Making it in America

Dow Chemical

Making it in America

A man and a firm with a plan to revive American manufacturing

MIDLAND, MICHIGAN

Mr Liveris wants your money

“THE remarkable juxtaposition of American heartland, Midwest values and a whole lot of foreign accents” is what makes Midland, Michigan, a beacon of hope for the country’s manufacturing sector, reckons Andrew Liveris. His is one of those accents, though he no longer sounds crocodile-wrestlingly Australian. The boss of Dow Chemical has lived on and off for years in the company town that grew up around the brine wells that Herbert Dow first tapped in 1897 for his pioneering electrolysis process. The chemical firm still employs 5,500 of the town’s 42,000 inhabitants. (The second-biggest employer is Dow Corning, a silicone-making joint venture.) Dow’s success has delivered the nice homes, good schools and ball parks that make up the American Dream.

Like many immigrants, Mr Liveris shares that dream. But he now fears it is under threat. He has become one of the leading voices calling on the American government to embrace industrial policy. Last July Dow launched a plan to revive American manufacturing, which Mr Liveris then expanded into a book, “Make It In America”. On June 24th President Barack Obama appointed him co-chair of a new “Advanced Manufacturing Partnership” that brings together government, academia and business to “build a roadmap” for a more competitive manufacturing sector.

Mr Liveris is not arguing for protectionism. (Dow Chemical earns two-thirds of its revenues abroad.) On the contrary, he wants America to retake the lead in toppling trade barriers. But he does want the government to develop a strategy to help American firms compete with foreign rivals. Other countries are acting like companies, he worries. China and its imitators are following deliberate strategies to create manufacturing jobs. America should behave like a company, too, he argues.

The one he has in mind is Dow. Other American firms, he thinks, should follow Dow’s lead by moving away from basic manufacturing and towards the advanced sort that adds most value. If Dow needs a new source of basic ingredients, it relies mostly on joint ventures with foreign firms such as Mitsui of Japan. But its main focus now is the clever stuff: specialty chemicals that are used for everything from water-purification systems to solar roof tiles. Dow has hundreds of products in its pipeline that will exploit four “megatrends”: clean energy; health and nutrition; rising consumerism in emerging markets; and investment in transport and infrastructure.

For decades, American manufacturing has given way to services (see chart). Mr Liveris thinks this is neither desirable nor inevitable. Making things and innovation go hand-in-hand, he says, and manufacturing jobs have a higher multiplier (ie, each manufacturing job creates more additional jobs than a job in services). Not all economists agree.

The sector’s image as outdated may have discouraged young Americans from acquiring the skills needed for a career in advanced manufacturing, says Mr Liveris. “Americans are used to thinking about manufacturing jobs as a caricature of what [they were] decades ago: jobs that required relatively little skill and even less critical thinking,” he grumbles. Getting America to train more engineers and the like is a key part of his plan.

He also thinks America should try harder to attract foreign talent. A good start, he points out, would be to issue more work visas. Over 1m jobs in science and technology will open up in America this year, but only 200,000 new graduates will have the skills to fill them, he calculates. That is why chemical engineers are among the best-paid new graduates.

Dow has reduced its exposure to volatile commodity prices by using long-term contracts. Mr Liveris wants America to do the same thing, sort of, by getting serious about energy policy. He complains that not enough is being done to promote clean energy, an increasingly important business for Dow. He also frets that heavy-handed regulation may stop America from taking advantage of its vast reserves of shale gas. Until America found shale gas, Dow was “progressively shutting factories here and in Western Europe”, says Mr Liveris. Now he sees huge opportunities at home.

Subsidies made in America

Mr Liveris chides regulators for imposing too many needless costs on business. He also wants his adopted home to have one of the lowest rates of corporate tax in the world, as it did in the 1980s. (It now has one of the highest.) Fair enough. But other parts of his plan are more controversial. He wants the government to offer bigger financial incentives for companies to locate in America, both by making the research-and-development tax credit permanent and also by offering tax breaks or grants to build plants in the country.

China does it, observes Mr Liveris, which is true. Many American firms have gone abroad to munch taxpayer-funded carrots. Dow benefits handsomely. According to Mr Liveris, the terms of its blossoming partnership with China “will not be like any we have ever had with a nation”. Already, Dow has a highly innovative R&D centre near Shanghai, churning out products such as paint that takes formaldehyde out of the air.

In fact, America offers many subsidies for manufacturers. Dow has had hundreds of millions of dollars from local, state and federal taxpayers, with which it is expanding its operations in Midland, creating nearly 2,000 jobs. New plants are to open, making such things as lithium-ion batteries that can be used in vehicles (in a joint venture with Dassault, a French firm, and TK Advanced Battery of South Korea). On July 6th Dow announced another joint venture, with Japan’s Ube Industries, to make electrolytes.

Many of the new jobs Dow is creating will be filled by former assembly-line workers from Michigan’s slimmed-down car industry, retrained with government money. Next to Dow’s headquarters, a swanky new building will soon offer more new jobs in a back-office-services joint venture with Tata Consultancy Services, a big Indian outsourcing firm.

Companies love being given taxpayers’ cash, of course. Whether taxpayers benefit is a different question. If countries compete to offer the biggest subsidies, the main winners may be shareholders. That is why the European Union enforces tough limits on what it calls “state aid”.

If Mr Liveris is troubled by the thought that small-government types would consider him a scrounger, he does not show it. America needs to shake off the short-term thinking that nearly hobbled his transformation of Dow, he reckons.

In 2006 two of his top executives secretly tried to sell the firm to private equity. Mr Liveris believes that this would have led to its break-up. In 2008 the financial crisis—caused by quick-buck financiers, of course—nearly wrecked Dow’s purchase of Rohm and Haas, another chemicals firm. Mr Liveris also complains that the American government “stalls every two years” with the election cycle.

Yet Mr Liveris says he is optimistic. “This country does well when a crisis looms. We are recognising that joblessness is a crisis. If we ring the alarm bell, we can move to the solution stage.” Does he have the right solution? Free traders and other manufacturers will applaud at least part of it. Taxpayers may not.