Walmart announced bold commitments to increase domestic sourcing of the products it sells and help veterans find jobs when they come off active duty. Speaking at the National Retail Federation’s annual BIG Show, Walmart U.S. President and CEO Bill Simon also announced the company is helping part-time associates who want to be full time, make that transition. Read more
Walmart today announced bold commitments to increase domestic sourcing of the products it sells and help veterans find jobs when they come off active duty. Speaking at the National Retail Federation’s annual BIG Show, Walmart U.S. President and CEO Bill Simon also announced the company is helping part-time associates who want to be full time, make that transition.
The run is one of the odder examples of how China’s thirst for high-quality products can upend faraway consumer markets, particularly amid concerns about the quality of its food supply.
A number of recent high-profile scandals involving tainted food products in China have shaken public confidence in the safety of domestic supplies. In 2009, two Chinese milk producers were executed for selling contaminated milk powder after infant formula and other products were found to have the industrial chemical melamine. Six children died and about 300,000 became ill, provoking a nationwide panic among parents.
Last June, China’s biggest milk producer, the Inner Mongolia Yili Industrial Group, was compelled to recall six months’ worth of production.
With about 16 million births a year, China is one of the world’s largest markets for baby food and infant formula, representing around 23 percent of the $41 billion global market, according to a recent study published by Euromonitor International, a research firm in London.
Concerns about the safety of domestic supplies have led to a sharp rise in demand for imported formula among urban middle-class households, sending prices of foreign brands soaring in Chinese supermarkets. According to the United States Department of Agriculture, the retail price of a 28-ounce package of imported formula is 290 to 350 renminbi, or $46 to $56 — about 50 percent higher than most domestic brands.
Hoping to stem the loss of market share to foreign competitors — and perhaps to reap the higher margins on foreign milk — some Chinese producers are investing in plants overseas. One of China’s leading makers of baby formula, Synutra International, announced plans in September to invest about $130 million in a new milk-drying plant in the western French region of Brittany that will be operated by Sodiaal, a French dairy cooperative.
The plant, which is expected to open in 2015, will produce around 100,000 tons of “high-quality” whey and milk powder a year exclusively for Synutra, the company said.
With Chinese visitors to Australia reaching record numbers in 2012, local merchants say it is common for these travelers to stock up on formula.
“This has been happening for maybe five years,” Edward Karp, who owns Pyrmont Pharmacy in Sydney, said in an interview. “Their pilots and their flight attendants used to stay at the hotel in the other block, and they used to come in and buy cartons of baby formula to take back home for their family and friends. They used to come in in their uniforms with the trolleys, put the bags on the trolleys, and off to the airport they’d go.”
The phenomenon is not unique to Australia. Mainland Chinese visitors to Hong Kong, for example, have put such pressure on formula supplies that retailers routinely limit purchases to four cans per customer, analysts say. Thousands of Chinese households are also placing international orders for formula online, either directly or through friends and relatives living overseas.
The shortages in Australia are primarily limited to the Karicare Aptamil Gold brand of formula, which is produced by a New Zealand-based subsidiary of the French food-product giant Danone. It remains unclear why that brand is in greater demand than others, but Australia’s leading supermarket chains, Coles and Woolworths, acknowledged this week that they were struggling to meet demand.
A spokeswoman for Woolworths, speaking on the condition of anonymity in line with company policy, said that while the chain had not instituted formal rationing, it would restrict the amount that customers may buy at any one time.
“Woolworths is not a wholesaler; we reserve the right to limit the number of identical products any one customer can buy during a single visit,” the spokeswoman said in an e-mailed response to questions. “While there is no specific limit set, our stores are encouraged to use a common-sense approach to ensure stock is only sold in retail quantities.”
Alistair Bradley, the general manager of Nutricia, which produces the formula at its New Zealand factory, told the newspaper The Australian on Friday that the company was struggling to keep its products on the shelves, despite having increased production to 20,000 tons from 5,000 in 2012 to cope with growing domestic demand.
“This, coupled with food safety concerns overseas, has generated an unexpected increase in demand for Karicare and Aptamil formula,” he said. “We are currently not always able to ensure that adequate amounts.”
In Perth, on Australia’s west coast, Richard McWatt, the manager of the Superchem Family Pharmacy, said by telephone that a customer had called him on Thursday to buy 100 cans of the formula. Similar stories have been reported in the Australian news media, although it is unclear how the products are being taken out of the country without the imposition of export duties.
“Some families will buy six tins at a time and send it back to their home country, but never that many at one time,” Mr. McWatt said.
Some of the purchases, though, could be the result of hoarding by residents fearful of shortages.
Nicola Clark contributed reporting from Paris.
The idea is known as “reshoring.” Although Chinese wages are a fraction of U.S. labor costs, rising shipping rates, quality problems, and the intangible costs of being far from headquarters all add up. That’s why some companies have begun to rethink the manufacturing equation.
MIT Technology Review interviewed Harry Moser, head of the Chicago-based Reshoring Initiative, about the trend. Moser, a former industry executive whose family has been involved in American manufacturing for a century, says he grew up “experiencing the glory of U.S. manufacturing.” He created the initiative to help companies compare the real costs of manufacturing at home and abroad, and to track the experiences of those who are returning.
Why are people talking about reshoring all of a sudden?
It’s actually been happening over the last few years. The obvious answer is that Chinese wages are doubling every four years. The consultants who five years ago were helping people offshore are now helping them inshore. And then you have President Obama making a big deal over how to reduce imports and start making stuff again.
How much of Apple’s plan to manufacture in the U.S. is real, and how much is window dressing?
There’s a lot of speculation about that. Some people say it’s politics. From what I can tell, the units Apple produces in the U.S. won’t have as a high a margin. But it’s also true that consumers are looking for an American product. Think about GE, with its appliance park in Louisville, where they just reshored several products. They say they are going to save $400 million doing that, but then they spent maybe $100 million on advertising what they’re doing. I’ve seen their ad 20 times already. Reshoring is good for GE. Now they can be the good guys.
You’ve calculated that about 50,000 jobs have been reshored since 2010. How many of those came back for political reasons?
I’d say politics doesn’t account for more than 5 percent. Only a GE or an Apple would think about politics. For everyone else, it’s just a matter of the total cost. They never even broach the political question.
Why’d you get into the reshoring movement, and what’s your goal?
My family has been in manufacturing for 100 years. My grandfather was a foreman at Singer Sewing Machine, and my dad helped run their factory in what was then the largest building in the world, in Elizabeth, New Jersey. All that is totally gone, and I feel the need to bring it back.
The goal is to balance the U.S. trade deficit, which is $600 billion a year. That is largely due to offshoring of manufacturing jobs. Since the 1950s, about three million manufacturing jobs have been lost to imported goods. So to balance the deficit we’ll need to bring back three million jobs.
How big will the effect be on high-tech industries?
Keep in mind, the vast majority of what Americans consume isn’t high-tech at all. We need to efficiently make ladders and hammers and paper and lights. And we need to do it with the relatively unskilled workforce that we have. Since other countries are targeting high tech, we’ll never dominate it enough to balance the trade deficit.
So what types of manufacturing are coming back to the U.S. right now?
Most of the products coming back went away only recently, and often without much economic logic—it’s generally mechanical and electrical equipment that has some size and weight, such as transportation equipment, die castings, and foundries. The cost is just too high to ship those. I think appliances fit pretty well into the reshoring story, too, since you are shipping quite a lot of air.
How big a part are worries over intellectual-property theft in China playing in the reshoring story? Is that a reason to keep manufacturing close to headquarters?
People talk about it all the time, but it’s hard to quantify. It’s a much bigger problem for software, where there’s a disk you can copy, than it is when you are making a refrigerator. A refrigerator is made up of very little intellectual property and a lot of weight.
What about advanced technologies for manufacturing? Will they help the U.S. close the trade deficit?
I see a lot of trendy over-excitement. Take 3-D printing. It’s pretty far from being a way to make auto parts. And even if we did create that market, we’d sell those printing machines to everyone. So everyone will have them. For instance, total U.S. sales of machine tools—the machines we use now to manufacture things—are $6.6 billion a year. But the use of those tools is worth hundreds of billions of dollars. So the greater value is in putting [manufacturing] technologies to use, not inventing them.
I think the return on investment of what we already know how to do—automation, training, lean techniques—is much higher than investing billions into advanced manufacturing processes. If society looks at the returns from the advanced stuff, it won’t be overwhelming.
January 11, 2013
The next manufacturer of chicken jerky dog treats joining the nationwide product recall is IMS Trading Corp, makers of the Cadet brand of dog treats.
From the IMS Trading Corp website,
“IMS Trading Corp today announced it is voluntarily withdrawing its Cadet Brand Chicken Jerky Treat products sold in the United States until further notice.
The Company is taking this action after learning this week that the New York State Department of Agriculture & Markets (NYSDAM) found trace amounts of antibiotic residue in samples of Cadet brand Chicken Jerky Treat products. These antibiotics are approved for use in poultry in China and other major countries, including European Union member states, but are not among those approved in the U.S. Cadet Brand Chicken Jerky Treat products are safe to feed as directed and have not been linked to ANY illnesses in dogs or humans. However, due to regulatory inconsistencies among countries, the presence of antibiotic residue is technically considered an adulteration in the United States.
At first, New York State authorities requested that IMS Trading Corp remove Cadet Brand Chicken Jerky treats from retail locations only in the state of New York. We have decided to expand this and conduct a voluntary withdrawal of these chicken treat products nationwide.
A double testing program is being established to check for these antibiotics in China (point of origin) and the United States before we consider to sell these products in the future. Testing will be based on a scientifically sound statistical sampling program.
There is no indication that the trace amounts of antibiotic residue are linked to the FDA’s ongoing investigation of chicken jerky products. The trace amounts of antibiotic residue (in the parts-per-billion range) do not pose a health or pet safety risk.”
Additionally, it remains to be discovered how extensively the chicken used to make these treats expands into other dog food production. The only way to ensure the safety and well-being of your pets is to stop feeding them foods and treats that are manufactured, sourced, or processed in China.
The melamine dog food scare in 2007, along with the Chinese government’s refusal to work with the FDA and investigators to locate the source of contamination in these treats further strengthens our position that when it comes to the health and safety of our pets, the Chinese are more concerned with their bottom line.
The headline case is the decision by General Electric chief executive Jeffrey Immelt to rekindle production at the enormous Appliance Park manufacturing site in Louisville, Kentucky. By doing so, the 56-year old isn’t just burying some of the legacy of his legendary predecessor, Jack Welch, but questioning the core business case that has increased profits for US manufacturers since he was in his mid-20s.
“The very scale of the place seemed to underscore its irrelevance,” Fishman writes of Appliance Park. “Six factory buildings, each one the size of a large suburban shopping mall, line up neatly in a row. The parking lot in front of them measures a mile long and has its own traffic lights, built to control the chaos that once accompanied shift change. But in 2011, Appliance Park employed not even a tenth of the people it did in its heyday. The vast majority of the lot’s spaces were empty; the traffic lights looked forlorn.”
Appliance Park is just one of countless historic manufacturing bases that have been slowly turned into ghost towns across the US. In no small way this has been because of the rise of China on the back of cheap labor which has in turn produced its own set of ghost towns. But that’s another story.
Immelt was actually trying to sell Appliance Park just four years ago but couldn’t find a buyer. Now it’s being slowly resurrected, and not just for show.
The GE boss has pumped $800 million into restarting sections of Appliance Park. The poster-child of American outsourcing conglomerates is looking at manufacturing an increasing number of products domestically.
Some of these products are new and thus need close attention. Others are currently being made in China and Immelt is ordering them home.
On the face of it $800 million may as well be measured in nickels and dimes for a company that takes in $150 billion in revenue every year. But it’s almost impossible to argue this isn’t a significant decision that says a lot about the limitations of outsourcing and the advantages of making things in America.
The argument that Fishman and Fallows deliver in separate stories, very convincingly, is that it’s not only the lower cost of US energy (shale gas), as well as the recently reduced wage burdens in the US and growing wages in China that is slowing or reversing the outsourcing boom. The argument is that there are peripheral advantages of making things in your own backyard.
Fishman tells the story of a Geospring water heater that suffered from a needlessly complicated and fiddly assembly, increasing not just the time it took to produce but also the materials that went into it.
When there’s a Pacific Ocean and language barrier between your designers and your assembly workers, cost reductions and design shortcomings are harder to identify. But if a mid-level manager knows a sharp guy called ‘Frank’ on his own floor who has a knack for finding ways of using less copper wiring without compromising the product, you could more easily identify cost savings from a materials and labor point of view. Plus, Frank might have a future beyond the assembly line.
GE has realized all these benefits in some cases and managed to pay for production in the US before factoring in shipping costs. Let me repeat that – they’re getting shipping costs from mainland China to the west coast of the US wiped out in some instances, and some, by doing their thing in the US.
Those who can remember the labor battles that resisted the outsourcing boom, a phenomenon that touched the Australia and England as much as the United States, will know these arguments are nothing new. Unions and academics were telling us organisations would become less agile and their products would be less reliable… but cheap as chips.
‘Frank’ would be replaced by someone in China who is both unrelatable and unable to offer a solution for the unacceptable number of faulty products finding their way to American shores. You can try a rival manufacturer down the road, but his workers are just as unskilled.
The conclusion we’re asked to contemplate is that US manufacturing renaissance is based on more than BHP Billiton’s shale gas, which disproportionately aids petrochemical manufacturers that use the gas as feedstock and heavy equipment makers that appreciate the cheap energy. Could this be the long-awaited realization that cheap Chinese labor was a false promise for products that are either complicated, or have the potential for innovation?
American manufacturers, beyond GE, are indeed bringing jobs home. Still, to call it a renaissance is terribly premature.
While it’s true that the American manufacturing sector outperformed the US economy in 2010 and 2011, output actually shrank in 2012. If you call that a renaissance, you mustn’t mind a gamble.
According to a joint report from the Citizens for Tax Justice & the Institute on Taxation and Economic Policy released late last year, General Electric was the second largest recipient of tax subsidies between 2008-10 – $8.2 billion to be precise. In the last three years, GE has put away profits of $36.7 billion.
This puts into perspective how much $800 million is and how much GE is contributing to US jobs, as well as government coffers. With over $16 trillion in federal debt, the prospect of more government subsidies for GE to encourage repatriation of jobs is pure fantasy.
China also owns 40 per cent of its adversary’s debt. This gives America’s chief labor manufacturing rival a crucial window to invest in upskilling its work force so the cost advantage isn’t outweighed by a skill disadvantage.
That’s far easier said than done, but China isn’t under pressure in this respect. The US is finding it hard enough to fill current positions within its borders, let alone jobs returning from a corporate foreign profit exchange program.
In the brilliant Davis Guggenheim documentary Waiting for Superman (2010), we discover how America’s education system hasn’t adapted to the differing skills sets demanded by the modern US economy.
With a still uncomfortably high unemployment rate, undermined by a lack of workforce participation brought on by worker dejection, we’re continuously told that American corporates have jobs to fill but no qualified Americans to do it.
From time to time we’ve heard excuses, like the fact that a high mortgage underwater rate has reduced workforce mobility. That’s a legitimate phenomenon.
Waiting for Superman, there will be 123 million high-skilled American jobs to fill by 2020 but only 50 million Americans qualified to do them.
It just goes to show that if a fully-fledged US manufacturing renaissance does exist, one that extends beyond the shale gas boom, Americans won’t get the larger pay checks this boom provides unless US companies are willing to pay the training costs.
Alexander Liddington-Cox is Business Spectator’s North America Correspondent.
At the turn of this century, manufacturing wages in southern China were 58 cents an hour, just 3 percent of U.S. levels. GE and many other manufacturers rushed to take advantage of so-called labor arbitrage by moving manufacturing overseas. In 2004, the Boston Consulting Group told clients the choice wasn’t whether to go offshore but “how fast.”
The strategy adopted by many multinational conglomerates, whether based in the U.S. or in Europe, was simple: substitute inexpensive labor for capital. Why invest in a machine to assemble iPhones when Chinese companies could throw half a million workers at the problem? The Internet, telephones, and affordable air travel and sea shipping made it easier than ever to coordinate labor from far away.
Partly as a result, the U.S. lost about six million manufacturing jobs—33 percent of the total—between 2000 and 2010, and China has overtaken the U.S. as the world’s largest producer of manufactured goods. But the impact extends beyond macroeconomic statistics.
In Producing Prosperity, a book published this year, Harvard Business School professors Gary Pisano and Willy Shih call offshoring of manufacturing a “grand experiment in de-industrialization.” They and others now believe that the consequences have been unfortunate because innovation is hard to separate from manufacturing in technologically advanced areas. Without understanding the details of production, you can’t really design the most competitive products. Eventually, what Immelt calls “core competencies”—such as product design and understanding of materials—are put at risk (see “Can We Build Tomorrow’s Breakthroughs?”).
Lately, however, economic trends have been turning. Wages in China’s southern cities have been rising fast and may soon reach $6 an hour, about what they are in Mexico. Boston Consulting Group—the same consulting firm that told clients to run, not walk, overseas—now says it’s time to “reassess” China and estimates that for some products, that country’s overall cost advantage could disappear by 2015.
The vanishing comparative advantage of Asian cheap labor isn’t the only reason for companies to question offshore manufacturing. Natural catastrophes can occur anywhere, but the risks of long supply lines became apparent in 2011, when the Japanese earthquake and tsunami interrupted shipments of computer chips and floods in Thailand left disk-drive factories under 10 feet of water. Meanwhile, higher oil prices have quietly raised the cost of shipping goods. And a bonanza of cheap natural gas has made the U.S. a relatively cheap place to manufacture many basic chemicals and is providing industries with an inexpensive source of power.
The kind of manufacturing in which labor costs are most important isn’t ever coming back from low-wage countries (assembling five million iPhones for a product launch can still only be done in China), but the recent economic shifts are giving companies a chance to adjust course. One major line of thinking, the one most vocally endorsed by the White House, is that the U.S. should focus its efforts on advances in the technology of manufacturing itself—the set of new ideas, factory innovations, and processes that are also the focus of this month’sMIT Technology Review business report.
The U.S. holds advantages in many advanced technologies, such as simulation and digital design, the use of “big data,” and nanotechnology. All of these can play a valuable role in creating innovative new manufacturing processes (and not just products). Andrew McAfee, a researcher at MIT’s Sloan School of Business, says it’s also hard to ignore coming changes like robots in warehouses, trucks that drive themselves, and additive manufacturing technologies that can create a complex airplane part for the price of a simple one. The greater the capital investment in automation, the less labor costs may matter.
Because manufacturing is so heterogeneous, no single technology can define its future direction. But for advanced economies like the U.S., the questions don’t change. Says McAfee: “If labor is not the differentiating factor, you need to ask, ‘What can be?’”
Fmr. President of the National Association of Manufacturers
January 8, 2013
“A convergence of trends makes operations in America more attractive and feasible,” Fallows wrote, “just as the cost and friction of operating in China is increasing.” He writes at length about growing discontent among Chinese workers who are demanding higher pay and better working and living conditions, while rapidly advancing technology favors nations with more advanced skill sets, such as the U.S. “For the first time in memory, I’ve heard ‘product people’ sound optimistic about hardware projects they want to launch and facilities they want to build, not just in Asia, but also in the United States.”
Fishman put some meat on the bones of that idea with an account of how General Electric is suddenly expanding its old plants at Appliance Park in Louisville, Ky. At its height in 1973, that facility employed 23,000 people. By 2011, it had bottomed out at 1,863 and GE was trying to sell off its appliance division. Now it’s headed in the other direction. In February, GE opened an all-new assembly line to make cutting edge water heaters that had previously been made in China. In March it opened another assembly line to make new high-tech French-door refrigerators. And early next year, GE will start making trendy front-loading dishwashers and matching dryers. GE will end this year with 3,600 hourly workers there, and also has hired 500 new designers.
There are many reasons for this trend: oil prices are three times what they were in 2000 making shipping costs higher; the natural gas boom has dramatically reduced the cost of running an energy intensive factory in the U.S. (gas costs four times as much in Asia); wages in China are five times what they were in 2000 and are rising 18 percent a year; U.S. labor unions are becoming more tractable to retain jobs; and U.S. productivity continues to soar.
But there’s an even more interesting reason. Because of rapidly gadget wizardry and consumer demand, the cycle life for many major consumer products like refrigerators has been shorted from seven years or so to 2-3 years. Production is more complicated and challenging, and thus harder to manage and control on the other side of the world.
“A convergence of trends makes operations in America more attractive and feasible,” Fallows concluded, “just as the cost and friction of operating in China are increasing.” Now there’s a thought to sustain you into the New Year!
Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements. January 2013
I listened to this question with special interest, since I was following the debate, via hotel-room TV, from the Shenzhen manufacturing zone of southern China, where many of those same iPads and iPhones are made. For the few days before the debate, I’d been revisiting PCH International, an outsourcing company I’d first written about for this magazine in 2007, in “China Makes, the World Takes.” The company’s revenues have increased more than sevenfold since then and its workforce has grown almost as fast, despite the years of global recession. This is testament both to its own success and to the nonstop surge of outsourcing contracts to China.
The day after the debate, I walked through the famous Foxconn complex in the Longhua district of Shenzhen, where some 230,000 Chinese workers, mainly between the ages of 18 and 25, turn out products sold under international brand names, from Apple and Dell to Nintendo and Sony. Another Foxconn facility not far away employs another 200,000 people; throughout China the company’s workforce numbers 1.3 million. On previous attempts to get in over the years, I had never made it past Foxconn’s front gate—not surprising given the company’s policy of stiff-arming most foreign and domestic reporters. But a new PR team at Foxconn had apparently decided that closed-door secretiveness was making the company look even worse than it otherwise would. (If only this team were in charge of Chinese government policy—regarding the press, the Internet, letting people into and out of the country, and so much more.) Immediately after hearing the allusion to Chinese-made products on TV, I e-mailed an official at Foxconn and said that so prominent a mention in American politics would be a great news peg for a visit. I was fully expecting another turndown, but to my surprise, the company agreed. The next morning, I went to the factory and was told I could roam around and take pictures of anything I wanted, as long as I did not show or mention any of the brand-name products coming off its assembly lines.
For the first time in memory, I’ve heard “product people” sound optimistic about hardware projects they want to launch and facilities they want to build not just in Asia but also in the United States. When I visited factories in the upper Midwest for magazine stories in the early 1980s, “manufacturing in America” was already becoming synonymous with “Rust Belt” and “sunset industry.” Ambitious, well-educated people who had a choice were already headed for cleaner, faster-growing possibilities—in consulting, finance, software, biotech, anything but things. At the start of the ’80s, about one American worker in five had a job in the manufacturing sector. Now it’s about one in 10.
Whether you call the business history of the past 15 years the age of hedge funds, the age of Google (or its rival Facebook, or its other rival Amazon, or its other rival Apple), the age of Walmart, or even the cautionary age of Lehman Brothers and Countrywide, in no case would you call it the age of American manufacturing. Manufacturing’s share of the total American economy has fallen by about the same amount as its workforce share: it went from about 20 percent in the early 1980s to just over 10 percent now. For comparison, manufacturing accounts for some 30 percent of China’s total economy. Still, the U.S. economy is so much larger that our manufacturing sector, even in its battered condition, remains the largest in the world.
The heart of their argument is this: Through most of post–World War II history, the forces of globalization have made it harder and harder to keep manufacturing jobs in the United States. But the latest wave of technological innovation, communications systems, and production tools may now make it easier—especially to bring new products to market faster than the competition by designing, refining, and making
in the United States. At just the same time, social and economic changes in China are making the outsourcing business ever costlier and trickier for all but the most experienced firms.
For Americans, the most important factor is the emergence of new tools that address an old problem. The old problem is the cost, delay, and inefficiency of converting an idea into a product. Say you have an idea for—anything. (For me, the list would start with silent leaf blowers, which I’d give to all my neighbors as gifts.) Before you can earn the first dollar from the first customer, you have to decide whether the product can be built, at what cost, and how fast, so you can beat anyone else with the same idea.
The need to reduce costs has driven much of this work outside the United States. The possibility of saving time may bring some of it back. For instance, at Lime Lab, a small industrial-design firm in San Francisco, a design engineer named Adam Mack told me that technologies including 3‑D printing were revolutionizing the process of deciding what to build and where. Three-dimensional printing refers to computerized molding or related systems that can produce tangible objects in a matter of minutes or a few hours, on the basis of designs created on a screen. This dramatically speeds up the process of creating a prototype and then trying out variations and working out flaws.
“A revolution is coming to the creation of things, comparable to the Internet’s effect on the creation and dissemination of ideas,” Linus Chung told me at Lime Lab, in San Francisco. (Chris Anderson, formerly of Wired, has recently advanced a similar case in his book Makers.) Chung is an American-born, Stanford-trained manager who now works for PCH International and is based in Shenzhen. This past June, PCH bought Lime Lab as part of an expansion into America to encourage more start-ups and manufacturing work here. “There is a whole new interest in hardware in Silicon Valley,” said Phil Baker, a product-development expert who has worked with Apple and other companies since the 1970s. “I’ve never seen a more exciting time in the hardware business.”
Why “exciting”? Let’s consider the changes affecting China, and America, and manufacturers everywhere.
The Big Picture
For the past 30 years, all of the largest forces have pushed in favor of China’s manufacturing expansion, from very low labor costs and a deliberate policy of welcoming foreign investment, to ever faster and cheaper global cargo-shipment networks, to a deliberately undervalued Chinese currency. Within the past two years, nearly all of those advantages have become more complicated. (In his accompanying article for this issue, Charles Fishman explains some of the large forces pushing in favor of America’s manufacturing renewal.) In China, wages are rising, workers are becoming choosier, public resistance to environmental devastation is growing, and the Chinese “investment led” model is showing strain.
That model has involved a kind of hyper-Keynesianism far beyond what the United States experienced even during the most government-run periods of the New Deal. China has created jobs by building factories, highways, railroads, and dams—and airports where there are no cities, and cities where there are no people. “Americans are used to thinking of ‘savings’ and ‘investment’ as absolute goods, because we’ve done too little” of both, Michael Pettis, of the Guanghua School of Business in Beijing, told me. “But there is such a thing as too much savings and investment and infrastructure, and too little consumption, all of which we see in China.” If the American public challenge is “reinvestment” of all varieties—in education, in infrastructure, in a sense of community, in everything but houses—the Chinese counterpart is a need for a comprehensive rebalancing. Indeed, Pettis’s forthcoming book on the Chinese economy is called The Great Rebalancing. Reliance on exports needs to come into better balance with domestic consumption; economic growth with environmental sustainability; political liberties with the new level of economic prosperity; and on down a long list.
Some observers inside and outside China think that the strains are too great and the system too rigid to allow the necessary rebalancing in time for the party to maintain political control. For instance, Minxin Pei, a native of Shanghai who now teaches at Claremont McKenna College in California, has been warning for more than a decade that the economic, social, and political imbalances of the Chinese system would reach a breaking point just about now—and that Communist rule would have to give way to a multiparty system. Many others contend that, on the contrary, the Communist leaders will manage somehow to address each of today’s problems just before any one becomes an outright emergency, as they have done time and again for 30 years. Whichever view proves correct, the relevant point for Americans is a convergence of trends that make operations here more attractive and feasible, just as the cost and friction of operating in China are increasing.
The Factory-Level View, From the World’s Biggest Factory
I had a more vivid sense of some of these challenges after this latest look at Chinese factories—especially at Foxconn, the world’s largest electronics maker. You learn a lot about China from its factories, of which I have now visited nearly 200—just as you would have learned a lot about the England of Charles Dickens and Friedrich Engels by seeing its factories, and the America of Theodore Dreiser and Upton Sinclair. Factories are not the only arenas for high-speed social transformation in China: its farms, from which working-age people are fleeing, and its cities, to which millions of people migrate each year, are also the settings for individual dramas and collective adjustment at a rate and on a scale that the world has never previously seen. But on this trip I spent time in factories. And what I saw underscored the ways in which the tumultuous transformation of China is complicating life for its outsourcers and exporters.
At the Foxconn plant I visited, I know firsthand only about conditions I could observe in four hours of walking around the more than one-mile-square “campus” and being taken into selected dormitories, cafeterias, training rooms, and assembly-line areas by members of the newly accommodating Foxconn PR team. One part of the visit had the unmistakable note of the staged: In the sole dormitory we entered, whose occupants were all on their shifts at work, every towel and pillow in the four-bunk room I saw was perfectly aligned. The clothes were on hangers in precise order, and there was not a scrap of extra paper or debris on desks, dressers, the floor, or anywhere else. I could only assume that this room had been specially cleaned up; other parts of the campus resembled most other parts of China in being much more casually
groomed. I’m acutely aware of all the things I did not see: conditions at night, the dorms where not four but six or eight workers live in each room, assembly lines where hazardous materials might be used or where the pace is exceptionally fast. Still, what I was allowed to see was more than a tiny keyhole glimpse—and my movement around the campus was less rather than more controlled than I’d been accustomed to on other factory visits. The scale of buzz and activity was so vast—cafeterias with thousands of people getting lunch, bus and shuttle stops with hundreds of workers waiting for a ride, coffee shops and convenience stores crowded with Foxconn patrons—that I doubted that every detail could have been orchestrated overnight. Plus, there were products to ship.
At most other big Chinese factories I’d seen, people walked around all day in uniforms—usually gray or blue coveralls for men, light-colored smocks for women. At Foxconn, people wore anti-static jackets and caps when at work on the assembly lines and shirts or vests with the Foxconn logo when in offices. But when walking to the cafeteria, going to the shops, or commuting to normal off-site apartments, where three-quarters of the workforce lives, people were dressed in the blue jeans or cargo shorts and fake Polo or NBA shirts of a normal Chinese crowd. On the lines I did see, where printed circuit boards and other electronic components were being put together in a process that combined the use of large, fancy, expensive machinery with detailed handwork, the pace and supervision seemed no looser or tighter than I’d seen at comparable sites elsewhere in China. If you are looking for the most-gruesome factory conditions in China, you don’t go to a multinational giant like Foxconn, which has to deal with Western customers and pay at least some attention to appearances and laws. You go instead to the small, ramshackle, often unregulated workshops, often away from the big cities, where conditions are as inefficient and sometimes as unsafe as they were when China was just beginning to industrialize.
Although I had heard about the Foxconn “suicide nets,” I was still taken aback to see them. Most dormitories and factory buildings on the site are five or six stories tall. Outside every upper-story window, open balcony, and other spot from which someone might plunge, the company has installed netting about 20 feet above ground level. The founder and CEO, Terry Gou, ordered the nets installed after a spate of jumping suicides in 2010; many of the upper windows also now have latches that keep them from opening fully, and some balconies have a fine mesh of jump-prevention wire. The idea, I was told by a Foxconn spokesman, was that while some suicide attempts reflect deep mental illness or depression, others are impulsive and half-thought-through, so anything that even slightly slows an attempt might deter a suicide altogether. (The peak suicide rate for Foxconn came in 2010, when it reported a total of 12 “completed” suicides at all its Chinese plants. On a per capita basis, this was below the suicide rate for China as a whole, but everyone at Foxconn recognized it as an emergency.)
But to me the most significant aspect of the visit—one my hosts were so inured to that they barely mentioned it—was the sight of the enormous throngs at Foxconn’s recruiting and new-worker training sites on campus. In a typical week, the Shenzhen Longhua facility will take on about 2,000 new employees for its own factories, and recruit and train many more for other Foxconn sites. It brings in so many people because so many keep heading out; the annual turnover rate at the plant is about 60 percent—high but not astounding by Chinese standards.
You can draw many conclusions from this rate of churn. Anita Chan, an expert on Chinese labor conditions at the University of Technology, Sydney, said the turnover indicated some brutal realities of Chinese factory life, in ways that reflected both well and poorly on Foxconn itself. “Why do workers still go to Foxconn despite its bad reputation?” she asked, in an interview with The China Story, an Australian online journal. “I believe that it is because they know that Foxconn pays wages on time. While this may appear to be a crude view, workers at Foxconn often come from smaller companies where they have been cheated, are underpaid, or even owed wages. In this context, they know that Foxconn is synonymous with an assured income.”
I spoke about workforce churn with Foxconn’s Louis Woo, whom I had met years earlier in Shanghai. Woo and Terry Gou had become friends in the early 1990s, when Woo was the general manager of Apple Taiwan. Four years ago, Woo accepted Gou’s offer to be Foxconn’s chief spokesman, and moved to Shenzhen. Woo told me that Gou, who turned 62 on the day of my visit, was at this stage of life increasingly conscious of the social as well as the purely industrial legacy of his work.
Terry Gou has done as much as anyone since Deng Xiaoping to shape life in China, or at least in the factory-dense southern part of the country. Although Gou is Taiwanese and Foxconn’s headquarters are in Taiwan, the company is the largest private employer in mainland China. According to Louis Woo, Gou is aware of the example of Henry Ford. Not the Ford of the assembly line and the mass-marketed Model T, whose achievements Gou has already matched, nor the elderly Henry Ford of the anti-Semitic conspiracy theories. Rather, the “welfare capitalist” Ford, who in 1914 announced a new $5 daily wage, roughly double the prevailing rate. Ford did this to reduce then-extreme turnover on his assembly lines, which was even more rapid than Foxconn’s current level, and to hasten the creation of a middle class capable of buying his cars.
Foxconn has raised basic wages four times in the past three years, in some areas doubling the starting-level pay. A typical Foxconn assembly-line worker spends 50 hours a week on the job—40 hours at base rates, and 10 hours of overtime at a time-and-a-half rate. For that, a worker typically gets about $400 a month, or about $2 an hour. During production surges, workers may put in another 10 hours of weekend overtime, for which they get double-rate pay. Six years ago, typical monthly pay in Shenzhen factories I visited ranged from $115 to $155 (the difference partly reflects the higher value of the Chinese renminbi today). Woo said that he expected the trend of rising wages to continue, and that Gou was mindful of the centennial of Henry Ford’s $5‑wage announcement, in 2014. This would reflect a calculation of long-term self-interest comparable to Ford’s: if Gou can accelerate the growth of China’s middle class, a large company like his will share in the returns. “If we have a new-generation middle class, that will fuel the need for products like those we manufacture,” Woo said.
A living wage for the laboring class would be one
more sign of progress for China, as it was for the America of Ford’s era. But it would also be part of the process that is reducing China’s advantage as a site of cheap labor—and a sign of other challenges facing Chinese employers.
Two more things about the Foxconn workers surprised me: that so many were male, and that nearly all were kids. By kids I don’t mean the 14-year-old “apprentices” a different Foxconn plant, in the northern city of Yantai, was found to have hired earlier this year. (The company apologized to the youths and their families and, according to Woo, fired one of the managers involved and disciplined a total of nine.) I mean that at factories I’d previously seen across China, the workers looked and acted like country people weathered by their rough upbringing. Most of the Foxconn employees looked like they could have come from a junior college.
“Even a few years ago, the typical worker was a farmer,” Louis Woo told me. “He or she already had a family back in the village. They came, they earned their money, and when they were able to buy some pigs or fix up their house, they went home.” The standard workers today, he said, are those people’s children. “They’ve never farmed. They don’t want to, and they don’t have to, thanks to the hard work of their parents, who were the first generation of migrant workers. They’re coming here as part of entering a bigger world.” Chinese factory bosses face the same challenge in dealing with them that Chinese political bosses face with a better-informed, more intellectually independent populace. The “shut up and look at your paycheck” approach that has worked for people who remember China’s backwardness may not work for their children.
I noted a parallel change at some PCH factories. On my previous visit, four years earlier, virtually all of the assembly-line workers had been female. This time, all but one of the PCH factories I visited was staffed predominantly by young men. I asked the supervisor of the one all-female line why there were no men on it. “These are the more responsible jobs,” she said. (The women were handling online orders from American customers for a famous electronics brand.) She was partly joking, but many factory managers say openly that they prefer women for any job not requiring unusual strength.
Among the consequences is greater fractiousness in the typical Chinese factory force. In September, a Foxconn plant in Shanxi province was temporarily closed because of a late-night riot that eventually involved several thousand workers. According to Louis Woo, the riot was touched off not by worker-management tensions but by the Chinese equivalent of an ethnic-gang war in an American prison, as workers from one province took the side of a colleague who was fighting a worker from somewhere else. This is the sort of thing that happens more frequently with more men in the workforce.
Ten years ago, Chinese factory life stood comparison to the “dark Satanic Mills” of William Blake’s England in the early 1800s. Five years ago, I was struck by the parallels with accounts of Chicago packinghouse life in the 1890s. Now I see a counterpart to the American 1920s, with the first sizable generation of moderne post-rural life. In September, after turnover surged at many Chinese factories, PCH commissioned a nongovernmental organization to do a survey of worker attitudes. I sat in on a focus group from the factory discussing the findings. It’s not the long hours we mind, most of the workers said; according to the survey, fully 80 percent welcomed an average of two or three hours of overtime a day, because of the extra pay that meant. But we still want to “have a life,” they told the survey takers. The No. 1 item on their wish list was more organized social activities on the weekends, and singles nights and mixers for all the unaccompanied young men.
China’s economic and social maturing, tumultuous or smooth as it may turn out to be, will certainly affect the world division of labor. Some very low-skill jobs may move to very low-wage economies, such as Burma, India, and parts of Africa; some will move to inland China; some will be automated or done by robots; some will stay in China, but at higher costs. But some of the next round of jobs that might have moved to China will be more attractive for producers to keep in the United States.
The New Smiley Curve
Here is what Casey meant by “geography is history,” and how it affects the prospects for U.S. manufacturing:
“For decades, the process of technology-enhanced globalization has been pushing manufacturing work steadily from richer countries to poorer ones. Casey has had a firsthand view of this transition. As he explained to me when I first met him, “supply chain” interactions like those between Apple and Foxconn, or other famous Western brand names and the tiny Chinese firms Casey lined up as subcontractors, brought benefits to all sides, but in a very particular way. Customers in rich countries got the benefit of cheaper products—an iPhone for $300, for instance, rather than $2,000 if it had been made at U.S. wages. Factory workers in China and elsewhere got their pay.”
(iPhone), then the industrial design, and on through the stages of manufacturing at the bottom of the curve—then shipment, retail, and service going up the other side. The profitability of each stage matches its elevation on the curve—which is why Chinese manufacturers, down at the bottom of the curve, get the smallest share. Globalization has thus far enriched Westerners on the high parts of the smiley curve—designers, shareholders, advertisers, other mainly white-collar professions—but has left out Western manufacturing workers.
A crucial and underappreciated step in this process, Casey and others explain, is the transition from the idea for a product to its physical incarnation, which can then be made and sold. There’s a direct analogy to the world of publishing. Even 10 years ago, having an idea for a book, a song, a political exposé or commentary, got you only so far. To spread your work or ideas beyond your immediate circle of friends required the involvement of a publishing organization. Unless you could persuade an editor, a broadcaster, or a publishing house to promulgate your views, few people would ever hear them. Writing was hard enough; “getting published” could be worse. But now, blogging software and social media of all sorts have eliminated that barrier. Publishing organizations can still provide authority and a megaphone. But more ideas from more people are now being heard by more people.
How does this apply to manufacturing? Blogging software and related technologies have made it easier for entrepreneurs in the realm of ideas to expose their products to a worldwide market test. Three-dimensional printing and related technologies are making it easier for entrepreneurs interested in making physical goods to expose their products to the worldwide market. America has more than its fair share of such potential innovators, thanks to immigration, our still-strong university and public research centers, and the financial and cultural underpinning of a start-up culture. The terrain is shifting in a way that should draw more entrepreneurs to manufacturing and let more of their ideas succeed. This should in turn foster more manufacturing work within the United States than was feasible a few years ago. Companies with the right connections to foreign suppliers and foreign markets will grow even faster.
But rather than simply shifting manufacturing work from rich countries to poorer ones, this latest technological wave should allow all regions to grow. “As business has become faster and more globally connected, that’s been good for American companies overall but bad for America’s low-skilled manufacturers,” Phil Baker, the designer for Apple and other companies, told me. “Now speed and connections allow start-ups to compete with much larger companies, and often beat them.”
Made in San Francisco“I am betting heavily on San Francisco, for its energy and creativity,” Liam Casey told me in China. He didn’t quote Jane Jacobs, but he went on to present a theory that could have come from her book The Death and Life of Great American Cities: national economies are really a collection of vibrant city economies, and cities thrive when they foster a diverse ecosystem of small enterprises whose growth is mutually reinforcing. He felt that his adopted home of Shenzhen was the engine and the success model for China. “When I came here, Shenzhen was a place to make cheap products,” he said. “Then it became a place to make products cheaply. Now, for the work we do, it’s the only place to make certain products, because of the supply base, the logistics, and the workforce.” (He said that my article about his company, “China Makes, the World Takes,” could, five years later, be redone as “Shenzhen Makes, China Takes.”) San Francisco is his model for how the new manufacturing economy would spread in America. When we spoke, he had just leased a 30,000-square-foot building off I‑280, the former home of the San Francisco Bay Guardian, and announced plans to establish major PCH operations there. “We look forward to fostering the growing community of makers in the Bay Area who seek to have a massive impact on the world through their dedication to design, brand building, and consumer experiences,” he said in a statement announcing the deal.
To put his ambitions in context, let’s consider an existing effort to boost the “community of makers” in San Francisco, a coalition called SFMade. I use it as an example of undertakings on behalf of small manufacturing in several North American cities. This example is different from Casey’s plans in its scale and its level of technology. But it is similar in its emphasis on speed as the key to manufacturing success, and its ambition to help large enterprises grow from small start-up roots.
The Bay Area might seem to display all of America’s imbalances, intensified. Tech and venture-capital billionaires on the Peninsula, hipsters in the East Bay and the city, rich naturalists in Marin, and ordinary families priced out of anything not a distant commute away. Of course, this is a caricature, but it is one that matches the prevailing rest-of-the-world view of a hollowed-out and unequal modern United States.
Into the standard American urban mix—high-end tech and finance, low-end service or tourist work, the professional class from universities and hospital complexes—has come an unlikely renaissance of small-scale manufacturing in the past five years. There is no point in comparing it with anything in China. The 400 manufacturing firms that have factories in San Francisco and are part of the SFMade coalition employ a total of just over 3,000 people, equivalent to a busy week’s intake at Foxconn’s Longhua campus. Apart from the 100-employee LeeMAH electronics firm, founded by an immigrant from China, their products are mainly medium- and low-tech: apparel, high-end food and drink, bags and accessories. This pattern will be familiar to anyone who has followed the growth of light manufacturing in Brooklyn. In San Francisco, more than 120 of the firms were founded during the past three years of overall economic distress; their employment base grew by 10.5 percent last year and 12.5 percent this year; and they have applied in their modest way the principle of drawing on a local base of skilled workers for very fast response to global consumer demand.
“Most of the companies that are here would argue that, while they are not super-duper high-tech, they are all absolutely connected to the design prowess and skilled craftworks in the city,” Kate Sofis, the executive director of SFMade, told me. The most obvious example is apparel. Like New York, Chicago, Cleveland, and Los Angeles in their periods of fastest manufacturing expansion, San Francisco has attracted a large and diverse immigrant population. “The Latino and Asian communities have a high level of apparel skills,” Sofis said. “A young designer might have high design skills but not the technical ability to realize it.” Going to Asia for production would be too slow; finding the skills elsewhere in the U.S. would be too hard. Carrying out all operations locally has allowed many SFMade companies to offer quick “mass customization”: Rather than buying off the rack, a customer can choose personalized clothing, accessories, furnishings, or furniture, mainly online. Then small factories produce the goods locally, faster than they could come from overseas. I spoke with Sofis just before she headed to a conference of the Urban Manufacturing Alliance, which promotes manufacturing in 15 other cites, from Boston and New York to Detroit and Atlanta.
I first learned of SFMade two years ago, via DODOcase, a member that is one of the city’s start-up success stories. I had bought one of the company’s iPad covers as soon as it came onto the market, because I was drawn to its distinctive retro-futuristic design. Inside, the case contains an iPad or other electronic reader. Outside, it looks like an ant
ique leather-bound book. A bamboo frame holds the electronic tablet in place and also strangely recalls the look of the page edges of a physical book.
“Back in 2010, we saw an opportunity present itself, if we could move quickly enough,” Craig Dalton, a veteran of tech start-ups who is now in his early 40s, told me in explaining the company’s history. I liked that he said “back in 2010” so matter-of-factly. The opportunity that 2010 brought was the launch of the first iPad. Liam Casey got his start making accessories for the popular electronic devices of 15 years ago. Dalton and his business partner, Patrick Buckley, did not know Casey’s story, but they saw a parallel chance.
“The Kindle and other e-readers were already getting noticed,” Dalton told me. “The writing was on the wall, you could say, that there was going to be this shift from ink and paper to electronics as the way people consumed information. We felt there was an opportunity to connect people to the physical experience of picking up a book, and to the soon-to-be-dying craft of bookbinding.” Buckley, who is in his early 30s, had trained as a mechanical engineer at MIT and worked in laser physics at Lawrence Livermore National Laboratory, and had grown up with several relatives who worked in New York’s publishing industry.
When he asked friends at Levi’s, Buckley said, they told him that nine months would be a reasonable timeline to take a product from concept to delivery. “We had to do it in a couple of weeks. Nimbleness like this would be impossible with a longer supply chain.” The partners drew on local woodworking and bookbinding talent. “The resources are still here, much atrophied, but in pockets,” Buckley said. San Francisco has a long tradition of fine printing. Dalton and Buckley bought large, heavy bindery machines from printing houses and brought them into their factory.
DODOcase is a niche success, to be sure. But it has grown to 30-plus employees in two years, with 30 percent of its sales outside the United States, and its founders have broad ambitions. “If you look at brands like Levi’s and Gap and North Face that had their beginnings here in S.F., you see that a small boutique idea can grow into a global brand,” Buckley said. “It is very hard to tell ahead of time which ones will make it, but we hope to become a lifestyle brand with the recognition and scale of a Gap.”
I have learned to imagine the possibility of rapid growth. I first interviewed the founders of Google when the company had 20 employees, versus today’s 30,000, and visited Apple three years after its founding, when it had a few hundred employees rather than today’s 60,000. Big things start small.
Mr. China Comes to America
The medium-tech start-ups of SFMade (and its counterparts) are working out a strategy that combines quick response, local skills, and a global marketplace to foster manufacturing in U.S. cities. Liam Casey’s new investments in the Bay Area are designed to apply a similar model for companies several steps up the technology ladder. The purchase of Lime Lab and the opening of what he sees as an academy of high-speed manufacturing in the city could combine to bring to U.S.-based entrepreneurs, inventors, designers, and smaller companies some of the advantages now unique to Apple and a handful of other globally integrated firms—and with a greater probability than Apple’s of creating jobs in the United States.
The heart of those advantages is, again, connecting the sequential stages of the manufacturing cycle as a whole. The process naturally starts with the idea for a product. Whether the idea is practical depends crucially on how it is realized in industrial design; whether that design makes for an efficient or impractical factory experience depends on how well it is matched to process-engineering on the shop floor. Even after production begins, the design is often refined and the manufacturing process rejiggered based on real-world experience.
The closer this linkage, the faster and more efficiently an idea can be converted to tangible, marketable reality. The more evolved and responsive the feedback loop, the more precisely an organization will be able to distinguish promising projects from impractical ones. Apple has this capacity; it has teams on more or less permanent assignment to southern China to match its designers’ goals to the realities of the shop floor. But for the first time in decades, new tools are making it possible to develop this capacity for U.S. manufacturing. This means greater prospects for American innovators to convert their ideas into products—and jobs. That is what’s new, and promising. As one entrepreneur told me, asking not to be named for fear of irritating the mighty Apple, “What Apple has, internally, will now be available to smaller companies.”
In specific terms, the service that Lime Lab and a growing number of design firms can offer is a “quick iteration” way of deciding which ideas will be most practical for manufacturing. “Over the past couple of years, people have gotten used to the idea of rapid iteration in social-media firms,” Linus Chung told me. “You iterate and adapt quickly based on consumer demand. You learn to ‘fail fast.’ We’re bringing that to the hardware space.” As an illustration, he mentioned a start-up called Lark, which makes electronic sleep- and fitness-monitoring devices that are part of the broader trend toward precise, individualized indicators of health that Mark Bowden discussed recently in “The Measured Man” (July/August 2012). Lark was founded two years ago, while the overall economy was still reeling, by a Stanford-trained entrepreneur named Julia Hu. Many of its products, the latest of which is a $149.99 wristband that monitors your sleep, exercise, calorie-burning, and even degree of hydration, are now carried at Apple stores and by Best Buy and Brookstone. The electronics in this wristband are assembled in China, as are nearly all of the world’s electronics. But more of the total job growth in the company’s rise, including engineering and design work, has been in the United States than would have been the case even way back in 2009. “They started with five people, and now they have 30,” Chung, who has worked with Lark, told me. “For a company their size, you’d expect they’d need half those people in China. Now that entire team is one office in the United States.”
Fifteen additional employees here, a new urban start-up there—these are obviously not the sole answers to America’s reindustrialization. The growth of this sort of activity depends on large-scale policies: continued national investment in high technology; education to train the next generation of engineers and craftsmen; negotiations to open up markets (and protect intellectual property) around the world. The politically controversial, but right, decision to keep General Motors operating saved hundreds of thousands of manufacturing jobs from being needlessly lost.
January 7, 2013
Perhaps this idea isn’t all that new; it’s just a timely reminder that we can become more strategic with our spending.
My father-in-law announced to the family several years ago that he was only interested in giving and receiving gifts that were made in the U.S. Frustrated by the prospect that we’re no longer globally competitive in many manufacturing sectors, he insisted we avoid items made in China — or anywhere else for that matter.
That year he gave each family member an envelope with a crisp, uncirculated Franklin ($50) for Christmas. Thankfully, the Treasury still prints those here in the U.S.
Most of us made an honest effort but found the exercise quite taxing. It’s hard enough to find just the right gift, and then you find that it has been manufactured elsewhere.
Perhaps this issue requires deeper thought and more critical analysis. On a monthly basis we hear of wild swings in unemployment numbers. The rates for new claims go up; then they go down. But basically the rates have hovered around 8 percent for far too long.
There is no argument that creating and saving jobs is in our best interest. The hard question is which jobs to save and, most importantly, discovering the jobs to be created through entrepreneurial exploits.
There are a fair number of critics — even economists — of this “buy American” push who claim there’s nothing American about it. Their contention is that we should buy American only so long as it’s the best price and not simply to create or sustain jobs.
Economics tries to take consumer emotion out of the equation and keep things simple. There is a supply and demand curve applied to the manufacture of a particular good that identifies the likely quantity of demand at a particular price point. And the incentive to producers is in the anticipated profit margins gleaned through efficiencies and their manufacturing capacity.
And in the end, the economics will argue that each economy would be better off producing and manufacturing those products for which there is a competitive advantage. These advantages include an abundance of ingredients, such as access to raw materials, labor, technology and transportation.
We’re really talking about product differentiation when we promote “made in America” through a campaign meant to create or save jobs. And this is squarely a marketing function. If we can feel better about ourselves because we’re helping our fellow citizens by buying certain items, then we can argue for a premium — just as we would for purchase of a product that comes with a better warranty or in one’s favorite color.
But how long will this work? Is this truly sustainable in the long run?
David R. Henderson, who is an economist at the Hoover Institution, explained it this way in an interview with John Stossel:
“Almost all economists say it’s nonsense. And the reason is: We should buy things where they’re cheapest. That frees up more of our resources to buy other things, and other Americans get jobs producing those things,” Henderson said.
Since we are competing globally, it makes no economic sense for us to continue manufacturing products that are no longer viable in the global marketplace. Americans need to continue to create jobs based on innovation and new ideas.
“A huge part of the history of mankind is an increase in the division of labor. And that division of labor goes across national boundaries,” Henderson said.
Whether you believe spending $64 on products “made in America” will make a difference for job creation, I believe more meaningful jobs will be created in our economy as the result of innovation and entrepreneurial endeavors. I wonder how I’ll spend this year’s crisp new Franklin.
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