Saginaw, Michigan, in popular culture, is identified with the late county singer Lefty Frizzell, who sang in his 1964 hit song of fishing on the nearby bay that feeds into Lake Huron. But the mid-Michigan city, 100 miles north of Detroit, is best understood as a 20th-century manufacturing behemoth whose physical assets and intangible knowledge are being consumed early in the 21st by quasiprivate and government entities in the People’s Republic of China.
U.S. debt—government and private—expands as our manufacturing base contracts. China’s discipline, thrift, and savings allow her to build new factories and mills, while purchasing U.S. debt, physical assets, and technical knowledge. General Motors, once America’s largest manufacturing enterprise, a backbone of World War II armaments production, files for bankruptcy. China, determined to become the world’s largest economic and military power, picks at the carrion in liquidation. The end result of this process is clear: a larger American underclass.
GM was so intertwined with Saginaw that its minor-league hockey team, now defunct, was called the Gears. Hockey is tough, like the men who worked at Grey Iron Foundry on Saginaw’s north side. The foundry was a hot and loud environment, its work regimen dangerous and physically demanding. Work at Saginaw Steering Gear (known today as Nexteer), on the city’s east side, was clean and easy by comparison. At their peak, the two GM facilities employed more than 20,000 workers. Today, they employ about one fifth of that number. National youth unemployment is 23 percent, according to the Bureau of Labor Statistics. But a generation ago work in Saginaw was so plentiful that all one needed for a full-time or summer job was a high-school diploma. GM’s presence in Saginaw opened a broad freeway to middle-class prosperity: a house, a cabin up north for recreation, above-average wages, company-provided medical insurance, and a real defined-benefit pension after 30 years of labor. With the GM discount, workers could afford a new car every three years. One was set for life. Or so the vast majority of Saginaw fathers, sons, and grandsons were led to believe by economist Pied Pipers set on deconstructing the industrial America that created a middle class.
A little-noticed sidebar to GM’s recent emergence from bankruptcy was the $450 million all-cash sale of Nexteer to Pacific Century Motors, a joint venture of Tempo, a Beijing-based manufacturer, and a Chinese government enterprise that serves as the Beijing municipality’s finance arm. The Chinese aren’t interested in GM’s management, whose legacy is multiple U.S. bankruptcies. They are interested in knowledge, including advanced-steering technology. A California investment banker who worked on the deal told the Wall Street Journal (November 8) that the Chinese were eager to obtain Nexteer for its more than 1,000 patents. The transaction, he explained, “dramatically shortens the technology gap between China and the rest of the world.”
Economic histories illustrate the decline of U.S. manufacturing in the 21st century and China’s emergence as an industrial force. Founded in 1906, Saginaw Steering Gear manufactured components for GM consumer products. It produced weapons during World War II, while Grey Iron Foundry refined magnesium for the U.S. military. Postwar, it was considered an “accessory group” of GM’s Automotive and Parts Division. In 1949, when Mao’s communists took power, Saginaw, like America, was a manufacturing power, and China was a poor, agricultural economy. The two nations started to switch positions in the last quarter-century. Saginaw Steering Gear became part of a GM spin-off, Delphi Corp., which filed for bankruptcy in 2005. It became a GM subsidiary, Nexteer Automotive, when Delphi emerged from bankruptcy in 2009. By then, GM was into its own bankruptcy, starting the process that led Nexteer to be sold to China. This deconstruction process equates with long-term economic decline.
China, meanwhile, has transformed herself into the world’s second-largest economy with reforms starting in 1978 and in the 1990’s. The CIA World Factbook explains, “China’s economy during the past 30 years has changed from a centrally planned system that was largely closed to international trade to a more market-oriented economy that has a rapidly growing private sector and is a major player in the global economy.” Nexteer’s new part-owner, the Beijing municipal government, has been investing in expanding Chinese markets. These include motor-vehicle production and commercial aviation, which did not exist in China until the mid-1990’s.
The Beijing municipal government recently entered a joint venture with Air China. Nexteer’s steering technology, primarily automotive, is more advanced than hydraulic-power steering and also has aviation applications.