Monday, February 23, 2009

Government Ignores Root Causes

The current economic situation in the United States should come as no surprise. Those aware of the root causes anticipated this crisis long ago. The steady and steep decline in our manufacturing sector and education levels over the past 30 years left the U.S. in a weakened position. The collapse of the financial system simply exposed the more fundamental deficiencies in our economy.

Now, the U.S. government is scrambling to institute a variety of “stimulus packages” to ameliorate the situation. Unfortunately, many of these programs do not address root causes—and will put our children into an even deeper hole. Our inability to compete globally did not result solely from the financial meltdown and will not be remedied by massive government spending.

Americans can pull ourselves out of this crisis, but we must understand the causes of our decline. The right decisions require fortitude, discipline, and the American people taking responsibility for their own futures. The right decisions will not be popular, even though they would be effective and ultimately provide our children with economic strength and opportunities.

Most politicians do not appear to understand the behaviors of the manufacturing, education, and financial sectors responsible for our economic collapse. This article briefly describes only a few root causes. These are not the only causes, but they are significant and generally unacknowledged.


The United States has been steadily losing manufacturing jobs over the past 30 years. In fact, 35% of our high-paying manufacturing jobs have disappeared (Bureau of Labor Statistics). More amazing is that U.S. demand for products has nearly tripled during that same period (U.S. Bureau of Economic Analysis).

Sending jobs overseas has weakened the United States considerably. Manufacturing jobs have traditionally been high-paying jobs, and with the loss of those jobs, Americans have less spending power and the government fewer income tax dollars.
Manufacturing executives have been exporting our jobs to “lower-wage” countries. Their excuses have included high labor and benefit costs and strict regulations. However, an inside look would reveal that American manufacturers have been staggeringly inefficient in producing parts “right the first time.” The amount of money spent on waste, rework, and inspection has cost manufacturers dearly. Executives opted to export jobs rather than to optimize manufacturing systems and address the gross internal waste.

To make matters worse, manufacturers spend 2% of revenue on warranty costs—even as they lose money. The deaths, injuries, and property damage associated with consumer products cost the U.S. over $700 billion annually (Consumer Product Safety Commission). There have been over 76,000 separate vehicle recalls over the past 40 years and each recall may involve hundreds of thousands of vehicles. The billions of dollars spent on vehicle warranty annually have devastated the former “Big 3.” Had our manufacturing sector truly optimized their designs and production systems, they would have remained highly profitable while employing American workers.

Manufacturing executives have collected obscene compensation while running American companies into the ground. Rather than being rewarded for long-term corporate health, market share growth, and developing innovative products that are competitive with global leaders, they have been grossly compensated while destroying our brands. Long-term optimal strategizing has been replaced by short-term, reactionary decisions in product development and manufacturing.

We have an education crisis in this country. Consider the following statistics from the National Center for Education Statistics:

1. Our 15 year-olds rank 25th worst in standardized mathematics testing among the 30 participating countries!
2. Of the Ph.D. degrees we issue in science and engineering, over 60% go to foreign nationals. The majority of graduate students (in technical disciplines) in our publicly funded universities are not Americans.
3. The number of American 18 – 24 year-olds who receive scientific degrees has fallen to 17th in the world. We were 3rd in the 1970s.

Children in the U.S. spend less time in school than children in the high-ranking countries. Most parents and teachers do not comprehend the criticality of mathematics and science, but these are the skills necessary for innovation and technological achievement—the areas needed to fortify our economy.

While millions of Americans are looking for jobs, many technical fields still lack qualified American candidates, so the work is exported. A strong U.S. economy requires the dedication to excel in demanding but vital disciplines needed to stimulate future growth (e.g. engineering, science, math, information technology).

There are many root causes responsible for our economic collapse. This recession will be deeper than necessary due to the steady decline of our manufacturing base and technical achievement over the past 30 years. It is time for frank discussions about the values and work ethic that led to America becoming an economic powerhouse and the apathy that has led to its decline. Unfortunately, our children will face debilitating debts to pay for our attempts to “quick-fix” the economy.

Author: Allise Wachs, Ph.D., President, Integral Concepts, Inc.,