“For a quarter-century,” write Alan Tonelson and Kevin L. Kearns in an op-ed published over the weekend in the New York Times, “American economic policy has assumed that the keys to durable national prosperity are deregulation, free trade and a swift transition to a post-industrial, services-dominated future.” I don’t know if that’s all true.

It seems to me that economic policy since the Reagan Administration has been a tug-of-war between idealists who propose agreements to open up trade with as many other nations as possible — NAFTA being the most obvious and controversial example; and idealists who portray the viability of a self-sustaining domestic market, in which domestic products always get tax and regulatory benefits to ensure the viability of the organizations that produce them, regardless of the value of that enterprise, or of the cost to the consumer.

But, that’s not the point of the column, which is illuminating. It should be read and understood, because Tonelson and Kearns are sharp observers of manufacturing and global economy. As representatives of the U.S. Business and Industry Council, an association of small manufacturers, they have influence in the debates over national economic policy.

The writers’ point is to highlight what they see as a deception in economic analyses, specifically those measuring growth in terms of “productivity.”  They observe that the U.S. Dept. of Labor measures an organization’s productivity by counting hours worked by domestic workers, even if the organization includes workers overseas. For example (my example, not the writers), an organization that imports semi-finished products for final assembly in the U.S. would be credited for the total value of the finished product but only the labor of the domestic workers would be factored into the production cost.

“The result is an apparent drop in the number of worker hours required to produce goods — and thus increased productivity. But actually, the total number of worker hours does not necessarily change,” Tonelson and Kearns write.

They contend that this method leads economists and analysts “to assume that recorded productivity gains always signify greater efficiency, rather than simple offshoring-generated cost cuts — leaving the rest of us scratching our heads over stagnating wages.”

I trust they’re facts are correct, but it seems to me they overlook the enormous influence of technology. For metalcasters, the productivity-enhancing effect of automation and process control has been tremendous. Adding an automated pouring line, for example, allows a foundry to produce castings for hours at a time without interruption, reducing total labor costs obviously but also increasing the total output of high-quality finished goods.

Understood this way, it’s clearer that “productivity” has been the reason that the domestic metalcasting industry has endured significant declines in the total number of operations (and, of course, total employment) without a parallel decline in output.

It’s also illustrates why “stimulus” spending in many industries has not and will not reverse chronic unemployment in manufacturing. Manufacturers don’t have to hire lots of workers to achieve productivity. Discounting the impact of "productivty," or reevaluting the cost of achieving it, will not change the way manufacturers conduct their businesses.

The federal stimulus is not the target for Tonelson and Kearns in their column, but it is another dimension in the broad discussion of how manufacturing is understood, and misunderstood, in federal economic policymaking.

About two weeks ago the word came from General Motors that an investment program will begin soon to prepare three plants to produce the newest version of the Ecotec engines.

It’s a $494-million project, and among the plants to be favored with that investment is GM’s big metalcasting complex in Defiance, OH … so, a big salute to the automaker for recognizing the importance of its basic operations.

On the other hand, the GM hasn’t told us much about how the money will be spent — which it might have been smart to do, considering who owns the company now.
 
Rather, the release used various adaptations of the phrase “fuel efficiency” to make us believe the money is being well spent. The real point of the release was to tell the world that GM is hiring about 550 workers.

The first and most prominent quote in the release was offered by automaker’s vice president for labor relations Denise Johnson:

“GM is transforming its product portfolio to reduce fuel consumption and emissions, and the next generation Ecotec engine is an integral part of that transformation,” Johnson stated. “The investment in state-of-the-art four-cylinder engines is another example of GM’s commitment to replace larger-displacement engines with more compact, advanced four-cylinder engines that optimize fuel savings and performance. We look forward to working with our union partners at these three plants to make this investment a success.”

Another quote in General Motors release about General Motors investment plans to manufacture new General Motors products was offered by UAW International Union v.p. and director Cal Rapson: “This investment is important because it supports manufacturing in the United States. All three plants have a strong reputation for building quality and focusing on the needs of our customers.”

Customers. Right. Sure.

Not long ago, a capital-improvement project, even at a fraction of this value, would bring forth pages of detail about the products to be produced, the technology to be deployed, and the timing of the project. There was good word-of-mouth publicity to be gained by exciting car enthusiasts, investors, and the public about the insight and capability of the company.

Now, we’re in a deep manufacturing rut and changes have been wrought that have bothered and disappointed almost everyone at some point. I’m not rapping GM for how it got into this position. And, to be clear, I am very glad they the automaker is hiring workers.

And, GM is not the only one pushing the notion that hiring = success.

But, an investment like this deserves some context — for the sake of GM's image and for the understanding of the public that cares, or ought to care, about how General Motors is improving.

Hiring workers on this scale when the U.S. economy has a chronic level of unemployment deceives readers and interested parties about the current state of affairs at GM. And, the prominence of this message in an announcement of this sort disappoints those of us seeking to reestablish confidence in a critically important company — and a critically important segment of the economy.

About two years ago I did some research into radio-frequency identification technology — RFIDs, as they are commonly called. The suppliers of the technology and equipment that I spoke to then were very glad to explain how it worked, its advantages, etc.

They detailed how RFID systems work for parcel delivery companies and retail operations, which use the systems to manage inventory. In industrial settings, RFIDs direct AGVs or other robotic devices, which is a logistics application that has cost saving implications. Some integrated steelmakers then were using RFID technology to track finished coils. But, though I pressed two or three different RFID suppliers, they were unable to point me to any applications in metalcasting.

We published a report last month about an RFID application for tracking molds. Now, I’m glad to learn that the same application has been adopted for commercial use, tracking cores for a brass and bronze foundry.

This is exactly the sort of example I was looking for two years ago: a manufacturer that uses available technology to monitor mass production. It doesn’t sound revolutionary in that description, but it’s a big advance for quality and cost control. The foundry managers should be congratulated for their foresight.

It’s also a hopeful sign for all metalcasters that their operations have been “identified” by developers of emerging technologies. They’re being tracked – which shows they are valuable.

Last week ended with some cheering economic news: the total U.S. economy grew by 5.7% in the fourth quarter of 2009 versus the third quarter. It was the fastest rate of quarterly growth since 2003, and indicators show it was largely the effect of inventory restocking. This is an additional hopeful sign, as it means manufacturers see a need maintain a higher level of readiness for business improvement.

But, there is trouble in the supply chain: MFG.com, an online marketplace for the manufacturing industry, reports that over one third of North American manufacturers it surveyed have experienced “significant supply chain disruption” over the past three months. It’s the second straight quarter for such a response.

Also worrisome: the respondents’ expectations for capacity and employment growth have not materialized.  In October 2009, the MFGWatch survey found 62% of respondents expected to maintain operating capacity in the fourth quarter, but in the more recent survey only 34% said they had done so.

As for employment, 13% of manufacturers stated in October that they anticipated staff reductions, but 38% actually reduced their employment levels.

MFG.com conducted its latest two-part survey in early January 2010, targeting North American supply-side manufacturers and buy-side OEMs: 334 manufacturers, purchasing pros, and engineers in automotive, aerospace, medical, industrial equipment, consumer products and textiles responded.

“Manufacturing continues to lag behind other sectors in the American economy -- and of all the challenges we face, employment appears to be the most serious at the moment,” said Mitch Free, founder and CEO of MFG.com. “While there are opportunities, and the national debate is focusing more on manufacturing’s role in our economy, it will be difficult to take full advantage until we revitalize manufacturing investment and stimulate growth.”

Officially, the recession of 2008-2009 is over. Stock prices are rising, as is the overall level of industrial production. But, if the policymakers in the federal government and the Federal Reserve Bank think they’ve succeeded they are wrong: lingering unemployment will mean that economic growth will be tepid, and may not be lasting.

Last week the December U.S. Dept. of Labor jobs report revealed where some of the problems are: Small and midsized companies are showing particular weakness, continuing a pattern that has been in place for almost two full years. Only the fact that more than 660,000 out-of-work people gave up their efforts to find a job has kept the rate of unemployment from rising above 10% of the workforce.

Without work, people cannot spend as they wish or as manufacturers and retailers expect them to do. Thus, stock prices may rise, but revenues (especially for non-financial institutions) do not.  

This dependence on consumer spending was supposed to be reversed with last year’s $780-billion federal stimulus program. Foundries and other manufacturers were supposed to benefit from the federal capital that would finance “shovel ready” projects.

Now, the Associated Press reports that stimulus spending has had no discernible effect on unemployment.

“It’s too soon to judge,” proponents of the stimulus plan may say – with some justification. But, note that the unemployment rate has risen in the months since the stimulus was authorized, and that it now lingers around 10% Waiting a year or more for a strategy to take hold, even while other financial indicators suggest a recovery is progress, confirms there is a more complex relationship between private-sector economic activity and companies’ hiring plans than is anticipated by the federal stimulus strategy.

One of the most consistent arguments against the stimulus— and against the expanding government role in financial markets in general — has been that it inhibits private businesses from making its choices about their futures. Between the federal grip on banks (which makes it difficult for companies to borrow) and government plans to revise energy and health-care policies (which makes it difficult for them to forecast their operating costs), small and midsized companies are keeping their heads down, hoping that the storm will pass. (This column details their resistance better than me.)

But there’s something more, and the notion that government planners seem not to have anticipated it is telling. Even if their prospects improve and their inhibitions are calmed, small and midsized companies will be slow to start hiring new workers because they are precisely the sort of organizations that are committed to “doing more with less.”

A culture of “productivity” infiltrated U.S. business during the last decade and a half, and it has not been eliminated by the recession: rather, the devotion to saving costs while improving results may become more intense. For managers and operators seeking to enhance their business’ performance, improving revenues will only confirm for them that it’s possible to succeed with fewer workers than before. That federal strategists overlook this point tells more about their lack of understanding of private business than that they believed heavy stimulus spending would jump start business in the first place.

A few weeks ago I listened to a presentation by a smart fellow from the Federal Reserve Bank, commenting on economic conditions and offering a few predictions. As an expert in industrial economics, he was confident that federal stimulus spending is working the way it is intended to work, encouraging new industrial activity. Nor was he concerned (as I am) about inflation resulting from federal overspending, nor about low interest rates inhibiting banks’ willingness to lend.

This official maintained that the Fed’s monetary policies are in step with government policies to revitalize the private sector, and to make U.S. manufacturers’ globally competitive. He referenced manufacturers like Boeing, Caterpillar, General Motors, and General Electric as companies that need support now in order to keep their organizations globally competitive so that they’ll be anchors for the domestic economy.

I’m not buying it. I don’t have any disregard for companies like those; I wish them well.  But, no policy is going to encourage them to treat their domestic suppliers with the same sort of deference they are earning from the Fed and the Treasury. They meet their own goals, and they continue on. If a supplier falls by the wayside, they find a new supplier.

Over the past year there have been some confused and frustrated accusations that the federal government is rushing toward Socialism. I’ve pondered it. It’s not hard to understand why this has happened: federal officials have willingly taken ownership of financial and manufacturing firms, they have endorsed or threatened to implement aggressive plans to re-regulate labor and environmental policies, and at this moment they are working to expand the federal government’s authority over individuals’ health. It may not be classical Socialism, but it’s something.

But, that’s all so 2009. Getting a jump on next week’s inevitable In/Out Lists, I anticipate that next year’s anxious accusations will be about “Corporatism.”

Relying on the sometimes-reliable Wikipedia, I’ll insert here that corporatism “is a system of economic, political, and social organization where corporate groups such as business, ethnic, farmer, labor, military, patronage, scientific, or religious groups are joined together into a single governing body in which the different groups are mandated to negotiate with each other to establish policies in the interest of the multiple groups within the body.”

For the sake of my argument, what I mean is that we’re devolving to a point in our business and political activities where big, cash-rich interests are able to negotiate the terms of their survival and prosperity with a government that is willing to extend or withhold rights and privileges, according to its own whims. Smaller businesses and individuals are marginalized.  

Large global companies and large labor organizations like to be able to control their variables, which includes their competitors. They will manage costs any way they can. Thus, large global manufacturers are surprisingly indifferent to the possibility of Cap-and-Trade, EFCA, and they may even welcome a federal health-insurance program. They'll just budget for it after they negotiate the terms. Smaller manufacturing companies have to be concerned about these prospects.

The solution is not for the federal government to institute programs (like tariffs, or tax-breaks for selecting domestic suppliers) to balance things for smaller companies; that would merely extend its influence over our economic decisions.

The solution is for the government and business to stay clear of each other as much as possible.

Earlier this year it seemed to me that every time I turned on TV I saw the same annoying, manipulative commercial: a very large industrial company wanted viewers to know that making all sorts of chemicals, plastics, and who knows what, is just a bunch of regular hard-working geniuses who care about you and me. (I don't want to disparage the company for something its ad agency put together, but you can watch the commercial yourself, if you wish.)

What bothered me was my sense that the advertiser wanted me to set aside my own feelings and be concerned about it's "feelings," whatever they decided those might be. That particular detail is not made clear. I could be very wrong about this; I am often wrong about such things. I don't like cheap sentimentality and I resent when it's presented to me as a truthful insight.

There is a "human element" to business, as the commercial suggests, but it's not something to be found in marketing campaigns. It is discovered through our own hard efforts and our appreciation of others' efforts as we work to achieve something good together. Over the past 15 months or so it has become something that managers and executives have been unable to address: there just are no resources or alternatives to the decisions that they face now.

For as long as I've been involved in the metalcasting industry, the human element has been well maintained and well respected. I can't properly express how much admiration I've developed for many, many of the people I have encountered over this time.

That's why this story affected me: it might move you, too. I've never met the man described here, but I feel I know him. His circumstance is touching, and entirely believable. Some readers may know him, but even if you don't it's important that we recognize how things have changed, and are changing, for the people who share our interests, concerns, and experiences.

"Business" is not antipathetic to humanity, as some marketing messages suggest, and some politicians and policymakers insist. There is a much human goodness in the work we do. But, when we can't work, when we've lost that opportunity, there is still a lot of good to be found and shared.

Over two years ago I wrote a column scolding Ford Motor Co. for its decision then to close its metalcasting plants: it said they were not “core operations,” and my criticism was that Ford was being shortsighted.  

Last week Ford reported a third-quarter income of $427 million — a $332-million increase over 2008 3Q earnings — and soon a reader reminded me of the June 2007 column, and suggested Ford deserves credit from me now. The logic, apparently, is that Ford is making money, so everything must be right again. My correspondent wrote:

“Decisions at times can be difficult and enigmatic to some, but they are made … Isn't it great when they turn out to be correct. Ford deserves, at least, an ‘atta boy’ from the foundry world. Looks like they are going to be around to create demand for our industry to serve …”

He’s right: I couldn’t understand Ford’s decision in 2007. I’m very glad Ford is making money now and hope they will continue to do that, but the company’s earnings do not indicate much that is positive for metalcasters (as he suggested.) In fact, if Ford’s example were to be followed it would be bad for domestic metalcasters. Note that the foundry that earned Ford’s latest business is in Brazil: it named Tupy to cast the CGI blocks for its new V-8 diesel engines.

There are larger issues and trends at work here, and Ford is not to blame for those. U.S. manufacturing costs are too high compared to global standards. The effort to help U.S. manufacturers compete globally is impeded, not supported, by federal government interventions and takeovers.  Looming threats of stringent carbon taxes and higher labor costs (both resulting from more federal action) make the domestic market even less congenial to manufacturing.

Just before Ford reported its results, the Institute for Supply Management announced that October economic activity in the manufacturing sector expanded for the third consecutive month, and that the overall economy grew for the sixth consecutive month. Tim Hanley, Deloitte’s vice chairman and U.S. Process and Industrial Products industry leader, called that “an encouraging sign for manufacturers and the U.S. economy as a whole. The growth in the report this month mirrors the picture we are seeing with other manufacturing related economic indicators.”

But, Hanley added that “there are still significant questions and concerns regarding unemployment numbers, the rising dollar, and lagging consumer confidence. Overall this index report is a positive indicator of further economic growth, but it’s still too early and there too many unknowns remain to determine if this uptick will be sustained.”

Ford is making money in spite all of this, for which they deserve credit, but if we draw any conclusions from that we may not be so encouraged.