A guy by the name of Harold Sirkin wrote a pretty good piece for Bloomberg Business Week called Made in the USA – and China. What is particularly impressive is that Harold overcame the twin burdens of a Wharton education and being a CPA to figure out what was patently obvious to us on Evolving Excellence less than a year after we did. While we wrote in January, "Chinese products are up 5-10% just in the last six months and will go up further and faster in the next six"; Harold figured out the same thing a couple days ago. (Actually we predicted it on the nose over two years ago, but we won't hold Harold to that standard)
Where Harold has it wrong, however, is in repeating a long outdated mantra about the Rust Belt states. He wrote, "U.S. manufacturing continues to shift from the highly unionized Rust Belt to the lower-cost South."
That was true once -long ago - but has little to do with manufacturing today. Oh, I always enjoy an opportunity to skewer the Obama administration's buffoonish attempts to bring their irrelevant cronies in organized labor back from the dead, but the fact is that only 10.7% of manufacturing workers in the USA are union members – and many of them are the auto industry new hires who get a fraction of the wages and bennies their older union brothers get. In Michigan only 16.5% of all workers are union members, and that includes the heavily unionized public sector. Unions have little to do with the obstacles to manufacturing here in the Rust Belt – and naive environmentalism has everything to do with it.
For those in the intelligencia who spend hours wistfully gazing across the Atlantic for inspiration from Europe, or staring out across the Pacific with visions of the great Chinese miracle, you are apt to have paid scant attention to the small-by-comparison Great Lakes as you 'flew over'. In particular, your knowledge of the economic and geographic significance of the Lakes might be lacking. So here's a primer:
Way up on the left is the Mesabi Range – the mother lode of iron ore. Down and to the right are the big coal fields of West Virginia, Pennsylvania, and some of Kentucky and Ohio. The basic recipe for steel is: Iron Ore + Coal + Fire = Steel. Those great big lakes hook the iron ore and coal together on a huge,cheap, aquatic super-highway; so from Pennsylvania to Chicago there were lots of steel mills. That big red "D" is where Detroit is. No coincidence that it is smack in the middle of the coal and the iron ore and right on the lakes. The auto industry, and a lot of basic, steel using manufacturing were in the middle of this incredible gift of natural resources and transportation infrastructure.
The death knell of the Rust Belt began tolling with the passing of the Clean Air and Clean Water Acts in the 1970's and 1980's, that really kicked into high gear by the 1990's. The cost of making steel went up a lot.
The American people got all that clean air and clean water for free, so it would seem. That is because at about the same time we went on this service economy/ flat earth/globalization kick and decided it was a good thing to import everything from backwater places made by poor folks living in squalid conditions – conditions without things like clean air and clean water.
So the economic basis for the Rust Belt – steel - was ripped out of it and sent to China. In fact, we import close to $3 billion worth of what used to be the heart and soul of the Rust Belt every month. All the pollution was sent there along with it. That is why it is 'Feel Good Environmentalism". The pollution levels are higher than ever – but we sent it to the other side of the planet where we don't have to look at it, so we get to feel good under the illusion of having helped the environment. And we get to feel good for nuthin'. Steel cost didn't go up because it is made without the added burden of the cost of complying with our environmental rules and regs, which China ignores. Clean lakes, clean air, and all seeming to be ours at no additional cost – what's not to like?
Of course it isn't free. It cost us tens of thousands of great value creating jobs – union or not. As manufacturing comes back, however, there is no longer any geographic reason for it to go to the Rust Belt. The jobs coming back are the ones lost in foolish pursuit of cheap labor – the ones lost to feel good environmentalism won't be back. So why make cars in Detroit if all the steel is imported from the toxic wasteland of China? Might as well make them in the South – or the North, East or West. If the source of steel doesn't matter then the lakes don't matter; and if the lakes don't matter, of what importance is Detroit?
Don't get me wrong. I am very glad we cleaned up the lakes and keep them in such great shape. I have spent more time in, on and around the Great Lakes than anyone I know. I love everything about them and would gladly pay more for steel to have them the way they are. It's the deception that we cleaned them up for free I despise. We should charge an environmental equivalency tarrif on steel coming from any country without the same clean air and water standards we set. Legitimately cleaning up the planet has a price, and the American people should know what the real costs of environmental regulations are, and decide whether they want to pay them.
Rust Belt manufacturing will come back when steel comes back – and steel comes back when we quit hiding behind long oudated myths about labor unions; and get out of the environmental dream world of free clean air and water.