Manufacturing Is Vital Component To U.S. Economy
STEVE INSKEEP, host:
The website Real Clear Politics shows movement in opinion polls. For the first time in months, President Obama's approval rating is above 50 percent. That comes just in time for tonight's State of the Union speech. The lawmakers he plans to address have higher ratings, too - though still very low, at 24 percent. And many people in the room tonight will know they need to create jobs in order to keep their own. Over the weekend, the president previewed his speech.
President BARACK OBAMA: My number one focus is going to be making sure that we are competitive, that we are growing and we are creating jobs, not just now but well into the future. And that's what is going to be the main topic of the State of the Union.
INSKEEP: That subject is also on the mind of a leading executive, Andrew Liveris, CEO of Dow Chemical and author of the book "Make It in America." He's among the CEOs who met last week with the visiting president of China.
When it comes to manufacturing, what is China getting right that the United States is not?
Mr. ANDREW LIVERIS (CEO, Dow Chemical): Well, you know, what the Chinese do -and not just the Chinese; other countries that I reference in the book, such as Germany - is they have a holistic approach to manufacturing. It's a strategy. Basically, they say manufacturing is a very vital part of my economy. It employs my people; it pays them great wages. So they have a country strategy. They approach it as a country.
Now, those of us who are free marketeers would say, well, gee, you know, that's government interference. Well, I don't see that as government interference. I see that as the public sector establishing the rules of the road such that the private sector knows what those rules are and therefore, we can compete.
INSKEEP: Well, what do you think about the idea that the United States can still be the place where ideas are produced, where corporate headquarters are located, and even if an American company outsources some of their manufacturing or a lot of their manufacturing, there are still a lot of jobs being created in the United States by that economic activity?
Mr. LIVERIS: Well, you know, at the end of the day, I think we have proof points that say that if you put all your eggs in one basket, and if you're just the idea owner, that you will eventually not generate the ideas that matter in terms of valuating your community, in terms of having the higher-paid jobs.
INSKEEP: What's an example of that?
Mr. LIVERIS: Well, if you outsource electronics to countries that have initially cheap labor then obviously, they'll start making those devices. But then on top of that, they'll learn how to make the next one - better. And then they'll build the universities around that industry that actually generate the human capital. Then ultimately, what happens is the companies who've maybe initially outsourced start to build facilities there, and they start to build R&D centers alongside and ultimately, you'll outsource the creativity.
INSKEEP: When a lot of Americans think about manufacturing and manufacturing jobs overseas, it seems like a very simple question of cheaper labor. There are people overseas who will work for $3 a day - maybe even a dollar a day, in some cases -and work for wages that Americans would never dream of matching. It'd be a disaster if Americans matched those wages. And is it more complicated than that?
Mr. LIVERIS: Way more complicated. I mean, outsourcing based on wages has really become the storyline of manufacturing, and I think that's wrong. It is more complicated than that. Take Dow as an example. We built this R&D center in China. We now have 500 Chinese scientists working there, and they earn incredibly good money.
Industries that are high-technology - clean energy, solar, photovoltaics - that conversation, and why that is all moving overseas, is not about labor costs.
INSKEEP: Well, now, that's interesting because here you are, you're the CEO of a multinational corporation, you're a big supporter of American manufacturing -you've just written a book about boosting American manufacturing - but you mentioned that Dow Chemical has opened an R&D center in China. How do you, as a CEO, decide which of your operations to keep in the United States, and which to move abroad?
Mr. LIVERIS: Basically, the rules of the road per country. In essence, do I have in country X, do I understand their tax policies? Do I understand their energy policies? What are they doing to me in terms of regulatory policy? We look at all items on the cost line, all items on the incentive line, and make decisions on that basis.
INSKEEP: OK. What are some lines there where the United States apparently doesn't do very well, since you have moved some operations overseas?
Mr. LIVERIS: Well, I not only have high taxes, I have uncertain taxes. Right now, I have more regulations coming at me that are not fact-based, not science-based, not data-based. I actually don't even know what my costs are going to be in the next five years. And so I'm sitting back waiting for regulatory reform, and the government, of course, is now engaged on that - health care and the uncertainty around the health-care bill, and what's going to end up happening there. Energy policy - we've got lots of uncertainty in the energy policy regimen. I mean, I can keep going, but that's half a dozen.
INSKEEP: Well, you keep using the word uncertainty. It sounds like you almost don't care what the rules are as long as you know what they are and what they're going to be five years from now.
Mr. LIVERIS: The choice - bad policy versus uncertain policy - is a tough choice. I don't think we have to go there.
INSKEEP: Is there some way in which, actually, you want an activist government, then?
Mr. LIVERIS: Yeah, activist in the sense that they are proactive, yes. I think we have a crisis in this country around manufacturing. I believe we need to have an activist - to use your word - government that engages proactively with business to create that framework, a public-private partnership. If there's anything in the book that, you know, hasn't been stated before, it's that.
You need the private sector to have an input; you need the public sector to have an input; and it needs to be brought together at a national level.
INSKEEP: Is there a little bit of a contradiction here? Because you're saying that your taxes are too high; you'd like corporate taxes to be lower. But at the same time, you want a government that is being more proactive, as you say, to provide better education, to provide better services, to upgrade society, to provide tax credits where necessary.
Mr. LIVERIS: Well, you know, this is where the collision occurs, which is: Do you have to spend more to invest more? I don't think so. I think it's not a zero sum game. I think, you know, you bring in certainty around tax regimens, like make the R&D tax credit permanent. I could start spending more on R&D dollars here, which therefore creates more tax revenues for the government, that allows them to go spend it on the items that we just talked about, such as education. that allows them to go spend it on the items that we just talked about, such as education.
It's a virtuous circle, and I think that virtuous circle needs to be completed.
INSKEEP: Interesting dilemma here, though - was raised in the Financial Times in a quote from one of your fellow CEOs, the CEO of the company that makes Massey Ferguson products. He basically says one thing that everyone seems to be missing here is that if an American company wants to expand its sales abroad -in Brazil, say - they're likely to build a factory in Brazil. They're going to put it close to the market for any number of economic and political reasons. It's not going to increase U.S. exports, necessarily.
Mr. LIVERIS: Well, our experience at Dow - you know, we're - we manufacture in 37 countries; we sell in 150 - is that you can actually have the synergy of building a market by exporting from the United States. But here's the thing: The United States is still the largest economy in the world. The United States still has scale. The United States still has a powerful university system. So really, what I've got is, I'm putting satellite spokes around the world from my central hub. Over time, we stand the risk that the hub will move. The larger hub, potentially, will become China.
We can't lose this country having a manufacturing-based hub. Sure, we'll build factories around the world, but the hub needs to stay here.
INSKEEP: You're saying we at least still need to be making a lot of things here, and making things - at least for the domestic market - at a greater rate than we do.
Mr. LIVERIS: And increasing the exports from it as a result. And then you get to the next idea and the next idea, and you keep making it here - and the next idea. And it continues a cascade where the United States continues to show the world why the last 50, 70 years was not a fluke.
INSKEEP: Andrew Liveris is the author of "Make It in America," and he's the CEO of Dow. Thanks very much.
Mr. LIVERIS: Steve, thank you. Pleasure talking to you.
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