Afternoon Must-Read: Susan Berger: How Finance Gutted Manufacturing

Susan Berger: How Finance Gutted Manufacturing: “Timken obviously has a business interest in these initiatives:

sharing costs for activities that were once borne entirely in-house, educating students who can be recruited for employment, gaining eligibility for new state and federal grants. But in fulfilling its own goals, Timken was also acting as a convener for industry and education. It placed its own resources on the table in order to attract others to do the same. As Timken prepares to split into two smaller publicly listed companies, how likely is it that either of them will be so active in strengthening the Ohio industrial ecosystem? Judging by the records of other companies that have gone through similar restructuring, I am not optimistic….

There is a more favorable climate for manufacturing in the United States today than there has been in decades. Yet these changes are unlikely to have durable effects if the basic weaknesses of the system are not repaired. The new public-private partnerships to rebuild capabilities in the industrial ecosystem seem to have enormous promise. But, as the Timken case illustrates, the financial pressures that broke up American companies in the ’80s persist. The solution may be out of reach. Today California teachers need to protect their pensions by dismantling Ohio manufacturers. The structures of U.S. capital markets and fiscal policy reward investors whose decisions are based on maximizing returns over the short-term. While the Dodd-Frank financial reforms may cut down on some of the riskiest securitization-based investment strategies, new regulations have not created real incentives for the more patient investment that growing production in America requires.