Calling a Code Red in the Rust Belt

September 12, 2003
By Karen Pierog and Susan Kelly

CHICAGO (Reuters) - The prospect of a jobless economic recovery has governors in the nation's rust belt increasingly worried that the thousands of manufacturing jobs lost during the recession and the tax revenues they generated are not coming back.

"I'm sending up the alarm," said Michigan Gov. Jennifer Granholm in a recent interview. "We are at code red in terms of loss of manufacturing jobs and the shifting of these businesses offshore."

In Michigan, where manufacturing accounts for one out of every five jobs, more than 170,000 factory jobs have been shed over the last two and a half years, according to Granholm.

The state's unemployment rate hit 7.4 percent in July, the highest among Midwest states, as a tight budget has seen income tax revenues slip due to the climb in joblessness.

Nationally, manufacturing job losses totaled 2.7 million over three years, with another 44,000 disappearing in August -- the 37th straight month of declining U.S. factory employment.

At this rate, "in five and a half years we will have zero manufacturing jobs in America," said Richard Dauch, incoming chairman of the National Association of Manufacturers.

Dauch, chief executive of Detroit-based auto parts maker American Axle & Manufacturing Holdings Inc., said companies are saddled with higher costs for health care, labor, energy, regulations, taxes and litigation, while fierce global competition prevents them from raising prices.

"We have such incredibly high fixed costs that need to be absorbed, and we have dynamics that are driving costs much higher, when we don't have pricing power anymore," he said.

U.S. policymakers must address trade barriers that create huge imbalances with our partners and must provide more investment tax credits for research and development. They also must find ways to streamline regulations and stop excessive lawsuits, and emphasize science and technology in our education system, Dauch added.

Granholm, Michigan's freshman Democratic governor, has taken aim at those problems.

She wants to rally other rust belt governors around a plan to help manufacturers stay and expand in their states by pressuring the federal government for regulatory reforms and a more-level playing field for international trade. She particularly pointed to lopsided trade with China, which has benefited from its currency's non-floating relationship with the U.S. dollar.

But David Littman, chief economist at Comerica Bank in Detroit, said political rhetoric will not change the realities of the rust belt and the willingness of businesses to shut down and move to more accommodating locations.

"The incentives aren't here," he said. "Odds are they are elsewhere, where someone wants what we once had."

MANUFACTURING MATTERS

Other states besides Michigan are climbing aboard the "manufacturing matters" bandwagon. Fearing the loss of good-paying manufacturing jobs threatens the long-term economic stability of Minnesota, Gov. Tim Pawlenty this month announced a series of regional round-tables to bolster that sector.

Wisconsin Gov. Jim Doyle, whose state lost 14,400 manufacturing jobs over the last year, has targeted the manufacturing of high-end products using well-paid, highly skilled workers. Milwaukee-based Harley-Davidson Inc. motorcycles is one example.

"We think that's where our future in manufacturing lies," he told Reuters in an interview.

Companies want states to address environmental protection laws and other regulations that raise the cost of doing business, said Gary Corrigan, spokesman for Toledo, Ohio-based auto parts maker Dana Corp., which has closed more than 30 plants in two years.

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