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!


5 comments:

Mike Hoth said...

Manufacturing is one of the job sectors hit hardest by "simplified work". It didn't used to take 2 hours to build a fridge, but we have replaced workers with machines. My remark to every engineer I talk to (many of whom I went to school with when I was on that track) when they scoff because I'm a *gasp* social scientist is that my job isn't to replace myself. Some day robots will engineer, just like few mathematicians are employed by NASA because they built too powerful of calculators. Machines replaced man.

Anne in Salem said...

Yes, we are paying fewer people to manufacture items that a machine can assemble. Has anyone looked at increases in design jobs? Or service jobs (I know, rarely well-paying)? Or in the myriad other industries that our technical world has generated? Why do we have to stay a manufacturing workforce? Why can't we evolve? Your Cato clip from last week said it well - why cling to manufacturing plastic trinkets when we can design and manufacture jumbo jets?

Sriram Khé said...

I can't ever understand why the demagogues want to turn the clock back to 1956 and have Americans working in manufacturing stuff. I would rather have machines produce things that we want so that we can go about doing things we enjoy doing, similar to how we have machines producing our foods thanks to which we are liberated from the hard, hard work of toiling on the fields. Idiots we get as our fearless leader maybe because only fools rush in!!!

Ramesh said...

We've debated this many times before and our views broadly converge, and so I will take off on a tangent.

Jeff Immelt is dead wrong when he says a fridge requires two hours of labour. What he means is that GE takes two hours of labour per fridge. GE buys many components from lots of suppliers, each of whom use a fair amount of labour. Add to it the zillion hours spent by people in R&D, in engineering, in sales, in marketing .......

Its the same old problem. Blue collar worker hours certainly are declining and may even be minuscule. But human effort into a product - well, its a long way off when that becomes insignificant.

Sriram Khé said...

Just because you are a HUGE Jack Welch fan you don't have to come down on his successor like this ;)

Both Drezner and I had used Immelt only to emphasize the direct US labor that goes into the manufacturing of a fridge. And it takes only that much time because of everything you talk about, which is also what Immelt talks about. Why all the jumping up and down, my friend? Here is Immelt himself:
"Today, materials are expensive and labor is relatively inexpensive. Today, the product is the process, more or less. And labor is a lot more flexible. If you look at an aircraft engine, the content of labor is probably less than 5 percent. 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?"
Because,if those components are all coming from the same set of suppliers and it is only a matter of putting them together, then "it really doesn’t matter if you make it in Mexico, the U.S. or China." Hence, Drumpf yelling "China" all the time is a pretty darn stupid.
Unless by saying that Immelt is dead wrong you are saying that the Donald is pretty darn on the mark ;)

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