Waiting, Wondering, Worrying

What if 10% unemployment is the new normal?

“In the ’80s,” Baker continues, “we went in a different direction, with policies that were antithetical to manufacturing, and we deregulated a lot of major industries such as airlines and telecommunications, which put more downward pressure on wages in those industries. In the short term that may benefit companies, but over the long term I don’t think it leads to healthy growth.”

As recently as August, the manufacturing sector reported 403 mass layoffs, according to the U.S. Bureau of Labor Statistics, resulting in 46,540 lost manufacturing jobs. Combine that with the fact that between 2000 and 2009 the inflation-adjusted median household income fell by almost 5%, and CFOs become alarmed. “An economy built on shopping malls and serving lattes doesn’t work,” says Steven Kasok, vice president and treasurer of $1.7 billion Millipore Corp., a unit of Germany’s Merck KGaA. “In order to have a robust economy you need a robust middle class, and I think fundamentally that means you need to manufacture products.” (For more on manufacturing trends, see “Made in America.”)

Blame It on Taxes?

Many CFOs contend that U.S. tax policy conspires against a manufacturing renaissance. The country’s high corporate income tax rate — second highest in the world after Japan’s — has prompted U.S. companies to reinvest overseas much of the money they earn there, rather than repatriate it. John Chambers, CEO of $40 billion computer networking company Cisco Systems, recently said that if his company could bring home the roughly $30 billion it holds in foreign countries without suffering onerous tax consequences, the company would boost hiring in the United States by 10%.

“In order to employ people, you have to bring manufacturing back into this country, and you are not going to be able to do that until you give manufacturers an incentive to stay in this country,” says Sue Hall, treasurer of Lewart Co., a small, privately held producer of injected molded-plastic products in Cleveland.

“There is no reason we shouldn’t be able to have a tax policy and an investment policy encouraging the manufacture of products here,” adds Kasok. “Then you would have this robust middle class of people buying.”

The Obama Administration has recently floated a number of ideas aimed at jolting the economy, and the jobs market, back to life. In September, for example, the President proposed allowing companies to deduct the full cost of new capital investments in the year they are made, rather than writing them off over periods as long as 20 years. But as Cunningham notes, “Capacity utilization rates all around the country are already low. If I’m in a position where I have a lot of unused plants and equipment, why would I want to buy more?”

President Obama also has proposed permanently extending the tax credits that businesses get for investing in research and development. But those credits have been extended on an annual basis for so long now that most finance executives have come to count on them anyway.

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