In the wake of this summer's debt-ceiling "compromise", which mandates at least $2.1tr in federal spending cuts over 10 years without allowing for one penny of additional revenues, it seems irrelevant if not absurd to be talking about any program that requires the outlay of government money. But that's exactly what one supply-chain expert is calling for.
Niko Michas, president and chief executive officer of BridgeNet Solutions, Inc., isn't just worried about the loss of U.S. manufacturing jobs to China and other low-cost countries. He wants to do something about it. The only problem is, it's going to cost money.
Just to be clear, Michas isn't talking about authorizing any new funds to bail out struggling U.S. manufacturers. He has his eye on federal stimulus money that has already been allocated to the states, but remains unspent.
Michas lays out the plan in a recent article in Industry Week, co-authored by BridgeNet managing partner Mikael Trapper. In essence, they're proposing a series of tax incentives over a period of 13 years that would level the playing field for U.S. producers and provide an incentive for retailers to source more of their products at home.
The actual scheme is quite complicated, involving the participation of four entities: a newly formed "management service provider" government committee, big-box retailers, U.S.-based manufacturers and independent consultants. In addition to encouraging retailers to get on board, the government committee would be responsible for regulating and auditing the tax incentives, as well as creating a "Newly Made in America" logo to be placed on qualifying products.
The committee would include an operational arm that creates and manages an open request-for-proposals website, listing all eligible items up for bid by retailers. The consultants would act as liaisons between the retailers and prospective manufacturers, helping the latter to prepare their RFP responses and even apply for business loans if necessary. (A portion of federal bank bailout funds would be earmarked for approved manufacturers, and the approval process made more lenient, to address the problem of loan-shy banks.)
For the first three years of the program, companies and employees would pay no state or federal employment taxes, as well as no taxes on raw materials needed for the production of goods, or on applicable overhead expenses. After that, participants would resume paying taxes incrementally, only assuming their full tax burden after 13 years.
Michas says he was inspired by the pain being felt by mid-tier manufacturers, who make up a good portion of BridgeNet's client base. (The company is a vendor of supply chain data-analytics services.) Many jumped on the outsourcing bandwagon a few years back, and are now regretting the move. "They're looking for ways to pull business back to the states because manufacturing overseas is just too difficult to manage," he says. Issues include a drop in productivity, long delays before ordering and delivery, and incomplete or inaccurate shipments.
What these companies are learning is that the supposed advantages of manufacturing in Asia aren't as compelling as they seemed at first blush. Yet there remains a big disparity between Chinese and American wages, and the relocation of plant capacity back to the U.S. would entail some heavy up-front costs. "It's a huge change," says Michas. "So drastic that companies are afraid to do it." So manufacturers need a leg up.
Michas's program would target mid-sized manufacturers because "they are nimble enough to know and understand what they need. They watch every penny, and they know their price breaks." (Big conglomerates like Caterpillar Inc. and Ford Motor Co. seem to be managing the switch on their own.)
All of which raises the obvious question: Is the money really there? Or, to put it another way, how much of those federal stimulus funds remains unspent or uncommitted? Michas believes there are resources available, although he admits that the current picture is "very vague." The numbers vary according to the source, but there appears to be between $100bn and $150bn in stimulus money still unspent, out of the $800bn authorized by the American Recovery and Reinvestment Act of 2009. The trick, says Michas, lies in getting that money funneled to the right recipients, where it can do the most good. And there's no greater priority, he believes, than putting American manufacturers back on their feet.
The plan is no cure-all for the ills of U.S. industry. For one thing, it doesn't address the widening skills gap that the country faces in its manufacturing sector. And a growing regulatory burden continues to hang over U.S. business in areas such as environmental protection. According to Paul Martyn, vice president of global strategy with BravoSolution, close to 40 percent of American manufacturing requires some level of worker certification today, up from less than 5 percent 20 years ago. Finally, there's the question of how much more bureaucracy would be created by Michas's plan. Do we really need another lumbering federal "committee," if the funds are to be disbursed at the state level? Aren't there existing mechanisms for carrying out that task?
All good questions for debate - but at least Michas has stepped up with some kind of a plan. At a time when the President and Congress seemed fixated on the size of the national debt, with little thought for the critical issue of jobs, it's heartening to see that someone cares about the near-term state of American manufacturing. As China's allure as a source of ultra-cheap labor begins to fade, we have a rare opportunity to take advantage of shifting global economics. Time to put away the teabags, and reach for stronger stuff.
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