American Manufacturing Sector Still Faces an Uncertain Future

Congressional group advocates tax cuts, more investment incentives

OUTPUT in the manufacturing sector increased in October for the first time since May, according to the National Association of Purchasing Managers. The Federal Reserve Bank last week confirmed the good news.

Does that signal a cyclical upturn in manufacturing long anticipated by economists? Or is it merely a pause in the decline in the number of manufacturing jobs in the nation?

``Our economy is faltering, our businesses are failing, our people are losing their jobs,'' Rep. Martin Meehan (D) of Massachusetts says. ``One has to look no further than the manufacturing sector of the United States ... to discover some of the symptoms of our country's failed economic condition.''

In the Northeast and Midwest, 2 million manufacturing jobs have been lost in the last decade, Mr. Meehan says. In Massachusetts alone, 230,000 jobs were lost during that time. In 1970, 26 percent of the country's work force was employed in manufacturing, he says. Today 17 percent of Americans work in manufacturing, and with cuts in defense spending, that number is expected to fall.

Many manufacturing companies, particularly defense contractors, are still cutting their work force. For example, Raytheon Co. in Lexington, Mass., last week announced it was laying off 1,100 workers.

Congressional concern about the plight of manufacturing became evident last spring when Meehan and Rep. Bob Franks (R) of New Jersey founded the Northeast-Midwest Congressional Coalition's Manufacturing Task Force, a bipartisan group made up of 37 members of Congress. The task force expects to submit a series of legislative proposals to Congress and President Clinton by January, including tax and financial incentives needed to revitalize the manufacturing sector.

The group met last week at the Massachusetts Institute of Technology (MIT) to discuss the problems and their possible solutions. It is proposing two possible remedies: a targeted capital-gains tax cut and permanent tax credits.

``A tax policy which favors investment spending will result in increased spending on new equipment and stronger economic growth,'' says Martin Fleming, a vice president at Cahners Publishing Group, a publisher of business magazines, newspapers, and journals based in Newton, Mass. The Tax Reform Act of 1986, currently in place, lowered individual tax rates while increasing taxes on business incomes. This discourages investment, Mr. Fleming says.

The manufacturer's competition is no longer in his or her own backyard, says Chester Sidell, chief executive officer of KGR Inc., a women's garment manufacturing company in Lowell, Mass. ``My competitors are in Korea, Hong Kong, Central America, and China,'' he says. ``Like most companies, we ... can't compete dollar for dollar with low-wage overseas producers.''

Though KGR has done well, with a 20 percent annual sales growth over the past decade, ``tax credits for investments in equipment and innovative technology are critical,'' Mr. Sidell says.

But where will the money for these tax credits come from? Not an easy question to answer, says Edmund Woolen, vice president of government marketing for Raytheon. But Mr. Woolen says he has one answer: ``Business and the employee work force together pay more than 25 cents of every sales dollar in corporate, dividend, and individual income taxes. So for every $1 billion increase in domestic and export sales, industry generates at least $250 million in new federal tax revenue and takes 20,000 people off the unemployment rolls.''

The manufacturing sector, however, has to look beyond taxes. ``The T-word [taxes] is so controversial,'' says Rosabeth Moss Kanter, a professor of business administration at the Harvard Business School. ``We have to think of these issues in the broadest possible way.''

To improve the plight of manufacturing in the US, Ms. Kanter says, the government will have to introduce three more ``T-words'' to the equation: transition, transfer, and teaming up.

* More government resources should be made available to manufacturing companies on a short-term basis, Kanter says, to help them make the transition from one industry to another or from one market to another.

* Technological competency should be transferred into new sectors, Kanter says. Government should encourage foreign investors to impart their own technical know-how to US companies.

* The federal government also should reinforce local efforts to improve the manufacturing sector, including helping small businesses in their collaborative effort to train workers, Kanter says.

Manufacturing ``is facing an urgent problem as it gets ready for the 21st century,'' she says. ``We have to constantly keep the larger agenda in mind.''