The Escalating Cost Crisis

By September 28, 2006Manufacturing Institute

Yesterday NAM, The Manufacturing Institute and the Manufacturers Alliance/MAPI released one of the most important reports of the year for manufacturers and those who care about the U.S. standard of living.

The Escalating Cost Crisis is an important followup report to our 2003 report, How Structural Costs Imposed on US Manufacturers Harm Workers and Threaten Competitiveness. That report showed that U.S. manufacturers had a 22.4 percent cost disadvantage when compared with our nine largest trading partners.

The 2006 report is an update which shows that Congress hasn’t done enough in the past three years to make manufacturing here more competitive. The gap has grown to 31.7 percent–a 42 percent increase. Manufacturers are doing their part by investing in R&D, training workers and developing new products and processes at a furious rate. Government needs to more clearly see its role. There are three myths that are debunked in the new report:

* Myth: US business taxes have been cut to the bone. Reality: the report shows that the United States is standing still while the rest of the world is cutting corporate taxes. The OECD average rate is now a full 10 points BELOW the U.S. rate. In our report, only Japan is higher. It telltale when even German socialists are cutting corporate tax rates but the U.S. hardly budges.
* Myth: Europe is greenest. Reality: The report looks at the costs of pollution abatement regulation and finds that this country spends more of manufacturing output on it than France, Germany or the UK. What does this mean? It could mean that those countries are more efficient regulators, gaining environmental improvements without saddling their manufacturers with extreme costs. Or it could mean the greener.
* Myth: Energy is a disadvantage for the US. Reality: Just ten years ago, the US had a large international advantage because of our large natural gas reserves. That’s been turned into a cost–a disadvantage–in the past decade though and it is one of the saddest elements in the cost study report. That’s because we have ample natural gas resources that manufacturing needs, we are just not deploying them. So US manufacturers pay more for this fuel than counterparts in Canada, UK and elsewhere. Sad because we can remedy it easily by allowing more drilling but Congress can’t seem to get there.

For the full report, click here….