From Volume 5, Issue Number 6 of EIR Online, Published Feb. 7, 2006

U.S. Economic/Financial News

Manufacturers Say Innovation Is at Risk

The National Association of Manufacturers (NAM) released a report Feb. 1 in Washington titled, "U.S. Manufacturing Innovation at Risk." The report describes five "clear warning signs" that U.S. manufacturing faces the loss of innovative competitiveness, including the lack of federal funding for R&D; the shortage of skilled workers, technicians, and engineers; the fall in the U.S. share of manufacturing trade to 10% from 13% in the 1990s; and the fact that industrial capacity is underutilized, so there is little capital investment. The report recommends an increase in Federal support for basic R&D, encouraging improvement of transportation and communications infrastructure, encouraging corporate investment in R&D, increased capital expenditures, education, and worker training. The NAM has advised the Democratic Party on its innovation agenda, and along with the Chamber of Commerce and other business associations and engineering societies, has been lobbying for needed economic initiatives.

College of Physicians: 'Primary-Care Doctors Vanishing'

More primary-care doctors are retiring than are graduating from medical schools, the American College of Physicians warned in a reported dated Jan. 30, 2006.

Soaring bills, insurer policies that encourage rushed office visits, and falling incomes, in part due to smaller Medicare reimbursements, are cited for this downturn. "Medicare will pay tens of thousands of dollars ... for a limb amputation on a diabetic patient, but virtually nothing to the primary care physician for keeping the patient's diabetes under control," said Bob Doherty, an ACP vice president.

"Primary care is on the verge of collapse," the ACP reports. "Very few young physicians are going into primary care, and those already in practice are under such stress that they are looking for an exit strategy." Dr. Kevin Lutz, a solo practitioner, said "A drop in Medicare payments will not only force me to stop taking Medicare patients, but could force me out of business."

Real Wages Keep Falling; Now Productivity Dropping Also

Bureau of Labor Statistics reports show that "real wages" in the United States, even when corrected only by the absurdly low Consumer Price Index of inflation, were, at the end of 2005, below their level of July 2003, and were 1.4% below their level of July 2001. Total wage and benefit compensation rose, in the last six months from July-December 2005, by only 1.4%, without even correcting for the growth of the workforce during that time.

Moreover, an Economic Policy Institute study, dated Feb. 3, of incomes in the largest U.S. states, over the period 1980-2003, found that average income of the top 5% rose 132% over that time, an increase of $80,000; incomes of the bottom 20% rose 24% in the same decades, by $4,000. Overall, 32 U.S. states now have a top-20% average income which is seven times, or more, that of the lowest 20%. Back in 1980, no state had that high a ratio.

But, in the past six months, a new and unexpected factor has worsened the situation: falling productivity, as crudely measured by output per manhour. The U.S. economy's productivity is reported to have stagnated in the third quarter of 2005, and then fallen by 0.6% in the fourth quarter. Because of that, the U.S. economy's unit labor costs are rising at 3.5% a year, even though weekly wages are increasing at only about 2.1% annually. Shrieks of "inflation warning" are going up from Wall Street "analysts."

House Ways and Means Axes High-Speed Rail Funds

The Bush Administration's and the GOP's actual intentions for rail development are shown by the party-line vote on Feb. 1 in the House Ways and Means Committee, in which a tax-bonding provision in a high-speed rail corridor funding bill (H.R. 1631) was stripped from the bill. Committee chair Bill Thomas (R-Calif)—by White House direction, a source told EIR—moved to remove the funding provision using the lame excuse that "not every region of the country would benefit by the development of high-speed passenger rail service," as quoted by Congressional Quarterly Feb. 2.

Meanwhile, Sen. Trent Lott (R-Miss) continues to press for adoption of the Lott-Lautenberg Passenger Rail Investment and Improvement Act of 2005 (S. 1516), which passed the Senate Committee on Commerce, Science and Transportation last July. At a Jan. 17 press conference to announce his re-election campaign, Lott said, "Part of my goal is to put a little pressure on the administration, because I don't think their [passenger rail] proposal has any credibility at all, and on the House to go ahead to address this issue." There is not yet a companion House bill to Lott's Senate bill, but EIR was told that Lott is working to get one introduced.

Globalization's Toll Growing

According to the Detroit News and the Detroit FreePress Jan. 31:

* Kraft, the giant food cartel company, announced Jan. 30 that it would lay off 8,000 workers and close 20 factories by the end of 2008. Combining the latest moves with deep cuts announced in January 2004, Kraft will have closed 40 production facilities by 2008, and slashed its workforce from 102,000 to 88,000 workers. Kraft CEO Roger Deromedi stated, "We're finding ways to more efficiently manufacture on a global scale."

* Tower, the auto parts producer of assemblies and suspensions, which is in bankruptcy, has asked its workers, who are paid only $13 to $15 per hour, to take a 10% to 20% cut in wages, and a one-third reduction in health benefits. On Jan. 29 and 30, UAW workers at Tower's plants in Michigan, Indiana, and Illinois voted to strike, were Tower, at its Feb. 27 Bankruptcy Court hearing, to use bankruptcy as the pretext to cancel outright its contract with the UAW.

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