The President is promoting investments in a series of cutting-edge innovation hubs. But the employment payoff may not come any time soon.
By Tory Newmyer, writer
FORTUNE — Here’s the thing about President Obama’s big push for manufacturing jobs: It’s not actually going to create jobs.
Or not necessarily. In fact, in the short run it could well end up costing some. That’s the assessment of some of the experts closest to the project, which Obama advanced Wednesday by announcing two major federal investments in Detroit and Chicago.
The idea is to create a national network of manufacturing “hubs”—each one a public-private partnership matching both industry and taxpayer money with university brains to forge breakthroughs in emerging technologies, then commercialize them. Kind of like Germany’s Fraunhofer institutes, just a lot fewer of them.
The President has asked Congress to spend $1 billion on setting up 15 of the centers, with the ultimate hope of establishing 45. But because Congressional Republicans aren’t much inclined to work with the President on his jobs agenda, the request so far has gone nowhere despite some fledgling bipartisan interest. In the absence of a thumbs-up from Congress, Obama is moving by fiat to get going anyway, directing federal agencies to set aside funds for eight hubs.
The first, a pilot project focused on “additive manufacturing”—more commonly known as 3D printing—is up and running in Youngstown, Ohio. The President last month unveiled the second, in Raleigh, N.C., to work on high-energy electronic chips. And now Detroit’s will be developing advanced lightweight metals and Chicago’s will work on using computing power to improve manufacturing design and production.
The project has a bunch of goals—retraining workers, regenerating innovative muscle, and fostering concentrations of companies in new supply chains. But the president’s straightforward pitch is that the hubs will help the unemployed start earning paychecks again.
In his State of the Union address last month, he exhorted lawmakers sitting on legislation to ramp up the project to “get those bills to my desk and put more Americans back to work.” And on Wednesday he told the crowd gathered in the East Room of the White House for the latest announcement that “keeping America at the cutting edge of technology and innovation is what is going to ensure a steady stream of good jobs into the 21st century.”
So far the White House hasn’t tried to quantify how big that jobs boon might be. In fact, the federal office in charge of the initiative isn’t even sure yet how to measure it. Draft guidance for a whole range of metrics to evaluate the program just went out in November. But any job gains in the near term are dubious.
The reason is simple and goes to the heart of the very dislocation that Obama is aiming to address. Successful investments in manufacturing technology will increase efficiency, which at least initially should lead to fewer workers. “This program is about enhancing the sector,” says Phil Shapira, who chaired a National Academy of Sciences panel behind a major review of federal support for manufacturing. “We wouldn’t want an initiative to be reducing jobs unnecessarily, but I don’t think we should expect this to be a big creator of direct jobs in manufacturing.”
The view is the same on the ground in Youngstown. Martin Abraham, dean of STEM studies at Youngstown State University and an administrator of the 3D printing hub there, noted the banner headline for the local economy last year was the opening of a $1 billion plant by the French company Vallourec Star to build natural gas pipes. That sum coincidentally matches what Obama wants to spend on the national manufacturing network. The total jobs yield? 400. “That’s the way manufacturing is now,” he says. “I wouldn’t say we’re going to lose jobs. We’re going to lose some types of jobs and gain in other areas.”
Jason Furman, the chairman of the White House Council of Economic Advisors, acknowledges there is no jobs estimate for the program. “This is not an aggregate demand measure,” he said Wednesday, following a speech to the National Association of Business Economists conference. Instead, he suggested the initiative is aimed at goosing “total factor productivity growth,” a comprehensive measure of productivity improvement that includes gains from innovation.
Whether and when those gains will start putting people back to work is the subject of healthy debate among economists. Over most of the last half-century, productivity growth and employment growth have risen in tandem, belying fears that automation would permanently displace workers on assembly lines and beyond. Around 2000, however, the trend lines started to diverge, with employment growth leveling off as productivity gains continued. It’s hardly clear year if this marks a temporary deviation or a new normal — “technological unemployment” in econo-speak.
Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities, chalks the change up to flagging demand, the force that previously kept employment apace with productivity improvements as people wanted more stuff from our increasingly efficient machines. But what explains the stagnating demand is tough to pin down. “The jury’s out on this question,” Bernstein says.
If the administration is looking to boost manufacturing jobs, Bernstein, formerly Vice President Joe Biden’s top economist, says there’s a more immediate path for the administration than the hubs: Addressing our trade deficit. A report released today by the left-leaning Economic Policy Institute makes that case. The think tank found that cracking down on currency manipulators—those countries that artificially hold down the value of their own currency as a way to subsidize their exports—could boost GDP by between $288 billion and $720 billion a year, creating 2.3 million to 5.8 million jobs. And 40 percent of those would be in manufacturing.
The cause has fairly broad bipartisan support on Capitol Hill. But the administration, focused on pushing new free trade agreements, has mostly avoided an aggressive tack. So for now, for the White House, the hubs remain front and center. Talking up their potential on Wednesday, Obama was also careful to note that they are a long-term play. “This stuff takes time,” he said.