Peter Drucker Sets Us Straight ( On jobs, debt, globalization, and recession)

Fortune Magazine ^ | 12 October 2003 | Brent Schlender

[maui_hawaii]

Wage cost is of primary importance today for very few industries, namely ones where labor costs account for more than 20% of the total cost of the product—like textiles. I don't know what proportion of the cost of a typical American product is attributable to labor, but it's a small and shrinking one. Take automobile parts. Because of my consulting, I happen to know the internal cost structure for one of the world's biggest auto parts makers. They tell me that it is still very much cheaper to produce in this country—or maybe in conjunction with a maquilladora plant along the Texas-Mexico border—than to import, because the parts, while labor-intensive, are also very skill-intensive to design and make. When that's the case, you're still better off producing in this country. So the belief that labor costs are a main reason for producing outside the U.S. is justified for only a very small segment of industry.

That calls for a mega-bump

The issue that I would take though is as follows:

Consequently, the industries that are moving jobs out of the U.S. are the more backward industries.

No, not really. From a sheerly theoretical perspective he should be right. He isn't taking into account market interruptions and predatory practices from one country to another.

I know we always hear about China's currency, but here's another example of that just to show a point.

Laptop manufacturers have found a way to discount the price of their wares.

If the components of the laptop yada yada make up 95% of the cost ...the components should cost the same then manufacturing should be done here.

Yet because of some economic practices in China, the computer companies are getting a 'dollar discount' by manufacturing in China.

The competitive environment between the two countries is not on equal footing.

[happygrl]

Kudos to Drucker.

I agree, he is a marvelous thinker.

He predicted the demise of the USSR simply by noting that it was the first industrialized country in history to experience a lowering of life expectancy.

He has also written that when a society experiences an influx of foreign born to where they are over 5%, it is too much to assimilate successfully, resulting in societal tension.

He's like that old commercial; when he talks, we should listen.

[happygrl]

there is an enormous amount of surplus capital in the world for which there is no productive investment. The supply greatly exceeds the demand. So there is a very jittery body of excess money that is desperately in need of returns, and it could become panic-prone. We have no economic theory or model for this.

Among some insights.

He has some very complimentary things to say about India.

[Cold Heat]

he has no solution to it.

The solutions are in understanding the problems.

Although, I believe the problem he was addressing was misconceptions.

Therefore, he offered the solution to that problem.

The correct assessment.

[the invisib1e hand]

it wasn't "computerizing" a business that made it more efficient so much as it was the re-thinking of processes necessary to implement the computer's use. A streamlining of how things were done that eliminated redundancies, cut out deadwood, etc.

and, in this context, threatens to reduce the human guts of business, which is a tragedy, because business exists to serve people (not vice versa) -- and does so best when people actually make the decisions (as opposed to having someone's algorithm make them).

[Mel Gibson]

The dominance of the U.S. is already over. What is emerging is a world economy of blocs represented by NAFTA, the European Union, ASEAN. There's no one center in this world economy. India is becoming a powerhouse very fast. The medical school in New Delhi is now perhaps the best in the world. And the technical graduates of the Institute of Technology in Bangalore are as good as any in the world. Also, India has 150 million people for whom English is their main language. So India is indeed becoming a knowledge center.

Holy cow, it's because the U.S. doesn't produce anything with outsourcing being the coup de gra.

[AmericanVictory]

Dominance and leadership are not the same. He does not say that our leadership is over, he only points out the reason why it could be. His points about CEO's are extremely good.

[superloser]

Actually, its very true. When I was managing a group of junior IT architects, we spent most of our time taking escalations and putting out fires than doing real redesign and automation work.

Most specialized IT workers spend too much of their time doing low-end tasks that a monkey could do, like doing terabyte data transfers in the middle of the night for a big move after you designed and dropped in the infrastructure :-) ... this when you have a _Move Team_ available 'cuz they don't want to do it...

[stands2reason]

Your tagline is trollish bullcrap.

[The Raven]

Hmmm...if the unskilled labor market is dissolving - so too is the demand for political propagandists ("...watch out fo the little guy", "....tax the rich")- the Dems will need another path.

I don't see it, however. Our decades long neglect of primary educaion will bite us hard.

[tom paine 2]

bump

[Cronos]

The problem with having debt in our own currency is that it's leading to a sense of complacency, leading to the idea that we can support our debt by printing more money.

[Cronos]

Chinese economic figures are hyped up -- standard commie practise. The real boomign economies are in Eastern Europe, India, Russia and the ASEAN region, though the ASEAN region is fast maturing, with Singapore and South Korea already acknowledged as developed nations and Malaysia and Thailand (in that order) are nearly there as well. Eastern european states like Poland need to control their unemployment (nearly 20% now)

[Cronos]

Nope, what he means is outsourcing to specialised companies. For instance, your company needs to have a data warehouse set up. Which would be simpler: hiring new employees with those skills and make them make the DWH or hire a company with expertise in that area to create the DWH? Like IBM or something?

[Cronos]

designers, tool makers

you're not getting it -- for a company that may not need 24/7 tech support it would be cheaper to hire a contractor for the times it needs it, rather than hire a top-notch techie and have him/her working for only a few days a month.

However for smaller companies, if the tech guy doubles up as somethign else -- say marketing etc. it could work, but again, a company can't retain specaialists unless at a high cost. Designers, tool makers are needed on a much more frequent basis. THough even designing is better left to professionals -- Pinninfarina's designs come to mind.

[Benrand]

In China, however, the likelihood of the absorption of rural workers into the cities without upheaval seems very dubious.

This is very true, you don't hear about it much, but there are scores of workers who literally INVADE cities looking for work...China is pretty screwed up.

[laredo44]

Bump for optimism over pessimism.

[Cronos]

He has also written that when a society experiences an influx of foreign born to where they are over 5%,

That does seem logical, but what about durign the 1800s when the immigrant population was way over that percentage. Maybe the fact that immigrants headed west and there were more lands to the west that prevented any such tension.

[Cronos]

Dominance and leadership are not the same
Quite true, I think we couldn't expect to lord it over hte world for eternity, however our leadership is respected by those democratic entities (yes even in France where most folks don't think France could be the leader, just a sort of devil's advocate)

[Cronos]

This is very true, you don't hear about it much, but there are scores of workers who literally INVADE cities looking for work...

Yes, but he says that India managed to reduced it's rural population from 90% to aroudn 60% without any upheaval. I wonder how they did that.