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President Obama Champions Manufacturing In The SOTU

During last night’s State of the Union address, the president spent roughly the first quarter of the speech talking about manufacturing. Does Obama have the right solutions? Time will tell. (It is an election year, so little will get done anyway.) But the Administration has certainly identified the right problem: the need to turn around manufacturing in the U.S.

The speech began with the auto companies:

On the day I took office, our auto industry was on the verge of collapse.  Some even said we should let it die.  With a million jobs at stake, I refused to let that happen.  In exchange for help, we demanded responsibility.  We got workers and automakers to settle their differences.  We got the industry to retool and restructure.  Today, General Motors is back on top as the world’s number-one automaker.  (Applause.)  Chrysler has grown faster in the U.S. than any major car company.  Ford is investing billions in U.S. plants and factories.  And together, the entire industry added nearly 160,000 jobs.

We bet on American workers.  We bet on American ingenuity.  And tonight, the American auto industry is back.  (Applause.)

What’s happening in Detroit can happen in other industries.  It can happen in Cleveland and Pittsburgh and Raleigh.  We can’t bring every job back that’s left our shore.  But right now, it’s getting more expensive to do business in places like China.  Meanwhile, America is more productive.  A few weeks ago, the CEO of Master Lock told me that it now makes business sense for him to bring jobs back home.  (Applause.)  Today, for the first time in 15 years, Master Lock’s unionized plant in Milwaukee is running at full capacity.  (Applause.)

Let’s make one thing clear: “bankruptcy” isn’t the same thing as “going out of business”. The public seems to conflate those two things, perhaps for understandable reasons. Usually the 11 o’clock news stories about bankruptcy filings are discussing local retailers. Retailers are usually laden with a lot of working capital—namely inventory—and not a lot of fixed assets (Usually some readily sellable real estate and store infrastructure). Such retailers are easily liquidated and simply disappear.

Big manufacturers have a lot of equipment that isn’t as easily transferrable to other firms. If there had been a normal bankruptcy procedure, GM and Chrysler, could very well have emerged as successful car companies. LyondellBasell went through bankruptcy around the same time. It emerged, and it is now making manufacturing investments again.

However, it is also likely that the government-controlled procedure might have allowed for a more orderly process, especially in regards to a labor-management agreement. And the government likely offered the financing on more attractive terms than private banks would have been able to provide in the middle of the financial crisis.

Much of the remarks had to do with tax policy:

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