Some thoughts from our CEO on the problems of American manufacturing.
A knowledge- and service-based economy is not sustainable without a healthy manufacturing sector, argued Graco Inc. CEO Patrick McHale on Tuesday. And the nation's manufacturing industry needs some TLC to survive.
McHale, speaking at the 2012 Manufacturers Summit held at the Minneapolis Airport Hilton in Bloomington and sponsored by the Minnesota Chamber of Commerce, described what he sees as "an advanced manufacturing trap" driven by the exporting of low-pay, low-skilled jobs overseas.
That trend has been cheered by investors and accepted by policy-makers, but he added it also will eventually cost the United States its manufacturing prowess for the highest-skilled, most profitable types of work.
The reason: Companies that focus on low-skill jobs have more incentive to move up to more sophisticated work, where profits are higher, McHale said. It's much more difficult for U.S. companies to move back down the same ladder, rebuilding factory equipment and adding employees with basic manufacturing skills.
"Countries have been eager to take manufacturing from us, and they're building a middle class," he said. "I see that as a red flag."
Call for update
McHale described some challenges that face manufacturers with U.S. trade policies, which he said are out of date.
Minneapolis-based Graco, a maker of industrial and commercial spray equipment, (NYSE: GGG) fought a well-publicized battle with the Federal Trade Commission in the past year over antitrust concerns the FTC raised regarding a potential acquisition by Graco of a part of Illinois Tool Works Inc. (NYSE: ITW).
Graco lost that dispute and was forced to sell part of the business it acquired. If a Chinese company had proposed the same acquisition and moved all of the jobs to China, "the U.S. government would not have stood in the way," McHale said.
"The root of the problem is the prism that we look through is old." he said. "The Sherman antitrust act was written around 1900 when the U.S. was the major power in manufacturing. If you dominated the U.S. you dominated the world."
Remedies beyond "buy American"
To turn the tide it's important for more American consumers to buy products made in the United States, he said.
McHale also talked about the need to control health care costs in America — stating that he can hire three good employees at a factory in China for what it costs to pay just the benefits of one employee in Minnesota.
McHale put some onus on schools and parents to help teach kids about manufacturing careers, and to start them young. Sixteen or 17 years old could be too late to get kids excited about manufacturing because by that age students have been convinced that they can either "make cartoons or take care of old people," he said.