down costs.

    Still, all things considered, I think there’s good news here – an indication that the political and economic winds are shifting back in favor of manufacturing.

  5. Mark Hall says:

    Glad to have you back Pete……

    Our misguided (not fair and balanced) experiment in “Globalization” has proven to be nearly FATAL to the U.S. Economy.

    It is time to get back to basics and focus on re-creating our DOMESTIC INTERNAL SUPPLY to satisfy our DOMESTIC INTERNAL DEMAND.

    We have always been our own BEST customer. However, we ALSO have to rebuild our domestic market base by re-creating good paying domestic JOBS, JOBS and JOBS.

    The possible inflationary affects of American domestic job growth pale in comparison to the actual affects of America NOT WORKING.

    If we do not change our economic course very soon, instead of sprouts and green shoots, the ONLY thing that we will see blossoming will be the tent cities (henceforth to be known as Obama Towns) comprised of the unemployed and now homeless American workers.

    • Pete Murphy says:

      Right on, Mark. I get the sense that the administration is starting to get nervous with the figures for weekly jobless claims remaining so stubbornly high and with unemployment racing toward double digits.

  6. […] Immelt has done a good job of talking about American manufacturing in recent years.  (See G.E. CEO Immelt’s Comments a Glimpse into Economic Policy? and then forgive me for unjustified enthusiasm.)  But his record as a “Chief Executive […]

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