the deal with manufacturing.

A few years ago I was obsessed with manufacturing. While not an expert, I have read thousands of pages on the topic and hundreds of articles. In my campaign for Congress, I tried to make jobs, and as a result, manufacturing a cornerstone. All that to say, that this is something I find interesting and care deeply about.

In the past few days I came across two must-read articles on the topic.

1) The NY Times dives into the topic through the lens of Apple and the iPhone. How the US lost out on iPhone work; Apple, America and a squeezed middle class. Must Read.

2) The Atlantic Monthly absolutely blows the doors off with a great dissection at the high-level of American manufacturing and weaving in the human face. Making It in America. Phenomenal.

I recommend starting there. There are a slew of topics that every citizen should understand, Manufacturing among them. It drives the wealth and stability of nations and the type of society you have. At least until now it has. It was arguably the main building block of a prosperous and triumphant America. Our mercantilist policies and inherent natural advantages largely contributed to the sole superpower position we held.

I want to lay out 3 important things about manufacturing that are not well understood or known. I’ll do a separate post on why manufacturing matters — but the fact that it has historically been a primary source of work for the masses should be enough for now. (That shouldn’t be controversial.)

1) Automation. Robert Reich is the one who first drew my attention to this in 2009. Essentially, global competition aside, technology was rapidly cutting into the humans you needed for production. This trend has only accelerated, as robotics and software improve at scale, the costs of automating repetitive tasks continue to decline sharply. We’ll see more automation everywhere in the world. It will literally take a shortage of the natural resources (again, another post) to cease this inevitability. So, net, automation has cost a good chunk of American jobs. This is also true for Chinese, German, Japanese, South Korean, et al jobs.

2) Training. I blame politicians for why this is so little understood. Since the days of Bill Clinton, “Move up the value chain. Education is the key. etc, etc”  has been one of those safe ubiquitous lines everyone parrots. It’s led us to the “sacred truth” that everyone needs to go to college and then they’d be OK. I think this is total bullshit.  (Google “Thiel Higher Education Bubble” for an excellent background on the counter to this “truth”). In reality, “educated workforce” meant a very complex, diverse truth. It meant a great liberal arts education for some, a rigorous math, science/engineering education for others, and the missing one — was a highly valued vocational training. Germany has long known the importance of this and has a variety of vocational training. Both articles linked to above touch on the need for this. Over the past decade we have all but given up on this kind of training. While part of a more complex point, I believe that we should aggressively be retooling our community colleges to focus on this kind of vocational training.

3) Industrial Policy. Automation aside, the Apple story talks about foreign governments that targeted specific desired industries and how this resulted in an unbeatable combination. This is  called industrial policy and is rarely talked about in America. Countries that have heavily used industrial policy: Japan, China, Germany, South Korea. It’s a list of the powerful, triumphant manufacturers of the world. America once had a very muscular industrial policy from the 1800’s going through World War II. With Europe in shambles and our industrial and economic might seemingly infinite, foreign policy and political concerns prevailed over any kind of industrial policy. The result has been a consistent (with a surge this past decade) overseas build-up of industrial capability that has led to the realization of Ross Perot’s “giant sucking sound of jobs going away.” Industrial policy can be a combination of tax benefits, cash and natural resource subsidies, calculated currency manipulation, and protectionist trade restrictions to protect a fledgling industry. While there are examples of America focusing here (agricultural) we’ve sat out this “game.” While industrial policy has its share of valid skeptics (can the government really pick the right industries that matter?) — it really does matter. The rise of most of China, Japan, South Korea, etc is the blinding proof that an intellectually-honest person can’t ignore.

There are a lot of other important things to join. The importance of building a cost infrastructure that supports manufacturing vs consumption. On a scale of 1 to 10, with 10 being most geared towards production and jobs — China is a 10 towards supporting jobs (manufacturing, etc). The US is close to a 1. On the scale of 1 to 10, with focused on consuming as much as possible, America is a 10 and China is a 1. We’ve focused on consumerism and the amassing of boundless crap. By the way, lately that crap has been debt. Unfortunately we’re not having a real conversation about where we’re headed, what we’ve been doing, and where want to go, nor discussing the actual impact on Americans’ lives. Both the NYT piece and The Atlantic do these things on some level.

I’ll end by saying that while I loved the articles, I found Davidson’s closing line in The Atlantic to be a bit disingenuous:

For most of U.S. history, most people had a slow and steady wind at their back, a combination of economic forces that didn’t make life easy but gave many of us little pushes forward that allowed us to earn a bit more every year. Over a lifetime, it all added up to a better sort of life than the one we were born into. That wind seems to be dying for a lot of Americans. What the country will be like without it is not quite clear.

In so far as the future is always hard to predict, fine. That aside, I think it actually is fairly clear. In fact, it’s the strength of the article. He lays out the clear arc:
1) People like Maggie, who the article opens, with are quite rare. A great very many “Maggie’s” across the country don’t even have the opportunity that she has.
2) Even for Maggie, the basic ideal of a middle class life eludes her reach on a salary of sub-$30K.
3) The writing is on the wall that with automation, even what the lucky ones like Maggie have, is likely to be gone in the foreseeable future.

The “very lucky” in this story, Luke, is shown as a clear anomaly. In fact the NY Times story on Apple presented the other side of Luke, in the well-trained Eric Sargoza an engineer who can’t find a job because he’s been replaced by someone in Shenzen who makes nearly what he did.

The obvious outstanding variable left is that we live in increasingly chaotic times. In times like this you can’t predict the future, because there are just too many variables. In the absence of predicting the future, you have to at least connect the dots and prepare best you can. Sadly, the dots have clearly been there since I was born (30+ years). We’ve chosen mostly to ignore them and, I fear, the chickens are coming home to roost.

4 thoughts on “the deal with manufacturing.

  1. Good post. I'd love to hear more about (3) – Industrial Policy. Talk of manufacturing so frequently descends into nostalgia over how things used to be, over the small farmer, over the wholesomeness of a nicely diversified economy in which we build stuff with our hands. Industrial Policy as you define it seems free of this unproductive emotional content and strong on hard nosed economics–which is intriguing.

    And I'd like to see more on

    a) what's ideal in terms of a rich country's national economic strategy vis-a-vis manufacturing.

    b) what practical options are available to America right now regardless of what we should have or could have done in recent decades w/ respect to manufacturing. In other words, given where China is today, and where Germany is today, and where America is today, what are the three next best practical steps we should take in this area?

  2. I learned a lot from this post. Thanks, Surya.

    Fareed Zakaria makes a case for American industrial policy in TIME. The money grafs:

    "[CEO Andrew Liveris] argues that not only would a manufacturing policy produce good long-term jobs, it would also upgrade the work skills that are crucial to keeping innovation alive. “Innovation doesn’t just happen in laboratories by researchers,” he told me. “It happens on the factory floor. The process of making stuff helps you experiment and produce new products. If everything is made in China, people there will gain the skills, knowledge and experience to innovate. And we will be left behind.” He worries that with tablets like the iPad and Kindle being made mostly in Asia, the next generation of these products could well be imagined there.

    Take solar energy, an industry largely invented in the U.S. but in which the manufacturing has mostly moved to China. The CEO of Evergreen Solar, Michael El-Hillow, decided that he had to move one of his plants to China to reduce costs. “In December 2008, we were approached by a Chinese company, Jiawei, which was impressed with our wafer technology,” he recounts. “The Chinese government agreed to support a loan that would cover two-thirds of our expansion in China.” The subsidies offered by the Massachusetts government, by contrast, covered about 5% of the cost of the company’s U.S. plant. Last year Evergreen filed for bankruptcy, having unquestionably been undone by cheap Chinese competition. But Evergreen’s Chinese factory will continue to operate, with Jiawei inheriting all its technology and know-how."

    http://www.fareedzakaria.com/home/Articles/Entrie

    1. Thanks, Ian!I hadn't seen that, but those paragraphs are spot on. I'm a big believer in Industrial Policy when there's a war for jobs…

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