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A 50th High School Reunion and the Hollowing Out of America
Sometimes insight and inspiration come from an unlikely place. Recently, I was invited to join the Facebook page for my high school’s 50th reunion, which is next year. As expected, it was fun hearing from those voices from the past, though I believe the Facebook connections were only a small fraction of the 1100 graduates in our class. My high school, Brooklyn Technical High School, or Tech, as, we called it, was a specialized high school that drew its students citywide and required a test to get in. I guess Tech was one of the forerunners of today’s magnet schools. Tech’s curriculum was designed to prepare us for entry into the technical industries with course majors in aerospace, electronics, chemical engineering, etc. It was rigorous and it was tough. And, hell, I was one of those geeks running around with a pocket protector with a six-inch steel ruler clipped to it, and a slide rule clipped to my belt (and I wasn’t teased for it because that was the norm).
Bethlehem Steel Plant
One of my classmates made a comment that he noticed during a visit to the school that the foundry classroom had been converted into a storeroom. Foundry was one of those classes that was supposed to prepare us for a technical career. It was a shop class on how sand molds were made to cast steel parts. We also took another class called Industrial Processes that covered how metals, wood, and plastics were processed in industry. This was all part our training to ready us for a technical career in the 1960s. One highlight of the Industrial Processes class was a road trip to a Bethlehem Steel plant in Pennsylvania to view in operation the open hearth and electric arc furnaces that fabricated steel and steel parts. Even though low-cost imports were just beginning to come in from Japan, the plant was still a thriving, busy facility. My classmate’s comment about the Foundry class struck me immediately as a metaphor for what has happened in the US in the last three or four decades. I wondered about that Bethlehem steel plant and did a quick Google search, only to learn that the company had gone bankrupt in 2001. The plant that I had visited is now a Sands Casino (according to Wikipedia).
I’m now living in a Buffalo suburb. There are many old red-brick buildings in Buffalo and Lackawanna that reminded me of the buildings at that Bethlehem steel plant. These, too, used to be factories and manufacturing facilities employing thousands of people in well-paying jobs. They are now apartment lofts and museums. Yes, SolarCity is building a new plant here that will supposedly hire 1460 workers, but that is a shadow of what industry used to employ here. There is an effort to fund biomedical startups, but no one is under the illusion that we’ll be able to match the employment of my parents’ generation. Too many of the grandkids of the workers from those old plants now have far fewer opportunities and good paying jobs in manufacturing. Maybe they can get jobs at some of the local call centers (if the centers haven’t all moved to India) and as healthcare workers taking care of their grandparents. Unfortunately, many of those jobs don’t involve benefits. So, do you think this isn’t part of what’s powering the churn and disruptions in this year’s election?
While browsing Tech’s website, I discovered the method for students to choose their majors had been changed. In the sixties, you simply chose your major. Today’s it’s a process that involves something called the Power Index (PI), where each student is ranked according to his or her academic average, with some weighting on a couple of critical courses. Students then go online and list their choice of majors in order of preference. Those with the higher PI get their first choice, etc. Why is this process necessary? I think you can guess. I bet most of the students probably want to go into computer science. Well, why not? That’s where the money is these days. Unfortunately, the tech industry has not come close to filling all those abandoned red brick building with jobs. Not when they make their hardware, and even their software, overseas.
The method of major selection is also a metaphor for today’s data driven society. At one place I worked, I was forced to rank the engineers reporting to me. The bottom 10% were mandated to be graded as Needs Improvement, even if their work was satisfactory. This was in line with Jack Welch’s philosophy of ranking all workers and firing the bottom 10% every year. Today, workers are commodities that can be discarded. Yes, I know that to manage something you need to measure it first. At least that’s the theory. Problem is, people aren’t cogs.
I remember being told, “Don’t worry, even if the Japanese take over the steel and auto industries, we still have electronics.” Then a decade later, we were told, “Don’t worry about the electronics manufacturing plants that are being moved to Korea and Taiwan, because we still have the software and engineering.” Then a decade later we were informed of the research and engineering centers being opened in China by our transnational corporations. And, so it goes. Add the impact of automation on manufacturing and the future of those kind of jobs here looks rather bleak.
The rise of Trump and Sanders in this election season comes as no surprise to me. A century ago, William Jennings Bryan led a populist revolt against industrialization. He lost, but there was a future of industrial jobs created during the Industrial Revolution that helped mitigate the transition. The Information Revolution has not supplied the equivalent number of replacement jobs and is diligently working to eliminate more of them with automation. So what’s next? Tell me what the future will be for my grandkids?
This is the first in a series of blogs addressing this issue.
To the Multinationals: You Can Come Home Again, China and an Opportunity
To many, this recent stock market turndown as a hunker-down time. You know the markets will eventually recover, but you just have to ride it out. Others have sold or shorted stock on the hope of short term gains, though history shows that market timing is more difficult than it seems. To others this becomes an opportunity. Those with free cash available will also try to make a killing by timing the market and buying while prices are low. All of those represent standard “inside-the-box” thinking. I’ve always believed that one person’s downturn is another’s opportunity. During the recession that began in 1873, Andrew Carnegie used the downturn in prices and wages to build up his steel company by making investments in new equipment and hiring more workers. When the depression ended, his company was in position to take off, and the rest is history, as they say.
Now the world is facing a downturn in China’s growth. Add the stock market drop to the recent Chinese environmental and safety-related disasters, and the decrease in economic growth, and China isn’t looking like the path to riches it once did. To me China has always been a bubble waiting to burst. Well, it has. China may continue to grow but it will certainly mature at a much slower pace. Now we can decide what to do. We can hunker down and ride it out. The Federal Reserve will undoubtedly put off the expected increase in interest rates planned for the September time frame. The US economy will chug along at 2% growth or so. And a few rich people with free cash may make some more money by buying the temporarily depressed, cheaper stocks. Or we can take advantage of an opportunity here.
The Opportunity
Sometimes an opportunity arises when two very divergent issues can be made to converge. Right now the US is faced with a deteriorating infrastructure and a lack of will to pay for it. (I’m being polite here). The highway trust fund is out of money and Congress isn’t willing to raise gas taxes to pay for it. For a Republican, voting to increase taxes can be likened to political suicide. So they voted a three month extension, kicking the can down the road.
At the same time more companies who took business offshore and now may be looking to return to solidity of the US economy and workers. The Chinese hare isn’t looking so fast any more, and the US tortoise may be looking more attractive right now. The problem is what to do with those profits that these multinationals have been stashing overseas. They certainly don’t want to pay what they consider the exorbitant 35% US taxes (though they hardly ever pay at that rate) on these profits. Bloomberg reported that these stockpiled offshore profits may be as high as $2.1 Trillion. So what to do?
The Solution
Of course, Democrats certainly don’t want to lower the rates. It’s a matter of principle. Pay your fair share is their battle cry. The argument goes that the multinationals will invest any taxes saved. The democrats don’t buy that. They believe the funds saved in the reduced taxes will go the stockholders in share buybacks and not result in increased US investment. So here’s the solution. It requires people to bite down a bit on their ideological urges. Congress passes a law that reduces the tax rate to 25% on those “stashed” profits but requires all the money collected to be used only for capital improvements. In other words, use the “windfall” of taxes to fund the Highway Trust Fund and other capital improvements. To the multinationals: consider this as an investment. The capital improvements will not only enhance the nation’s efficiency, but it will provide a short-term stimulus. Construction jobs typically pay higher than minimum wage. More money in the pockets of consumers means more money to buy stuff – an opportunity for the corporations to sell stuff. The multi-nationals can also claim they are making an investment in America. Current low interest rates also provides the opportunity for lower cost investments by these multi-nationals to move manufacturing back to the US, while also providing an opportunity for the government to make more infrastructure investments through low interest bonds. The Republicans can claim this as a tax cut (35% vs 25%) and can claim they helped fix the nation’s infrastructure without raising taxes. The Democrats can declare this as a victory in gathering owed taxes and funding infrastructure. Both sides can claim they helped bring back manufacturing. (Let their spin doctors fight that one.) The ultimate winner is the American people.
The Rocket Lair 