Washington D.C. — A major multi-trillion-dollar U.S. Manufacturing Stimulus Act of 2017 is being proposed to President-elect Trump and his economic advisers to make America a leader in the coming IT-driven industrial revolution.
Between $2 trillion to $3 trillion from repatriated corporate wealth stranded overseas could catalyze a construction wave of between 2,000 to 3,000 new factories — highly-automated, super-productive smart plants, via a stimulus package developed by John Bernaden, co-founder and past vice chairman of the Smart Manufacturing Leadership Coalition, Inc., a five-year-old Washington DC non-profit group.
Corporations that repatriate past overseas earnings and purchase 20-year USA Industrial Bonds will annually receive 1/20th of their investment totally tax-free, although at a zero interest rate. USA Industrial Bond funds will then become 20-year interest-free loans for States to use in stimulating the construction of new smart factories, mainly by midsize manufacturers.
To avoid federal or state governments picking “winners and losers” which has been a historic failing of past U.S. industrial policies, according to Bernaden, each state’s Governor will appoint 15-member commissions, chiefly consisting of manufacturing and business leaders, to make loan decisions.
State commissions will make loans that range from $500 million to $5 billion to construct smart factories, with typical costs averaging $1 billion each. If multinational corporations repatriate $2 trillion tax-free by investing in these USA Industrial Bonds, a state like Alabama’s share will be $34 billion to loan to business leaders who could construct about 34 smart manufacturing plants, according to Bernaden.
American midsize manufacturers, in a “Mittelstand” movement, are expected to construct most of these new factories because of this unprecedented access to billion-dollar-size, long-term interest-free loans. In Germany, the “Mittelstand” or midsize manufacturers, are renown as the engine of their economy. The Trump-size stimulus plan is also expected to create millions of new jobs needed to operate as well as supply, support and service these newly constructed 21st Century smart factories.
An alternative Congressional plan backed by powerful bipartisan leaders would repatriate this same corporate wealth via a new low corporate tax rate. The expected $300 billion to $450 billion windfall in tax revenues might then pay for Congress’s infrastructure plan to fix the nation’s roads and bridges. Goldman Sachs and other stock analysts confidently expect that U.S. corporations will quickly funnel the remaining $2 trillion to $2.5 trillion to Wall Street investors via increased dividends and stock buybacks.
House Majority leader Paul Ryan, one of the alternative plan’s champions along with New York Senator Chuck Schumer, believe that this massive infusion of corporate wealth will eventually trickle down into the overall economy, including to some manufacturers, via 1980’s Reaganomics. However, Bernaden believes it will actually hurt many U.S. manufacturers, especially the Midwest “Mittelstand” ones that he’s trying to directly stimulate.
“Wall Street’s fast money men, hedge funds and venture capital guys will use this massive wealth to buy up most of the remaining midsize manufacturers in America and ruthlessly restructure or bankrupt them to quickly profit by auctioning assets in fire sales. They have zero interest in making the long-term investments and bid bets on new smart factories that the nation needs to make American manufacturing great again!” he said.
He said “I’ve seen what they’ve done to destroy the pulp and paper industry in my home state of Wisconsin.” He explained by talking about one of the state’s higher-profile midsize business leaders.
After growing tired of shipping his logs to China, Wisconsin lumberman William “Butch” Johnson mortgaged his forests and bought a bankrupt old plant in Wisconsin with the help of a $35 million state economic development loan according to a Pulitzer-funded Milwaukee Journal newspaper series titled “Paper Cuts.” Governor Scott Walker applauded Mr. Johnson’s efforts to help resuscitate the state’s pulp and paper industry.
However, Mr. Johnson soon realized that despite his best efforts and additional personal investments, it was not enough money to rehabilitate the 100-year-old plant and make it profitable for global or even domestic markets. Struggling to pay off the state loan, he made more front-page news last year.
But the ultimate insult for Mr. Johnson came this year when a Chinese company began constructing a new $1.3 billion highly-automated smart pulp mill in Arkansas that only needs 350 workers. Shandong Sun Paper is building this smart mill in Arkadelphia to process pulpwood for diapers and sanitary products. This year, Chinese-owned Shandong Tranlin Paper Co Ltd also began constructing a smart new $2 billion paper mill in Virginia.
“With the proposed USA Industrial Bonds stimulus package, a midsize manufacturer like Butch Johnson — perhaps in a cooperative with fellow loggers — could undertake a billion-dollar-size loan to construct one of these new highly-automated, super-productive smart pulp or paper plants that can be domestically as well as globally competitive,” Bernaden said.
“They can then profitably process ecologically grown logs harvested from Wisconsin’s renewable forests using a 21st Century, all-American smart pulp and paper plant in their home state,” he added.
“Since 2000, GM, Ford and Chrysler closed 26 car plants in the Midwest, but during that same period, German and Japanese carmakers constructed 24 new highly-automated smart factories costing about a billion dollars each across America,” he said describing large U.S. manufacturer’s failures.
“Now even the Chinese are coming here to build new billion-dollar factories,” he added. “This is the same kind of manufacturing crisis that President Reagan faced when he took office.”
“However, Reagan appointed a legendary Commerce Secretary named Malcolm Baldrige who personally took actions to stop short-sighted business attitudes and replace them with a longer-term focus on Quality and continuous improvement to begin making manufacturing great again in the 1980’s,” he continued.
“America’s midsize business leaders with their natural long-term focus and “Mittelstand” values are our nation’s best hope to bravely and boldly construct the smart, new factories necessary to take advantage of the coming IT-driven industrial revolution — if we can get them the right stimulus with affordable very long-term capital.”
”Or Americans can watch manufacturers from China, Japan, Germany and other nations continue to construct this wave of new smart factories in our country because governments in China, Japan, Germany and other countries are not so short-sighted and provide long-term programs and long-range public policies to support them at home and abroad.”
Although midsize companies comprise only a small 14 percent of the 266,000 manufacturers in America, they provide about 34 percent of all industrial sector jobs and create about 44 percent of manufacturing jobs growth. Midmarket companies have more room to grow both jobs and revenues in domestic markets than the Fortune 1000 multinationals concentrating on global markets. Midmarket companies also tend to have domestic suppliers rather than foreign ones.
“Midsize manufacturers, especially those with “Mittelstand” values, are ideally suited to be the ‘engine of our economy’,” Bernaden said.
The stimulus loans would target these “under-served and under-appreciated” 35,000 midsize manufacturers with revenues between $10 million to $500 million and typically between 50 to 2,500 employees. The American midsize manufacturing sector has many similarities to the difficult-to-define German “Mittelstand,” which some in Germany called their “economic miracle” during the recent German recession.
Like the German “Mittelstand,” Bernaden feels that values rather than size should be used to define them. He says many American midsize manufacturers and their leaders share similar common values such as a family-like corporate culture, long-term focus, independence, investment in their workforces, flexibility, lean hierarchies, step-change innovativeness, social responsibility, and strong regional ties.
“This may be the biggest choice of Trump’s Presidency. Does he allow this once-in-a-lifetime tsunami of between $2 trillion to $3 trillion make Wall Street richer with wealth that they can then use to restructure and destroy what’s left of America’s midsize manufacturers?” he asks.
“Or does Trump give America’s midsize manufacturers a huge cash infusion – a direct shot in the arm – with $2 trillion to $3 trillion in 20-year loans to construct 2,000 to 3,000 new smart factories that will be a stimulus for manufacturing and the service economy by creating 16 million jobs?”
“America has the world’s oldest factories,” he continued. “An extremely low 1.5 jobs multiplier is the leading indicator of our aging industrial base. In other words, for every one factory worker, only one-half of a service sector job exists to support that worker. In America’s highly-automated agriculture sector, one farmer creates up to 10 service sector jobs.”
“A modern, highly-automated smart manufacturing sector should have an aggregate jobs multiplier of between 3 to 6,” he said. “This stimulus plan would at least double our nation’s manufacturing jobs multiplier from 1.5 to 3.0 in the next four years.”
From a macro-economic perspective today, America’s industrial base provides employment for about 12 million people directly in factories and indirectly for about 6 million people in the nation’s service sector, according to both the National Association of Manufacturers and the Manufacturer’s Alliance.
If this huge stimulus plan does double the jobs multiplier, it would create a net total of 16 million new new service sector jobs in four years that would be needed to supply, service and support the higher productivity and increased output from highly-automated, IT-driven smart manufacturing plants and factories, he emphasized.
President Obama’s economic stimulus package cost taxpayers nearly $1 Trillion to turnaround the great recession and create 15 million new jobs in his 8 years.
“This stimulus package will create 16 million jobs in four years at no cost to taxpayers because it cleverly uses other people’s money!” Bernaden said.
Bernaden acknowledged that the step-change to higher-productivity using computer-operated machinery, automation, robotics and other advanced technologies would eliminate about a million jobs in the older, labor-intensive factories today.
Other benefits of the stimulus plan include a positive balance of trade due to more globally competitive exports and a wider range of production possible in America again from smart-safe specialty chemical plants to lights-out, totally automated smart garment factories that can produce affordable, high-quality “Made in the USA” clothing at Wal-Mart low prices, he said.
However, the biggest idea hidden at the end of the stimulus package is the establishment of a new U.S. Department of Manufacturing cost-effectively created by consolidating current Manufacturing-related programs scattered across almost every Agency today as well as a cabinet-level Secretary of Manufacturing to lead it.
In response to the 1970’s oil crisis, President Carter established the last new cabinet-level federal agency almost 40 years ago. Carter signed into law The Department of Energy Organization Act in 1977 and appointed Dr. James Schlesinger to be its first Secretary. Carter similarly consolidated several existing programs to start the Department of Energy.
For example, Bernaden proposes that in response to the nation’s current manufacturing crisis, this stimulus package would consolidate programs like a $1.2 billion a year advertising and marketing program from the U.S. Department of Agriculture into the new U.S. Department of Manufacturing.
“U.S. Agriculture programs promote the exports of corn and wheat, instead of smarter programs that would promote the exports of value-added manufactured goods like corn flakes and Wheaties-type of cereals,” Bernaden said.
The U.S. Department of Agriculture has spent billions to globally advertise and promote exports of the nation’s raw materials like grapes, but the U.S. Department of Commerce has zero dollars to globally advertise and promote exports of the nation’s value-added goods like wine.
“Unexpectedly, our nation is flipping from being an energy importer to an energy exporter. Instead of promoting public policies to export liquefied natural gas, better policies would help construct new multi-billion-dollar, smart-safe chemical plants that use natural gas resources to produce value-added specialty chemicals for higher revenue exports,” Bernaden said.
“Many of the nation’s leading University engineering and business experts involved in the Smart Manufacturing Leadership Coalition believe that America could bring back or improve almost every type of manufacturing by making these smart, IT-driven step-changes whether in process industries like chemical plants, batch industries like clothing production, or discrete industries like computer and cell phone assembly,” he said.
Thus, under the proposed stimulus package, the Secretary of Manufacturing is directed to establish and promote preferential federal policies and programs to increase the nation’s exports of value-added manufactured goods versus exports of non-value-added raw materials.
This construction wave of $2 trillion to $3 trillion in new smart factories versus $300 billion to $450 billion in Congress’s infrastructure plan would stimulate more domestic economic growth as well as a stronger U.S. Industrial base for homeland security and military needs, according to Bernaden.
The stimulus package also includes clever no-cost incentives for Governors and state governments to enact more comprehensive manufacturing technical education programs and penalties for those that don’t. In addition, it would reauthorize the Manufacturing Enterprise Integration Act of 2002 that President Bush’s Administration failed to use to start the development of standards still missing and needed for a cyber-secure Industrial Internet public infrastructure and to pioneer high-speed supply chain automation.
“The emerging Industrial Internet is a new type of 21st Century public infrastructure that has the proven potential to automate and thus speed supply chains up to 90 percent faster along with unleashing other yet to be imagined benefits,” Bernaden said referencing studies at the University of Wisconsin Center for Quick Response Manufacturing.
Unless noted otherwise, the comments above are wholly attributable to John A. Bernaden, co-founder and past vice chairman of the Smart Manufacturing Leadership Coalition, Inc.