A tale of automation, risky tax reform, and industry's future
CONSIDER the lowly paper cup. Not very hi-tech, one might assume. But don't assume anything in this age of sophisticated manufacturing systems. The company that manufactures Sweetheart paper cups used to set up its plastic-coating operation the old-fashioned way. It took nine hours. Today, thanks to a network of computers and sensors developed by Aeonic Systems of Billerica, Mass., the same process takes just 15 minutes. And, by eliminating 8 hours and 45 minutes of paper and plastic wastage, the new system saves more than 75 percen t on the cost of materials.Skip to next paragraph
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Or, look at the automobile tire.
Surely that's also low-tech -- globs of rubber molded on mesh belts. But put robots on the assembly line, as Goodyear has done in Akron, Ohio, and the results, once again, are startling. One production line previously produced 100 tires a day with a defective rate of two out of 10. Today the same line produces 1,000 tires a day with a negligible defective rate. The labor cost has dropped from 22 percent of total expenses to just 3 percent, which means that low-wage plants in other countries can't easily
undersell the American firm.
These tales, and many others, help explain why the United States is not going out of the manufacturing business, despite trendy analyses that argue America is switching from manufacturing to service industries. Though the latter sector is growing, manufacturing still accounts for the same share of national product that it has since the end of World War II, according to Dr. Bruce Merrifield, assistant secretary of commerce for productivity, technology, and innovation. It was 22 percent in 1947 and 22 per cent in 1984.
Where paper cup and tire-makers have tread, other lower-tech industries, troubled by competition from Japan, Korea, Taiwan, Singapore, or Brazil, might be expected to follow. Without similar automation, they could go the way of the motorcycle, machine-tool, and petrochemical industries -- all of which have lost shares in the world market to competitors with automated manufacturing systems, lower labor costs, or lower raw material expenses.
What has sustained US manufacturing industries at that 22 percent share of total national production is: (1) the creation of tens of thousands of small new companies with the most modern equipment; and (2) the automation of scores of older firms like the paper cup and tire factories mentioned above.
Which brings us to one major lesson of this tale: Sweetheart and Goodyear retooled and added robots because tax laws made it possible. The investment tax credit and accelerated depreciation system have made such automation investments affordable. But the major versions of federal tax reform now being considered in Washington would undercut these tax incentives.
For instance, the Reagan administration's tax proposal to recapture the ``windfall'' profit resulting from accelerated depreciation would retroactively punish depreciation users, according to former Treasury official Emil Sunley. He estimates that the proposed recapturing would tax those who invested in new equipment and plants 25 percent to 200 percent more than is justified by the administration's own arguments.
Furthermore, proposed changes in depreciation and elimination of the investment tax credit would erase incentives to make future investments in automated systems that cut waste and propel productivity.
It now looks as if none of the major tax-reform plans -- or hybrids thereof -- will make it through both houses of Congress this year. When the subject reemerges, hard-working reformers ought to look at the broad landscape once more.
As matters stand, both the Republican administration and the Democratic House appear bent on rewarding this generation at the expense of the next generation, and continuing a tax system that rewards consumption and penalizes saving. That's no way to compete worldwide, or build for the future as previous generations built the economic base Americans now enjoy.
Since 1981, the American taxpayer has benefited from a sizable tax cut. But the personal-savings rate has been languishing. If capital for investment cannot be accumulated by individual savings, it will have to be saved (or borrowed and rapidly recovered) by firms wishing to modernize. For many, modernization is the only way to survive in the global market.
There is a risk of some lost jobs. The Goodyear story shows that. But losing an industry altogether eliminates far more jobs. The historical record of technological progress has generally been one of creating more new jobs than the old ones it dooms. And for firms like Sweetheart, automation doesn't cut jobs, only waste.
Earl W. Foell is editor in chief of The Christian Science Monitor.