Saturday, February 18, 2012

Quote of the Day on U.S. Manufacturing

UT-San Diego -- “When you look at the full cost of doing business abroad, U.S. factories can compete on price, delivery and quality. People would be surprised to learn how many things we still manufacture in the U.S.

Many companies have already brought production lines back from foreign lands, breathing new life into long-ailing U.S. factories." 

MP: Note that the "reshoring" of manufacturing production and jobs to the U.S. has been happening naturally due to market forces, without any government support, assistance, tax breaks, subsidies, public policy, etc., and the manufacturing sector was so successful last year that industry profits set a new record.  In most cases, the "laissez-faire" approach works much better than politically-motivated policies that "pick winners" and target certain politically-favored industries with special subsidies, loan guarantees, and tax breaks, e.g. farming, or solar and wind energy.     

30 Comments:

At 2/18/2012 7:23 PM, Blogger Larry G said...

what might be interesting and illuminating is understanding the "kind" of manufacturing.

manufacturing that depends on relatively unskilled labor probably still is done overseas.

the kind we are doing here may well take more than just unskilled labor and that's an advantage for us.

what say the smarter guys in this blog (and you know who you are)?

 
At 2/18/2012 8:08 PM, Blogger Benjamin said...

"Sometimes the "laissez-faire" approach works much better than politically-motivated policies that "pick winners" and target certain politically-favored industries with special subsidies, loan guarantees, and tax breaks, e.g. farming, or solar and wind energy."--Dr. Perry.

I would say nearly all the time, not just sometimes.

Subsidies or government payments enfeeble, mollycoddle, weaken.

Look at US farmers, or defense industries. The VA should be wiped out, and veterans given vouchers. The USDA could be wiped out immediately without ill effect, and probably beneficial effects for consumers.

Always, a private-sector solution should be sought.

 
At 2/18/2012 9:24 PM, Blogger sethstorm said...

Now if said companies would be more willing to train instead of complain.


the kind we are doing here may well take more than just unskilled labor and that's an advantage for us.

Not at all. It doesn't result in people having secure jobs, just businesses that complain about skillsets and throwing around the word of competitiveness to justify their contempt of US workers.

 
At 2/18/2012 10:01 PM, Blogger PeakTrader said...

Inflation is soaring in China.

Although, Chinese incomes of the masses rose quickly over the years, their living standards rose slowly.

And it's even worse now:

China's Inflation Rebounds In January To 4.5 Pct
February 9, 2012

"I can feel that food and clothes are getting more and more expensive, like the milk I buy. It was almost 30 percent higher than before," said Zheng An, 27, who works for a solar power company in Shanghai.

"I actually spend less money than before as I am now not brave enough to go out shopping due to the higher prices," he said.

Inflation is politically dangerous for the ruling Communist Party because it erodes economic gains that underpin the party's monopoly on power.

Last year's price spike stoked frustration among a public that is angry about pervasive corruption, a yawning gap between rich and poor, pollution and product safety scandals.

The World Bank warned earlier that a possible global slump might hit developing economies harder than the 2008 crisis did.

The IMF said Beijing should be ready to launch a new economic stimulus in the event to offset the impact of a European downturn.

 
At 2/18/2012 10:21 PM, Blogger AIG said...

"the kind we are doing here may well take more than just unskilled labor and that's an advantage for us."

US manufacturing was never under threat of diminishing or being overtaken by China and the likes. People confuse numbers of workers with "manufacturing", but output is what matters. The level of skill in China is still abysmally low.

That being said, the worst enemy of manufacturing in the US is...US manufacturers. I'd venture to say there are still very large gains to be made just in the labor practices of US manufacturers. Automakers are a good example of this; they managed to get loose even slightly of the Union's grip, and made gains. Imagine what they could do if they were free to operate as they wished (manufacturing being the most heavily unionized sector of the US economy).

I see this at Boeing all the time. The company could make airplanes 30% cheaper just by getting rid of some major practices that the Union forces. That would probably mean laying off half its workforce; but half its workforce are lazy dead-weight bastards anyway.

But, these are the politically connected companies that will use government power to prop them up, so they feel no pressure from competitors.

Look at Obama and Boeing; you should have seen the faces and the salivation of the Obama-zombies here when he visited. I had not seen such pathetic performance from human beings since when I was a kid in communist Eastern Europe.

They had to send me to HR when some pathetic Obama-zombie complained about me :)

 
At 2/19/2012 1:41 AM, Blogger PeakTrader said...

Some Chinese wages are way up, although from low levels:

iPad-maker Foxconn raises wages of Chinese workers
Feb 18, 2012

Taiwan-based Foxconn said the pay of a junior level worker in Shenzhen, southern China, had risen to 1,800 yuan ($290) per month.

It said that pay three years ago was 900 yuan a month.

The last time Foxconn Group raised wages was in June 2010, when the pay of its Chinese workers went up by over 30 per cent.

 
At 2/19/2012 8:10 AM, Blogger Jon Murphy said...

manufacturing that depends on relatively unskilled labor probably still is done overseas.

the kind we are doing here may well take more than just unskilled labor and that's an advantage for us.


You're exactly right, Larry. US manufacturing over the past century-and-a-half has been largely capital intensive. That's our competitive advantage. Chinese manufacturing is largely labor intensive. That's their competitive advantage.

The US labor force is highly educated and the Chinese labor force, comparatively, is not. It makes sense for us to be making supercomputers, airplanes, cars, semiconductors, and the like.

Now, question from me: will re-shoring (the natural and predictable path of globalization) finally end calls to punish China for "currency manipulation?"

 
At 2/19/2012 10:04 AM, Blogger PeakTrader said...

U.S. manufacturing is also labor intensive (the U.S. is a labor intensive and capital abundant country):

Invest in human capital to spark U.S. manufacturing resurgence: Sandra Pianalto
December 03, 2011

Sandra Pianalto is president and CEO of the Federal Reserve Bank of Cleveland.

Technological innovation is transforming the manufacturing work force, increasingly favoring higher-skilled individuals, many with post-secondary education. The traditional blue-collar and middle-skill manufacturing jobs will account for a smaller share of employment over time. And already, the number of college-educated manufacturing workers is up.

Output rose 65 percent, labor hours fell 20 percent, and a total of 3.7 million jobs disappeared in the decades leading up to the Great Recession. But thanks to our increases in productivity, we remain a very competitive manufacturing nation.

Even with the expansion of global production, the World Bank estimates the United States' share of worldwide manufacturing at 20 percent for 2009 -- the largest share of any country.

We develop human capital through investments in education and training. Workers need higher levels of human capital to handle today's high-tech machinery. And firms are more likely to open and maintain high-tech factories -- the kind that are likely to survive and thrive in the United States amid global competition.

Over time, these investments are what will help determine our productivity and our standard of living.

 
At 2/19/2012 10:37 AM, Blogger Walt G. said...

AIG,

I think Boeing's biggest problem lately is hiring a CEO that does not know the difference between what he can say and what he should say in public. People at that level are expected to not make statements that cause huge problems for their company.

 
At 2/19/2012 12:00 PM, Blogger juandos said...

aig says: "That being said, the worst enemy of manufacturing in the US is...US manufacturers. I'd venture to say there are still very large gains to be made just in the labor practices of US manufacturers"...

While I don't doubt this opinion is mostly correct I think the worst enemy of US manufacturing is still government...

Reason # 1: Government punishes financial success

Reason # 2: Government imposes excessivly burdensome overhead on business

 
At 2/19/2012 12:17 PM, Blogger morganovich said...

jon-

"It makes sense for us to be making supercomputers, airplanes, cars, semiconductors, and the like."

we don't make semiconductors or supercomputers here in any great size.

the only real exception is intel and they do it because 1. they use different processes than most others and cannot readily fab out and 2. they have incredibly valuable IP that they would never trust at TSMC or UMC.

but if you look at global semiconductor manufacture, almost no new capacity is is the US.

it's all in Taiwan, china, korea, etc. it's MUCH cheaper to set up there and US environmental regs on a semi fab are brutal. the waste products are pretty nasty.

if you want to model an interesting weak point in the global economy, semis are the way to go.

given the huge % of telcom/communication semis that come from taiwan, a notably earthquake prone spot, consider the effects of a major earthquake there. it would hamstring the whole data industry for several years if it was bad enough to actually destroy the fabs.

there have been a couple of 1-2 quarter disruptions just from some moderate ones that wiped out all the WIP.

but if those fabs were actually destroyed, short ANYTHING in telcom equipment.

would be very, very nasty.

also:

can we really call boeing a US manufacturing success?

boeing and airbus are both predominantly centered around sucking up government subsidies, not making airplanes.

i think companies like CAT or the heavy truck makers are better examples.

 
At 2/19/2012 12:17 PM, Blogger Buddy R Pacifico said...

AIG states:

"I see this at Boeing all the time. The company could make airplanes 30% cheaper just by getting rid of some major practices that the Union forces. That would probably mean laying off half its workforce; but half its workforce are lazy dead-weight bastards anyway."

I think your observations are based on the Boeing Everett plant, where substantial production is still being done by hand on the 787, with drawn out and grinding overtime.

Oberve the operations at the Renton plant, where producton has been continuously ramped up on moving assembly lines. The productivity is amazing.

Much of 737 productivity gains have been the result of ideas from union assembly worker in quality circles, in collaboration with management and engineering staff.

787 worker productivity, thus far, is not a function of union interference( ex strikes), but rather questionable management decisions in getting 787 production going.

 
At 2/19/2012 12:23 PM, Blogger AIG said...

"While I don't doubt this opinion is mostly correct I think the worst enemy of US manufacturing is still government..."

Yes, by extension it is the government. But many manufacturers have invited this upon themselves by seeking protectionism. By doing so, they think they can eliminate competition from outside the US, and therefore remain stuck in labor practices that will be their undoing.

They've turned themselves into a sacred cow for politicians on all sides.

The problem with manufacturing in the US is that it remains too labor intensive still, and creates a "militant" sort of labor that attracts political favors. That won't end until manufacturing becomes much less labor intensive, and corrupt politicians like Rick Santorum will have no manufacturing labor base to suck up to for votes.

 
At 2/19/2012 12:47 PM, Blogger AIG said...

Buddy, no I'm not basing this on the 787 line. It's not even the final assembly of airplanes that is the problem with Boeing; Boeing is good at final assembly of planes (although the gains are hardly due to union workers making improvements, but due to at least 2 decades now of Boeing bringing in outsiders to reorganize its lines).

Its all the external work outside of final assembly that is where the tremendous losses to Boeing occur; ie the manufacturing and the supply chain management.

I'm biased, I think the biggest problem with Boeing is its culture that it has build over the decades, resulting in a labor force where half the people are of retirement age, and where the Union prevents the hiring of new people or the introduction of new skills. So you end up with half-as*sed attempts at improvements, half-as*sed attempts at bringing in new technologies, half as*sed attempts at being "lean"...when in reality everyone's incentive is to ride out as much as possible till retirement. Even if Boeing wanted to change, it would do a poor job at it since its had no such experience in decades; case in point the mess that is Charleston.

Of course, the management at Boeing is also heavily infected by this culture. The only reason Boeing is successful, is that everyone else that makes airplanes is even worst.

 
At 2/19/2012 12:50 PM, Blogger Mark J. Perry said...

Also, there was an historically unprecedented decline in manufacturing employment of more than five million jobs in the ten year period between 1999 and 2009 when real manufacturing output continued to increase in almost every year. That major reduction in jobs with record-level output significantly boosted productivity in the manufacturing sector starting around 2000.

 
At 2/19/2012 12:50 PM, Blogger Mark J. Perry said...

Also, there was an historically unprecedented decline in manufacturing employment of more than five million jobs in the ten year period between 1999 and 2009 when real manufacturing output continued to increase in almost every year. That major reduction in jobs with record-level output significantly boosted productivity in the manufacturing sector starting around 2000.

 
At 2/19/2012 12:51 PM, Blogger juandos said...

"The problem with manufacturing in the US is that it remains too labor intensive still, and creates a "militant" sort of labor that attracts political favors"...

Now I'm a bit confused here aig but how does this connect with excessive taxation and the excessive costs associated with regulations and fees?

If you could flesh out that part of it I would appreciate it...

Thanks...

 
At 2/19/2012 1:05 PM, Blogger Jon Murphy said...

You must forgive me, Morganovich, I merely used supercomputers ans semiconductors as examples because they came to mind easily and are two of the more robustly growing (percentage-wise) aspects of manufacturing. I guess better examples would have been airplanes, cars, machinery, etc.

U.S. manufacturing is also labor intensive (the U.S. is a labor intensive and capital abundant country)

I guess I should have been more clear in that I meant. The US needs high education workers for our tasks (thus capital intensive) as opposed to many hands doing menial work (thus labor intensive).

 
At 2/19/2012 1:09 PM, Blogger Jon Murphy said...

I do have a question for Mr. Obama and many others looking to "bring back manufacturing jobs."

The vast majority of manufacturing jobs that went over seas are very labor intensive involving menial tasks (think shoemaking, textiles, frisbees, computer chips). These jobs can be done with people with little education and pay low (compared to high skill manufacturing). Considering how well educated Americans are and the cost of living here, do we really want these jobs? Shouldn't we be aiming for high paying jobs?

 
At 2/19/2012 1:13 PM, Blogger juandos said...

"The problem with manufacturing in the US is that it remains too labor intensive still"...

Ahhh yes, this bit by aig reminded me of a Forbes blog posting which linked to this Media Bistro article: Forbes Among 30 Clients Using Computer-Generated Stories Instead of Writers and finally landed me here: Narrative Science...

On the Narrative Science homepage we have this: We Transform Data Into Stories and Insights

Our proprietary artificial intelligence platform produces reports, articles, summaries and more that are automatically created from structured data sources. With amazing speed and quality, narratives are created in multiple formats, including long-form articles, headlines, Tweets and industry reports. Multiple versions of the same story can be created to customize the content for each audience and narratives can be fully tailored to fit a customer’s voice, style and tone...

How's that for labor saving?

 
At 2/19/2012 1:24 PM, Blogger Buddy R Pacifico said...

morganovich states:

"we don't make semiconductors or supercomputers here in any great size."

morgan, what about Cray and IBM Blue Gene supercomputers?

 
At 2/19/2012 1:40 PM, Blogger Walt G. said...

"That won't end until manufacturing becomes much less labor intensive,"

Or less expensive or more productive, which are all basically the same thing. We have our choice of poisons.

 
At 2/19/2012 3:24 PM, Blogger AIG said...

"Or less expensive or more productive, which are all basically the same thing. We have our choice of poisons."

Well yes. I meant specifically about its political clout; it won't end until they are no longer a substantial part of the population.

"Now I'm a bit confused here aig but how does this connect with excessive taxation and the excessive costs associated with regulations and fees?"

The 2 worlds are somewhat separate; one has to do with the vote of the people who work in manufacturing, and the other has to do with the expenses of the firms.

You're also assuming that one hand of government scratches the back of another, which is hardly ever the case, given the dozens of government agencies of various government levels involved.

And, you're assuming that the workers in manufacturing can tie their performance directly or indirectly to government policies, either for the better or worst (and of course, the "better" policies are more easily distinguishable than the damaging policies).

A Politician looking for re-election can make protectionist promises to manufacturing and other similar industries. That politician can't make many protectionist promises to people employed in service industries. As Dr. Perry points out, the trend is heading fast in the direction of a reduction in numbers of manufacturing workers; and that's a great thing.

I only fear that this trend will create even more Rick Santorum's who will respond with even more protectionist policies to win votes.

 
At 2/19/2012 4:02 PM, Blogger morganovich said...

buddy-

but are they really "made" here?

they are possibly assembled here, though i'm not sure that's even true in many cases, especially for foreign customers.

but pretty much all the value in them is created elsewhere. the memory, the boards, the drives, and the processors are predominantly made elsewhere.

those guys look more like apple than GM, though fair enough, there is certainly some assembly work done here, so perhaps i overstated that a bit.

 
At 2/19/2012 7:10 PM, Blogger Craig Howard said...

manufacturing that depends on relatively unskilled labor probably still is done overseas

I would agree. And that probably means that the assembly of consumer goods will still be done overseas therefore continuing to convince most Americans that "we don't make anything anymore."

 
At 2/19/2012 7:51 PM, Blogger PeakTrader said...

The U.S. economy became much more efficient after 2000 (in a structural bear market, after the spectacular structural bull market from 1982-00).

Not only did U.S. manufacturers produced more output with fewer inputs, but also Information-Age firms produced more output with fewer inputs (after the Nasdaq crash in 2000).

I suspect, if mortgage lending standards were gradually tightened beginning in 2004, and a much larger fiscal expansion of tax cuts took place in late '07 or early '08 (e.g. $5,000 per worker, or $750 billion for the 150 million workers at the time), the severe recession would've been averted.

Nonetheless, the U.S. had one of the greatest eras of prosperity from 1982-07.

I stated before:

American living standards and working standards are much higher today than in the 1970s.

There's even much less pollution today than in the 1970s.

The U.S. economy benefited more than what was reflected in real GDP from 1982-07, including through outsourcing, offshoring, innovation, and labor productivity.

U.S. consumption and net wealth (assets minus liabilities) are both way up.

 
At 2/20/2012 9:47 AM, Blogger Paul Baer said...

Hmm... how is higher profits on flat output a good thing? In a competetive marketplace economic profits are supposed to be competed down to zero (as opposed to the cost of capital, which is hard to estimate but must be presumed to be low now given loose money). This suggests a lot of monopoly power in the manufacturing industry. What is the evidence that the profits are being invested in future capacity or R&D?

 
At 2/20/2012 10:14 AM, Blogger Jon Murphy said...

Hmm... how is higher profits on flat output a good thing? In a competetive marketplace economic profits are supposed to be competed down to zero (as opposed to the cost of capital, which is hard to estimate but must be presumed to be low now given loose money). This suggests a lot of monopoly power in the manufacturing industry. What is the evidence that the profits are being invested in future capacity or R&D?

Paul, I think you're confusing economic profits and accounting profits. Accounting profits are Revenues minus Explicit Costs. Economic profit is Revenues minus all costs (explicit and implicit).

Additionally, output is hardly flat. Total manufacturing new orders (as measured by the Census) in 2011 totaled $5.4 trillion, 12.1% above 2010. Manufacturing has been growing at the fastest year-over-year rate since 1993.

 
At 2/20/2012 10:54 AM, Blogger Jon Murphy said...

This suggests a lot of monopoly power in the manufacturing industry.

I also don't see how this suggests monopoly power. If a company's revenue stays the same, but their costs drop, their profits go up, no? That's what's been going on. Manufacturing companies have been moving more towards machines than men, lowering costs. So, even if output was flat (which we have established it's not), profits can rise without revenues increasing.

 
At 2/20/2012 1:15 PM, Blogger Walt G. said...

"Manufacturing companies have been moving more towards machines than men, lowering costs."

Not necessarily. Industrial engineering now determines the labor requirements before the manufacturing process is approved. If the process is not profitable at that stage, it is not implemented and other opportunities are pursued. In the old days, the labor requirements were determined using a time-study analysis after capital/equipment installation. No more buy-and-try. This methodology changes the mix of people, capital/equipment, and sourcing. People-driven processes can still be profitable.

Labor unions in private industry will still be around if they can help make the people-driven processes happen. If they can’t, they won’t. Public labor unions are another story because they don’t answer to profits.

 

Post a Comment

Links to this post:

Create a Link

<< Home