Can Politicians Help Bring Jobs Back From China?

Mitt Romney has said if he’s elected president, he’ll create 12 million new jobs. President Obama says his administration will help build 1 million jobs in manufacturing. Reaching those goals, for either man, would involve bringing back jobs from China, or at very least, stemming the tide of job losses.

Voters in the swing state of New Hampshire may well have an extra interest in hearing more details about Romney and Obama’s plans. According to a new study from the Economic Policy Institute, New Hampshire earned the dubious distinction of losing more jobs to China, per capita, than any other state between the years 2001 and 2011.

Companies like Watts Water Technology helped the state secure that spot. The company had been making water control valves at its Webster Valve factory in the town of Franklin since 1959. But the economics of building in China were simply too enticing. The company began shifting jobs to China a dozen years ago.

The company didn’t entirely shut things down in New Hampshire though. And today, the Franklin factory is once again bustling.

That’s because it’s starting to make sense to bring some jobs back home, said operations manager Ken Sargent.

“The cost of labor in China is constantly going up, the fuel to get it here is constantly going up, a lot of the benefits of doing business in China have deteriorated.”

And operations are becoming more streamlined in New Hampshire Sargent said, “which makes it a lot more cost-effective to bring the work back to the States.” And Sargent is happy to be back home.

“In China, I really didn’t know what to expect. I had translators for many of my meetings. The cultural barrier is significant. It’s much harder for a manager to come from the United States and not offend the Chinese people.”

All told, Sargent said the company brought back between 125 and 175 jobs, about two-third of what they originally lost to outsourcing.
Government Assistance?

The company is one of only a handful in the state to even consider moving jobs back from China. It does still manufacture some of its products in China to serve its Asian customers.

Still, Watts Water is an insourcing success story, one that many politicians like to highlight.

I asked the company’s Director of Operations Tyler Stone how much government incentives influence their decisions to relocate jobs.

“I would say it can help, but it’s usually never the driver. The driver is really around how we serve our markets and our customers,” said Stone.

Here’s what Richard D’Aveni, professor of strategy at Dartmouth’s Tuck School of Business, thinks of politicians taking credit for bringing manufacturing jobs back from China: “It’s all baloney.”

That’s not to say that government shouldn’t try to help businesses compete with China. D’Aveni says we’re in a new economic Cold War. He says we’re losing, in part, because we’re failing to adapt.

“Our form of capitalism is at a disadvantage compared to state capitalism. And so far, what we’ve tried to do is to level the playing field by getting the Chinese to act like us, WTO, World Trade.”

That might stop China’s economic juggernaut in the short-term, but D’Aveni said it’s a losing strategy for the long term.

D’Aveni argues for what he calls “Strategic Capitalism,” which is also the name of his new book. Basically, he says American leaders need to become more engaged in economic policymaking, thinking long term.

But what voters often hear are promises to restore what we’ve lost.
Don’t Look Back

Dennis Delay, an economist with the New Hampshire Center for Public Policy Studies, said it doesn’t do us any good to look back.

“If you look at the manufacturing jobs that have been lost, in a very real sense those jobs have gone and probably will never come back. In part they’ve gone to China or to Mexico, or to other countries with lower labor costs or lower natural resource costs. But in part they’ve been replaced by automation, by technological change.”

Delay said tax breaks or subsidy programs can create a short term boost. But to promote long-term economic growth, policymakers need to focus on educating the workforce and investing in capital development.

“I think where New Hampshire competes is in producing high value-added products that require a significantly trained workforce. And that’s a very difficult combination for other countries to be able to match.”

To see that formula in action, take a ride up the road to the town of Hanover and the company Hypertherm Inc.

“We make high temperature metal cutting equipment that’s used around the world for cutting plates, steel, stainless steel, and aluminium,” said Evan Smith, the company’s president.

Most of the company’s 1300 employees work here in New Hampshire. And the company exports 20 percent of its product to China. So, why not just move the factory to China too?

“Well there’s nothing that technically requires it to be here in the US,” said Smith.

He compares his company to successful German manufacturers.

“And these are companies that usually have a very deep tradition and a niche technology, but have established a worldwide leadership position in that, invest for long term.”

That includes investing in workers. The company has put a couple of million dollars into a training institute to ensure a steady stream of skilled machinists. The company got help for this from the states of Vermont and New Hampshire and the federal government.

That’s the type of government support many in the state are calling for and want. The presidential candidates do address workforce training in their platforms, but most of their economic arguments center on taxes.

Mitt Romney promises lower business taxes. Barack Obama says he’ll end tax breaks for companies that outsource American jobs.

I asked Evan Smith at Hypertherm how much he considers taxes when deciding where to manufacture.

“I can’t think of a single strategy meeting that we’ve had where that’s come up,” Smith said.