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.