The cover of this issue of PaperAge contends that the U.S. paper industry is struggling to justify the allocation of funds needed to revitalize its aging fleet of paper machines and ancillary equipment. As you can read on pages 26-31, the guys who build the paper machines are pushing hard to convince the guys who make the paper that money spent on the latest technology will payoff in the long run by reducing costs in the production process. It's a point well taken.

So, can the U.S. paper industry afford not to reinvest in itself? The answer is easy; no. But the ultimate question that looms larger is one with no clear answer: can the U.S. paper industry afford to manufacture its products in this country?

Due to the fact that most people reading this column work or do business within the paper industry, this industry, to us, becomes much like the hometown team, where, when things go sour the other guys always have it figured out and we just don't get it. I don't think that's the case right now.

The U.S. paper industry faces many of the same problems that the entire manufacturing community in America faces. According to NAM (National Association of Manufacturers), external overhead costs from taxes, health and pension benefits, tort litigation, regulation and rising energy prices add some 22 percent to U.S. manufacturers' unit labor costs (nearly $5 per hour worked) relative to their major foreign competitors.

To put those costs in perspective, NAM surveyed manufacturers (National Manufacturing Week 2005 Annual Survey Results) and asked them to rate the following factors in terms of negative impact on their operations, with 1 representing the greatest negative impact and 10 the least (scores are averaged):

• cost of non-wage compensation (2.8)
• cost of materials used in production (3.3)
• energy prices (4.4)
• taxes (4.7)
• cost of wages (4.9)
• foreign competition (5.6)
• regulations-corporate governance rules (Sarbanes-Oxley) (6.1)
• fear of litigation (6.2)
• shortage of qualified job applicants (6.2)
• access to investment capital (7.9)

Interestingly, the study indicated that manufacturers rate the availability of investment capital as the least of their worries. And this is backed up by the fact that corporate America does have cash at hand. NAM states that “fourth-quarter 2004 corporate cash flow (undistributed profits and consumption of fixed capital) totaled $1.2 trillion.” That's a big number. However, it presents a troubling question: why isn't capital spending on the increase among manufacturers in the U.S.?

The answer to this lies in the items manufacturers indicated as having the greatest negative impact on their operations: non-production costs. Can you blame industry leaders for being wary of reinvesting in their U.S. facilities and equipment as outside costs escalate beyond their control?

Before it's too late, Washington needs to get a clue. It needs to stop pointing a finger at foreign competition and recognize the problem is not merely low wages in developing countries. The problem is in its own backyard.

The current Administration and those to follow must address areas like corporate tax rates, health care costs, unwarranted litigation (legal reform), choking regulations, and the deficiency of our own natural energy sources, to name a few.

“Made in the USA” shouldn't come at such a high cost.

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