Mr. J. Richard Dillard, Jr.
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Director of Public Affairs, Milliken & Company
and
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Before the
U.S.-China Economic and Security Review Commission
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Field Investigation on China’s Impact on the U.S. Manufacturing Base
Friday, January 30, 2004
It is a pleasure to testify before the U.S.-China Economic and Security Review Commission this afternoon. My name is Richard Dillard, and I am Director of Public Affairs for Milliken & Company. Milliken is a large privately-held textile and chemical company headquartered in Spartanburg, S.C. and founded in 1865. We are a Malcolm Baldrige National Quality Award winner and recently were named the 16th Best Company in America to work for by FORTUNE Magazine. Unfortunately, last year, we announced we would be closing two of our modern facilities due to our markets being taken by low wage produced imports. Thus we see U.S. trade policy is destroying, not America’s menial and unwanted jobs, but America’s best jobs. Today Milliken still has over forty manufacturing facilities throughout the southeastern United States. Those jobs along with others in our industry are in jeopardy. We also have manufacturing facilities in nine other countries to serve their regional markets. We make goods there to sell there.
The written_testimonies I am presenting is the result of collaboration with those in our company who have witnessed and experienced the devastation of unnecessary job loss, as well as those who are fully engaged in monitoring our Washington trade policy. I have worked for Milliken for twenty-eight years. During that time I have witnessed the wealth-creating power of manufacturing jobs for thousands of middle-income families in our company and others in our industry. I am not an economist and can only present to you some startling observations that we see as a threat to America’s manufacturing base and which are currently decimating our industry.
For the past ten years the textile industry has been devastated by imports due to dysfunctional and irrational national trade policies. Our massive job losses and numerous bankruptcies are not because the workers and executives in our industry all of a sudden forgot how to manufacture textiles. Our industries’ devastation is caused by major trade policy paradigm shifts that were instituted by a government that pays more attention to capital (as a consequence of corporate-related campaign contributions) than to labor. From the beginning of time the pendulum has swung between labor and capital as to who should benefit from the value-added in a manufactured good. For decades the pendulum has been pegged at the capital end of the pendulum’s swing.
During this period we saw a U.S. trade policy that created NAFTA, accepted membership in, and governance by, the World Trade Organization, and enacted a myriad of unilateral preferential trade agreements that include almost a hundred countries in Sub Saharan Africa, the Caribbean and Central America. Most of these were negotiated and passed in a vain effort to resurrect failed third world economies and for other geo-political reasons.
The purpose of our nation’s trade initiatives was not to develop our manufacturing base in the United States, it was otherwise. The effect has been the loss of over 900,000 jobs in the domestic textile and apparel industries and millions of additional manufacturing jobs in other sectors. You have already heard the numbers and statistics today. Regardless, we are told these trade agreements are “Win-Win” propositions.
When each and every manufacturing sector is being decimated, we are not experiencing “creative destruction.” Under that theory, yesterday’s jobs are replaced with other jobs further up the manufacturing and value-added food chain. Yesterday, protectionists decried the loss of buggy-whip manufacturers with the onset of the automobile. Or, they believed the loss of jobs was caused by the onset of advanced manufacturing technology replacing workers – they were called Luddites.
Today we are seeing the loss of jobs not in the buggy whip sectors, but in every sector exposed to international competition. We are losing jobs, because of imports and the national policies that encourage them. This includes sectors that are not in the buggy whip categories, but in industries vital to having a diverse manufacturing and employment base, and in products that are used each and every day.
Speaking from my industry's perspective, you may have arrived today in a vehicle with plush velour seats, walked into this building on a carpet, you're sitting on upholstered chairs, probably ate lunch on a table cloth with cloth napkins, in a room with curtains & drapes, and are wearing fabric, head to toe...in fact demand for textile products has never been greater...and there is no logical reason we should not be doing everything we can to provide U.S. jobs and use Americans to make products that we use every day and will forever. No one is asking you to protect buggy whip manufacturers or their workers.
Multinational corporate foreign direct investment has created massive global overcapacity in every industry. From autos, to t-shirts, to D-RAMs, the world makes more than it can consume – the victim in this environment is the unskilled worker and his company that chooses to manufacture in the developed countries.
Unfortunately for our country, the textile and apparel industries were only the ‘canary in the mine’ for all of U.S. manufacturing. It is not just basic industries like steel and textiles that are losing jobs. Almost without exception, we are sustaining losses across the board. -- high tech, low tech, capital intensive, and labor intensive. Dozens of manufacturing sectors have been decimated, both durable and non-durable.
This job loss is neither a regional phenomenon, nor one peculiar to particular states – we are losing jobs everywhere to outsourcing, offshoring, and unregulated international trade. China is fully capable of becoming the workshop of the world from apparel to advanced technology products.
So it seems the problem is not with individual U.S. manufacturing sectors or even with individual states – it is with our national trade and economic policies being decided by the Congress and the executive branch in Washington, DC. These policies have our country running a current account deficit of one million dollars a minute! As a society we are consuming more than we produce, and spending more than we earn. This is a prescription for disaster.
No one in Washington sees the problem, so no one is looking for a solution. After all, the safest job in America is an incumbent politician – they only lost a fraction of their jobs in the last two years. That is our fault (the American people), not the politicians. Representative government is guaranteed by our constitution. Good government is up to us.
The People’s Republic of China is the 800-pound gorilla on today’s trade scene. China is being charged with everything from manipulating its currency and utilizing slave labor to improperly subsidizing state-owned enterprises. These things, and many others, allow China to increase their ability to penetrate our market to the detriment of our country and its people. At Milliken we do not blame China. China is merely doing what nations do – they act in their own self-interest. The issue before us is why we are not acting in our national self-interest?
China with its 1.4 billion people must create one million jobs a month to have jobs for the new entrants into their employment sector. It is a political imperative. According to many observers, without this necessary job creation, social and political instability would follow. That is China’s problem, not ours. Surely it is not a burden the U.S. manufacturing worker must bear.
However, allowing China to insist on export-led job growth puts manufacturing in this country in peril. Under the guise of trade liberalization, our government has allowed China to continue on this path and seems willing to let our consumer market decide whether manufacturing stays in this country or not.
We did not let the market decide whether we would go to the moon – no, we assured it when we created NASA. We did not let the market decide whether we would have the greatest housing industry in the world – no, we gave mortgage interest tax deductions and assured it. Nor did we let the market decide whether we would be able to feed ourselves and a good part of the world – no we subsidized our agriculture.
When Henry Ford decided almost a hundred years ago to triple the wages of his autoworkers so that they might afford the automobiles they were making, he began the creation of the greatest market economy in the world. People that worked could buy things. They might even make enough to buy things that they did not need for their survival. This is called discretionary income. There is precious little discretionary income in today’s economy, unless ‘discretionary’ has come to mean ‘buying on credit’. Today being rich is having credit, not wealth. We are frittering our wealth away at an alarming rate because we are not creating it among the majority of our people.
Today globalization is starting to disintegrate for the simple reason that the people producing the goods cannot afford to buy them. Whether it is a running shoe made in China or an automobile made in Mexico, the offshore production worker cannot afford the item they are manufacturing. Consequently, it must be exported to another market – usually the market of first and last resort is the United States. The U.S., after all, had become the greatest consumer market in the world, which in earlier more robust times drove the greatest manufacturing base in the world. We are now in decline and decay.
Today, with globalization, no developing country can triple its wages so that its workers can become consumers. Name-brand marketers, retailers, and offshore producers will leave and go to another low-wage developing country flavor-of-the-month in a nanosecond.
Last year, the Dominican Republic lowered its minimum wage from $150 a month, to $100 a month – just so that they could remain in the hemispheric apparel manufacturing business. This is called the race to the bottom. Examples abound. Mexico is losing jobs to China too. Their wages are already too high to compete. The fifty or sixty countries who gain from textile and apparel exports today, will be reduced to five or ten tomorrow. Devastation of entire national economies will result. There will be no more Henry Fords tripling their workers wages so that they can become consumers
The United States, a first world country with naïve notions of global trade, is hemorrhaging excellent jobs at an alarming rate. However, the jobs we are creating do not pay as well, nor do they provide retirement and health care plans (the Clinton administration created 23 million jobs in eight years, but not one net new job was created in an industry subject to international competition). As a result, we are not creating jobs in industries subject to international competition – namely manufacturing. There are no service economies with a quarter of a billion people who can maintain the role as ‘sole remaining superpower.’
Were we to sacrifice all of our manufacturing jobs to China, they could theoretically absorb all 14,000,000 of them in a few short years. We would be left with no manufacturing, and China would still have their need to create a million jobs a month in perpetuity. We will have become a third world nation. It will be no ones fault but our own.
Our problem rests with our elected officials. Our Constitution (through the genius of our Founding fathers) gives the power to Congress (that branch of government created and designed to be closest to the people) to ‘regulate foreign commerce’ [Article I, Section 8, Clauses 1 & 3]. The people, through the election process, would guide Congress in this endeavor. In theory, our Founding Fathers felt the evil to be remedied was the king trading away the riches of the realm for purposes other than the good of the people.
Unfortunately for us, our children, and grandchildren, thirty years ago Congress started delegating their constitutional prerogative to the executive branch (the king) with Fast Track and Trade Promotion Authority (TPA). During that period this nation went from the largest creditor nation in the world, to its largest debtor nation. Now our foreign debt is so great the value of our dollar is crashing and foreigners are taking ownership of our land, companies and Treasury bonds. Interest rates will start to rise as a consequence of our lenders’ increased risk, and the last bubble will burst – the debt bubble.
American triumphalism and hubris are also to blame. The notion of being the ‘sole remaining superpower’ has gone to our policy makers’ heads. There is this notion that the American working man and woman can out produce anyone in the world. That somehow we are either genetically predisposed, or are preordained by God, to maintain this lofty role. At Milliken we harbor no such illusions.
At Milliken we know, and so does every manufacturer -- that we can take any fellow human being (whether he or she is Chinese, Mexican, or Irish) and with the proper training and equipment, he or she can produce as well as anyone else in the world with the same equipment and training. Since technology and capital can cross international boundaries with the click of a computer’s mouse, we know that other human beings elsewhere can do what we can do, and as well as we can do it – only they can do it at a fraction of the cost.
We also know there is very little made in America that cannot be made cheaper elsewhere. China has 1.4 billion human beings. Tens of millions of them are disciplined, adequately educated, and willing and able to work for rock bottom wages that cannot be matched in the West for good and sufficient reasons. If India, China, Cambodia, and Vietnam only train a fraction of their people, they can take every worthwhile job in this country. There are after all, well over two billion people in the world that live on two to three dollars a day. We either decide to protect what we have, or reconcile ourselves (and our children and grandchildren) to losing it.
It is imperative that we protect our jobs, the manufacturing base, and our middle class, or we will become a nation divided. We will have those who have a college degree of some kind (about one-third of our population), and we will have those that do not have advanced degrees. It is incredible that Washington, in a democratic republic, seems willing to create an underclass of the two-thirds of the American workforce that are classified as unskilled workers. One must remember that free trade pits the unskilled workers of one nation against all the unskilled workers in the rest of the world. The U.S. ‘unskilled’ worker cannot win that competition. We are a first world nation and there is no going back without social and economic chaos. We will remain a first world nation only so long as we are willing to keep and defend it.
At Milliken we know this nation became great by the sacrifice, blood, sweat and tears of many earlier generations of Americans. We believed in independence, not interdependence; managed and regulated trade, not free trade; in sacrifice now for future rewards, not instant gratification on credit. We believed in the importance of creating a stable middle class. Great men, not financiers, decided our nation’s future course.
The middle class is a buffer between the poor and the rich – something no third world nation has. Our economy, at one time, sustained a $65,000 a year autoworker that could support his family, buy a house and a car, and could even pay to send his kids to college (and if his wife would agree, might even buy a mountain cabin). He did this with a high school degree (you will recall that two-thirds of our workforce has less than a college degree of any kind. This has not changed in half a century which indicates that this will not necessarily change tomorrow or in our lifetimes). We either find, create, or preserve jobs that can provide a middle class income for the majority of America with less than a college degree or, as my daughters would say, “This nation is toast.”
We are not better off when major automakers went from being the largest domestic employers in America to being the largest domestic employers in Mexico. Wal-Mart, with 1.4 million workers is now our largest domestic employer. This is an example of what happens if you take the needs of the consumer – rather than the needs of the nation – to its absurd conclusion.
No one is saying that we should build walls around our country and that we stop trade. Trade is good, but only to the extent that it benefits us. Each nation must do what is in its own self-interest. If the purpose of our economy is to enrich our people and to give stability to our society, then a radical shift in course is warranted. We, and our market, have become a playground for multinational corporations of suspect national loyalties. Our political leaders are using free trade as a goal, rather than as a strategy for economic development. The politicians are owned by the multinationals that have not generated net employment growth in this country in decades. China is only their low-wage flavor at the moment. China is a symptom of our national problem, not the cause.
There are other options available to be studied. Warren Buffett has one whereby we could only import goods to the extent that we export goods. Buffett, who is buying foreign currencies for the first time in his life, knows that we cannot sustain half trillion dollar annual current account deficits. He says you only buy foreign currencies when you think yours will collapse.
Sir James Goldsmith suggested that the United States should invite any company that wished to sell goods here, to become a corporate citizen of America. The company could bring its capital, its technology, build U.S. facilities, hire Americans at American wages, pay U.S. taxes and compete on the only level playing field that exists – that which exists among the several states, the largest market in the world. Their level playing field would have the same exchange rate; the same environmental law; the same labor law; the same safety regulations; and, the same taxes and social welfare safety net for its workers. To think that we can create a level playing field on a global scale is Utopian at best and absurd at worst.
No one here has the solution. However the maddening situation is that no Representative in Washington is looking for one. Thank you for having this hearing. I hope someone is listening.