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Insourcing to America
Townhall.com ^ | December 14, 2012 | Suzanne Fields

Posted on 12/14/2012 6:05:27 AM PST by Kaslin

The prospect of hanging, as Samuel Johnson observed, "concentrates the mind wonderfully." We're counting on that kind of concentration to keep us from falling off the infamous fiscal cliff, which doesn't sound like fun. But while the Republicans and Democrats argue about whom to blame if they let the worst happen, we might look outside the box to find something beyond partisan gloom and economic doom.

We've given up our role as the manufacturing colossus, which blinds us to the reality that the times, they are a-changing -- again.

"For decades," writes James Fallows in The Atlantic magazine, "every trend in manufacturing favored the developing world and worked against the United States. But new tools that greatly speed up development from idea to finished product encourage startup companies to locate here, not in Asia."

He found his epiphany when he visited a factory in China that makes computers, smartphones and games for brands like Apple, Dell and Nintendo, enabling the American brands to exploit cheap labor in China to keep prices low in America.

We've known for a long time that conditions are grim and often intolerable in Asian sweatshops, but we've turned a blind eye. We got the goods at the right price, and everyone was happy. Or so we wanted to think. We rationalized that the workers who made these wondrous machines were happy to have a job, and if some factories put landing nets under dormitory windows to catch workers making suicide jumps, well, we won't think about that.

We've ignored or overlooked how Chinese worker attitudes are changing, as well, making their compliance with economic necessity more complicated, as invention and innovation here raised our ability to compete.

Even in Communist China it was inevitable that workers would want better lives for themselves. Many are the second generation off the farm, and have no desire to till the land of their fathers. Many never did.

Instead, they see their future in an urban world and want a piece of the prosperity pie they helped bake.

One of the more telling details concerns Chinese women. Women, with diligence, smaller hands and more careful attention to detail, are usually better at high-precision work. They learn new techniques more quickly than men. Many have climbed to high positions at the factory. As a result, they're leaving for better jobs and easier conditions.

Asian workers haven't yet found their Charles Dickens or Upton Sinclair to tell their story of miserable, soul-killing conditions and to shape their yearnings and aspirations into a moving narrative. Even if that never happens, they're likely to demand more money, and that will diminish one of the major advantages they have held over the West.

Wages in China are already about five times higher than as recently as in 2000, "and they are expected to keep rising 18 percent a year," writes investigative reporter Charles Fishman, who in The Atlantic predicts an "insourcing boom" for the United States. As U.S. labor union priorities change, from seeking higher wages to keeping jobs, America becomes more competitive. He cites the two-tier wage scale at General Electric's Appliance Park in Louisville, Ky.

Appliance Park was once known as "Strike City," where it was impossible to keep workers on the job and labor costs down. But workers have agreed to lower wages for new workers in return for adding and protecting jobs, and production has grown at Appliance Park. The low cost of natural gas needed for operating a factory, which is a quarter of what it is Asia, against the high cost of fueling cargo ships to Asia, is a large incentive to increase production here.

Over the past several decades, while manufacturing was moving from the rich countries to the poor countries, cost-efficient technology was swiftly developing in America. Ideas became reality. Innovation in three-dimensional printing, for example, accelerates the process of designing a product here and making more of it here, as well.

Manufacturing in the United States will probably never be what it was before "the mighty boiler" that was the Midwestern manufacturing heartland disappeared into the "Rust Belt." But Americans have always had the gift of getting smarter. America has been a mighty magnet for talent and ambition from the rest of the world. We must keep the talent we train, and encourage our designers and engineers to make products in America, which we can easily do with the miracles of technology.

Apple surely knew what it was doing when it decided to manufacture some of its Macs here. If that's not exactly a startup, at least it's a start. Let's hope it starts a trend.


TOPICS: Business/Economy; Culture/Society; Editorial
KEYWORDS: insourcing; manufacturing; outsourcing; trade
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To: PieterCasparzen

You didn’t actually read the article, did you?

And for the record, government killed Detroit, not lack of manufacturing. Government forced parasitic unions on the automakers, and government created the moral hazard that fostered bad business decisions.

But please, read the article. And read more about what economics teaches before you trash it. Start with Sowell’s “Basic Economics.”


21 posted on 12/14/2012 11:48:52 AM PST by LifeComesFirst (http://rw-rebirth.blogspot.com/)
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To: bert
there many many very small American companies manufacturing great products and selling them abroad like hotcakes.

I agree, and I agree that it is a good thing. Actually, however, in 2009, companies of 500 or more employees exported about 67% of the total dollar volume of exports according to census export data. Both small and large companies do contribute to exports - which are important because American imports significantly more than it exports.

Exports drive the american economy.

In 2011, the GDP was $15.075 trillion, exports were $1.497 trillion, about 10%, so somewhere around 90% of GDP is domestic. America is not an export-driven economy; it's role globally is much more that of the most desired consumer market for other nations, since it's sheer size and per capita income levels make it the best market to sell in. Contrast it with the German economy to understand an economy that is quite dependent on exports.

There is a presumption in your post that corporations, especially large corporations are heartless meanies concerned only with profits. That is mostly not true but the part about profits is correct. The purpose of a business in a free, non socialist, nonindustrial policied free country is to make a profit.

I never implied "heartless" or anything emotional. If you carefully review, you'll see that I was pointing out that they are oftten unwise for the long term good of their own business. Just look at GM for an example of this. For all their outsourcing, caving in to union demands and political correctness, they still are running into the ground. Numerous very rich men who ran businesses back in the day, such as Milton S. Hersey, realized the mutually-beneficial relationship between his business endeavors and the local town, state and nation. IMHO, if I owned a $10 billion in sales American business, I would certainly be interested in employing Americans - to work as efficiently as possible - so that my business would be running in a nation of citizens that had money in their pockets to spend. That's simply a long-term strategy for my business being able to keep that Sales figure going in the right direction year after year.

Any way you look at it, 20+ million unemployed in America is bad for business. The more people earn from productive work, the more they can spend - without being a burden on anyone else. The will have earned their money. If they are handed the money without producing anything, however, everyone pays for that in the form of higher prices, or higher prices and higher taxes.

My intent in my post was to point out that simply throwing tariffs on our imports is not the fix for our economic problems.

I recently spoke with a young man from Brazil. He was visiting us on his month long government mandated 30 day vacation. He is a pilot and has tons of frequent flyer miles. He was here to buy stuff. Stuff that in Brazil costs many many times more than here because of the tariffs. People unfortunate enough to notbe able to trvel abroad do with out or py through the nose. That is what the tarrif folks advocate....... doing without or having extremely limited choice of often inferior goods.

Just to review from my post:

"a phenomenon that is much too large for ordinary tariffs to fix underlying root causes of our malaise"

"Putting big enough tariffs on big business may cause them to stop importing, but it may cause them to do other things that would hurt and may indeed not cause them to do other things that are desired, like hiring more Americans."

"Also, IMHO, it’s important to note that tariffs will naturally come to be relied upon by the businesses they benefit, as they will have an alternative to pursuing efficiency in order to increase their profits: they can pursue their Congressmen to increase tariffs a bit."

"These and a large list of other problems are making it extremely and even increasingly difficult to do business here, which simple tariffs do not address at all."

"In contrast, developing Asian economies are also run by elites and are facing tremendous, ever-increasing problems. IMHO, dramatic tariff increases may soon fade from the conversation." (meaning, may become obviously not necessary)

So while I don't know the current tariffs and can't offer an opinion as to specific changes, I'm just expressing that I don't think that raising tariffs on the Chinese is a magic fix-it. I hope this clears up my meaning.
22 posted on 12/14/2012 12:47:08 PM PST by PieterCasparzen (We have to fix things ourselves)
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To: LifeComesFirst
You didn’t actually read the article, did you?

I did.

And for the record, government killed Detroit, not lack of manufacturing. Government forced parasitic unions on the automakers, and government created the moral hazard that fostered bad business decisions.

If you or I or anyone else owned all of GM, lock, stock and barrel, we may well (I know I would have) either shut it down or picked it up and moved it. Long before the government forced unions on them. Many owners of large businesses did this back in the day - the unions hated them and called them union busters. When a person owns a business that represents a large part of their net worth and something that will be passed on to their grandchildren, they see the handwriting on the wall much more clearly when they come under pressure to do things that will eventually ruin the business.

Once companies go public, however, they are owned by many small retail investors, and the management of the company are simply highly-paid employees, who will happily give in to many things, and go skipping into their retirement, regardless of whether they have sown the seeds of the destruction of the company. There is simply no comparison in the quality of management's stewardship of shareholder value between public and private companies.

In a downward cycle that spanned decades, government and unions pressured, and automakers gave in.

But please, read the article. And read more about what economics teaches before you trash it. Start with Sowell’s “Basic Economics.”

The article had this paragraph:

"When you look at the value chain of manufactured goods we consume today, you quickly appreciate how small a proportion of the value of output is represented by the processes of manufacturing and assembly. Most of what you pay reflects the style of the suit, the design of the iPhone, the precision of the assembly of the aircraft engine, the painstaking pharmaceutical research, the quality assurance that tells you products really are what they claim to be."

This fellow should know better. The "style of the suit" implies that one would be $5,000 for a cheap junk suit bought off the rack and made in China, and $5,000 for a suit that looked the same but was a bespoke, bench-made suit made in New Jersey. They look the same, it's just the "style" ? No, you get what you pay for. It's just that most people don't know what they're getting (in most consumer markets), they don't "do the math". We're not all paying for the "style", some of us are paying for quality, others are getting ripped off.

The "design" of the iPhone. No, it's the fact that Apple has a loyal customer base they built up by offering high-priced, high-quality goods. They were a large business already before the iPhone, not a mom-and-pop shop. They then made use of their reputation, capital and savvy when the made a proprietary (to keep cheap alternatives out) phone and used skillful marketing to make it into a popular expensive item that sold like hotcakes. There was no need for Apple to try to have 60% margins on the phone, they could have had it made in American at the same price point, but with much lower margins. Or had it made in China and sold it for 1/3 less than they did. If they did, they would have been even farther ahead of their competitors, making it even more difficult for them to get into the game. Apple opted to try to make as much as they could as quickly as they could. But this profit margin and savvy, and capital, combined with the technical ability to execute are very out of the ordinary, and practically non-existent in most segments of the economy. So for the iPhone, most of what we pay for is simply based on Apple's strategy and their ability to execute it, which is an anomalie that will eventually succumb to price pressure from competition.

"The precision of the assembly of the aircraft engine" - huh ? This dude clearly has no clue or is intentionally misleading. "The precision of the assembly" is meaningless. Dude, I grew up in a machine shop, you get what you pay for, it's not cheap manual labor. Chips have to be removed, in very precise way. Very small things can cause puzzling and costly problems. The best employees are far more cost effective than the worst, and the worst can put you out of business quickly. Perhaps he's talking about more advanced equipment and tooling ? That only makes it more possible to pay workers more because the worker produces more and better in the same unit of time.

The painstaking pharma research ? Barf. You pay a high price because there are enormous regulatory barriers to entry and pharma makes all it can any way it can. I worked for a pharmaceutical contract sales company. Sorry to burst this "economist's" bubble. Ever so slowly competition will eventually happen, but they have Congress in their back pocket to hold it off as long as they can.

The quality assurance ? So the actual manufacture is not what you pay for, it's the QA. No, he's an economic cracksmoker, the QA is typically a small part of retail price.

It's real easy, you don't need to be much of an economist to figure out. Labor in any developing country is cheap. The legal and regulatory system simply requires a few payoffs and it leaves you completely alone. Companies can then make huge easy markups, and allow the capital markets establishment to project the story that they have invented some new paradigm or that they "can't afford" to do things in America. This is exactly why we hear so many pro-big business folks forever ranting that we need more "skilled" immigrants.

Meanwhile, most small businesses must try to - and usually prefer to - survive right here in America, most without the help of their Congressman and his legislative staff.
23 posted on 12/14/2012 3:23:03 PM PST by PieterCasparzen (We have to fix things ourselves)
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To: Soul of the South

I agree with every word of your post.


24 posted on 12/14/2012 8:20:51 PM PST by central_va ( I won't be reconstructed and I do not give a damn.)
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To: PieterCasparzen

Having served as a “C” level officer at one publicly held corporation and as a corporate VP at another I agree with much of what you say about big business having a short term orientation. This I attribute to Wall Street’s short term focus (stocks being traded by computers in nanoseconds is speculation, not investment) as well as the executive compensation system having a huge stock option component which encourages short term actions to drive stock price and not long term success of the organization. Short term investments with immediate payouts are therefore preferred to long term investments that pay out over decades.

To a large degree this short term orientation helped drive the outsourcing boom of the 1990’s and 2000’s. It was much easier for CEO’s to shut down factories and outsource production to brand new Asian factories than make the capital investment in up to date equipment to make US factories competitive.

One option is to use anti-trust legislation to break up large companies. The bank mergers after repeal of Glass Seagall in the late 1990’s contributed to the creation of “to big to fail” megabanks which had to be bailed out by the government. Had the government used antitrust law to prevent these mergers, the 2008 financial crisis might not have been as severe and the problem banks could have been allowed to fail.

Likewise one has to consider if mega corporations such as GE and Wal-Mart have too much power. Breaking up the “trusts” in the early 1900’s led to a vibrant economy until the 1929 when excessive financial speculation caused a financial meltdown and economic depression. It may be time to break up the giant corporations to create more domestic competition, less collusion between big business and government, and more innovation.

Perhaps higher tariffs combined with strong antitrust action is the optimal policy. Breaking up the big corporations will create more competition. It is competition which drives efficiency.


25 posted on 12/14/2012 9:00:23 PM PST by Soul of the South
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To: joe fonebone

The situation was completely reversed back then.

America made everything.

Now we import everything.


26 posted on 12/15/2012 7:45:06 AM PST by Cringing Negativism Network
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To: PieterCasparzen

Thoughtful post.

Thank you.


27 posted on 12/15/2012 7:47:28 AM PST by Cringing Negativism Network
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To: central_va

Until the banking/housing debacle We were operating beyond full employment. To fill the gaps, hordes of Mexicans poured in to fill the vacuum.

That fact belies your arguments. While manufacturing of some products moved elsewhere to be competitive, other jobs were created.


28 posted on 12/15/2012 8:04:08 AM PST by bert ((K.E. N.P. N.C. +12 .....The fairest Deduction to be reduced is the Standard Deduction)
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To: PieterCasparzen

PAT BUCHANAN made this argument in his book THE GREAT BETRAYAL


29 posted on 12/16/2012 12:44:12 PM PST by usmc19651990. (Adelson Traitor, chik fil a,amnesty,obama,RINO, Keynesian Kenyan)
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To: Cringing Negativism Network

My grandson’s business had need for thousands of trash cans—they found they could get them made here in the states less than what they would have cost in China.


30 posted on 12/16/2012 12:57:00 PM PST by Conservativegreatgrandma
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