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The Mythical Manufacturing Job

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Much has recently been made of the decline of manufacturing as a percent of GDP in our country. Along with being a pivotal issue during the election in the traditional battlefield states of Ohio, Michigan, Pennsylvania and the rest of the rust belt, it's a rare article about the cause of our current economic issues that fails to lament the decline of "good manufacturing jobs that have been shipped overseas".

This phrase has been repeated so often, that it has achieved a mythical status as a cure for all that ills us. Unfortunately for politicians and those cities pinning their hopes on a resurgence of domestic manufacturing, these jobs are not coming back and that is not nearly as bad of a thing as it's been made out to be.

The primary drivers for the shift of manufacturing jobs from the US to overseas locales have been well documented - lower labor costs, less environmental regulations, lower land costs, geographical proximity to supply chains, etc. However, what has often been overlooked is what would have happened had US companies not adapted to the changes in the global economy and kept their manufacturing jobs in the US. For an example of what the impact is when companies with fundamentally different cost structures collide, think back to the invasion of Japanese consumer electronics in the 1980's. Traditional US television companies such as Zenith and RCA were completely unprepared to compete with Japanese competitors such as Sony and Panasonic. The result was that US companies RCA and Zenith went from controlling 33% of the US color television market in 1986 to being a footnote today.

If US companies had not aggressively moved their manufacturing to keep their cost structures in line with foreign competitors, the above scenario would have been repeated across industries. Company after company would have been forced to cut not only the manufacturing jobs - which were moved overseas - , but also the sales, marketing, finance and executive jobs that currently remain in the US. Like it or not, this is a reality of current global economics and no amount of legislation, tax incentives or trade negotiations can change it.

The second often overlooked point is the commoditization of manufacturing ability. With the exception of a few specialized examples, such as Intel's multi-billion dollar chip fabrication plants, manufacturing ability is no longer a differentiator or competitive advantage. 30 years ago, one of the primary concerns of a company launching a new product would have been how to actually "make" it. Today, any individual or company with a modest amount of money can use the same companies and facilities that manufacture Apple's iPhone, Microsoft's XBOX 360 or Nike's latest basketball shoes. Almost anything that can be designed can be built cheaply, accurately and quickly by companies that specialized in outsourced manufacturing.

The result of this has been that the balance of power has shifted away from manufacturing and to softer skills such as design, marketing and distribution. A recent Ted Koppel documentary on China revealed that on a $299 iPod (designed in California and assembled in China), Apple makes an $80 profit while the Chinese assemblers only receive $4. This huge discrepancy in the difference between what the designer and marketer of a product earns versus what the assembler can charge has resulted in most manufacturing jobs being no more valuable than the oft-derided call center or fast food job.

Don't get me wrong, America has many economic problems, but the notion that there are millions of high paying manufacturing jobs that have been exported is not one of them. The cold reality is that not exporting these jobs would have cost even more American jobs and what manufacturing jobs were exported have far less value than most people realize.