Charlie Rose interviewed Wilbur Ross on Bloomberg television (my viewing of broadcast, August 3, 2010). Ross is an industrial investor--I would say on the old-fashioned model of J. P. Morgan. He consolidates companies in fragmented industries to bring manufacturing output in line with market demand and thereby raise prices and make the companies healthier. He did this in the textile and steel industries.
Rose asked Ross whether America has a future in manufacturing. Ross gave a qualified answer. Yes, if we make the right national policy decisions regarding manufacturing; No, if we don't. If we don't, we'll be a second-rate industrial nation within five to ten years.
What America needs, Ross said, is new industries based on new technologies for manufacturing as a whole to grow. Ross's opinion coincides with the thesis I have maintained in this blog--that manufacturing and the labor class dependent upon it will be saved and grow only by founding new industries that give companies, until their products become commodities, advantages over their old-industrial competitors. My example: just as steel replaced wood in airplane construction, aluminum replaced steel, so now lightweight composite materials are replacing aluminum. Boeing is betting its future on a new technology and new methods of airplane assembly.
Why did Ross give a qualified answer? He says that the US is falling behind two other countries--China and India--in the two crucial elements required for development of new technologically based industries. These elements are education of engineers and investment of research and development. The number of new engineers being graduated in China and India greatly exceed the US. Charlie Rose interjects, well, their populations are larager too. But, Ross responds, the comparative value of engineers is not to the population size but to the industries you are trying to develop. China and India are educating new engineers of special value to development of technologically new industries. And he agrees that the same concern must be raised about the rate of creation of new research scientists, who would do fundamental research in physics, chemistry, biology, and medicine that could be technologized by engineers.
Ross thinks that what is needed is coherent federal policy toward specific industrial technologies. He thinks that Obama's effort to get federal support for new "green" industries is incoherent, as a result of democratic politics. He observes that China, not burdened by democracy, is better able to focus its educational system, research and development, and investment on specific industries. (He was not admiring or endorsing despotism. He was identifying Chinese despotism as something against which our manufacturing industry must compete.) As a result, the US is already behind China in all the "green" energy industries Obama sees as our future--we've already lost that future. For instance, China manufactures 40% of all the world's wind turbines.
Here I disagree with Ross, though obviously I have no business experience to back my opinion, as he does his. I think that private capital is better able to identify new technological and industrial opportunities than the federal government. What is needed, I would argue, is fewer federal regulatory (e.g., environmental regulations, social justice contracting requirements, union support) and tax restraints on research and development, venture capital, and profits. The federal government could also help by removing the regulations that make greater profits possible in banking and finance than in manufacturing--few investors will put money into industry that returns 10% profits, when they can get 25% profits in credit card issuance.
We are being given a warning about our manufacturing future in one area in which we lead the world--biological-chemical pharmaceutical medicines--with the withdrawal of the big pharmaceutical companies from antibiotic research and concentration of their research in a few areas. The pharmaceutical industry (which is the nation's biggest industrial exporter by dollar value) could be seen as a test case. If it falters, I think American manufacturing as a whole is in trouble.
The national government should be restricted to support for advanced, post-baccalaureate education in the research disciplines in science, mathematics, statistics, medicine, and engineering. Industry can steer research into directions that it believes most promising for new technologies and industries, as they have traditionally done with research grants to research universities. And community colleges, supported at the state and local governments, are best positioned to respond to industrial needs in educating and vocational training students for new industries.
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