Tuesday, March 15, 2016

Let them eat cakes ... made only by us!

Consider this:
[The] decision to manufacture in the U.S. isn’t solely about dollars and cents. Rather, it’s a function of the quality of the U.S. workforce—its noteworthy productivity and its easy familiarity with lean-factory principles—as well as the need for companies to react quickly to changes in domestic consumer demand. As Jeff Immelt, the C.E.O. of General Electric, put it in 2013: “Today, the product is the process, more or less. If you look at an aircraft engine, the content of labor is probably less than five per cent. We have two hours of labor in a refrigerator. So it really doesn’t matter if you make it in Mexico, the U.S., or China. Today it’s really about globalization, not about outsourcing; it’s how do I capture markets faster than the competition?”
Two hours of labor into the making of a refrigerator.  Just two hours of labor?  If you are like me, you have never thought about how much labor goes into the making of a fridge, right?  The fridge that has revolutionized our lives.

America manufactures a whole lot of stuff, yes.  It is not the strength of the manufacturing sector that is the problem, but the fact that the strong manufacturing sector does not generate the kinds of jobs that it used to in the past.  A point that Dan Drezner makes with data:
The problem isn’t that the United States doesn’t have a vibrant manufacturing sector. The problem is that sector does not generate the job numbers that used to be associated with manufacturing:

I wish politicians will make this distinction clear.
Both Trump and Sanders downplay the enormous economic benefits of globalization for American consumers of all incomes, and their proposed solutions are vague and could well be harmful if implemented. But their words resonate with many voters, because they articulate an important truth: free trade has created major winners and major losers in the U.S. economy, and the losers—mostly blue-collar workers—have received little or no help.
I have often blogged about my own stand on these: to a developing country, manufacturing and exporting provides the economic ladder going up.  To tell them that they should not "compete" against us seems like a variation of let 'em eat cakes.  Thus, if they manufacture stuff that then displaces workers here, then what is required is a new social contract that reflects a new reality, as much as the New Deal was in response to the economic situation of those times.  However, reworking the social contract requires thoughtful and responsible politics, which apparently is rarer than a unicorn!

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