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Plans for U.S. manufacturing may yield more votes than jobs

By Andy Sullivan

EASTLAKE, Ohio (Reuters) - U.S. factories are hiring again, and Democratic President Barack Obama and some of his Republican rivals are pitching tax breaks to fuel a rebound in manufacturing and help rebuild a battered middle class.

A focus on manufacturing may be good politics, as Rust Belt states like Michigan, Ohio and Pennsylvania are likely to be hotly contested in the November 6 election.

But is it good policy?

Economists on the left and the right say promises to bring back factory work may yield more votes than jobs.

Industry experts say the United States is long past the days when steel mills, auto plants and machine shops boosted millions of unskilled Americans into the middle class.

"The days where you could get a job right out of high school, step on a (factory) line and make 35,000 dollars a year, 40,000 dollars a year, are pretty much not out there anymore," said Rich Peterson, a vice president at Astro Manufacturing and Design here in suburban Cleveland.

Astro, which makes products ranging from torpedo fins to medical scanner beds, is a good example of the new face of U.S. manufacturing. The company is hiring, but it needs workers with advanced mathematics and computer-programming skills.

Decades of productivity enhancements mean that factories have little need for unskilled workers. Though the sector added 237,000 jobs last year, the Labor Department projects employment will shrink by 2020.

Service-sector employers, by contrast, will add 18 million jobs by then.

Economists say the middle class would benefit more from efforts to boost the economy as a whole, rather than a particular sector such as manufacturing.

Still, that hasn't stopped some candidates from suggesting that a resurgence of factory work would revive the fortunes of blue-collar workers who have seen their prospects dwindle as low-skilled manufacturing jobs have left for China or Mexico.

Obama, backed by labor unions that play a large role in the manufacturing sector, has made the government bailout of the auto industry a centerpiece of his re-election campaign. He has called for tax breaks and other policies aimed at re-opening shuttered factories and bringing jobs back from overseas.

Republican presidential candidate Rick Santorum, a former senator from Pennsylvania, says manufacturers would create more jobs if their corporate taxes were eliminated entirely.

Like the auto industry's resurgence, such proposals may strike an emotional chord with recession-weary voters who have suffered through two financial bubbles in the last 12 years.

But they would not be an effective way to rebuild the middle class, tax experts say.

"Manufacturing is something that's tangible and is easily seen by the voter," said Will McBride, an economist with the business-friendly Tax Foundation. "That's what's going on here - it's not based on any sort of economic reasoning."

Joseph Rosenberg of the non-partisan Tax Policy Center agreed.

"There's a political aspect" to the manufacturing proposals, he said. "It sounds good, it has sort of a patriotic feeling to it."

A DEAD-END CAREER CHOICE?

Obama and Santorum would find a lot to like at Astro, which employs about 280 people.

Machinists use three-dimensional modeling software to program $700,000 lathes that can be set up to run overnight unattended. The finished product is accurate to within 1/1000th of an inch.

Workers with such skills can command up to $30 an hour, and the company can't find enough of them as it gears up to double its sales over a five-year period. Astro is working with a local community college to develop new talent and reverse widespread perceptions that manufacturing is a dead-end career choice.

"People have been steered away from it, especially young kids," said Mike Franks, a production manager.

Cleveland, a city long synonymous with Rust Belt decline, now has an unemployment rate of 6.9 percent, well below the national average of 8.3 percent.

Medical research, not steel, now drives the local economy. Astro is working with the Cleveland Clinic, a leading education and research hospital, to developing surgical tools that are customized for each patient.

Obama has touted the U.S. auto industry's resurgence since his administration led bailouts of General Motors and Chrysler in 2009 and highlighted incentives that encourage manufacturers to buy new equipment.

In his State of the Union speech last month, Obama proposed expanding a tax break for domestic manufacturing, rescinding tax breaks for companies that move jobs overseas, boosting efforts to fight unfair trade practices and increased vocational training.

On Wednesday, he called for lowering the corporate tax rate for manufacturers to 25 percent, below the 28 percent rate he proposed other companies would pay.

Santorum has called for eliminating the corporate income tax for manufacturers entirely and expanding other tax breaks as a way to create stable jobs for workers without a college education.

Santorum's Republican presidential rival, former Massachusetts Governor Mitt Romney, has promised to aggressively challenge China on trade practices he calls unfair and to push that country to increase the value of its currency, a move that would help U.S. manufacturers by effectively raising the cost of Chinese exports.

Romney has stood by his opposition to the U.S. auto bailout, which could complicate his prospects in states such as Ohio and Michigan that are tied closely to the industry. Michigan holds its Republican presidential primary on Tuesday.

Many economists say that tax breaks focused on manufacturing would likely be exploited by other businesses as well. An existing tax break for domestic manufacturing is now claimed by nearly every other business sector, according to Internal Revenue Service data.

"Every barbershop is now going to claim that they manufacture haircuts," said Jared Bernstein, a former economic adviser to Vice President Joe Biden who thinks the government would do better to help commercialize academic research and aid emerging sectors such as clean energy.

Others question whether manufacturers should get any special treatment at all.

Christina Romer, Obama's former top economic adviser, argued in a February 4 New York Times opinion piece that the government would do better to boost the economy as a whole through tax cuts and aid to troubled state governments. Increased construction spending would do more to create good jobs for low-skilled workers, she said.

Voters are open to government help for manufacturing, partly out of concern that low-wage service industry jobs will be all that is left for unskilled workers if manufacturing fades further.

Some 69 percent of likely voters surveyed by the Alliance for American Manufacturing in June 2011 said government should take steps to boost manufacturing, while only 23 percent said the government should not interfere in the economy.

Manufacturing was viewed as more important to the economy than healthcare, high tech and other sectors.

White working-class voters aren't a crucial voting bloc for Obama, whose 2008 victory was powered by a coalition of minority and college-educated voters.

But he will have to limit his losses among blue-collar voters to stay in the White House, according to Ruy Teixeira and John Halpin of the liberal Center for American Progress.

Democrats generally fare better among the white working class in the industrial Midwest than they do elsewhere. Obama lost this group by 2 percentage points in this region in 2008, compared with an 18 percentage-point deficit nationwide.

Voters in Ohio are likely to view any plans to revive manufacturing with skepticism, said Ohio State University political science professor Paul Beck.

"They've seen these promises before," Beck said. "Politicians have come and talked to them, Democrats and Republicans, about how they're going to do something to improve the job climate. It really doesn't get better over time."

(Editing by David Lindsey and Eric Beech)

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