A Comeback Fueled by Subsidies for Manufacturing in U.S. ; Companies Determined to Stay Realize They Need Help Competing Globally

By Uchitelle, Louis | International Herald Tribune, May 12, 2012 | Go to article overview

A Comeback Fueled by Subsidies for Manufacturing in U.S. ; Companies Determined to Stay Realize They Need Help Competing Globally


Uchitelle, Louis, International Herald Tribune


At many companies, there is an acknowledgment by management and labor that manufacturing needs a little help in the form of local, state and national subsidies for survival in a global economy.

Walking through his high-ceilinged factory here, explaining the production of sheets of copper, M. Brian O'Shaughnessy comes across as a staunch advocate of manufacturing in the United States. But he invariably adds, "There is nothing made in the United States that has to be made here -- that can't be shipped in from some other country."

As chairman and principal owner of Revere Copper Products, Mr. O'Shaughnessy runs one of the United States' oldest manufacturing companies, started by Paul Revere himself, a fact that exerts considerable pressure. As he put it: "What kind of a message are you sending to the people of the country if you abandon America?"

But spend a day with him, and a more complex picture emerges. He wonders sometimes about the less patriotic alternative of relocating production to Asia or closing the factory entirely on the ground that Revere's profit margin here is too thin -- less than $1 million on $450 million in annual revenue.

"If we simply shut down today," Mr. O'Shaughnessy said, "I could sell the inventory and the machinery, which could be moved elsewhere in the world, and pay off our debts and walk away with $35 million to $40 million."

What staves off those alternatives are labor concessions and a substantial government subsidy, something he and others in the United States say is increasingly important to fuel a nascent recovery in manufacturing. The labor concessions at Revere, in a contract endorsed by the United Automobile Workers union, are much like those unions are giving to other manufacturers. The subsidy comes from New York State, which supplies, at cost, the electric power that Revere uses to produce copper sheets and slabs. Mr. O'Shaughnessy says it accounts for half of Revere's profit.

With such support, the key measure of manufacturing's presence in the United States is ticking upward. The Bureau of Economic Analysis of the U.S. Commerce Department reported in April that the contribution of manufacturing to gross domestic product had risen to 12.2 percent in 2011, from 11.7 percent in 2010 and 11 percent in 2009. The current share is, of course, far less than in the 1950s, when manufacturing reached 28 percent of the economy, and then went into a long, gradual decline. But for the first time since then, the percentage has risen over a three-year period.

"Basically, manufacturers are realizing that the cost structure for making products in America no longer needs to be as unfavorable as it was," said Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities in Washington and a former chief economist to Vice President Joseph R. Biden Jr.

The evidence is easy to spot. A U.S. company, Element Electronics, for example, has made flat-screen televisions for years at a factory in China but is now expanding in the United States. It recently opened a factory near Detroit that is producing the first televisions made in the United States by any company in years.

At General Electric, local tax breaks and a concessionary union contract contributed to G.E.'s decision to manufacture its latest electric water heater in Louisville, Kentucky -- instead of in China. Similarly, Otis Elevator is moving production to a new factory in Florence, South Carolina, from a plant in Nogales, Mexico, and Master Lock has switched the manufacture of combination locks back to Milwaukee from China.

At P.A.M.A. Furniture, in Jamestown, North Carolina, the owners, the Pennisi family, have begun to manufacture upholstered chairs and sofas "from scratch," according to Anthony Pennisi, a vice president.

Until recently, the Pennisis imported chair frames from Italy and Indonesia and finished them at the Jamestown factory. Manufacturing everything here is more expensive, Mr. …

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