Dean Barber

Archive for March, 2017|Monthly archive page

Trump’s “National Rebuilding”: How Do We Pay for It?

In Corporate Site Selection and Economic Development on March 12, 2017 at 10:45 am

Infrastructure underpins our everyday lives and the economy of the United States.

It goes well beyond roads and bridges, which we commonly think of, but includes drinking water and sewer service, the delivery of electricity, as well as railroads, transit systems, ports and broadband.

Since 1998, the American Society of Civil Engineers has been chronicling the decline of infrastructure category by category. Every four years it publishes a report card to the nation, and the latest assessment, which came out last week, assigned a grade of “D+” to U.S. infrastructure.

This should come as no great surprise as crumbling infrastructure has been making headlines for decades now. And since 1998, the U.S. has yet to score better than a D-plus.

This year’s score matches the country’s 2013 performance, whereas the cost of getting the country’s infrastructure up to speed have only gone up.

A Timely Report

What may make this latest report significant is its timeliness. It comes at the early stages of a new administration in which a president is using his bully pulpit to advocate in favor of a “national rebuilding.”

In his victory speech on election night, President-elect Donald Trump pledged to rebuild “highways, bridges, tunnels, airports, schools, hospitals” to make U.S. infrastructure “second to none.”

In his first address to Congress last month, President Trump invoked Dwight D. Eisenhower in his call for $1 trillion infrastructure spending.

“Another Republican President, Dwight D. Eisenhower, initiated the last truly great national infrastructure program — the building of the interstate highway system. The time has come for a new program of national rebuilding,” he said.

We have few details as of yet on the current administration’s initiative to steer as much as $1 trillion in public and private funds to U.S. infrastructure over the coming years. If it actually happens, it would likely mean a huge sustaining jumpstart to the economy, which last year grew by only by a tepid 1.6 percent.

As many economic developers and business professionals know, infrastructure spending not only creates direct and indirect jobs, but it also amplifies a community’s (and thereby our nation’s) ability to compete in a global economy. In short, we would be in a race with a newer and faster car.

The Bugaboo

But will Trump’s infrastructure plan actually happen? I’m no Washington insider, so I cannot predict with great confidence. The good news is that virtually everyone agrees the nation’s aging infrastructure is in need of fixing.

“President Trump is on to something when he calls for a national rebuilding,” ASCE President Norma Jean Mattei said in presenting the study. “But Congress and the American people have to pay for it.”

And therein lies the bugaboo. There is no agreement within Congress as of yet on how to pay for it, either by raising taxes, turning to private investment, or simply borrowing more money.

ASCE is advocating that the federal gas tax be raised by 25 cents and indexed to inflation. The ASCE notes that the current tax of 18.4 cents per gallon hasn’t been raised since 1993 and so hasn’t kept up with inflation and growing needs.

A Once-In-A-Generation Opportunity

Larry Summers, former Treasury Secretary under Bill Clinton, says the money to pay for an increase in infrastructure spending should be borrowed.

“A moment of unprecedentedly low interest rates should be a moment of unprecedentedly high investment,” Summers told CBS News. “And it’s a tragic irony that it’s a moment of unprecedentedly low investment.”

During the presidential campaign, then candidate Trump floated the idea of issuing billions of dollars in tax credits to private companies to take on these projects themselves. But in his speech before a joint session of Congress, he appeared to back off of that plan, calling for a $1 trillion infrastructure package financed through “both public and private capital.”

Officials with the U.S. Chamber of Commerce and the American Association of State Highway and Transportation Officials testified before the Senate Subcommittee on Transportation last week that there must be more public investment and that existing funding mechanisms to get dollars to states should be used.

“The needs are great, and the resources are limited,’’ said Ed Mortimer, the chamber’s executive director for transportation infrastructure. “This is a once-in-a-generation opportunity to modernize America’s infrastructure.’’

Speed the Process

The administration convened a meeting on March 2 with 15 cabinet members and agency leaders to discuss funding, projects, and possible changes in policy, regulations and statutes to speed the process.

President Trump met last week in the White House with business leaders, including billionaire Elon Musk, to discuss ways to encourage public-private partnerships. From that meeting, The Wall Street Journal reported that Trump is considering a plan that would require states to begin infrastructure projects within 90 days of receiving federal funding.

The president’s plan would pressure states to streamline their local permitting process, emphasize renovation of roads and highways over the construction of new ones and prioritize projects that are ready to quickly begin construction, according to the Journalreport.

“We’re not going to give the money to states unless they can prove that they can be ready, willing and able to start the project,” Trump said during a private meeting with aides and business executives, according to the newspaper.

“We don’t want to give them money if they’re all tied up for seven years with state bureaucracy,” he added.

The National Governors Association provided the White House with a list of 428 priority projects from 49 states and territories on Feb. 8 that it had solicited from the states.

Slow Going for Our Northern Neighbor

Assuming the administration will push forward with an infrastructure plan, there’s probably some things that Trump can learn from our northern neighbor.

Prime Minister Justin Trudeau’s plan to stimulate the Canadian economy and boost long-term growth with an infrastructure spending program has been slow to say the least. Some 17 months after his election win, Trudeau’s government has completed only eight of the 1,274 roads, bridges, and other projects it has approved.

“The hardest lesson to learn from Canada’s experience with infrastructure spending so far is just how long it takes for ‘shovel-ready’ projects to actually break ground,” Frances Donald, senior economist at Manulife Asset Management in Toronto told Bloomberg.

Also during last week’s meeting, Trump asked for more details about Musk’s Hyperloop project that would use small vehicles to transport people and goods through low-pressure tubes at high speeds, the White House said. The president also expressed interest in both new high-speed railroads and auctioning the broadcast spectrum to wireless carriers.

Despite the Tweets

Despite the president’s loose-cannon tweets, often factually wrong and revealing an unflattering side, measures of business and consumer confidence are soaring.

The Consumer Confidence Index is at a 15-year high and in early March, while Gallup’s U.S. Economic Confidence Index, a measure of how Americans rate current economic conditions, rose to the highest level in its nine-year history.  Jobless claims just hit the lowest level in 44 years.

Clearly, a Trump bump is happening, due in part to expectations of a more business-friendly environment under the current administration, which has proposed or endorsed the cutting of corporate taxes, a lessoning of regulations, and infrastructure spending.

Of course, expectations are one thing. Getting things done are another. I’ll be waiting just like you to see if words becomes actions.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. BBA helps companies and communities. Mr. Barber is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com.

Did Trade Kill U.S. Manufacturing Jobs?

In Corporate Site Selection and Economic Development on March 6, 2017 at 12:03 am

Economists have long asserted that free trade with other countries helps everybody, and for decades, politicians in both the Democratic and Republican parties have pretty much toed that line.

But Donald Trump and Bernie Sanders did not. Both predicated much of their presidential campaign rhetoric on the belief that “free trade” was in fact a raw deal for most working-class Americans.

It was a message that resonated with millions and seemed to have caught both parties off guard.

The basic precept for trade, ongoing well before this country became a country, is not that complicated. There are things made in other countries that we want to buy, and there are things made here in the United States that people in other countries want to buy.

But the facts and figures concerning trade and the state of U.S. manufacturing is where it becomes thorny. Divergent views are often based on the ideological predispositions of those interpreting the facts, which should come as no surprise.

I got a kick out of those who were predicting a few years ago a manufacturing “renaissance” for the U.S. powered by technological advances and lower production costs relative to our trading partners. Yes, there have been instances of reshoring, but just as much offshoring has also been occurring.

This much we do know — trade touches everyone’s lives, whether they know it or not. Consumers benefit with lower prices, and a greater variety of goods. Certain companies benefit by realizing greater profits, while highly-educated workers in this country benefit by being more in demand.

A Disruptive Force

Much of the debate over U.S. manufacturing concerns whether the massive and historic manufacturing job losses in the 2000s were because of trade or automation. Most defenders of free trade put the onus of job loss on automation.

But more and more, economists are now starting to realize, albeit slower than many production workers in factories, that trade can be disruptive force to an economy. That aspect was addressed on Friday by Commerce Secretary Wilbur Ross soon after being confirmed.

“We’ll be aggressive on trade because we know that deals that have been made historically have resulted in the great loss of manufacturing jobs, a great amount of closed manufacturing businesses,” the billionaire venture capitalist told CNBC. “We don’t want that to continue.”

A report  last month from the Information Technology and Innovation Foundation (ITIF) found that despite the prevailing narrative that automation was the main culprit behind the loss of more than 5 million manufacturing jobs from 2000 to 2010, trade pressure and faltering U.S. competitiveness were in fact responsible for more than half of those job losses.

The China Effect

Will Kimball and Robert Scott with the Economic Policy Institute estimated in a 2014 report that 55 percent of manufacturing job losses between 2001 and 2013, 2.4 million, were due to the rising trade deficit with China.  ITIF has estimated that 67 percent of the manufacturing jobs that disappeared in the 2000s have been due to trade, which includes the China effect.

That coincides closely with the findings of a 2013 paper by David H. Autor, an economist with the Massachusetts Institute of Technology (MIT), who found that Chinese import competition accounted for 55 percent of the loss of U.S. manufacturing jobs between 2000 and 2007.

To be sure, the automation of manufacturing processes contributed to the job losses, but with China displacing the U.S. as the largest manufacturing nation in 2010 and becoming the world’s dominant export power, U.S. manufacturing workers were hit more quickly.

Winners and Losers

“Trade almost necessarily grows the size of the economic pie, but it also changes the size of different slices. It’s quite possible for trade to increase the size of the pie by a few percent, and yet shrink some slices by 20 to 30 percent,” Autor said in an interview with The Washington Post last month.

“Because we’re a high-skill nation, when we trade with the rest of the world, we increase our production of skill-intensive products. So trade tends to increase the earnings of highly educated and skilled workers, and decrease the earnings and employment opportunities for less educated and less skilled workers.”

The fact that there are winners and losers from trade may make imminent sense, although U.S. policymakers have historically seemed to turn a blind eye.

Like a Bomb

In reality, we have seen in most visible and gut-wrenching terms that trade can dramatically reduce the livelihoods of a subset of people.

“One reason is that manufacturing is geographically concentrated, so when a sector starts to go into decline, everyone in a region loses their job simultaneously, just like what happened with coal mining,” said Autor. “It’s like a small bomb going off in your downtown.”

And while we know that the digitization of manufacturing is now underway, requiring a higher level of skills from workers, we also know that manufacturing historically has been a sort of refuge, offering high-paid work for millions of relatively less-educated workers. They earn more per hour and are generally not going to find equally good jobs.

The Missing Men

During this current disruptive period as the labor market has become more skill intensive, women have been more adaptive than men.

“No one spends a lot of time shedding tears about the loss of all those great clerical jobs, but it is the case that clerical jobs have dramatically contracted. Women have moved on and up,” Autor said.

“Whereas for men in manufacturing, there has not been nearly as strong of an educational response. When men are displaced from manufacturing, they tend to move into lower paid jobs, or just move out of the labor market. So they really are losing something they’re not going to replace in any short-term way.”

I touched on this phenomenon in a past blog entitled The Missing Men.  Consider that more than a fifth of American men — about 20 million — between 20 and 65 had no paid work last year.

Autor and a growing number of economists are now concluding that the shock of China’s entry into global manufacturing was unprecedented in the disruption it created for U.S. communities. It created much more hardship than anyone could have predicted.

Things We Can Do

So what is the answer? Putting the genie back in the bottle and expecting to get back a lot of labor-intensive manufacturing is highly unlikely, because relative to the much of the world, the U.S. remains a high-wage country.

Still, U.S. manufacturing costs are lower than in Germany, Japan, and the United Kingdom, and are almost on par with Korea. That said, U.S. companies pay among the highest effective corporate taxes in the industrialized world. That can be fixed as I advocated in my past blog, The Big Business Story to Come.

And the U.S. can aggressively enforce existing trade agreements and negotiate new ones. We can and should turn to the World Trade Organization when other countries engage in dumping, flooding the market with their products and bankrupting their competitors.

The ITIF recommends the Trump administration needs to expand, not eliminate, funding for programs like the Manufacturing Extension Partnership program at the National Institute of Standards and Technology, the Manufacturing USA program, the newly enacted Manufacturing Universities program, the Ex-Im Bank, and skills-training programs for manufacturing workers.

While manufacturing may never be the mass employer it once was, it remains incredibly important to our country because so many of our great ideas come from making new products. As such, much of our wealth is drawn from innovation rooted in manufacturing. May it remain so.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. BBA helps companies and communities. Mr. Barber is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com or at 972-890-3733.