You can't pay an American worker 20 times as much to make the same product in the same number of hours. The only way to be competitive at 20 times the pay is for each worker to produce 20 times the output, i.e. automation. So what we have is a choice between fewer American manufacturing jobs (automation) or no American manufacturing jobs (outsourcing). People don't want to hear that, but those are the alternatives.
And given that, automation is clearly the right answer. Some manufacturing jobs is better than no manufacturing jobs, and more local manufacturing creates more local non-manufacturing jobs in sales, transportation, administration, etc.
Hmmm I don't know about that. Growing up my father was a tool maker (worked for Molex), that means he figured out how to make the molds people designed. That sounds easy to some, but understanding how to cut different materials the right way is a pretty unique skill.
Anyways, he basically trained his replacement(s) before they laid off a large portion of his machine shop. He trained probably 15 - 20 Chinese over the course of a few years. In the end, as expected, they laid him off. Fast forward 10 years and they had to bring a lot of the tool making back.
Turns out the Chinese either had worse quality control or poorer skill, but they simply couldn't produce at the same level. You only need a few molds for a production line, but each needs to be near perfect. The Chinese couldn't do it. And even when they did / could, the intellectual property was often stolen, so competitors would pop up and customers would get pissed.
You're correct automation is needed. However, so is high quality standards, higher education, higher moral codes / higher pay to keep people honest. The fact is, you can't really find skilled labor elsewhere easily (they want the same as the US wages). That's why the US's number one export is education, and probably why every company still fights over software engineers and really every STEM field.
Unfortunately for manufacturing, the fight is over. When they tried to bring the tool making back there were very few people still doing it. Every single one of my dad's friends (including my dad) had moved on to other jobs. The fact is, all that tribal knowledgewas passed down from master to apprentice was lost. After they laid off the masters, there was/is no one left to really continue.
Personally, I view this as a loss of critical mass and now our skills are likely no better than anywhere else, at least for tool making.
I think this is a warning for every business. Sometimes it's worth paying the price to keep talent. Companies like Google, Apple, et al, know this. Hopefully, that will keep tech and a lot of the other large US companies from losing their way.
>the Chinese either had worse quality control or poorer skill, but they simply couldn't produce at the same level. ... The Chinese couldn't do it.
It seems that China's workers can make Macbooks and iPhones with high precision and low tolerances according to Apple's specifications. Were the Molex molds more complicated than that?
In other words, if those specific 15-20 Chinese workers failed, maybe choosing a different set of 20 Chinese employees (or partner manufacturer) would have given the quality desired?
All I can say, is my dad recieved a hell of an offer to return (and so did his buddies). The people he trained all had PhD's from various universities around the globe and were supposedly excellent material science engineers. My dad had a high school education, but was trained/worked for decades in this particular field.
The molds that make every component in a MacBook need to be better than those assembling them. The skill to plug in a keyboard or even run a machine to make a keyboard, is not the same as designing or creating the molds of the keyboard. Apple does all of that (to my knowledge) in the U.S. The reason is likely security of their IP and that they have a critical mass of skilled people here, able to out perform elsewhere. Also, it's easy to ship designs anywhere, not so much material goods.
This is super interesting... apparently we have also the lost ability to find specialized welders for many naval vessels... starting salaries are around $300K for the right folks in the US. hell of an offer indeed
Only plastic parts really needs a mold to be produced.
Metallic parts are produced on machining machines where the real knownledge sits in the ISO programmer head.
And plastic parts are more and more reserved for low end product, whereas high end products are all made of metal (think about a plane architecture being made of plastic instead of aluminium: this will not happen soon).
So to be honest about your dad situation: from an industrial point of view I think the people outsourcing your dad's job in China were right: they did loose the know-how on keyboards molds and they do face a problem regarding keyboard quality nowadays, but that value gained in outsourcing low end parts was invested in machining technologies with very local jobs garanteed for a long industrial time.
I'm sorry about your dad situation in that systemic change, and I'm glad he managed to move to another field, but what's at stake here is really what a was proposed in a parent comment: 'manual' labour being replaced with automation (and human tragedies involved unfortunately...).
I don't know the OP but I think his father is biased. The story is repeated a lot (The Chinese/Indians/Other-Race are cheaper but can't produce the same!) even for Software developers (Indians). In most cases (at least for the software engineering) the problem turns out that the other-race pay was low, and thus attracted low talent. The company probably wanted to cut costs and picked cheap foreign workers that didn't perform.
It's not a racist thing and your reading it that way reflects a high level of ignorance.
You don't take anyone from anywhere drop them in front of a master tradesman for 12 weeks and have a master tradesman pop out in a few days. The output there is a guy who can probably run the machine and have a limited ability to consistently churn out stuff without understanding the process fully. That's not a reflection of pay, race or talent.
That's usually a big part of the design of the outsourcing arrangement. You train for minimum viable capability. You then just fine the suppliers and eventually you'll get what you need, even if they waste half of the work produced. I've done these with domestic and foreign contractors. It's always the same story. The difference here is that the quality required for tools is higher than end products, and the supplier cannot make money without the high skilled people.
And that high level of difficult to learn skills if tended and protected can yield dividends for generations. Or, one generation can outsource everything including decades of hard learned secrets for a short term boost in earnings by selling for the same price but paying 1/10th the wages so they can cash out millions in stock options.
But then ten years later the workers you trained have now formed their own company and they are the ones making the huge profits, and there's nothing you can do because your country doesn't even have any skills in the field anymore. Now spread this across tens and hundreds of industries.
Sure, we still have software development and other super high tech stuff, but China is figuring much of this out very quickly as well.
I think we'll find out soon enough which country had the better strategy.
The defining quote of this idea came from the Morris Chang, CEO of TSMC:
"You Americans measure profitability by a ratio. There’s a problem with that. No banks accept deposits denominated in ratios. The way we measure profitability is in ‘tons of money’. You use the return on assets ratio if cash is scarce. But if there is actually a lot of cash, then that is causing you to economize on something that is abundant."
Not really. The fundamental problem in the economy is the focus on the short term rather than the long term. The economy focuses on the short term because Wall Street focuses on the short term and will invest in firms with similar short term focus.
Ratio-based investment isn't fundamentally short or long term, and the article doesn't persuasively make that argument. The entire point of selling off your assets to improve profit-to-asset ratios is to improve the performance of your assets, so that they can be put in investments which offer better profits. Whether the new investments are short-term investments or long-term investments is a matter of investor preference, not financial science.
In fact, the argument to be made is that companies which "sell off" their human capital are actually in violation of RONA principles, because the company is not ultimately made of dollars and cents but of people and products, and since the company can't really extract more value out of its highly specialized human capital (I.e. by reassigning it to more productive work), it should not reassign that capital elsewhere.
Investment bankers and programmers tend to make the same error: you are less competitive at manipulating your abstraction (whether that be money or high-level languages) if you do not understand how it abstracts away reality. Otherwise, you will constantly be dealing with leaky abstractions.
The management people give no shits about the organization as an entity. Their short term outlook is driven by the dumb KPIs that stand in front of their excessive (vs. base) incentive compensation.
You're both right, but you specifically phrase this as a training and institutional knowledge problem, without mentioning nationality. You get to the heart of the problem, without the nationality red herring that tends to attract nativists and racists, to the confusion of everyone.
That doesn't necessarily make the father biased/racist; but I think you're right about the economic incentives at play. Many of the problems I've encountered with Chinese manufacturing can be traced back to stateside managers/purchasers wanting to relentlessly drive the price down, yet still exert the same kind of QC effort (or less) than they did with their former in-house manufacturing. They (mgmt) failed to recognize a lot of informal QC that might otherwise be lumped in with "work-ethic." They also probably laid off the experienced QC and put a jr level engineer/recent grad "in charge", but with little/no authority to do anything. Meanwhile on the Chinese side, the workers work hard, usually with every effort focused on speed. I remember one specific case where an assembler kept ruining chassis because they wouldn't replace worn screwdrivers for the assemblers. They caused lots of rework simply because the Chinese shop manager was too tight to accept that screwdrivers are consumables.
tl;dr Don't rush to blame the workers, they're usually just doing what they've been told to do.
Tool and die making is the height of machining skill, it takes a very good machinist, the right machine, and the right environment. This story doesn't seem unreasonable.
Cleveland Oh. was the tool & die capitol of the world those jobs started to leave in the 80's and NAFTA and the Great Recession took the rest especially the small ones in Western Pa. As for Molex the Koch's bought them in 2013 but, I haven't followed where or what they have done with Molex. I have used Molex machines in production they were so well made. When I was a kid Cleveland made everything I remember the pride I felt seeing a dump truck the size of 2 houses ( Euc) roll out of the factory back then. It wasn't my fathers generation Silent (Korea) that sent those jobs out of the country it was the generation that followed them !
> The company probably wanted to cut costs and picked cheap foreign workers that didn't perform.
The majority of the time, that's the only reason why they're relocating the work. If you have to pay foreign workers equivalent to Americans to get equivalent work, then offshoring is pointless.
> If you have to pay foreign workers equivalent to Americans to get equivalent work, then offshoring is pointless.
Not really Google and MS provide their Indian employees working in India above average market rates which are still lower than what the average American gets.
Some other US based companies directly or indirectly pay their Indian employees average or below average Indian IT salary so the best and brightest dont go there.
If it's that easy to move highly skilled positions to the Far East, how do you explain Germany's prowess in high-end manufacturing? Surely all those jobs should have moved to China by now? It's been two generations since Deng opened the country up to foreign manufacturers.
Its because most of these companies are small and largely family owned. i.e. the owners understand the product, and moving it to china means they would need to move to china as well.
In many ways the difference is that headquarters is next or on top of the factory instead of in a different state.
Its because most of these companies are small and largely family owned
Sorry I have to question this .. Bosch, Mercedes, BMW? There are a few notables such as Krupps that were once upon a time family owned but increasingly these companies are owned by global conglomerates.
Yes, these companies do outsource many functions to poorer countries but their centre of gravity is very certainly in Germany.
Germany also has an amazing pluralistic educational system. Nobody gets left behind. All state-funded, which I guess follows from the high taxes they pay ... "it takes money to make money", as the man says.
I play harmonica, and German made Hohner's are considered to be the best. The only quality competitor is Seydel(Again a German company), or Suzuki(Japanese). I think its the overall culture and seasoning to quality and workmanship your ordinary citizens are used to.
The real deal isn't just High end manufacturing.
I know of a relative of mine who used to buy Grundig and Braun radio/taperecorders/stereos in the 80's. The design and quality still comes across way ahead of its times.
Quality shows in everything you build.
Volumes may be profitable for a while. But with lack of quality you won't be able to build BMW's and Airbus's. The kind of manufacturing that has a future.
When I say "high-end manufacturing" I'm not really talking about cars. More along the lines of industries that require very, very tight tolerances and exotic materials like tooling or optics.
I think that there may be some truth to that narrative. I suspect that Chinese/Indian/Other-Race workers that are skilled at an in demand profession simply shop their work where they are paid commensurate with their skill (Probably not cheap.)
I think there's a lot of truth to that. I've had nothing but bad experiences walking into companies that outsource software to India for cost reasons, and yet I know a number of exceptionally talented Indian software engineers. The difference, of course, is that the talented guys know their worth, and will demand at least above-average compensation. The outsource shops hire down to a price and get pretty much who you'd expect with that practise.
The issue has nothing to do with ethnicity per se, and everything to do with management dreams of hordes of top-notch foreign talent just dying to do high quality work for pennies on the dollar, which in my experience simply doesn't exist.
100% agree. I've had generally negative experiences with work that's been outsourced to Indian shops, but nothing but positive experiences with Indian engineers I've worked with outside that context.
There's also the question of how the transition is implemented.
My [relative] is [in a tech role] for [large insurer]). They recently laid off all of their in-house tech staff save for her, in favor of outsourcing, and are leaving him to train and guide the entirety of the new staff. Meanwhile, they did absolutely nothing to keep his morale/loyalty, nor to ensure he was incentivized to do this task well. So, unsurprisingly, he's counting the days to retirement and letting the clusterf*s mount.
I'm sure there was a way to handle this that wasn't ludicrously inept; the result, however, will be laid at the feet of the foreign workers that have little training and no access to the now-lost institutional knowledge.
As far as my (admittedly limited) experience goes, I'd say you're right. I'm currently learning about the intricacies of manufacturing in China through a trial-by-fire of manufacturing some components for our company's first product overseas. We've been told time and time again by advisors, investors, and friends in the industry that it's less money but a whole lot more work.
On the surface, you have to manage extra things like shipping and imports. Under the hood, quality control and partner selection are MUCH more in-depth and difficult processes. If you're not working with someone who already has relationships built, and/or if you're not willing to be very hands-on with the process, from what I've been told you're unlikely to get high-quality, low-cost parts.
I can definitely imagine someone who is used to dealing with manufacturing in the US having a lot of issues adjusting to the way business is done in China if they didn't know what they were getting themselves into.
It's not that a specific person, company or whatever failed. It is systematic - the Chinese or anyone else do not have market for high quality molds (or other tools). The end customers want cheap stuff, the manufacturers that make cheap stuff conversely do want cheap tools... turtles all the way down. That means that the molds/whatever are sitting somewhere in the middle, they have to be cheap too and there are corners being cut to make the target price with being good enough.
Consider the opportunity cost on the Chinese factory if they crossed Apple. Apple can take the hit and move to another source, leaving the entire factory out a major customer. Even then, counterfeit iPhones are everywhere in China [1][2]. Compare and contrast with the shenanigans Kickstarters have with contract renegging, stolen IP, and plain old fraud [3].
I think that stands to reason, unless the OP wants to argue it's an innate defect of the Chinese as a race - which, to be clear, I don't think anyone is arguing.
In outsourcing situations where you replace a highly-skilled and highly-paid worker with a low paid one in another country, you often get predictably bad results. Is it a cultural difference? Is it because of the compensation? Or just the attitudes of the companies involved on both sides and the kind of people they hire? I think like any complex issue, there's no one answer, but that last point sounds particularly convincing.
I'm arguing that due to networking effects, having decades of tribal knowledge is worth the cost to keep it. Starting anew elsewhere, even with smart people can sometimes take decades to build that knowledge.
Look at SF, every company competes in that market for software engineers because that's where the talent is.
It's actually a concept explored by the book "The Talent Code", and even explains why so many people from puerto rico (by population) are so amazing at baseball. Everyone plays, everyone looks up to it, and everyone makes everyone else better.
> Look at SF, every company competes in that market for software engineers because that's where the talent is.
No, they bring the "talent" (God, I hate this word and what it carries) from everywhere across the country and abroad. They is no tesseract fuelled talent generator device hidden below SF.
Not a generator per se but a lure. It is a cycle where one feeds the other. People made great things and they needed talent. Talent goes there to hopefully be great those who came before. Repeat ad nauseam.
This whole discussion is setting off my BS detectors (your comments specifically, dad with HS degree vs 'the Chinese', etc), and to be honest, the whole tribal knowledge thing may be much more wishful thinking than an actual true effect...
I think it reflects badly on management planning - that they did first order accounting and found savings, but missed second or higher order effects that affected the accounting in significant ways.
> It seems that China's workers can make Macbooks and iPhones with high precision and low tolerances according to Apple's specifications.
Isn't Apple's high-precision manufacturing highly automated to a level of expense that no one else would try? IIRC, they have acres of automated CNC mills churning out MacBook cases.
Apple's manufacturing operation is so unique that it's not generalizable.
> It seems that China workers can make Macbooks and iPhones with high precision and low tolerances
thought I read it somewhere that china is literally the only country in the world right now that can do that at scale and change specs as rapidly as apple wants them to.
I think the point is that to get the same quality, you have to look more deeply than just the wages of the given workers. Once you hit that quality, the those workers then step onto the same track of skilled wage growth.
Sure. That capability was built and scaled from the iPod up.
Foxconn didn't start building millions of iPhones. They started with thousands of other products. Same thing happened with Dell. They financed factories for Asus to build laptops and walked away from nearly new plants in the US not long ago for mostly tax and accounting reasons.
Counter-example. I was literally in some Chinese factories two weeks ago, one that makes molds for metal and a separate one that makes molds for plastics. Everything was automated. Even the major machines on the floor (5-axis metal CNCs, high powered laser cutters, etc.) all had digital interfaces. Some were Japanese, some were French, others were Chinese. There were entire rooms of people creating and updating models and validating injection flows using capable CAM software, apparently written in China and presumably with modeling algorithm implementations by Chinese mathematicians and programmers.
> Turns out the Chinese either had worse quality control or poorer skill, but they simply couldn't produce at the same level.
China can, actually.
We've had molds made for the smallworks.com products in both China and locally (Austin, TX)
These molds, due to the desire to interface with LEGO products, have to produce products that are both "higly cosmetic" as well as dealing with the extreme tolerances of LEGO's system.
It's about 1/3 the price to make the molds in China. Due to shipping and import duties, it's about the same price to run production in the US as in China.
Thanks for pointing this out gonzo, when I checked out injection molded plastics and assembly in the Austin, TX area, I saw no reason to head overseas. I went into this thinking China would likely be my only affordable option but I was pleasantly surprised at how things balanced out in the end.
I don't know if you are trolling or its your genuine world view. Although, I won't be surprised at all if it is. To say the Chinese is hopeless at precision engineering shows how narrow minded your world view is. The article you linked makes a huge assumption on why the Chinese import the ball bearings instead of manufactoring it themselves. A simple explanation why they don't import these bearings is because its not economically sound to do so. When the cost of importing a goods or service is cheaper than producing it yourself, you choose to import. Econ 101. And to transform that assumption to generalize a whole country's industry simply ignorant. All that article does is confirm your own internal bias.
I have a funny little story about outsourcing failures from my parents. Beechcraft for years has been trying to find ways get their costs down. They've been warring with the unions for years on everything: healthcare and wages mostly. So, when they started outsourcing to Mexico parts of aircraft like the wiring harness and the fuel bladders. As a result there's some bad blood between them and the Salina Kansas community. The union had no real way to force them to stay, so the jobs went. When Beechcraft setup the plants they offered above average wages (daily payment too) to workers in Mexico and even gave them their own tools (that was normal but any replacement tools for workers in the US had to be bought by the workers from the company at least as I remember with my mom complaining years having to buy hers when she use to work for them as well) but despite all that most workers in the Mexican plant would quit the first day and sometimes leave with not only their own tools but any other equipment they could find. So Beechcraft hired US contractors at a much higher price than former US employees to do the same work in Mexico (how does this work exactly? I really would love to talk with a former Beechcraft executive as to how they computed the financial numbers for this little venture someday.) and even then the quality of the fuel bladders and wiring harnesses were terrible. Most of the fuel bladders leaked and so they often had to be fixed at the Mexican plant (no plants state-side to do fixes were available). Last I heard from my dad who still works for them that they were trying to bring back some of that work to the US but in Arkansas. Frankly, I'll be surprised even then they'll get viable QA setup so long as they focus purely on the cost side of things.
I can only respond with second hand accounts about moving tools (wrenches, sockets, etc.) production overseas. Much of the quality has worsened (Craftsman, and your knockoff Kobalt, etc) but most people will not pay for Snap-on or SK tools, or Weha, Knipex and will buy the cheaper tools because for the weekend mechanic, having something that will last 20 years+ of daily beating isn't an issue.
Craftsman quality went to shit before Apex moved production overseas. There's also a pretty big gap in price between Snap-On and Craftsman, a gap that companies like S-K and Wright seem to occupy. Of course S-K suffers because they don't have a great distribution network (something Craftsman and Snap-On do) and their quality just isn't where it was pre-bankruptcy.
Thing is, Craftsman quality went to shit because Sears decided to compete solely on price. Apex/Danaher are plenty capable of turning out high quality tools in both their American and overseas plants (they own Armstrong, GearWrench, and Xcelite). They're also capable of producing shit tools for Sears. Turns out though that other companies (ex: Harbor Freight) can product comparable, if not superior, products for a lower cost.
Tip: look at used tool places or yard sales, especially yard sales run by veterans.
You'll find random brands you've never heard of that are "made in USA" and built to military spec. I think most military tools are required to be made domestically. The quality is amazing and prices low.
> However, so is high quality standards, higher education, higher moral codes / higher pay to keep people honest.
So many presuppositions here that don't really support a future of a specialized American worker.
China has weak to nonexistent intellectual property LAWS, and their Antitrust law was enacted just in 2008!
Improvements in the general economy still result in a plethora of skilled workers across the entire planet, or in much greater quantity than the market needs.
Today? Yes it is possible to renege on free trade treaties and close borders to pretend the uniqueness of a highly skilled American is inherent to quality goods, but these are not absolutes and can't be extrapolated into these impending economic dilemmas.
Maybe they trained them insufficiently on purpose. I do not see how someone can willingly train anyone they know will get their job as soon as they are ready.
Bottom line is that shorter supply chains, better/cheaper infrastructure, and better quality control has made bigger companies re-evaluate "overall" cost of production and the maintenance tails therein.
And, contrary to popular belief, America is not so far out of the race as to not have a chance.
I worked for a company that moved a major product from being manufactured in Canada to Mexico. At the meeting where everyone was laid off the manager had the nerve to tell people they are moving the product because they estimate they can save 5%-10% of the manufacturing cost. 5 years later manufacturing was moved back to Canada after it ended up being more expensive and the quality was lower. OTOH there was another product that was successfully built in China but it involved a complete redesign and was essentially a different product.
There's definitely more to this than meets the eye and the decisions weren't always motivated by pure economics. Sometimes managers decided to move something to China just because everyone was doing it and they were under pressure to do so. Not because it was the right thing for their business. Managers making bad or short term decisions isn't exactly a new thing, their incentives/motivation varies.
Even though this was 10 years ago it's probably still confidential. This was a Canadian company acquired by a US company which then went through a series of "cost cutting" measures.
Looks to me like all of those articles are about the Louisville, Kentucky GE Plant where they negotiated lower pay for their workers.
I'd say that's an example, not a trend. Companies have been looking at overall cost of production for a long time. That's how they've calculated margins and filed a 10-K for the past 50 years.
The bottom line is until overseas workers demand increased standards of living or US consumers show a willingness to pay a higher price for locally manufactured goods, this trend will continue.
My question is, what does the end-game look like for a fully automated economy? You're either an entrepreneur with a fully automated supply chain, manufacturing, marketing, sales, and finance organization producing a good that is highly demanded by other fully automated businesses, or you starve?
The GE move was the most widely publicized/covered one that I can recall off the top of my head, but the Atlantic article is more detailed than just GE. Also, the Forbes title is literally:
> Why Apple Is Bringing Manufacturing Back To The United States
I highly recommend reading some of the articles linked since they do explore some of the harder to quantify metrics (such as the maintenance tail of products manufactured in the US vs China) and how they affected GEs choice to move manufacturing.
So while I think in general your observation:
> That's how they've calculated margins and filed a 10-K for the past 50 years.
holds true, I think there is some gray area where harder to quantify and measure metrics are becoming more observable. And it's this "new" information that is potentially having substantial influence on these larger corporations decisions resulting in moving manufacturing back to the US.
I, with my light familiarity with the most basic concepts of Economics, was particularly intrigued by the assertion that GE may have exhibited more long-term thinking since it's widely accepted that businesses operate and make decisions in the short-term. This short-term thinking leading to many sub-optimal market results...but that was just the interesting thing I took away in passing.
A choice quote from the Atlantic piece sort of illustrating this:
> Harry Moser, an MIT-trained engineer, spent decades running a business that made machine tools. After retiring, he started an organization called the Reshoring Initiative in 2010, to help companies assess where to make their products. “The way we see it,” says Moser, “about 60 percent of the companies that offshored manufacturing didn’t really do the math. They looked only at the labor rate—they didn’t look at the hidden costs.”
Your question about a fully automated economy is interesting, but I don't have good references off the top of my head to point you toward...sorry :)
Automation lowers costs. That means either things cost less so you can make a living working fewer hours at lower wages, or companies are more profitable and we can tax them to pay for social assistance programs.
I was suprised to learn that the main reason Coal Miners are out of work is because of mining automation.
I perceive a world where people just stop buying. Yes--the wealthy will still buy their toys, but their will be a time where so much missery/homelessness; they won't be able to enjoy the luxuries of wealth. Even right now--I feel weird eating in a resturant while a guy outside is hungry.
I feel we will need to open up federal, state, and county land; and allow free camping. (They have made it literally a crime to be homeless.)
I feel a Basic Income will need to be seriously looked into.
I hope we never turn into a country that just overlooks the misery around them. Some days, I feel we have crossed that line.
> I feel we will need to open up federal, state, and county land; and allow free camping.
I agree, I predict within the next 10 years or so we're going to start seeing some trend of people moving out into the wilderness due to downright necessity.
Completely agree that there are advantages to manufacturing here, but if they actually outweighed the pre-automation labor cost, more companies would be doing it.
And a lot of the companies still manufacturing here are using automation.
This hinges on a common fallacy that insists there are a fixed number of jobs.
If it wasn't possible to expand opportunities for employment, we would have run out of jobs as a country of 5.3 million people in 1800.
As we automate, new labor emerges. Trade has taken a huge cut of the US textiles industry. But in the early 1800s, a textiles industry on the scale of what we have would have been inconceivable. Many families were making clothes from sheep to stockings, or grew a quarter acre of flax to begin the hard strenuous work of breaking it down and turning it into a scratchy fabric. They had a couple outfits and called it good.
If you told those people about a society where even a median income would let you buy a variety of shirts with different patterns and levels of comfort, then just throw them out or give them away each season if they fade a bit, they would have just stared back at you slackjawed.
As far back as the BLS has data, the employment-population ratio has stayed within a narrow band around 60%. That strongly suggests there are feedback mechanisms that create new opportunities even when underlying sectors and conditions drastically change.
The future of labor will probably surprise us just as much as the farmers in the 1800s. We'll have people do things that we can't even imagine how it would be efficient or profitable to hire out. On the order of unlikeliness of hiring someone to brush your teeth, or sing your theme song when you walk into rooms.
EDIT: Added BLS point, we have no historical evidence of labor/population ratios shifting in the way people argue is imminent. It climbed sharply in '83 and dropped like a rock in '07. Those were not due to either automation or trade. It's hard to link to BLS, but basically go here, then expand back to 1947:
I was well clothed in 1987. Most of the textiles I was wearing were manufactured in the Carolinas. My parents also were buying clothes in 1967. Their stuff was made in the Carolinas and Central/Western New York. No homespun.
Today, I'm fortunate to have a lot more money relatively speaking than my family and buy nice stuff. With the exception of a couple of suits, a few of my wife's dresses and some Irish linen, every piece of fabric in my home is milled and sewn in China, India, Bangledesh, or Columbia.
The descendants of the people who made clothes for my parents 50 years ago or my childhood self 30 years ago are mostly on social security disability, in the military, or working some garbage service job.
>This hinges on a common fallacy that insists there are a fixed number of jobs.
There's a very common fallacy that says that people have an unlimited amount of desires. Urban people (that are most) consume basically all the time, so you won't get all those new jobs unless you greatly increase the complexity of people's desires (we are doing that) or automate consumption.
If you just take a single desire--to stay young and healthy--it's not hard to imagine almost infinite job growth potential. The desire is not complex, but satisfying it will be.
> This hinges on a common fallacy that insists there are a fixed number of jobs.
It has nothing to do with that at all. What it hinges on is that companies will pay lower wages when it's more profitable.
The thing that allows high wages against labor competition is high productivity, so that labor is a smaller proportion of total costs and companies are under less pressure to reduce wages.
On the order of unlikeliness of hiring someone to brush your teeth, or sing your theme song when you walk into rooms.
But that kind of personal service is something we see less of, now, not more. The middle class in the US is rich compared to lords and ladies of 200 years ago, but have no personal servants. Software developers and medical doctors and middle executives could hire batmen and butlers and maids, but mostly do not, even when the money to do so is just sitting in their bank account and they complain about how little time they have to clean and service their house, cars, etc. Why is that?
1: Automation. Availability of white goods is the reason why most people don't have servants. If I had a spare full-time wage hanging around, I don't think I could find enough work for a servant to do in my house.
2: We don't have full-time personal servants, but a lot of people I know have a char who comes once a week; take their cars to a garage for servicing; buy prepared food; pay a window cleaner every so often; get the car cleaned whilst doing something else etc.
I'd also dispute the "richer than lords and ladies" statement, I think it selects one definition of "rich" and ignores the rest.
Yes, we have cars, electronic entertainment, indoor plumbing, free education, and access to healthcare beyond the wildest dreams of our 18th century forebears. However, I couldn't live off income from the tenants on my estate, no matter how well I manage it, or how frugally I live.
At my income, I certainly couldn't afford to employ, feed and house the 15 or so employees in a typical aristocratic household (one could argue that some of those are now white goods, which I can afford). Nor would I be able to maintain both a large house in my seat and a smaller (yet still substantial) one in Mayfair (as well as membership of White's and Brooks's). I doubt if I could afford a small country cottage, a studio flat in London, and membership of a gym.
The problem is that jobs aren't nearly so fungible. In the software industry, those of us who succeed are used to constantly retraining ourselves, on our own dime.
This simply isn't true for most workers. Why aren't those coal miners retraining as data scientists? Everyone knows coal is on the way down, right?
> You can't pay an American worker 20 times as much to make the same product in the same number of hours.
That's not true: you failed to mention the possibility of the customer paying more to make up for some of the difference in labor cost.
> People don't want to hear that, but those are the alternatives.
Those are the only alternatives, but only if you are restricted to thinking like a free-market economist. Other ideologies allow for other possibilities.
Customers have repeatedly demonstrated an unwillingness to pay a large premium for a made-in-USA tag, and protectionist tariffs don't help you export American products.
But consumers have also demonstrated willingness to pay for shipping, wholesale markup, retail markup, and other fees that dwarf the differences in regional labor and manufacturing costs. So local made goods can be competitive.
I don't think it's as binary as that. Many large prosperous countries (e.g Germany) rely heavily on exports but are still more heavily interventionist and protectionist than the United States.
While I'm largely in favor of free trade, it would be somewhat foolish at this point to deny that a trade policy such as ours, so exclusively focused on returns for the Capital class, has pretty bad political consequences. We either have to develop a better education system and social safety net, or subject ourselves to dangerous populist tantrums.
“It is a very common clever device that when anyone has attained the summit of greatness, he kicks away the ladder by which he has climbed up, in order to deprive others of the means of climbing up after him. In this lies the secret of the cosmopolitical doctrine of Adam Smith, and of the cosmopolitical tendencies of his great contemporary William Pitt, and of all his successors in the British Government administrations.
"Any nation which by means of protective duties and restrictions on navigation has raised her manufacturing power and her navigation to such a degree of development that no other nation can sustain free competition with her, can do nothing wiser than to throw away these ladders of her greatness, to preach to other nations the benefits of free trade, and to declare in penitent tones that she has hitherto wandered in the paths of error, and has now for the first time succeeded in discovering the truth.”
He was also charmed to hear of a find I'd stumbled across -- a bit of an economic policy edit war between the British editors, and American publishers, of Chambers Encyclopaedia. Seems there was a slight difference of opinion on matters of trade (and other issues). The publisher also produced a number of List's books in the US.
> Please name the country which achieved its legendary prosperity through a planned economy, protectionism, or a programme of economic isolation.
Do you think that free-trade economics represents the perfection of economic thinking?
My point is: these stark choices that you and others are presenting are the artifacts of an economic dogma. That dogma shouldn't be confused with the truth and blind us to better ways of thinking. Perhaps getting the most goods for the least money-cost is not in fact the best deal? Perhaps there are other things that should be attended to, even if they're not packaged neatly in a compact ideological framework.
It's not a free market. 16% of the GDP is healthcare, which is a mix of government price controls and insurance cartels at the state level. 5% of the GDP is military spending. 8% of the GDP is the financial services sector.
Basically a third of the economy of the richest nation in the planet with 300M+ people is controlled by a group of leaders who could fit in a midsize during arena.
Parts of all of these, sometimes many parts, I think South Korea? Japan? USA and GB initially, until there economies were strong and they wanted free trade. It isn't black/white.
The United States. Great Britain. France. Germany. Italy. Japan. South Korea. Holland.
And this little country you may have heard of, China.
Several people have pointed out Ha-Joon Chang's scholarship on this issue, and Friederich List's The National System.
I'll point out that there was an amusing little incident in which disagreement over List and free trade policies came to light in the 1870s, in an early encyclopaedia edit revision war. Something I stumbled across on my own:
I do hope some of my own experience of discovery came through there.
I was going through a bunch of Google Books results on "free trade" in the late 19th century, and the encyclopedia popped up. I'd started flipping through it at the Internet Archive, from the beginning, when I came on the Note, which I thought unusual. And so on.
I'll do you one better and name three. Japan. South Korea. China. All three implemented protectionist tariffs, and industrial policy that involved the government "picking winners and losers".
China's not really all that prosperous by developed-world standards, though, it's just huge. It's like 20% of US prosperity levels, and far more unequal.
This is actually where free-market thinking matches the real world - unless you find a way to force people to follow your ideology, they'll keep choosing what's cheaper.
It's only cheaper because you don't account for social and environmental costs, and simply get rid of them as "externalities". But they're not externalities anymore, and their effects are coming down on us, and badly.
>People don't want to hear that, but those are the alternatives.
I wish we had politicians who would treat Americans as adults and tell them things they don't want to hear. We watched a whole country get swindled by a conman who promised a return to glorious 1958.
Nobody shed any tears for the horse-and-buggy industry, or the cotton-picking industry, cobbler industry, the millions of people who used to be employed in manual farming methods - why are suddenly people who used to be employed in factories this tender, can't-be-told-the-truth "protected" class of people we all must bow down to?
Yeah I get it - your father raised 4 kids in a white-picket-fence 2-car-garage house by pushing a button in factory, all while being barely literate and not being able to point out Canada on a map.
So those days are gone, forever - so what do we do going forward?
Instead, the entire country is now held hostage by the pissed-off, unable-to-accept-the-truth rust-belt blue-collar class who've been told they're the "real" America or whatever and are now dragging everyone else down with them. Wonderful.
> I wish we had politicians who would treat Americans as adults and tell them things they don't want to hear.
If that's what Americans wanted, they'd vote for it; but they don't, they prefer politicians who tell them what they want to hear and so that's who they put into office. Want to lose an election, tell the truth.
I suspect it is hard to sell the electorate as a whole on the nuance required to tell them these jobs aren't coming back but you are the best choice for election.
Pretty much every election campaign seems to be run on "the county is in crisis and we can save it", regardless of the state of the constitution country.
Here in Australia there is a decade old thought, not back up by evidence, that the Liberal Party are better enconomic managers. Even after months of compaigning on complex issues you will have that line bought up on Election Day as to the rationale of their vote.
There was a Scythian ritual/sport that involved a rider slashing his horse's throat, and riding it down. I gather that it was dangerous. Rather like a mix of bull fighting and rodeo, except with horses.
Those comparisons are tricky, especially in hot markets.
My childhood home in NYC was $30k in 1980. My grandparents lived in a nicer house up the block on a sanitation workers salary. That home sold a year ago for $1.2M. The 2016 version of my parents or grandparents would be living in some distant suburb.
The rust belt are the places that lacked diversification. There are lots and lots of little rust belts that were overshadowed.
For example, New York City. NYC had 875k manufacturing jobs in the mid 60s, which plummeted 60% by 1993. The same thing happened for complimentary industries like wholesaling.
Standard inflation rates exclude too many things to be reliable. And the basket has changed, over time. I suspect that's why parent said $20-$60 per hour.
You said "we have is a choice between fewer American manufacturing jobs (automation) or no American manufacturing jobs (outsourcing). People don't want to hear that, but those are the alternatives."
Why is it impossible to pay closer to the world market rate for labor, at the U.S. federal minium wage of $7.25/hr? I'm not saying you're wrong, these are intended as real questions :)
In practice the answer was traditionally "unions". The United Auto Workers won't let you eliminate all pensions and benefits and pay minimum wage, but they can't stop you from building a factory in Mexico, so what happens?
In theory we could try to compete with Asia on labor costs, but nobody really wants that. It's better to have middle class jobs than a larger number of subsistence-level jobs, especially when the output is the same.
I think quite a few companies would love to try and compete with Asia on labor cost, and a good many have. I'm not trying to argue against the value of corporations or anything, but I think it's generally agreed that the goal of corporations is to make as much money as possible for their shareholders. To that end, companies are going to pursue profits (i.e. lowering labor costs) over creating good paying jobs whenever they can. I'm sure many CEO's would, in theory, prefer to keep middle class jobs over profits, but in reality many of them know that they will be replaced if they do. It's rare that they can have it both ways. Also, it seems to me that given the choice between creating a few middle class jobs or a larger number of subsistence level jobs, large corporations have more often chosen the latter. "creating" more jobs looks better on paper and it's easier to fire someone if you have a larger pool of candidates to replace them with, or, better yet, pick up their slack while being paid the same.
On the subject of unions, I was interested to see here, https://www.bls.gov/news.release/union2.nr0.htm, that in 2016 only 10.7% of workers were union. I certainly agree that unions have traditionally been a force in keeping wages high, but I don't think they are really the best case to use as an example of US manufacturing as a whole. I'll be the first to say that I haven't really researched it, but it seems to me that quite a lot more then 11% percent of US manufacturers have moved their operations overseas.
People will take the best job available on the market. If bringing back manufacturing brings back a lot of subsistence level jobs, you won't have people in middle class jobs leaving those jobs for the subsistence jobs. The only people who take those new jobs are those who are in a worst position than what the subsistence level would provide them, and thus are better off with the subsistence level job than without.
This is basic free market economic theory that any economist (other than perhaps Marxians) would agree with.
Keep in mind Labor cost is only one part of the puzzle, it depends a lot on what you are manufacturing. In large heavy industries (Metals, chemicals, plastics etc) the raw materials costs can dwarf the labor cost by a significant amount. Obviously the story is different for lighter manufacturing (component assembly etc) where labor costs probably do make up a higher proportion of overall expenses.
An example from the industry I'm familiar with - Steel: The raw materials which go into manufacturing steel; iron ore and coal are such a huge portion of the operating costs that labor expenses almost look like a rounding error next to it when you tabulate out the expenses. A lot of heavy industry is similar (Aluminum has added expense that it required large amount of electricity which is why traditionally aluminum smelters have been linked to hydro sites).
If you can improve yield (ratio of raw materials consumed to product produced) by even a small margin you can justify your salary many times over which lends support to the idea you want to be employing smarter people not necessarily less people.
Here is Australia what has rocked my industry is falling demand, largely driven by GFC which has led to a sudden decline in new commercial and residential construction etc. (It is starting to recover now but is pretty staggered). As well as increased completion from imports.
I haven't seen any data supporting this but what I keep getting told is that in some cases Chinese government heavily subsidizes their industry so they can export at what would otherwise be a loss. This is called "Dumping" and is a form of predatory pricing the idea being you flood the market with very cheap goods then raise prices when competition is driven out of business. There is evidence this is happening to the US as well here is an article I found from Jan this year (http://www.cnbc.com/2017/01/18/us-affirms-finding-of-china-s...)
If I wanted to stimulate manufacturing I'd focus on demand (i.e government funded infrastructure projects) and trade policy (Better anti-dumping legislation etc).
You're grossly mistaken if you think that American workers are paid 2000% (!) more than comparable manufacturing workers in China, Germany, and Japan (the other top manufacturing countries).
You can't pay an American worker 20 times as much to make the same product in the same number of hours. The only way to be competitive at 20 times the pay is for each worker to produce 20 times the output, i.e. automation.
This is only true if labor makes up the largest component of the cost. If the worker is only 10% of the cost of the output (versus say raw materials like steel) then being more 2X (or even 20X) more productive requires a much smaller productivity increase.
It's also worth noting that manufacturing can carry significant negative externalities in the form of pollution.
we have is a choice between fewer American manufacturing jobs (automation) or no American manufacturing jobs (outsourcing)
That is simply incorrect. Consider the economic facts of the 20th Century. In each decade, the nation with fastest rising productivity also had the lowest unemployment. There is no obvious correlation between automation and job loss. Sometimes automation gets rid of jobs and sometimes it simply leads to more hiring in that sector, because that sector is profitable.
Adam Smith tied rising wages and high labour demand to growth.
Which becomes problematic if the gravy train stops.
But it would be otherwise in a country where the funds destined for the maintenance of labour were sensibly decaying. Every year the demand for servants and labourers would, in all the different classes of employments, be less than it had been the year before. Many who had been bred in the superior classes, not being able to find employment in their own business, would be glad to seek it in the lowest. The lowest class being not only overstocked with its own workmen, but with the overflowings of all the other classes, the competition for employment would be so great in it, as to reduce the wages of labour to the most miserable and scanty subsistence of the labourer. Many would not be able to find employment even upon these hard terms, but would either starve, or be driven to seek a subsistence either by begging, or by the perpetration perhaps of the greatest enormities. Want, famine, and mortality would immediately prevail in that class, and from thence extend themselves to all the superior classes, till the number of inhabitants in the country was reduced to what could easily be maintained by the revenue and stock which remained in it, and which had escaped either the tyranny or calamity which had destroyed the rest.
If labor costs are only a small fraction of overall production posts and the rest is capital (i.e. machines), then this difference becomes unimportant. And this is increasingly the case.
> If labor costs are only a small fraction of overall production posts and the rest is capital (i.e. machines), then this difference becomes unimportant. And this is increasingly the case.
Yea, personally I care about the trade deficit more than jobs anyway. That is because the current economy is based on credit and that is not a good thing.
This reminds me of a quote from Neal Stephenson's epic Snow Crash novel:
“When it gets down to it — talking trade balances here — once we've brain-drained all our technology into other countries, once things have evened out, they're making cars in Bolivia and microwave ovens in Tadzhikistan and selling them here — once our edge in natural resources has been made irrelevant by giant Hong Kong ships and dirigibles that can ship North Dakota all the way to New Zealand for a nickel — once the Invisible Hand has taken away all those historical inequities and smeared them out into a broad global layer of what a Pakistani brickmaker would consider to be prosperity — y'know what? There's only four things we do better than anyone else:
music
movies
microcode (software)
high-speed pizza delivery”
― Neal Stephenson, Snow Crash
Hiro Protagonist is literally a pizza delivery driver, so it's not a euphemism. Neal Stephenson could perhaps have used pizza delivery as a metaphor for something, but if so, I have no idea what, so it's probably actually just commentary on America's obsession with fast food.
I'd rather work at the Central Intelligence Corporation (IE Google / etc) than at USCAS or whatever that 'military turned software hell hole' (think EA) was...
That's not necessarily true. Excluding the obvious comparisons with Russian and Chinese weapons sales, France, Sweden, and Israel also have significant defense exports. America has a huge export market for weapons because America has a huge defense industry. Even a small percentage of that turning into export sales results in some pretty eye-popping numbers. I would be willing to bet that, as a proportion of their overall defense industries, French and Swedish export sales are much larger than America's.
Those numbers are worse than I thought they were. I thought US production had recovered to 2008 levels. This isn't good, and it's really important.
To some extent, Trump was elected to fix this, but so far, no initiatives have appeared which help US manufacturing. How much protectionism the US should have is a real question. China has a considerable amount, and is trying to become an autarky, not dependent of the rest of the world. That's been quite successful in the Internet sector. China can probably do it; they're big enough.
Well, are the USA really not an autarky Internet wise ? Of course it's theoretically open to other countries services but let the proof be in the pudding: which are the important services or sites used in the US and not made in USA ? (just a thinking experiment, of course I remember there are reasons. There may also be reasons for Chinese)
Weird; I had the opposite reaction. The data in the charts seemed soothing to me. I thought manufacturing had been crushed by double digit percentages, even today. It's rebounding significantly and while the author asserts it is a plateau, I think it's far too soon to make that call.
I don't disagree with the author's main points about manufacturing and the economy in general; I just don't see the dire situation in the data.
Pretty sure removing regulations on energy development (and therefore, cost) are an effort to supporting manufacturing, and Trump has taken an aggressive stance at repealing as much regulation especially in the energy sector, as he can[0][1][2].
Those are just a few citations, but just look up some of his executive actions and orders, as well as some recent legislation he's signed. Some of these addresses repeal of regulations (Using the Congressional Review Act).
The GOP border-adjustment tax is being worked on currently. While debatable in how it does or does not favor imports or exports, at the very least seems to favor establishing business in the US and eliminate tax benefits of incorporating outside the US.[3]
This, and his general desire for a slashing of the corporate rate, should incentivize corporations (manufacturing and otherwise) to move, stay, and hire in US, and move US from one of highest rate countries to one of the lowest.
These are supply-side arguments that still continue to fail to impress when implemented in reality.
Just to narrow to one obvious piece: the difference in type of energy matters if the goal is to support local manufacturing. It's a variation of the "Buy Local" argument applied to manufacturing suppliers. Reducing the cost/regulation of oil/gas/coal doesn't support local manufacturing near as much as it continues to support/cheapen global shipping costs (because oil/gas/coal continue to transport well across borders, and continue to keep cargo ships/planes fed). On the other hand, increasing solar/wind is a much more "local" energy resource investment (it's tough enough just to store it for time-shifting, much less to transport across borders) and might be better for the stated goal.
I think this argument is a bit specious. While taking steps to reduce the cost of energy may have an indirect effect on manufacturing in energy intensive industries, the main goal of this policy is to improve the bottom line of energy companies to the tune of billions of dollars. Companies which also happen to be huge campaign contributors.
This would be like claiming that loosening the banking regulations was part of the Administration's plan to boost consumer spending, while ignoring the fact that it also helps those companies make billions of dollars more than they otherwise would have.
If the manufacturing jobs come back, they're bringing developing-nation-style quality of life with them. POTUS can't do anything other than protectionism, and that will only stave off disaster, while driving quality to the floor.
Trump duped people into thinking he gave a shit about this. Unfortunately -- but also predictably -- he will do absolutely nothing to fix it before his inevitable removal from office.
The article doesn't present any sound evidence for hypothesis in the title. Manufacturing output has declined sure, but real gross domestic product grew and it is still growing. This means that maufacturing production is replaced by other sectors of economy: mostly services.
It seems logical to expect that in the future we'll have more jobs in services (e.g. tech) and less jobs in manufacturing. This is good for everybody, good for workers, because jobs in services are less dangerous, and good for economy too.
This depends on how you define dangerous. Heart disease is the number one cause of death in the United States killing ~614,000 people per year whereas accidents account for ~136,000. Sedentary behavior has been shown to increase the odds of heart related disease. Moving from more active manufacturing jobs to more sedentary service jobs could arguably be more dangerous to the longevity of a person's life.
"Physical inactivity has become a major public health concern because it is the second leading single cause of death in the United States, trailing only tobacco use (31)."
Also to note: when I worked retail, I was significantly less active than when I started working software. With retail, my feet just hurt too damn much for me to want to play sports on my days off. When I started a software job, I had 3 weekly semi-organized games I played in most weeks, as well as occasional pickup games on other days.
Could you clarify why this should be noteworthy? I mean this in the nicest and most respectful way possible - I'm not sure how the statement fits into the discussion.
1. The comment I replied to was talking about harms to health by being sedentary.
2. A lot of people on HN are young professionals with desk jobs, which at first glance seems more sedentary than most service jobs.
3. I thought it would be enlightening to realize that many of those service jobs can cause one to be more sedentary than a desk job. If I had not experienced it myself, I would not have considered this.
I had interpreted the original post to be a comparison of the levels of physical danger in manufacturing vs. service industry jobs. From my perspective both programming and retail are service industry jobs since they don't involve creating physical products by hand or through the use of tools.
Service industry is where no goods are produced. Non-live entertainment and software development both produce intangible goods, but still produce goods.
Furthermore when one talks about the movement of low-wage jobs from manufacturing to services, it's assumed we aren't talking about professional services (e.g. lawyers, accountants), but unskilled and low-skill service jobs such as retail, food-services, and child-care.
The article presents clear evidence that the overall output has declined. This is far more consequential than just employment.
The example given with agreeculture is also spot on - during the industrial revolution, total farm employment plummeted, but total farm output soared, and continues to grow to this day.
Automation in the manufacturing sector would look similarly - job losses, but increased production. That's not happening. Instead we have a shift of production base out of US.
Right. A big dip with the recession that took its time recovering. But comparing total output today vs. the "golden years" of manufacturing in the 60's betrays the lie.
Construction is a solid category to replace manufacturing.
Have open borders. Market the shit out of America. This causes millions of people to immigrate into the US.
Each of these people are going to need housing. 15 million houses at 200k each = $3 trillion growth. BOOM. just like that. And that's just housing.
The 90's was characterized by open borders in the US. Immigration was completely wide open. It causes a HUGE boom in our economy, and we need to return to those halcyon days of open borders. (and, no, it wasn't the dot-coms that grew the economy - there are far too few computer programmers to do that)
And what happens when many of those people are automated out of work? Too many people at the lower end of the skill spectrum will eventually become a liability that need to be supported with welfare. Communities will generally need to minimize the number of people that will need welfare and maximize the number of people that are productive enough to provide the welfare. If the welfare burden on the productive members becomes too high, the productive members will try to flee because they aren't being fairly rewarded for their productivity.
To move to a more automated manufacturing industry and to expand the service industry the US needs more educated people. You can't do hi-tech manufacturing with high school graduates.
I think US needs to fix it's education system first to make sure that all deserving people get a chance to go to college without incurring debt. It can easily be done considering the money the government spends on defense and other (I'd call useless) agencies like NSA, DEA, etc.
One of the first steps could be to pay college tuition for students matching certain criteria (I'm not sure what the criteria could be - maybe GPA - but I'm certain that some elibility criteria can be defined).
Why draw lines at all in deciding who is deserving? In my country anyone can study anything without going into debt. The only requirements are prior degrees. It leaves young people free to choose their path in life. We spend 6.6% of our gdp to have that system. The US spends 5.6% of gdp on its system. That's close enough that the US education system should be offering better choices and outcomes to students. Why isn't it?
I agree. Thats why I said "to start with". Universal free education should be a right in this day and age. However if the Congress is to pass such a bill they most probably won't make it all free on day one. They (and the population) need to ease into it, so reimbursing tuition fee as a "scholarship" could be a good starting point.
Costs-benefits analysis. If I allocate $100 for 100 students in higher education, I can spend only $1 on each. If 25 show far more promise in the productivity they can contribute that $4 spent on each will achieve a greater overall output of productivity, it's in society's interest to invest $4 each in those 25 students over investing $1 each in 100. Since those 25 are getting $4 of investment, they should also expect to pay back to society enough to justify the higher investment in them.
What's the delta in lifetime earnings for high school education vs 4 year college in your country? Or how many doctorates per capita? Or some other metric for outcomes that you prefer?
You could do hi-tech manufacturing with high school graduates if they actually studied a high-tech curriculum or had the opportunity to apprentice for 2-3 years.
College is not (and should not be) required for everyone who wants a decent middle class job.
That would probably require a major reform of the K-12 system, and also a cultural shift where people actually become interested in tech curriculum. And to do that STEM subjects need to be given importance at a very early stage.
It might take longer than it needs to, but I see this happening eventually. As low-skill jobs are automated away and cab/truck drivers are replaced by self-driving vehicles, many people won't really have a choice but to become interested in tech curriculum.
Furthermore, I think that cultural shift is already happening. Computers aren't just for geeks and professionals anymore. The average user might not be thinking about how Snapchat's geofencing works when they take a selfie, but that can't be more than a few steps away.
Germany has been mentioned a lot here. Education is another place where the country is "ahead". Occupational schools and apprenticeships are a common higher education route. My understanding is that only people slotted for college get an abstract curriculum similar to what Americans would call "high school".
Many regions in Germany accomplish this through heavy uses of Tracking[1] which, regardless of your stance on it, is a political non-starter in the US.
One place I visited (it varies heavily with region), the students were sorted towards Gymnasium (college prep) or Realschule (ends at 10th grade with a sight towards job, apprenticeship, or further vocational training) around 3rd grade. Good luck implementing that in the US.
Even that though assumes that there are people needed in hi-tech manufacturing, and I'd say that assumption comes against a brick wall of automation. Sure, the lower-requirement manufacturing jobs went first but the more specialized and more precise ones are going away too. The jobs that are temporarily safe from robots are rapidly becoming a minority, and jobs that are completely safe from robots are an endangered species.
I always find it interesting that in these sorts of articles, the absence of growth is the problem, as though manufacturing output (or the output of any industry really) can just keep growing and keep growing ad infinitum. Once we can make a box of tissues for every living person on the planet, the tissue industry must stop growing, because why would we make any more? Every given industry has a saturation point where output must level off, lest we drown our population in a sea of products they don't need, regardless of affordability.
This is why people don't trust news media and government.
This stuff was 100% obvious back in the 90s days, when the left wing people were protesting globalism, what was left of manufacturing imploded, and big agribusiness crushed Mexicos economy.
Since that time, we've been told time and time again by economists that we're all wrong, the service economy is great and life is great... just go to college for retraining.
That's because the left (Or more specifically, its social policies) has been co-opted by neo-liberalism. We now have people who, with a straight face, can claim that Hillary or Obama have liberal policies.
Yes, offshoring all our manufacturing to places with no worker protections, no environmental protections, long work weeks, and poor wages is absolutely a liberal policy. We're all about winning the race to the bottom.
The World Bank and the IMF have always been the left's shining beacons, that bring progressive enlightenment to the downtrodden masses, the global south is not being ruthlessly exploited by multinationals, and we've always been at war with Eastasia.
I mean, that's not how I remember the politics of the 90s, but who's to say?
If you want those places to start having worker rights and environmental protections, then you better make sure they're rich first, by giving them jobs and trade.
The only reason they don't have these things is because they're poor in the first place. Only wealthy societies can afford those things.
Free trade is the global labor and environment solution.
Or maybe you want those countries to be environmentally destructive forever?
Look - you don't have to believe that these complaints are valid. You don't even have to believe that viable alternatives to unrestricted capitalism should exist. I'm not trying to convince you of that!
However, you are incredibly unlikely to convince me that in decades past, those beliefs were held by 'progressives.'
"Why should a country specialize in making things, when it can instead specialize in designing, marketing and financing the making of things?"
"This is a legitimate question... Ricardo Hausmann believes that a country’s economic development depends crucially on where it lies in the so-called product space. If a country makes complex products that are linked to many other industries -- such as computers, cars and chemicals -- it will be rich. But if it makes simple products that don’t have much of a supply chain -- soybeans or oil -- it will stay poor. In the past, the U.S. was very successful at positioning itself at the top of the global value chain."
I would certainly call Google's search engines, Apple's iPhones and Intel's processors "complex products that are linked to many other industries". Comparing the fortunes of Apple vs Foxconn also shows that the top of the value-chain certainly lies in design/marketing, as opposed to manufacturing. The evidence the article presents is utterly baffling and unconvincing.
Unsurprisingly, the people who design Apple's iPhones and work on Google's search engine are highly compensated and enjoy a very nice lifestyle in the US.
The problem is that there aren't enough of those jobs to go around, unlike the manufacturing boom of the 50s and 60s, where lots of American men (it was mostly men then) were able to afford a family of four, a house, a car (or two), nearby vacations, and a secure retirement (often a pension) from reasonably plentiful manufacturing jobs that required a minimum of training before the job started and could be done by nearly any able-bodied American male.
Many of those premises are now violated by either tech work requiring a +2 or more sigma of intelligence, often an elite college degree, and either/both of not enough of those jobs to go around and/or not enough people on the right side of the bell curve of ability to successfully hold those jobs.
Looking at revenue instead of market cap, GM and Ford earn about twice what Microsoft and Google do (160B ea) and employ about twice as many people (200K ea).
I don't think you can necessarily say that. There is a reason why so many governments choose to subsidize auto manufacturing (and aircraft manufacturing) over other industries: there is an entire chain of highly skilled work that goes into making these products. And that chain is reflected in the revenue paid for the product, which is then passed through the chain as "costs" for the auto company and "revenue/profit" for everyone else.
The software companies have 4x the margin (20% vs 5%). So you're right: whereas they presently employ the same number of people per $GDP as car companies, they could employ more.
It seems the important thing about software here is that it hasn't been commodified yet. Once it has, margins will come down and it will be just like the car industry. In the meantime, whether it's widely believed to cause economic boom or malaise only depends on which side of 2011 we're believing from.
You summed three competitors' employee counts as a comparison against Google. I don't understand. You say "it hardly employs anyone" but from your numbers I read, "70k is a little less than half of 200k".
Except the status quo of the value-chain may not be representative of the natural settling over time. Design/marketing rest very much on the stability and practical enforcement of "IP" in our current attempted world view.
That is unlikely to play out in the long run. The world is unlikely to consistently enforce the cost of a one-but-no-longer complex process, when a simple/cheaper process produces essentially the same outcome. Minus rarity of material requirements.
What out of "IP" survives? Local trademarks/service marks, sure. Copyright with meaningful global enforcement... not likely. Production of small intricate things/electronics ... likely. Production of easy-to-future-produce/assemble, seems unlikely.
I was discussing something like this with an economist friend recently. His view was that most economists (rightly I think) focus on consumption not production. In theory, you can run a trade deficit forever to keep consuming more than you produce.
Where I think the model probably breaks down is that you can't have infinite debt levels, so your consumption growth is capped by your production growth. I would think you run out of assets (e.g., Manhattan, London real estate) to sell to net-export economies, but I guess there's always financial innovation to bring you new products to sell
The disturbing thing is that the US is not building its own robots to automate the factories, they are being imported. Clearly we aren't as innovative a nation as we think we are. Hey, at least we have Uber.
For a long time now the wisdom was that only suckers make (or fix) real things. Slightly less suckery were the people designing things to be built; but the real winners are the ones that make a living allocating vast sums of other people's money across many firms (often abstracted through derivative instruments). This is a pure information operation, with no expectation of concrete productivity.
Business owners, and sometimes leaders, can also be winners in the sense that they make socio-economic decisions related to a given firm. They set high level policy like "culture" and stay aware of the "winner" landscape of flush firms who might be looking to buy you - and the poor performing firms who may about to shed talent.
Then there is the professional class, primarily inside lawyers and accountants. The remainder are mostly office drones, who's value is mostly emotional and social. They are the fat that demonstrates health.
We all are trying hard to make a living from pure information, but the finance guys are doing it with the most honestly. Engineering guys make things (electron states), so its messy and we can fail. And we affect the real world, with its constant scary existential threat from government, making it even more risky.
I mean, it's nice when the money is flowing wide and deep, and you really all you do is give some speeches, keep an eye on projects, make a strategic decision twice a year, and play golf with investors and other CEOs. Sign me up!
Sorry to burst that bubble - that couldn't be further from the truth, especially when it comes to high-tech automation, i.e. industrial robotics.
Japan is still THE undisputed powerhouse in this field (Yasakawa, Kawasaki, Fanuc, Mitsubishi, Epson...), with the EU a distant second (ABB, KUKA, Stäubli, Comau...) and China rising quickly (e.g Siasun, Foxconn).
Really this is about increasing demand and not supply. Americans need to be trained to not want cheap shit. They need to learn to value stuff like repairability and durability. Americans need to want things that only Americans can make. As long as they want stuff that can be made by the dozen, then they're just going to get all that from the cheapest maker.
This seems like a diffuse cost / concentrated benefit problem to me. It will be an uphill battle to get a large number of people to pay more for things in order to benefit a relatively small group of those employed in making those things. This doesn't even really work for local face-to-face service work where the benefit to the local community is fairly obvious, let alone for manufacturers largely located in completely different states.
The article does not prove the headline in any way. Towards the end it mentions a couple of experts who believe in this premise, but doesn't actually provide anything of substance to back up that belief.
My wife works in fashion. What they have found is instructive. They have spent 20 years outsourcing their production to China. After 20 years of economic and wage growth in China the cost savings once you take into account shipping etc is eroding. Adding to increased demand from the local economy, the value for outsourcing is quickly eroding and most fashion companies are looking for the next low cost production region (Vietnam and Pakistan are two).
I am no economist, but I believe that there will be a global rebalancing in the near future: manufacturing will return as the rents in low-cost regions approach the local cost of manufacturing.
Industry doesn't need a "helping hand". It needs a free hand and a level playing field. If government wants to offer a helping hand, how about helping to address the rampant industrial espionage on the part of our trading partners.
It's widely known that as products are manufactured in China, the manufacturers copy the schematics and make the same product more cheaply as a generic. Sometimes they straight-up steal the molds. Sometimes they blatantly ape other manufacturers (see older Xiaomi phones - obviously rip-offs of iPhone software look & feel - for that reason, they kept them in the Chinese market, since Apple would sue anywhere else).
Is the US more of a victim than any other country? Well, insofar as US businesses manufacture more in China by volume than anyone else, yes. Although not on a case-by-case basis - a Canadian company is just as much a victim as any American one.
Patents are a protection racket that prevent progress; if they can make a generic version cheaper, good, that's how it should be. If people prefer the genuine thing, they'll buy it. Patent holders aren't the victims, they're the mob crying about being prevented from using their monopoly to keep prices high.
Seems to agree with me, however, I don't need a study to know that legally preventing people from copying other people, prevents all of those other people from making progress. Patents make copying into theft, but copying is not theft. The reason we have patents is not to grant patent holders a monopoly, it's to ensure society doesn't lose knowledge that might otherwise be locked up in trade secrets; granting patent holders a limited monopoly is not the goal, it is the means by which the goal is achieved, making secrets public knowledge. The system has however gotten out of hand and patents are now collected and used as legal weapons against competitors to prevent competition. Software patents in particular, should not exist, and are rarely enforced because virtually everyone violates software patents on a daily basis as the patent office is too ignorant to know what should and should not be patent-able.
It took James Watt a very long time to find a partner to fund his invention. Without a patent, that partnership wouldn't have happened. That doesn't mean that our IP law or practice is current or ideal; it's not a binary choice.
None that were available to Watts, certainly. Developing a new technology at the bleeding edge took a lot of money, even then. Steam engines useful for warships were so far in the future that military funds weren't an option.
To the contrary. There were a number of mechanisms instituted over the years to protect and promote the spread and continuation of technical arts and knowledge:
1. Guilds. Frowned upon, but not without their uses, benefits, and sound arguments. (Actually, part of Watts' problem was that he was thrown out of the Hammermen's Guild -- the black-smithing union, in Scotland, from which Adam Smith had Watt installed at the University of Edinburgh.)
2. A royal charter. Rather than a patent, say, the formation of a public corporation (similar to, say, the contemporaneous British East India Corporation), to which subscribers could buy shares and steam power be distributed throughout England (this was pre-Unification).
3. A royal or parliamentary award or prize. This was offered to several other of the major inventors of industrial technology (largely in the textiles trade).
4. An obligatory license. This would have allowed Watt a share of revenues on his invention, but not limited the rights of others to enter into trade.
5. A guaranteed or favourable government contract. This is essentially what Eli Whitney secured, not with his cotton gin, but with his mass-produced arms, in the United States. And from whence he gained most his financial gains.
That's just off the top of my head.
Patents are both tremendously distortionary, and not particularly good at rewarding actual inventors.
An obligatory license is a kind of patent. That modifications of our current patent system are possible is not something I'm likely to argue against, and haven't here.
The guy tried. That a spaceship or marvelous benefactor or coincidental prize could have landed and paid him money is true, but not probable. Governments weren't in the business of mining (the application then.) They had no interest, but in any case do you really want them picking winners today? Their record is horrible in that way. You cite a military example with Eli Whitney, but I had answered that in advance. As for industry prizes only he understood that such an advance in fuel-efficiency was possible.
I really don't think you've ever tried to sell an idea of this kind.
Medicare for all would cost 2.5 - 3 trillion a year. Current tax collection collects about 1.5 trillion. If you tax millionaires at 100% you'd see maybe another trillion. Cut defense by 100% and you'd save 600 billion. With the high taxes required in order to implement your ideas I don't think businesses would grow and its possible a great many would fail.
But in an economy one side's costs are people's income. It's an economy, not a household. Money circulates and performs work when it does, like water. What kinds of mills should it drive? A good health care system seems to me like a good candidate, since it fulfills the most basic needs of humans after food, warmth and shelter. Also, you assume "all other things remaining equal", which is unlikely.
> Medicare for all would cost 2.5 - 3 trillion a year.
In 2016, Medicare cost a total of $588 billion [1], covering over 55 million people [2]. The vast majority of those people are over the age of 65 and on average, over 50% of a person's lifetime healthcare costs will be paid after the age of 65 [3]. It would cost over $3 trillion to have Medicare for all if every person alive in the United States was over 65 years old, which is obviously wrong. The real cost would be closer to $1.5 trillion if the US just paid private insurance companies to cover everybody.
> Current tax collection collects about 1.5 trillion.
No, 2016 tax collections for just the Federal government were $3.3 trillion [1]. The combined total of federal, state, and local is estimated to be at least twice that.
> If you tax millionaires at 100% you'd see maybe another trillion.
A 15-35% tax rate on millionaires yields at least $500 billion a year in income tax revenue [4]. Increasing capital gains taxes to 100% alone would net almost $2 trillion a year.
>No, 2016 tax collections for just the Federal government were $3.3 trillion [1]. The combined total of federal, state, and local is estimated to be at least twice that.
I was unclear. The 2016 budget had 1.1 trillion in discretionary spending and 2.4 trillion in mandatory spending.[1]
If you stopped paying the national debt, skipped out on our UN and NATO obligations, and ended social security as well as many other social programs then you have the number you quoted. Still in 2016 we borrowed over 500 billion as we can't afford to meet our current obligations as is.
State and local governments are cash strapped for the most part. For many existing taxes don't even cover their current expenditures. You can't simply divert all of those funds to healthcare, massive cuts to services would have to be included.
>Increasing capital gains taxes to 100% alone would net almost $2 trillion a year.
An increase of even half that would turn the United States into a third world nation overnight as huge amounts of capital flees our unreasonable tax system.
As for the rest of it the economists and policy analysts at the Urban Institute disagree with your assessment:
medical costs are very high in the US, and these are the patients who need the most care and the most treatments. I would expect the cost for medicare (a program that is legally disallowed from negotiating prices with their suppliers, and which covers only people aged 65 or over) to be quite high, and actually im surprised its that low.
My mistake I was only counting funds that can be spent in a discretionary manner. If you wish to abolish social security and other programs like it you can certainly get more.
The study is here[0], even accounting for Sanders proposed major tax increases on the wealthy and middle class he still fails to fund it by over 50 percent, and private expenditures would continue to climb. Then you have to consider the costs of "free" education and the multitude of other increased social programs. Sorry it's a fairy tale, him and people like him are lying to get your vote.
> Medicare for all would cost 2.5 - 3 trillion a year.
Isn't that assuming current costs for care don't change? Seems a bad assumption since medicare for all would cost less than health insurance for all and be a much more efficient and thus less overhead process while simplifying the system across the board for doctors and hospitals greatly reducing the costs to them by virtually eliminating the huge hassle that is medical billing these days.
What it really comes down to is societal priorities. The Chinese have been willing to do things over the past few decades that the US isn't, and it's given them an advantage in low-cost production.
One of those things is trash their environment. In the US, we have the federal clean air act, an EPA to enforce it, and various similar laws and enforcement bodies at the state and local level (e.g. CEQA).
A second major example of this is labor laws. Workers in the US have strong protections including the right to organize, vote, minimum wage protections, not to endure wrongful termination or sexual harassment, as well as various overtime provisions and strong protections of salary in bankruptcy. They have none of this in China. In China, due to lax enforcement of safety, major industrial accidents happen as a matter of course. I recall reading two separate times in the Economist over the last several years when workers were trapped inside of a burning building, leading to hundreds of deaths. And I keep hearing stories about workers getting woken up in the middle of the night, handed tea and biscuits, and asked to start working.
Anecdotally (I'm not as sure about this) I think many people in China work much longer hours than we do in the US. Most middle-class jobs in the US give at least a day or two off per week; I'm not sure how common this is in China.
We also have strong protections of rights in the US including freedom of speech, rights to a fair, speedy and open trial, break time to vote, and various protections relating to bona fide religious practice, including exemption from some collective bargaining agreements.
All of these things cost money -- a lot of it. So we're going to have a slightly higher cost of production, or perhaps a bit higher taxes.
The real telling thing though is the flow, not of goods or money, but of _people_. Net in-migration to the US from Asia feels much stronger than vice versa. And so I ask: perhaps our manufacturing is in decline, but, why do so many people move here from the rest of the world? Is it possible that the Chinese middle class is getting tired of lead paint in their food, random lengthy incarcerations of political prisoners, a one-party state that openly engages in religious persecution, lack of a free press, or lack of a functioning civil court system?
Now, one can certainly make the argument that some of these protections have gone too far in the US. Perhaps unions have too much power. Maybe companies like Uber/Lyft will force the discussion on making the employment regime less onerous in places like Illinois (my home state), where firing someone is almost always a lengthy court case due to a shockingly pro-labor employment law regime. Perhaps the pendulum could stand to swing back a big in the direction of economic competitiveness. Or maybe the US and China will converge.
I consider myself a pretty strong libertarian, but it really makes me think.
This piece is lacking in details about non-manufacturing, non-agricultural output, with the obvious exceptions of finance and real estate.
Completely lacking is any assessment of American economic juggernauts: high-tech (like Silicon
Valley) and culture (like Hollywood). Both represent industries that are very very hard to replicate because they require immense talent ecosystems. You can't simply cut taxes and labor costs and get a Hollywood - with massive global consumption - out of nowhere.
America is very safe in these kinds of industries. Typically when other countries develop their own they either end up with extremely niche products (like India's Bollywood) or bland products with little real mass appeal (quick, think of the last Chinese movie you enjoyed that wasn't Ip Man).
Problem is this view makes 90% of American population and territory redundant. You can just substitute 'America' with 'California' and that won't alter the sentiment at all.
You might be the only one, it lost money in the US and was panned by critics. And that was a big budget movie made to prove China can compete with Hollywood. It can't (yet).
People shop for the best deal. Companies look at countries and do the same. Give them a better deal by lower taxes and reducing regulation, and back they come. Raise taxes and regulation, and away they flee.
That has to be an oversimplification, else all the companies would have already moved.
Suspect that "I am used to things as they are" is a powerful incentive to keep business, not just citizens. (I say this as someone trying to move out of the UK because of the combination of Brexit and the Investigatory Powers Act: moving is extremely unpleasant).
And given that, automation is clearly the right answer. Some manufacturing jobs is better than no manufacturing jobs, and more local manufacturing creates more local non-manufacturing jobs in sales, transportation, administration, etc.