In his State of the Union address, President Obama laid out his election-year vision for restoring America's global competitiveness. U.S. manufacturing figured prominently:
Think about the America within our reach...an America that attracts a new generation of high-tech manufacturing and high-paying jobs...we have a huge opportunity, at this moment, to bring manufacturing back.
Last weekend, the New York Times ran a long and important piece on why one particular high-tech product, Apple's iPhone, is manufactured in Asia and not the United States. The article is part of a renewed debate about how the United States can reinvigorate its manufacturing sector, or whether it even should.
A key part of the article is that there is a dearth of middle-income jobs in U.S. manufacturing. A combination of labor-saving technological improvements and the off shoring of more labor-intensive manufacturing has led to a sharp reduction in factory jobs that were once a pathway to the middle class for many Americans. Manufacturing employment on the factory floor may simply never reach levels of previous decades.
So there is a strong rationale for renewed government efforts to help strengthen this vital sector of the economy, but how?
The fact is that global manufacturing has fundamentally and irreversibly changed in recent decades in ways that has altered the structure of national economies. In essence, the production system has become globally fragmented. In a new paper on this subject, economist Richard Baldwin calls this globalization's "second unbundling."
The "first unbundling" occurred with the introduction of steam power, which led to a sharp reduction in shipping costs. Production was no longer tethered to local consumption; factories could produce for internal markets that could now be reached by rail or foreign markets by steamships. Yet production was still local. It tended to cluster within factories and in industrial districts, both to increase the scale of production and to coordinate closely with other actors within a particular industry.
The "second unbundling" occurred with the rapid advance and diffusion of information and communications technologies, beginning in the mid 1980's and accelerating in the late 90's, which led to an unprecedented reduction in coordination costs both within and across national economies. For the first time, it became economical not just to geographically separate consumption from production but separate different stages of the production process. Today, coordination is still necessary for production, but that coordination has become increasingly internationalized into global supply chains with key components being produced in regional networks.
Apple's production process epitomizes this transformation. As the New York Times story notes, the iPhone is designed in the United States, but includes semiconductors manufactured in Germany and Japan, memory from Korea and Japan, display panels and circuitry from Korea and Taiwan, chips from Europe, and rare metals from Africa and Asia. The final device is assembled in China. All told, just 10 percent of iPhone components are manufactured in the United States.
It's important to note that it's not simply lower labor costs that are behind the iPhone story:
It isn't just that workers are cheaper abroad. Rather, Apple's executives believe the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that "Made in the U.S.A." is no longer a viable option for most Apple products.
Just as important is that China, Japan, Korea and Taiwan are part of a competitive regional electronics supply chain cluster that is self-reinforcing. As Ryan Avent writes, "After some level of Asian development and integration, it became more attractive for manufacturers to locate there as more manufacturers located there." Manufacturing firms are sustained by operating within a cluster of related firms and suppliers and drawing on pools of specialized labor and other resources. This phenomenon is known as "economies of agglomeration," and it is an increasingly important feature of the 21st century global economy.
Despite the era of globalization, geography still matters -- just in new ways. Even as supply chains have globalized, proximity has retained an importance in manufacturing. This is particularly true for just-in-time manufacturing, where businesses seek to reduce inventory and waste and improve productivity by closely balancing the supply chain with product demand. If changes are made to the product design, proximity is important to reduce time lags in production. The rise of just-in-time production therefore means that the time it takes to ship supplies and components to assembly can be a much more important factor than the dollar costs of shipment itself.
This means that it would likely be difficult to bring manufacturing of key iPhone components back to the to the United States. Many of the key components of the supply chain -- memory, consumer electronics batteries, flat screens, even semiconductors -- have been progressively or completely off shored, and economies of agglomeration have taken over. So "bringing these jobs back," as President Obama says, would take more than simply closing the labor cost gap through either lower wages or higher productivity in U.S. manufacturing. It would also require a long effort to build our own regional manufacturing agglomerations around key components here in the United States, and that could prove costly.
Instead, a better strategy is to indentify the industries where we still have supply chain component ecosystems, particularly those at the higher end of the value chain, where policy and targeted investments can help retain and expand our competitive edge. We should also indentify emerging technology industries that have the potential to be a source of high growth, and ask what we can do to build new industry agglomerations and foster the commercialization and competitive production of those technologies in the United States.
We don't need to look far for recent examples of this strategy in action. The bailout of America's auto companies has been maligned as overreaching "industrial policy," but the logic of the move was clear. If GM and Chrysler had gone bankrupt, the entire industrial ecosystem and supply chain that supported the automakers in the United States would have collapsed, creating not just massive unemployment but also undermining America's future auto production capacity. Once lost, the network of parts suppliers could have been gone for good. From this perspective, the auto bailout efforts worked. As the President noted in his State of the Union, GM is again the world's top automaker, Chrysler is rebounding fast, and the auto industry added 160,000 jobs since the end of 2009.
The Obama Administration's investments in advanced battery technology for vehicles are an example of forward-looking policy to build an ecosystem in an industry that is in its early stages. It took $2.4 billion in stimulus grants to 48 different companies, but the Administration's efforts have helped to build a critical mass of advanced battery manufacturers, many of them clustered across Michigan and the American rust belt. Here, they may become a critical contributor to a globally competitive advanced vehicle production cluster, including the factories of the retooled "Big Three" automakers.
In this effort to identify key manufacturing opportunities, we also need to determine which industries are particularly important to sustaining a broader high-tech innovation ecosystem. Harvard Business School professors Willy Shih and Carl Pisano have made a persuasive case that a hollowing out of some high-tech supply chains in the Unites States have harmed the nation's ability to innovate and produce next-generation technologies. The consequences of losing these supply chains thus means more than losing the jobs of today; it could mean losing entire industries of tomorrow.
The new reality of global supply chains requires a new debate about manufacturing in the United States, one that recognizes that manufacturing has irreversibly changed, yet has become even more essential to sustaining American prosperity in the 21st century. The president is right to stake much of his vision for America's economic future on renewed American leadership in advanced manufacturing. But realizing that vision will require new strategies and new thinking.
For more reading, see "Manufacturing Growth: Advanced Manufacturing and the Future of American Prosperity," by Breakthrough Institute and Third Way
Follow Devon Swezey on Twitter: www.twitter.com/devonswezey
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comes from a sweatshop? DONT LET IT IN. PERIOD.
nothing else will help.. it is too late.
Globalism, without trade management, will result in a global standard of living. It is already in progress. Divide your income last year by twelve. This is an estimate of your future earnings. *
We could compete on an apples to apples level. Cut wages to the new international standards. Eliminate pollution controls. These modifications would apply to almost everybody, waitresses and Doctors, mechanics and teachers, lawyers and busboys. Everybody counts in an economy's efficiency.
*:
China Average Income: $2500 per year (http://www.nytimes.com/2011/12/03/opinion/will-china-stumble-dont-bet-on-it.html)
U.S. Average Income: $31,244 per year (http://motherjones.com/politics/2011/02/income-inequality-in-america-chart-graph)
31,244/2500 = 12.5
apple logo or not.
Charge higher corporate taxes to companies that outsource jobs, than to companies that don't?
Tax advantages and incentives to companies that hire American workers and pay a living wage?
Seems like a simple enough solution to me.
Nonsense. It's only "irreversible" if we want it to be. There are many things we can do to reclaim supply chain advantages that we once enjoyed. For instance, we could start by reforming our failed "free trade" policies and go back to protectionist policies that used to serve us well. Our trading partners are using protectionist policies to continue the exodus of our manufacturing sector. It's past time to ignore failed theories and start defending ourselves.
Excellent point, Devon.
Lower the corporate tax rate to something like Germany's rate, and get rid of all the loopholes. Lots of headlines about how the US has the highest rate but companies like GE pay nothing. GE is the exception. Lower the rate and all companies will be as competitive as GE, and a lot of companies will repatriate funds to the US to take advantage of the lower rate, thereby creating US revenues.
Realign social security to be STRICTLY a semi-retirement account stripping out survivor and disability benefits, and lower the SS rate accordingly. Eliminate the Medicare tax on wages. This will singificantly reduce the cost of labor in the US.
Take the survivor and disability benefits of SS, lump them together with Medicare and Medicade, and institute a NATIONAL SALES TAX to pay for them. They will be benefits that ALL citizens will be eligible for so ALL citizens should pay for them, not just the folks punching a time card. This will also be a tax on foreing made products that pay revenues to the Federal Government to support our social programs. This is the way the Europeans do it.
Keep income taxes about where they are for the time being. Or alternatively, get rid of the Bush/Obama tax cuts. But if you do it, get rid of them all, not some.
This will not be easy, but it must be accomplished immediately before it is too late.
The USA has instead elected to produce large numbers of liberal arts graduates, history graduates, philosophy graduates, English graduates, foreign language graduates, economics graduates, musicians, artists, social workers, government graduates, political scientist, anthropologists, archaeologists, and/or other similarly educated US citizens that will not contribute anything to correcting the foreign trade deficit or generate any new NATIONAL WEALTH in the USA that is needed to save the US economy.
In the Asia the vast majority of the college students are majoring in science or engineering.
We need to increase the percentage of USA citizen college students studying science and engineering from 5% to more than 70%, in order to emulate the economic industrial (and job creating) successes of the Asian countries.
We must emulate the educational systems of China, India, Pakistan, and other Asian countries or the USA will die economically.
The USA needs to replace our current "dumbed-down equal outcome" educational process with some sort of selective process in order to allow selection of only the best and the brightest to qualify for science, technology and engineering educations.
We must provide financial incentives for these students want to study science and technology instead of other less difficult pursuits of study.
The financial salary rewards to study science and technology in the 1950's made science students much respected by other students, and this inducement/reward needs to be re-introduced.
Today, most students make fun of and demean the few remaining science and engineering students.
And AMEN to what you have just said. However, it will not only take minds, but the infrastructure and workers willing to do the job. While we have created all that you have mentioned... Back in the 80s and 90s and last decade, many students were told that if you ever wanted to get ahead in life... you had to go to college.
Even the US Military came up with the bright idea for machinists and other blue-collar military jobs not to award certificates for apprenticeship, journeymen, or master class... but college credit. Which is why one of my dear friends, who is a Master Class Machinist Mate from the US Navy was only eligible to sweep shop floors in the civilian world.
Go to college. Get a degree. That was the propaganda. And the American education system has so failed that even colleges have to have remedial classes of a year or more for many college students.
When they should have been learning a trade. Which, incidentally, provides for better pay and benefits. Now isn't that odd.
Was your friend a "Master Chief Machinist Mate" from the US Navy.
The USA needs more STEM educated people if US citizens want more jobs in the USA,
The USA has instead elected to produce large numbers of liberal arts graduates, history graduates, philosophy graduates, English graduates, foreign language graduates, economics graduates, musicians, artists, social workers, government graduates, political scientist, anthropologists, archaeologists, and/or other similarly educated US citizens that will not contribute anything to correcting the foreign trade deficit or generate any new NATIONAL WEALTH in the USA that is needed to save the US economy.
US government administrations of both major political parties have created "FREE TRADE AGREEMENT" legislation that killed that golden goose that laid those golden eggs (that created new wealth), won WWII, and created the abundant lifestyle that US citizens enjoyed for a couple of decades after WWII until the US government de-emphasized science, technical, engineering and mathematical (STEM) educations.
The US government FREE TRADE agreements ECONOMICALLY REQUIRE that US business utilize FOREIGN labor, environmental regulations and electrical costs, if they want to provide the lowest possible price in the USA for each US consumer purchase.
Yes, this is oversimplified, but the principal of accumulation of NATIONAL WEALTH (creating marketable things with value) is basic.
1. plant, grow and/or harvest something of commercial value from the earth;
2. extract something of commercial value from the earth;
3. manufacture something of commercial value that is consumable
4. construct a building that is permanently useful for rental income;
5. provide professional services (medical, legal, dental, engineering, architecture, land surveying, technology, accounting, etc.);
6. collect payment for patent and copyright uses;
and then trade, sell, lease or rent these items and/or services to parties outside of their family, in return for a net transfer of gold, currency or commodities from other parties into their own family.
The members of that family (tribe, state, nation) can then reflect their real NATIONAL WEALTH and financial security with their net positive accumulation of privately owned grain, gold, cattle, jewels, land, buildings, hotels, casinos, factories, commodities and/or other marketable products that are then available to be used for economic security for reserve use in times of emergency, to raise the standard of living for the members of that family, and also be available as collateral (products, commodities and/or title to locally in-country located assets) for any printed currency that they might care to issue and/or any Treasury Bonds that they might care to print and sell.
That sounds like mercantilism to me. In the absence of free trade consumers lose. All countries are collectively worse off. This was true 250 years ago and it is still true today. Trade is not a zero-sum game.
The benefits of free trade must be balanced with the damages of free trade.
Globalism results in a global standard of living for all but the "Elite".
There's nothing wrong or disingenuous with using a nice-sounding phrase as a euphemism for that "second unbundling" that started 30 years ago, i.e. that double-edged sword of technological progress, but to end this writeup with the meek conclusion that AM "requires a new debate" says it all regarding this topic's capacity to convey actual solutions.
The pdf says Advanced Manufacturing as a phrase is merely a synonym for anything new e.g., "This new, or 'advanced,' manufacturing..." and I'm sure most efforts with packaging it up as if it were a thing are well-intentioned so please let's not pretend we've even hit upon the basis for a new debate. We have yet to hit upon anything at all other than a lot of talk.
Were our elected congressmen ignorant, stupid, dishonest, or some combination of these factors?
Do you think that maybe the foreign product manufacturers that export consumer products to the USA might have paid professional US lobbyists to spend hundreds of thousands of US dollars on wine, food, women, song, vacations, cash, sexual services, corporate jobs for the (unemployable) children/wives/girlfriends on enough of the US senators and US congressmen (and their congressional aids who actually control the members of congress) plus campaign contributions to entice (bribe) enough of our Republican and Democratic US Presidents, Congressmen and Senators for the past 20 years to create all of that "FREE TRADE LEGISLATION" to ratify various trade agreements that allowed, caused, and ECONOMICALLY REQUIRED our businesses to take advantage of the lower labor costs, lower electrical energy costs, lower business taxes, lower payroll taxes to pay for health care costs, lower unemployment insurance costs, lower environmental manufacturing costs and other anti-business costs that are not required in various foreign countries with fewer anti-business laws that are/were applicable to businesses in the USA?
Those manufacturing jobs that relocated to foreign countries are gone forever, or at least until the US congress repeals all the US "FREE TRADE AGREEMENTS" that they created.
It might be too late now, because it will also take years to rebuild our STEM educated human manufacturing technology database that was also destroyed along with our industrial manufacturing base.
If President Obama relocates more our few remaining US manufacturing jobs overseas, the US carbon footprint will reduce and meet his goals!
The problem is when one Machine take"s away people"s lives and makes more profit and does not lower the price of product .They Regulate or lives But do not Regulate our work force and training. Technology has over surpassed Humanity . And What Makes you be the best you can be has a lot of pride to who you are. REGULATE Machines Not People ! Population is now Controlled with WARS !The LAWS should protect the People to Work and Greed be fought with LAWS !
Ron Paul is my Vote
I believe that the desires for sexual pleasure, alcoholic and narcotics euphoria should be added to the few on-line dictionaries that I consulted. I only checked a few of the on-line dictionaries and did not find those items included in the definitions of greed.
I have heard some people say that one of the problems with the USA today is that people are greedy. I believe that people were always greedy in the past. When were people ever not greedy?
I consider you working hard and producing things of value and selling them to others outside of your family in order to enrich your family and accumulate wealth for your family as not being greedy. I consider that if you start a business and hire some people to assist you to help make these things in order to make yourself more US dollars, this does not define you as being greedy.
I do not believe that I am greedy when I do not share the "fruits of my Labor" with others who might not have worked as hard as I did, and especially if they spent their assets on expensive food, drink, new cars, big houses, vacations, concerts, entertainment, women, and recreational drugs when I saved my money.