I wrote in a previous post about why America's manufacturing sector, despite record output, is actually in very deep trouble: record output doesn't prove the sector healthy when we are running a huge trade deficit in manufactured goods, i.e. consuming more goods than we produce and plugging the gap with asset sales and debt.
But this analysis of the problem only touches the quantitative surface of our ongoing industrial decline. Real industries are not abstract aggregates; they are complex ecosystems of suppliers and supply chains, skills and customer relationships, long-term investments and returns. Deindustrialization is thus a more complex process than is usually realized. It is not just layoffs and crumbling buildings; industries sicken and die in complicated ways.
To take just one example, when American producers are pushed out of foreign markets by protectionism abroad and out of domestic markets by the export subsidies of foreign nations, it is not just immediate profits that are lost. Declining sales undermine their scale economies, driving up their costs and making them even less competitive. Less profit means less money to plow into future technology development. Less access to sophisticated foreign markets means less exposure to sophisticated foreign technology and diverse foreign buyer needs.
When an industry shrinks, it ceases to support the complex web of skills, many of them outside the industry itself, upon which it depends. These skills often take years to master, so they only survive if the industry (and its supporting industries, several tiers deep into the supply chain) remain in continuous operation. The same goes for specialized suppliers. Thus, for example, in the words of the Financial Times's James Kynge:
The more Boeing outsourced, the quicker the machine-tool companies that supplied it went bust, providing opportunities for Chinese competitors to buy the technology they needed, better to supply companies like Boeing.
Similarly, America starts being invisibly shut out of future industries which struggling or dying industries would have spawned. For example, in the words of tech CEO Richard Elkus:
Just as the loss of the VCR wiped out America's ability to participate in the design and manufacture of broadcast video-recording equipment, the loss of the design and manufacturing of consumer electronic cameras in the United States virtually guaranteed the demise of its professional camera market... Thus, as the United States lost its position in consumer electronics, it began to lose its competitive base in commercial electronics as well. The losses in these related infrastructures would begin to negatively affect other down-stream industries, not the least of which was the automobile... Like an ecosystem, a competitive economy is a holistic entity, far greater than the sum of its parts. (Emphasis added.)
One important example of this is the decline of the once-supreme American semiconductor industry, visible in declining plant investment relative to the rest of the world. In 2009, the whole of North America received only 21% of the world's investment in semiconductor capital equipment, compared to 64% going to China, Japan, South Korea, and Taiwan. The U.S. now has virtually no position in photolithographic steppers, the ultra-expensive machines, among the most sophisticated technological devices in existence, that "print" the microscopic circuits of computer chips on silicon wafers. America's lack of a position in steppers means that close collaboration between the makers of these machines and the companies that use them is no longer easy in the U.S. This collaboration traditionally drove both the chip and the stepper industries to new heights of performance. American companies had 90% of the world market in 1980, but have less than 10% today.
The decay of the related printed circuit board (PCB) industry tells a similar tale. An extended 2008 excerpt from Manufacturing & Technology News is worth reading on this score:
The state of this industry has gone further downhill from what seems to be eons ago in 2005. The bare printed circuit industry is extremely sick in North America. Many equipment manufacturers have disappeared or are a shallow shell of their former selves. Many have opted to follow their customers to Asia, building machines there. Many raw material vendors have also gone.What is basically left in the United States are very fragile manufacturers, weak in capital, struggling to supply [Original Equipment Manufacturers] at prices that do not contribute to profit. The majority of the remaining manufacturers should be called 'shops.' They are owner operated and employ themselves. They are small. They barely survive. They cannot invest. Most offer only small lot, quick-turn delivery. There is very little R&D, if any at all. They can't afford equipment. They are stale. The larger companies simply get into deeper debt loads. The profits aren't there to reinvest. Talent is no longer attracted to a dying industry and the remaining manufacturers have cut all incentives.
PCB manufacturers need raw materials with which to produce their wares. There is hardly a copper clad lamination industry. Drill bits are coming from offshore. Imaging materials, specialty chemicals, metal finishing chemistry, film and capital equipment have disappeared from the United States. Saving a PCB shop isn't saving anything if its raw materials must come from offshore. As the mass exodus of PCB manufacturers heads east, so is their supply chain.
All over America, other industries are quietly falling apart in similar ways.
Losing positions in key technologies means that whatever brilliant innovations Americans may dream up in small start-up companies in the future, large-scale commercialization of those innovations will increasingly take place abroad. A similar fate befell Great Britain, which invented such staples of the postwar era as radar, the jet passenger plane, and the CAT scanner, only to see huge industries based on each end up in the U.S. For example, the U.S. invented photovoltaic cells, and was number one in their production as recently as 1998, but has now dropped to fifth behind Japan, China, Germany, and Taiwan. Of the world's 10 largest wind turbine makers, only one (General Electric) is American. Over time, the industries of the future inexorably become the industries of the present, so this is a formula for automatic economic decline. Case in point: nanotechnology is probably the first major new industry in a century in which the U.S. is not the undisputed world leader.
America's increasingly patchy technological base also renders it vulnerable to foreign suppliers of "key" or "chokepoint" technologies. These, though obscure and of small dollar value in themselves, are technologies without which major other technologies cannot function. For example, China recently restricted export of the rare-earth minerals required to make advanced magnets for everything from headphones to electric cars. Another form this problem takes is the refusal of oligopoly suppliers to sell their best technology to American companies as quickly as they make it available to their own corporate partners. It doesn't take much imagination to see how foreign industrial policy could turn this into a potent competitive weapon against American industry. For another example, Japan now supplies over 70 percent of the world's nickel-metal hydride batteries and 60-70 percent of the world's lithium-ion batteries. This will give Japan a key advantage in electric cars.
The Obama administration shows no awareness of any of this, despite scratching a hole in its head over why job creation has stalled. (Hint: it hasn't stalled in the nations, from China to Germany, running trade surpluses with us in manufactured goods.) It is not yet too late to reverse these dynamics, but we are definitely running out of time. So the sooner we start questioning the sacred myth of free trade, which is largely responsible for this mess, the better.
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http://www.citizen.org/documents/FinanceReregulationFactSheetFINAL.pdf
To Rescue Main Street, We Need to Curb the WTO
"...The WTO rules require deregulation – and lock-in – of financial services that countries “liberalize” under these terms.
[snip]
For instance, the Glass-Steagall Act created a firewall between commercial and investment banks to prevent the former from speculating with consumers’ savings. But the U.S.’ 1997 FSA commitments noted an intent to change Glass-Steagall to conform with WTO rules. The Gramm-Leach-Bliley Act, which did so, passed in 1999 – the year the FSA went into effect...."
Perhaps the U.S. should withdraw from the World Trade Organization, while it still has some semblance of sovereignty.
Nonetheless, I disagree somewhat with your conclusions. The least important one is about the timeline. It's a little bit tricky and I might be mistaken because it was just during these years where the WTO was established. Prior to that, international trade was organized under the GATT provisions, which became part of the WTO. Similar, the agreement on services GATS was also agreed upon just shortly before the formal establishment of the WTO and is today integrated into it.
My main point though is this: Under GATS/ WTO all governments are free to include or withdraw services from the commitment. So, at any time the US could have withdrawn banking services from this agreement without any sanction.
Another observation along the same line of thought is this: All agreements in the WTO factually are made in unanimous consent. If the US (or others, see Doha- round) simply refuse to agree, there is no deal, no agreement.
So, it was not so much the international, political community and not the WTO itself but (economic) lobby interests; and I would suppose for all our countries it's mostly the domestic lobby groups. Actually, our politicians have no excuse to say:"'The markets' want/demand ..."
Even if I didn't know anything about the WTO, GATT, GATS etc. and couldn't make this knowledge available to me, I would think it's a bit strange to assume that the US is pressured by foreign/ international institutions into something.
I mean, US politicians - for good reasons and for not so good reasons - went to w@r when they felt this to be in the national interest, no matter what the international community or the proper institutions said. Wouldn't you think that US presidents and Congresses simply would ignore any "foreign" ruling if they thought it was against US interests? Like for example UN payments and other things?
As I said before, I share your general view that more regulation in these matters is better than less. Usually, that is an entirely subjective impression I admit, as Europeans we feel more often than not pressured by the US to liberize/ libertarinize/ privatize institutions we feel working best when under political, national and - as good or bad as it works - voter control.
Given especially what is widely felt here as a wrongfully committed kowtow to US libertarian thinking, no one supports anymore to privatize our German railroad system. The most sensitive issue, how much privatization in NHS is fought heavily and could as well end up being restricted; a completely privatized system is entirely off the table and there is also growing support to again nationalize electrical energy providers.
People it dosen't look good, its like a sealed deal. For years commentors have been harping, day in and day out. Lobbyist controled the congress, and everyone was so greedy they let it happen. Hollywood could have helped by shameing the off shore accounts. The Churches could have helped the American workers from the pulpit, but they were more worried their "shares" in outsourced manufacturing, Drugs,medical, and every other company with runaway profits. Its so sad, those detention places are just waiting for reactions to slam the door shut on rioters. Only the net posted truth. Those plastic green things made in China is just waiting for revolution. Human rights, wow! We are worse than any country. God help us all.
Maybe we should be too. Like he says the DFL and GOP are both stooges of the internationall plutocrats. I think us peasants need to get out our torches and hayforks and go burn down Baron Frankenstien's castle.
Problem is , too many peasants seem to be on the Baron's side, and far too many peasants suffer for the delusion that Obama, or Jesus, or somebody, is going to save them. i would not count on it.
So, what I mean to say after this brief overview is this: Even historically, dating back into the 50ies (similar things can be said for example about France, too) there is a deeply rooted skepticism about "free market" ideology as promoted by the US.
1) Currency manipulation by China
2) U.S. companies have to pay taxes on goods produced here but sold overseas. Other countries except their companies from having to pay taxes on goods sold oversea. Since many companies sell 80% of their products outside of the U.S., do they wish to locate in the U.S. and have to pay taxes or locate in many parts of Europe and pay no taxes on these earnings.
3) Perhaps we should listen to tech companies like Intel who have said that they would like to build facilities in U.S. but taxes and regulations increase the cost to make it prohibitive.
4) Our school systems are failing. Teachers unions are only concerned with the benefits they can earn not the students. Threat of lawsuits has created a bloated administration in schools leaving less money to pay teacher salaries. We also seem to believe that every school should be a palace--complete with indoor pools, etc.
5) State and local taxes and regulations cause companies to flee or fail.
6) The article states that the low profits mean the companies can not invest in new technologies. Do higher taxes help them keep more of their profits?
7) Unions that try to extract too high of compensation cause companies to have less profits to invest in new technologies.
8) Government subsidizes housing with low interest rates but this is money that could go to fund manufacturing capacity.
Everything you say is true, or at least partly true (4, 7, 8). No doubt. However, I thiink the two biggest reasons manufacturing is fleeing the US is that
1. Labor in China is $1 or $2 a DAY, or less if your product is built in the Gulag. And there are no environmental laws or safety requirements. Your only costs are a few bribes to Party bosses.
2. Far too much of america's money is tied up in finance, which promises monstrous profits. And if you are connected with the insiders, you know when to get out, and have low risk.
Short of booting all the Demopublicans and Republicarts out and putting some hypothetical wise Philospher-Kings in for a while, i dont know what to do about it.if it were up to me i'd *start* by tarring and feathering a whole lot of politicians and bank gangstrs and their mass media shills, and shipping them out of the country. Then we would at least have a chance to start cleaning up the mess they've made.
ad 1) Germany has to deal with the same problem, but unlike the US, we actually can match them (balanced accounts) at times. Roughly, our surplus with the Austria matched (2009) the deficit with China.
ad 2) I am not aware Germany does so. Only, maybe, when selling to developing countries; certainly not in trade with the US. ... Having said that, corporations try to avoid taxes by using "double Dutch" or "double Irish" schemes.
ad 3) They always lobby like that. Much could be said about it, but at the bottom line: They too enjoy the fact of "due process", reliable, stable societies etc. ... if that is really the reason, then ask them: please, go to Venezuela, go to China ... but don't come here if you have problems with IP or otherwise. Frankly, I do not think that our nations need to be thankful that anyone opens shop here.
ad 4) German teachers have lifetime contracts. It's not about unions or something. School systems fail when they support inheritance of status. When you can literally "buy" the necessary degrees.
ad 7) What about "shareholder value"? You complain about wages; I would complain about shareholder value. Both limit what is available for investments in the future. Just think about it: the whole mp3 thing was a byproduct (not capitalized) of a taxpayer supported think tank (Fraunhofer). Ofc thy can't capitalize on that.
Re2) This bolsters my point. Not every company is in a position to manipulate their books using the double Dutch,etc schemes. Those that cannot have a strong incentive to locate outside the U.S. Additionally, even after using such schemes companies do not eliminate their tax liabilities completely. For example, google used such techniques and it reduced the taxes they had on foreign earnings to around 3%. So for Google, being located in the U.S. was worth paying a 3% premium. If other companies only had to pay a 3% premium how many more would locate facilities in the U.S.? (I have no idea but would be interesting to get some estimates)
RE3) Venezuela is a society that claims to promote the work with big government "solutions" that many advocate for the U.S. and Venezuela has turned into a dictatorship.
RE4) U.S. society is different than other societies. I can't imagine Germans tolerating the low standards that unions allow from their teachers.
RE7) You seem to believe one can simply mandate less returns to stockholders. Capital is mobile and investors must be compensated for risk. Try to reduce ROR and capital/jobs move elsewhere.
Producers and Consumers.
A producer is an innovator and a changer of destinies. A great example of producers would be our founding fathers and early US immigrants. With a productive industry comprised of farming they were self motivated and above all Domestic Resource Efficient.
A consumer is a person that has become accustom to a standard of living that is provided by an outside party. The consumer is dependent and weakens themselves over time, leaving themselves open to the domination of the codependent producer.
http://whitecollargreenspace.blogspot.com/
The next big thing in government - using tech to save the budget. Wisconsin, other states and Congress could use this simple plan to cut back on cost of office space instead of furloughs and shutdowns and large pay cuts.
We can no longer afford to let all white-collar workers that still have jobs work banker's hours when we can work two shifts per day in government and private industry and cut our overhead costs in half. This simple paradigm shifts solves three problems: It jumpstarts economy and fights poverty, cuts pollution, reduces budget deficits.
Most office space is very expensive yet white collar workers only us it 40 hours per week even though we pay for 168 hours per month (7 days times 24 hours). Office space costs up to $50,000 per year for each employee yet we only use space 30% of time. 30% efficiency is completely unacceptable in today's economic and ecological environment. This could be one answer to the health care mess, global warming which actually should be called over-pollution, unemployment, empty buildings and state budget shortfalls. In Wisconsin this plan could save at least $10,000 per employee times 175,000 state employees. The would add up to almost $2 billion per year. With over 2 million employees, the federal government could save over $20 billon per year with very little up from costs
Because the robots are so closely tied to the design, both the design and manufacturing must be co-located.
Note that the production and distribution of laptop computers (done in china) typically has less than ten minutes of human content. That is, from the start of the production line until the product reaches the end retail point or the consumer, there is minimal human activity. The rest is done by robots.
Between working conditions and salaries for American crew, that was a definite recipe for being uncompetitive.
The "American crew only" law on the books was a left-over from the period to keep Americans trained in case they were needed by the navy.
We have the engineering skills and technology to go around America and the world building railroads, bridges, highways, dams, nuclear power plants, ships, and improve agriculture and healthcare.
Since President GB-2 took office we looked and turned inward. While Germany, France, China etc have gone out building goodwill bridges and a lot more across the world; like the "Dry Panama Canal" a railway linking the Atlantic and Pacific Oceans across Columbia.
After Obama became President we got mired in the Banking, Wall Street and Auto meltdown; Israel-Palestenian impasse and Iran; not to mention the lingering two wars.
Now with a divided govt. there is little unity of purpose to act boldly on the world-stage and in our own backyard with getting our economic and socio-cultural house in order. Though my hope is the politicians will suprise us with behind the scenes compromises and solutions.
I hope, as we move forward we are not petty, worrying about a little cut here and a little tax there in our domestic programs as we restructure to live within our means and solve our 15 Trillion dollar debt. If we don't solve this fiscal issue, in ten years it is claimed that interest on debt, SS, Medicare, Medicaid will consume 90% of the budget; with no money left for defense or any other federal expense. No amount of technological innovation gets us out of our debt.
The powers that be will not allow a resurgent anything in America.
Taking care of Americans is NOT a corporate function - that is a government function.
Many of the posts talk about the corporations being short sighted and going for short term profits. I respectfully differ. American corporate captains are the smartest persons on earth, and they DO know what they are doing. Most of their planning and acts are willful, and not mistakes or flukes. Moving offshore increases profits LONG TERM (which is the only term). Those that do not move, or could not adapt, die, as you all have witnessed.
America with its low student bandwidth for science and math, high wage rates, and extreme regulatory burdens, simply is hostile to manufacturing. Until all are changed, no jawboning is going to bring back manufacturing.
Life is about choices. When voters continue to tolerate the extremism Environ-Mentals' (viz. allowing the alleged desert flea to block the building of gigawatts of industrial scale solar plants), there really can be no hope of more manufacturing for America.
Who's going to buy the stuff when you make it if more than 90% of the population can't afford it?
Again, the corporation makes even more while ignoring American citizens that have made them wealthy.
I knew that no country could survive unless it actually made things like cars, refrigerators, etc.
To me it was another Reagan Hoax.
But I refer you to an old book a small book. "America, Who pays the Taxes" By Bartlett & Steele.
You'll see what Reagan's policies got us and how the policies are still doing damage today.