Rick Santorum's Plan For Manufacturing Is Essential to the Recovery of the Economy

December 17, 2011

If there is one thing I absolutely agree with Rick Santorum on, it's his idea to restore manufacturing in the United States. I've been making this argument for some time that this country's largest economic successes in history were based on having a strong industrial base. I tend to think that our future economic successes must include a strong restoration of it. While I don't believe Rick Santorum will be our next president, though I must admit I would not be unhappy with him being the nominee, I do have a strong hope that whoever takes the reigns can seriously take Rick Santorum's ideas to task. We need a strong industrial base in this country. And not only for economic reasons, I also tend to believe that it is an issue of national security as well. I'll get to that later.

Make no mistake, I've never been a proponent of protectionism, even though if you took many of the comments I've made in the past on their surface it might seem that way. I am a free markets guy. I cannot stress that enough. My arguments against globalization are based solely on the basic idea that I believe globalization is only good for America if America can play in the game with the rest of the world. The erosion of our middle class, I believe, is largely rooted in the erosion of our industrial base in this country. We've made a tradeoff from good, solid paying, industrial jobs that everyone can do, regardless of their situation or access to things like education, to lower paying service ones. Even the jobs that require a degree (many that by the way really shouldn't require a degree) don't really pay as much as those old industrial jobs did. Especially when you consider the cost of the education.

The sad truth is that we've given up quite a lot, including our freedom to choose who we buy our goods from, and I think that's more than we bargained for when we bargained for the idea of expanding our opportunities globally. If it was an issue of cheaper is better, we've now come to a point where cheaper is all we can afford. People are not buying made in China because they prefer their products. It's all that's on the shelf is the reason. And that, my friends, is not a free market when choice is removed. You cannot cast a vote for "Made in America" if nothing on the shelves is actually made in America.

Consider for a moment that not everyone is college bound. Not everyone should be. I happen to think that a successful and robust economy cannot be based solely on the premise that a college education is the only path toward success and individual economic prosperity. Our grandfathers who worked the factory lines were not stupid people. They were hard working. The success of individual Americans should not be determined, either, based on whether or not one chooses to go the college route, or become a guy who makes things. And by the way, classifying someone as uneducated simply because they do not have a college degree, and therefore are undeserving of success is also terribly unfair, and I think wholly unfounded. Hard work should not be undermined and made out to be a loser's field.

Our economy needs both college and non-college people to be able to find honest work and more importantly, their path for success in life. Imposing limits on opportunity is a fool's path in my opinion. Right now don't we seem to have quite a big of egg on our faces? Furthermore, as a country we should be able to manufacture the goods we want and need, and I think there is absolutely no reason whatsoever that companies cannot do this at a profit. This argument that American labor costs so much, I think, really is a load of hogwash. Prices and wages, folks, are relative. And by the way, so are profits and margins. They are in fact directly related to one another. The only reason we tend to think American labor is so expensive is because paying American workers has served to undercut the top echelon's take of the profits. This fact is clear when you consider that in the last 30 or so years the income at the top has increased 30% while the average wage earner has only seen a 9% increase over the same period of time.

By the way, this last statement goes back to my former argument that, "If it was an issue of cheaper is better, we've now come to a point where cheaper is all we can afford." Things like most-favored-nation status, NAFTA, and not taking currency manipulation seriously enough hasn't helped either.

Let me just take a moment to give you one very small example of what I'm referring to when I say prices and wages are relative, and do accept my apologies for bouncing around a bit here. If I own a home and charge a rent, a tenant can afford to pay a higher rent if he earns more money. The price I charge for rent is relative to what my renter can afford to pay, quality of product notwithstanding of course. The amount a worker makes directly adjusts the amount the worker can afford to pay for the goods he buys, and therefore the point that paying worker's more eats away at the margins, to my mind, is moot.

I simply think that, like a good investment portfolio is diversified, so is a strong and robust economy diversified. If we expect a good return we cannot expect it by putting all of our eggs into one basket. Without manufacturing, we lose an important element in our economy that I think puts us at a terrible disadvantage. We've put all of our eggs into one basket and I think it's been terribly damaging to the middle class, and frankly has been very damaging as well to our opportunity to continue as a very prosperous nation.

I said earlier that I think having a weak industrial base is also an issue of national security. Think back to when we were engaged in the World Wars. If we don't have American companies who can mine, and manufacture, and innovate, and convert factories, in a time of world war, how do we defend ourselves? Sanctions are not only things we can place on our enemies. When we become the enemy, sanctions can be placed on us as well. And the time it would take to make our own bombs and tanks and other important defense things when those sanctions become imposed against us, if we allow our industrial base to erode to the point that we produce practically nothing at all, would be the very thing that would allow our enemies to move in for the kill. If the future of our economy doesn't keep you awake at night, this possibility certainly should.

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Comments 13 comments

CHRIS57 profile image

CHRIS57 5 years ago from Northern Germany

Great insight, i think your diagnosis is fully on target. Also your analysis of the education system and its impact on jobs and professions is quite correct.

But what is the cure?

The lack of manufacturing and industrialization in the US developed slowly from the late 60ties on. Loosing the competitive edge didn´t happen over night. So in return any cure will take decades. With the BRIC economies and the developing economies taking over this planet rapidly, i think the US doesn´t have decades left to adapt. And politics doesn´t seem to understand. Sad outlook.

nicomp profile image

nicomp 5 years ago from Ohio, USA

The reason manufacturing left us, the ONLY reason, is that it's cheaper to do it elsewhere. Less regulation, lower wages, and lower taxes all add to the bottom line. As we can hopefully agree, publicly held corporations are obligated to reduce costs and increase profit. The profit is returned to the shareholders, may of whom are retirees on a fixed income.

Everyone shops for the lowest price. We want inexpensive stuff but we complain when it's outsourced. We can't have it both ways. Evidently very few people are willing to pay a premium per for a cell phone plan just so the tech support rep can earn a union wage and the phone can be built in the United States. If there's a market for that, capitalism would fill it. Verizon, AT&T, or T-Mobile would introduce an "All-American" plan that guaranteed onshore products and onshore support. That has not happened because no one would pay for it.

If there's a market for more American-made products, capitalism should step in, not government. The best thing that government can do is get out of the way, which will allow business the opportunity to to prosper.

I have not read Santorum's Plan For Manufacturing, but I trust that it includes a rollback of stifling regulations, such as Sarbanes-Oxley.

Springboard profile image

Springboard 5 years ago from Wisconsin Author

Chris, you're absolutely right. That's part of the reason Rick Santorum's ideas are so interesting to me, because he addresses myriad issues deincentivizing (if that's even a word) American manufacturing taking place here. High taxes, over regulation, and other factors including reducing or eliminating tariffing through NAFTA, MFN, and CAFTA to name a few things also makes it more difficult to compete with emerging nations labor cost advantages. I have held for quite some time that I DO NOT THINK that corporations with heavy operations in the US should have to pay a penny in taxes to operate here. I think that's an important thing. Why should we tax a company's profits (and again I'm talking about profits earned here within our borders)? Tax the CEO who makes a salary. Tax the worker on the line who gets paid a wage. Tax the consumer at the point of sale. This lets the company focus more of its attention on simply operating, and the states and the federal government will still get plenty of their due. I also tend to think that not taxing the corporations will probably help them to also pass more of their profits and revenues on to the workers through higher wages and benefits. Those higher wages and benefits translate overall, if all companies are doing it, to higher profits and margins because with higher wages specifically wage earners will buy more, spend more, and theregoes the round robin effect. Round and round she goes, full circle. Higher wages and benefits also reduce the burden on the government to make up the difference, or pay for services and programs that are a result of lower wages and lack of benefits. Crime would go down reducing the need for police. Houses may be better upkept reducing the need for fire services. More people working and earning more money would reduce the need for welfare programs and food stamps. And the list goes on. I just think that while it will take time, as well as a collective effort from everyone, including you and I, it is something we cannot lose any more time getting started.

CHRIS57 profile image

CHRIS57 5 years ago from Northern Germany

Springboard, as much as i agree with you on the lack of manufacturing in the US, i dont think that the tax reduction thing creates enough incentives to solve the problem. It is already quite low.

My personal experience in profit taxation of manufacturing companies shows following ranking: US is lowest with aggregate 18%, PR China: 25%, Germany: 40%.

There is something elso to be looked at, and you already addressed one topic:

With due respect, but the American education system is a mess. While highly professional and world leader on a post graduate academic level, there is little done on the job qualification level. The US don´t have a vocational training system, there is nothing like apprenticeship. So without an adequate amount of skilled and trained workforce, how is industrialization and manufacturing to be kept on high ground?

The situation is much worse, if you look at economic data. The rate of capital investment is lower than asset depreciation, in others words, industrial assets and equipment is deteriorating faster than being replaced.

But introducing vocational training will certainly enable US industry to regain competitive strength. We are not talking about competing in plastic toys against China, but competing in advanced technology equipment against world peer economies (Europe, Japan).

drbj profile image

drbj 5 years ago from south Florida

Santorum is on target - manufacturing HAS to be brought back to the U.S. But how? That is the question. Are consumers willing to pay more for Made in America products? Are the CEOs willing to pay more corporate taxes? Ay, that's the rub.

Springboard profile image

Springboard 5 years ago from Wisconsin Author

Chris, somehow I think you're tax figures may be slightly off. By your suggestion Mitt Romney's proposal for a 25% tax rate for corporations would be an increase. Actually the top rate for corporations in the US today is 35%.

In any event, I also agree with you about the vocational thing, and especially apprenticeships. I think that's part of what we've given up. It used to be that a company would nurture an employee from start to retirement, realizing that that would be a benefit to the company down the road. A skilled workforce is important. Granted, with the current situation whereas employees readily leave for better pay or benefits elsewhere (the days of sticking around for 30 years is over I think), companies are less inclined to fork over dollars to train people just to have them leave—but then that speaks to competition again...it's really a complicated thing.

As I said, the time is now to start something. If we don't, we're in more serious trouble than we think, and if we enter into a full recovery without manufacturing, I think it will wind up being smoke and mirrors and the end effect may be worse than what we just saw.

Springboard profile image

Springboard 5 years ago from Wisconsin Author

Nicomp, I'm not sure why you suggested a union wage in your comment. I don't like unions anymore than you do in fact. Although I will only say that it's not the wage that a union worker gets that bothers me. It's what he does for it. Union workers don't have to work as hard nor as efficiently to get all the perks they get, and THAT is what is damaging. Not what they earn, because quite frankly you could pay a guy a union type wage and expect him to do much more for it, be much more versatile for it, and if he isn't you can fire him for being a turd.

Though I do agree with you for the most part about the premium thing. But again, I tend to believe it is NOT about whether we want cheaper. It's that we NEED cheaper. We've gotten to a point where there isn't even a choice. Either on the shelf OR in our wallets. When the top employer in the country is Walmart who offers no pension, few benefits, and low pay essentially, what does that say about where we've wound up? If you woke up everyday and said "I'm working for the largest corporation in America," that should give one pause, and the future should look bright ahead. Yet...it does not. I strongly believe American workers are undercut in the interest of profits...which is fine, because you are exactly right when you say that the CEO has no obligation to the employees, per se, right? But to the shareholders. Or more directly to the board who will fire him if the shareholders aren't happy. BUT, I don't think labor costs are really the issue anymore. It's an easy way to trim numbers down for short term results to meet expectations. It's the easy way out because simply reducing wages, reducing benefits, closing plants, and whatnot simply doesn't require a whole lot of thinking. It requires no brilliance. It requires no ingenuity. It requires no innovation in processes. It's simply the easy way out.

High taxes and mountains of regulation are of course a huge problem, and that has to be ripped apart. I will say at the end, though, that it's a complicated issue with all sorts of variables and parameters. It's not an easy problem to solve. But it's one I think we need to. Including improving wages in this country.

Remember that Henry Ford was really the guy behind the assembly line, and HIS idea was to create an environment where HIGHER wages, NOT LOWER WAGES could be offered. We've lost sight of that. We've missed the point. And no one is paying much attention to history.

After all of those years of economic prosperity, many of America's workers are right back where they started. In fact, I think they've gone backwards a few steps. Something is not right about that, and it tends to support my arguments made in earlier hubs that credit replaced the need for wages, and what we experiences was a false prosperity for the average American worker. It was smoke and mirrors. The jig is up.

nicomp profile image

nicomp 5 years ago from Ohio, USA

"Chris, somehow I think you're tax figures may be slightly off. By your suggestion Mitt Romney's proposal for a 25% tax rate for corporations would be an increase. Actually the top rate for corporations in the US today is 35%."

Corporations should pay no taxes. Zero. None.

Any corporate tax is a hidden tax on the sentient humans therein employed. The first candidate to publicly admit this will get my vote.

Springboard profile image

Springboard 5 years ago from Wisconsin Author

Nicomp, I agree with you. I also happen to think that corporations should not pay any taxes. You're exactly right when you point out that a tax on a corporation of any kind is a tax on the PEOPLE, and not on the corporation itself. I have said it many times before that corporations do not PAY their overhead. They PASS IT ON. Any tax a corporation pays comes out of potential wages, increases the price for products they sell, and reduces benefits they can afford to pay. So exactly right. A tax on a corporation is a tax on you and I. So many people seem to not be able to get that. They simply cannot see the forest for the trees. Thanks for coming in. :)

Springboard profile image

Springboard 5 years ago from Wisconsin Author

Drbj, consumers at some point are going to have to come to their senses and realize where their paychecks come from. If they want to keep the low paying, non-benefited jobs we have a bulk of now then they should keep on buying foreign made goods. If they want better paying jobs and better benefits, and if they want a stronger middle class, and therefore a robust and booming economy as more and more consumers have real money to spend—not just that plastic stuff—then they better start thinking about the REAL COST of cheap. In a way, aren't consumers really just sticking it to themselves by not being willing to pay the premium? I think they are. And unfortunately I think a lot of people simply don't get that.

As for the taxes thing, under certain provisions of Santorum's plan, the corporations who brings jobs back and repatriate money would pay no taxes. He thinks that will encourage companies to weigh the value of manufacturing elsewhere and outsourcing, and I think it will as well. It's not a total fix. In my other hubs I've talked about Americans role as well in this. Buying American, buying local and supporting smaller stores and supporting smaller business to bring more competition to the bigger boxes and huge conglomerations, and empowering themselves through living below their means and saving and investing what they earn above their means so that they have better choices and more options when it comes to not only what they buy, but HOW they buy, and how that affects the power they have to command more pay overall.

It's still going to take time. But as I said before. The time is now. We cannot waste a minute.

Hello, hello, profile image

Hello, hello, 5 years ago from London, UK

Is it not better to reduce the taxes on profit and get the manufacturing back and going instead of having millions unemployed getting money and producing nothing? Great topic and well written.

Springboard profile image

Springboard 5 years ago from Wisconsin Author

Hello, precisely. Self-reliance is what it's all about, and that means people making money. People making money means they have to work for companies that pay good wages and benefits, and that comes mostly from a strong manufacturing sector. Manufacturing has died in part due to high taxes and over regulation—of course, the unions did much of it in as well. Not demanding higher wages and benefits, but rather demanding them for less productivity which is the core problem with unions. NAFTA, CAFTA, most favored nation status, and other factors made it easy for companies to set up shop elsewhere when the going got tough, and again, globalization is a fine and dandy thing when it benefits all involved. I don't think globalization has done a thing for the American worker besides undercut him. So here we are. Thanks for stopping by.

James A Watkins profile image

James A Watkins 5 years ago from Chicago

Your article is truly outstanding. You wrote:

"We need a strong industrial base in this country. And not only for economic reasons, I also tend to believe that it is an issue of national security as well."

I agree with you 100 percent, and for the reasons you later specified. A country must be able to MAKE things.

You write: "we've now come to a point where cheaper is all we can afford. People are not buying made in China because they prefer their products."

You are right on target. I saw an article not long ago that calculated if our toasters and washing machines were still made in Michigan in closed union shops they would cost $300 and $1500 each—more than most people can afford.

You said: "This argument that American labor costs so much, I think, really is a load of hogwash."

Well, that depends. In a Right to Work state maybe. But in a state like Michigan where labor might cost $75 an hour I am not so sure. For most products, labor is the most expensive cost on the balance sheet and therefore the one line item that affects the end price of a product the most.

You wrote: "paying American workers has served to undercut the top echelon's take of the profits."

I think a look at corporate profits over the last 100 years shows that they hover around 7.5 percent in all decades except the 1930s. And I think 7.5 percent is a reasonable return for investing milions of dollars in plants and machinery. The US labor unions certainly killed the steel industry and crippled the auto industry. Eventually, labor costs were so high that other countries such as Japan could make better products for less—even including the shipping costs, many times both ways across the ocean.

Had FDR not been so beholden to the labor unions this never would have happened and we could have saved Detroit, Gary, and many other now empty cities. There might not be any Japanese cars in America today had our carmakers been in Right to Work states.

You write: "This fact is clear when you consider that in the last 30 or so years the income at the top has increased 30% while the average wage earner has only seen a 9% increase over the same period of time."

These numbers are touted much these days. I will say firstly that a 9 percent increase in wages in nothing to sneeze at unless what preoccupies one is what other people have that you don't. Secondly, I think that during downtimes like this, those numbers always skew toward the rich because they have their money in more solid assets and they are much better set up to withstand a depression or recession.

In fact, my dad used to tell me that anybody WITH money gets rich during a depression because only they are liquid enough to buy up assets from the bankrupt at pennies on the dollar. I'll bet that 30 to 9 ration was far lower in say 2007 when times were good for everybody.

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