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Dow CEO Talks Manufacturing On CNN

Dow CEO Andrew N. Liveris appeared on a CNN special Sunday night hosted by Fareed Zakara titled “Restoring the American Dream, Getting Back to Work.” The segment with Liveris can be found here.

As previously noted by The Chemical Notebook, and in C&EN, Liveris wrote a book on rejuvenating American manufacturing called Make It In America: The Case for Re-Inventing the Economy” . (My review was blurbed in the editorial review section of the Amazon listing!)

I transcribed some of the interesting quotes from the CNN piece:

Zakaria: The manufacturing jobs of the future are high-tech and high paying, but isn’t it impossible to lure those jobs to America since our labor is more expensive than other countries’? Absolutely not, says Liveris, labor accounts for only 8% of his total costs.

Liveris: I do not make a decision on where to site my factories based on labor costs. I make it based on—totally–around the policies to encourage me to invest there and the human capital to support. And that’s why, at the end of the day, we still have a chance in this country.

It should be noted that chemical operations are capital intensive, not labor intensive.  Here’s a link to some data from the Census Bureau’s 2002 Economic Survey. For chemicals, the value of shipments per paid employee is more than twice the average for the entire manufacturing sector. And the chemical industry’s average ratio of shipments to payrolls stood at 10.33. Only the petroleum and coal (35.00) and the beverage and tobacco (15.27) industries have higher ratios.

At chemical plants, you see a lot of plumbing and reaction vessels, but not many people. The human activity typically occurs a) in the control room, (b) at the loading and packaging area, and c) at the guard shack. So when Liveris says the cost of labor isn’t a big factor in his decision making, we can’t necessarily assume that this applies to other manufacturers, making other kinds of products.

Liveris made another point in the interview, one he makes often, which I think is very important to C&EN readers. This is that research and development will follow manufacturing overseas.

Liveris: When you make stuff, you don’t realize that when you move the making somewhere else, then the people who know how to make it have the intellectual knowhow to make the next one.

Zakaria: But now they are in China.

Liveris: They’re in China. So you have lost the supply chain as well, and your creativity has created huge jobs elsewhere of the continuous kind. It’s not just the job of the first Kindle, it is the job of the second, third, and fourth.

As he’s done in the past, the Dow CEO called for a national manufacturing strategy.

Liveris: I do think your notion of a modern day industrial policy, a national, advanced manufacturing policy to spur investments, not subsidies, not incentives, just to make it easier and more understandable would be a great start.

Singapore is the classic example of that, Lee Kuan Yew’s Singapore. They are already working on the next industries, in their case, biotech. Germany gets it. Germany, a high wage cost country, understands that I have got figure out what’s going to follow, when the Chinese finally copy my advanced engineering equipment, which they will do.

The “not subsidies, not incentives” part I found interesting. In his book, he had much to say about incentives and how the U.S. should offer incentives similar to the lush subsidies for industry offered in Asian countries.  “The problem is that if we refuse to offer these kinds of incentive packages while other countries are aggressively outdoing one another, we put America at a clear competitive disadvantage,” he wrote.

He now seems to be downplaying this view. I do wonder if this interview was conducted after the Solyndra story broke.

Liveris closed with this.

I’m not afraid of a conversation that says working with government. It’s not big government or small government, it is smart collaborative government, which is, I think, the model that has made the United States great. It is the model that has created innovation of the great kind in the United States around crisis, World War I, World War II, NASA and a man on the moon. Do we have a crisis today? I would like to think that the answer to that is “Yes”.

These aren’t great examples, though they are often cited to make similar points. The manufacturing problem is indeed serious and could lead to a continued period of anemic job creation and stagnant wages. But it isn’t to be compared to World War II, when the U.S. faced an existential threat and the U.S. government spared no expense to defeat the Axis powers. The moon landing was a very important episode in the Cold War, and the government was willing to pay anything to send three men to the moon and bring them home safely before the Soviets did something similar.

I do think that the point of government collaboration is a valid one. I think a better example is the First Transcontinental Railroad. The Pacific Railroad Acts raised bonds at low interest rates for the Union Pacific and Central Pacific railroads and granted enormous parcels of land to these companies. (These also remind me of the kinds of incentives that Asian countries give to companies today.)

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