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Carol Roth

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Don't Just Focus on Made in America, Focus on Innovated in America

Posted: 02/15/2012 6:05 pm

The hype over losing U.S. jobs to overseas companies has gone the way of so much of the economic and financial rhetoric these days- statistics getting in the way of a good story. Research published by the Federal Reserve Bank of San Francisco shows that, "in 2010, imports were about 16 percent of U.S. GDP. Imports from China amounted to 2.5 percent of GDP." It also discusses that for personal consumption, about 2.7 percent was from Made in China goods, with more than half of that amount (55 cents on the dollar) going into U.S. services related to that good (such as transportation, retail markup, and marketing). In fact, most of the gains in Chinese consumer goods and services have come at the expense of other foreign countries, not the U.S. This is far from the "China taking over story" that we often hear from everyone in the media to Main Street.

The reality is that we are in a period of job transition as much as job loss. Whatever you want to call it -- the digital revolution, the information revolution, the technology revolution -- is again bringing change to how goods and services are produced and consumed. As first theorized by the famed economist Joseph Schumpeter in Capitalism, Socialism and Democracy, we are in a period of "creative destruction." This means that innovation creates advancement, but not without the cost of destroying some of the institutions that came before it (think of what Ford's assembly line for cars must have done to the workers making accessories for horses). While new technology advancements have created new platforms, the web and the latest period of technology is still nascent, which means that workers are displaced -- as they have been -- while these industry shifts take hold.

Therefore, in order to secure future prosperity, we have to shift away from focusing on commoditized jobs, especially in areas that are yesterday's news. When markets shifted away from pay phones to mobile phones, the answer wasn't to jump up and down and scream for more focus on pay phone plants, was it? No, the answer was to adapt.

For the U.S. to continue to prosper, we need to focus on the future. As one of my dear friends likes to say, you can't drive the car forward looking in the rearview mirror. According to Morgan Housel at The Motley Fool, manufacturing output (inflation adjusted) has increased 75 percent the U.S. steadily since 1979, with the decline in jobs in the sector due to technological efficiencies (i.e. with automation; we don't need the same number of workers to do the same jobs). As related to overseas manufacturing, that shouldn't be an area for attention either. We don't want to concentrate on low value-add production and assembly work, such as is done in China and that, frankly, can be done anywhere. We need to foster real transformation. It is better for our growth to come from leadership in innovation, engineering, patents, marketing and customer relationships, rather than worrying about low-skilled jobs that can be mimicked worldwide at a fraction of the cost.

However, there is a process to this. It doesn't happen overnight and now, we have a skills and education gap to address. Instead of looking backwards to try to reinstate jobs that the market has demonstrated that we do not need, we need to find a mechanism to increase the skills of the displaced workers. I firmly believe that execution is best left to the private sector (anyone would be hard pressed to give many examples of government programs that were efficiently executed). I would suggest that the government do their part through creating an effective structure as a catalyst. The government should put together some policies, such as tax breaks, that would incentivize private companies (especially those sitting on substantial cash reserves right now and in the STEM-Science, Technology, Engineering & Math-industries) to create training-to-employment programs that not only educate out-of-work Americans, but create a direct path to re-employment at a higher skill level. That would create a solution for not only today, but also the strength of our future.

Prosperity and continued growth in our nation will not happen by trying to redistribute wealth or reclaim unskilled jobs; we need to adopt a life-long learning mentality and adapt to the changes in front of us as the landscape continues to change. Let's not move backwards or sideways. It will be uncomfortable through these growing pains, but it's what's required for the U.S. to continue to be the greatest country in the world.

 

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