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How American Excess is Destroying Lives Overseas

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by: Zainab Akande
Check the tag of the clothes you’re wearing, either now or sometime after you read this article. There is always small printed text that informs the customer where that item of clothing was made. More often than not, the name of some far away country completely unrelated to our daily lives is listed. The one we Americans are probably most familiar with is the one that reads MADE IN CHINA. But we are going to begin with Bangladesh.
Bangladesh is a country located in South Asia, a part of the Bengal region bordering India and Myanmar (Burma). It is one of the most populated and densely populated countries in the world; high rates of poverty are a major problem among other human rights issues.

Just last week, a clothing factory in the country collapsed, with the body count now at over 500. Police have arrested the building’s engineer, who claimed the building was unsafe as-is, but allegedly played a part in adding three more floors to it regardless. The clothing factory itself was a station that produced American goods on the cheap cheap for large business chains such as J.C. Penny, Walmart, and H&M, to name just a few. This recent event has placed a lens of scrutiny under Western retailers for outsourcing cheap labor, but cheap labor overseas has always been an issue. It is American business and consumption that are driving forces behind the dismal conditions of oversea factories. Of course, it’s a reality that most businesses want to keep quiet and it’s something we may have heard in passing but want to ignore—because changing our shopping habits entirely would be a pain.

On the flipside, Bangladesh’s problematic clothing industry makes up for 80% of its exports.

Let’s pause for a moment and talk about China.

Back in February, I wrote a piece on how Chinese New Year celebrations were dampened by the country’s ongoing smog crisis. Since then, smog levels have not gotten any better. They’re hitting nearly decade-level highs in Hong Kong and ruining chances at a healthy upbringing for children growing up in urban cities. Goodness forbid if we were faced with these types of environmental hazards across America — but since it’s China, the average American could probably care less. But why is it that China is so steep in air pollution? Because of all its factories — and what are those factories producing? Cars that Americans drive, clothes that Americans wear, toys that American children play with, computers that Americans type with, the list goes on and on. The kicker is that this production occurs in the same sweatshop, underpaid conditions as Bangladesh, Haiti, the Dominican Republic, and other places.

In light of the Bangladesh factory collapse, Disney is pulling from developing countries all over, but such drastic movement leads to a loss in jobs. What companies can do is flex their financial muscles and influence for an improved quality of work conditions overseas. Then again, that requires time, effort and resources — three elements that American companies probably aren’t aiming for in their desire to get their goods produced quickly, cheaply, and exported for more than a worker’s measly paycheck.

What we can do as consumers in order to shop more ethically is to research and spread the word. It’s our duty as consumers of these products to speak loud for the voices that suffer to provide for us.

SOURCE:  PolicyMic.com

About the writer:
Zainab is an undergraduate student born and raised in New York City, studying mass communications and journalism at the University of Delaware graduating in May 2013. Her interests include politics, fashion, writing, the media arts, travel, unhealthy doses of pop culture, intersectionality, and cultural criticism. She has written for university’s school newspaper, The Review, in addition for the Intellectualyst, a progressive online newspaper. Currently, she is a writing intern at PolicyMic. In 2011, Zainab assisted in research with University of Delaware’s Dr. Danilo Yanich which has since then been studied by the Federal Communications Commission and discussed in the New York Times. She is a member of three national leadership and honor societies. Currently her passions lie in the BBC rendition of Sherlock, philosophy, blogging, and books. Blog: In Medias Res

The End of Outsourcing?

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After years of building what they hoped would boost profits by enhancing overseas operations, many U.S. manufacturers have become disillusioned by the lack of return on investment they had anticipated. Instead of finding cost-saving benefits overseas through outsourcing, they are finding headaches, which have spurred a growing number of American companies to head home and build upon the sturdy and sure bedrock of American stability and predictability.
This trend has come to be known as “nearsourcing.” It has been defined in professional publications as “producing products closer to where they are ultimately sold” or “the practice of getting work done or services performed in neighboring countries rather than in your own country.”Jimmy Alyea, writing for Supply Chain Analysis, provides an overview of some of the advantages American companies accrue when they move operations back home:

“The advantages of reversing low-cost supply chain strategies and embracing nearsourcing are many, including: no time-zone differences or lag time that prevents real-time communication and collaboration, fewer language and cultural barriers, lower business traveling costs to plan and oversee projects and work, shorter time to market in the case of manufacturing and reduced inventory holdings because of shortened transit times. Nearsourcing also supports the increased focus by firms on the importance of customer accommodation and fulfillment in order to achieve a strategic competitive advantage. Ultimately, a well-run, shortened supply chain is in large part dependent upon a firm’s logistical expertise.”

Many American manufacturers that have moved operations abroad have experienced a rude awakening.
American manufacturers that have moved operations to countries such as China and India have found themselves in for some rude awakenings, according to Jack Stack of The New York Times.“These countries usually require importers to pay for their goods up front and wait 90 days for the product. It also takes about 90 days to receive payment once an importer sells its product to a retailer. By the time the retailer sells the product and remits payment to the importer, it may take nine months or longer for a business to receive payment for outsourced goods. On the other hand, domestic manufacturers usually produce goods first and allow the client 60 days to remit payment. Thus, the company using nearsourcing receives an interest-free loan and payment from customers right about the time it pays the manufacturer.”
Then there is the realization by American manufacturers that were lured to foreign countries in search of cheap labor that while labor rates are rising (wiping out any labor cost advantages), they face the scourge of corruption, gripping poverty, hostile labor unions, crony courts, runaway intellectual property theft, inefficient labor, massive infrastructure deficiencies, skewed investment laws, security concerns, environmental meltdowns and host governments that expect strict adherence to their unfair and onerous rules and regulations.I recently reviewed a copy of Drewry Shipping Consultants’ Insight publication, which predicts that nearsourcing will increase, greatly tied to the uncertain growth rate of Internet shopping, for which consumers will soon demand same-day delivery. This will make it nearly impossible for companies that don’t have a domestic operational source to meet these shipping demands.

In its report, Drewry notes that after speaking to many shippers, the anecdotal evidence points to a significant increase in nearsourcing. “The trend is escalating for reasons that are easy to understand. Retailers need to offer more ‘made to measure’ goods that can be delivered to market a lot faster than from Asia. For example, a car or computer with a limited range of options doesn’t sell as well as models that can be sourced from closer to home with a wider range of cheap extras.”

American manufacturers and retailers are getting the message about the benefits of nearsourcing. U.S. retailers, in particular, are finding that they need to decrease cycle times, making it easier to constantly refresh merchandise. This keeps customers coming back into the store more often because they’re afraid of missing out on a new product.

Retailers from Target to The Children’s Place have discovered the advantages of nearsourcing. And in January of this year, Wal-Mart announced that it is increasing the sourcing of U.S. products by $50 billion over the next 10 years, hoping to boost U.S. manufacturing and jobs.

Manufacturers are also being reminded that U.S. labor is very flexible with a wide range of technical skills. This is accentuated by America being by far the choice destination of highly skilled immigrants. We must remember that legal immigration has always been essential to keeping America strong and vibrant. Attracting the world’s best talent must remain an important component of our economic growth strategy.

America is finding its sea legs when it comes to restoring our economy by boosting domestic manufacturing. A survey of 750 senior business executives worldwide, conducted in late 2012 by Ernst & Young, showed the number of executives that plan to nearsource previously outsourced activities will more than double in the next three years, from 14 percent to 35 percent.

For the American economy to recover and create jobs for 26 million unemployed or under-employed Americans, we all need to pull together. And that means U.S. manufacturers must demonstrate a commitment of reducing outsourcing and adopting nearshoring approaches to their businesses. There still is no stronger seal of approval throughout the world than when a product can proudly carry the stamp: Made in America.

A Return to Made in America: Why Manufacturing is Making a Comeback

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By Brad Plumer
It’s hardly news when a U.S. firm moves its manufacturing operations abroad to China. But what about when a Chinese company sets up a factory in the United States?

That happened in January, when Lenovo, a Beijing-based computer maker, opened a new manufacturing line in Whitsett, N.C., to handle assembly of PCs, tablets, workstations and servers.The rationale? The company is expanding into the U.S. market and needs the flexibility to assemble units for speedy delivery across the country, says Jay Parker, Lenovo’s president for North America.But also — and this was crucial — the math added up. While it’s still cheaper to build things in China, those famously low Chinese wages have risen in recent years. “We reached the point where we could offset a portion of those labor costs by saving on logistics,” Parker says.

U.S. firms that have long operated abroad are making similar moves: Caterpillar, GE and Ford are among those that have announced that they’re shifting some manufacturing operations back to the United States. And economists are debating whether these stories are a blip — or whether they signal the beginning of a major renaissances for American manufacturing.

It’s easy to be skeptical. So far, the effect on jobs has been modest. Since January 2010, the United States has added 520,000 manufacturing jobs — and of those, 50,000 have come from overseas firms moving here, according to the Reshoring Initiative, an industry-led group. (That includes 115 in the new Lenovo plant.) That’s a decent number, but it pales beside the 6 million factory jobs that the Bureau of Labor Statistics says vanished between 2000 and 2009.

Yet the optimists counter that the logic of a coming renaissance is impeccable. Besides the shrinking wage gap between China and the United States, the productivity of the American worker keeps rising. And the surge in shale gas drilling gives the United States a wealth of cheap domestic energy to bolster industries such as petrochemicals.

All that could combine to make U.S. factories more competitive in the years ahead, not just with Europe and Japan, but with the manufacturing behemoth inChina. This shift likely won’t mean the United States will have 19 million manufacturing workers again, the way it did in the 1980s. For one thing, automation is still a powerful force. And the types of jobs that come back will be different from the ones that vanished. Still, any significant uptick in domestic manufacturing after a decades-long decline could bolster the economy and spur innovation.

“I think it’s fair to say this hasn’t all registered in the data just yet,” says Scott Paul, the president of the Alliance for American Manufacturing. “But we’re starting to lay the groundwork where we’ll start to see a real effect three to 10 years from now.”

Laying the groundwork

So what does that groundwork look like? For many analysts, the narrowing of the wage gap between China and the United States is the most significant factor.China has been getting wealthier, and its factory workers are demanding ever-higher wages. Whereas the gap in labor costs between the two countries was about $17 per hour in 2006, that could shrink to as little as $7 per hour by 2015, says Dan North, an economist with Euler Hermes, a credit insurer that works with manufacturers.

“If you’re a U.S. company and the advantage is only $7 per hour, suddenly it may be worth staying home,” North says. “If I stay here, I have lower inventory costs, lower transportation costs. I’m closer to my market, I can have higher-quality production and I can keep my technology.”

This notion appears to be catching on. In February 2012 survey from the Boston Consulting Group (BCG), 37 percent of U.S. manufacturers with sales above $1 billion said they were considering shifting some production from China to the United States. The factors they pointed to were not only that wages and benefits were rising in China, but the country is also enacting stricter labor laws and experiencing more frequent labor disputes and strikes.

“Companies are realizing it’s not as easy to do things in China as they thought,” says Hal Sirkin, a senior partner at Boston Consulting Group who has been predicting the convergence of labor costs since 2011.

The flip side is that American workers are becoming more attractive — for a mix of reasons. Worker productivity has been rising steadily over the years. Also, BCG says, the decline of U.S. organized labor is luring companies home, particularly to the nonunion South. Unions, for their part, have often responded by allowing wages to fall in order to keep jobs in the United States. Ford started bringing back production from China and Mexico after an agreement with the United Auto Workers let the company hire new “second-tier” workers at lower wages.

As a result, Sirkin’s research at BCG suggests that some industries could slowly migrate back from China. That includes industries such as plastic and rubber, machinery, electrical equipment and computers and electronics.

Nor is it just China. BCG also found that the United States is on pace to have lower manufacturing costs than Europe and Japan by 2015. Already, companies in those regions have been moving production here. Nissan, Honda, and Toyota are ramping up their exports from the United States. In 2008, Ikea opened a new furniture factory in Danville, Va., to cut shipping costs. The European aerospace company Airbus has just broken ground for a new factory in Mobile, Ala.

America’s glut of cheap natural gas from shale fracking is also attracting its subset of industries. Factories being built in Texas and Pennsylvania will convert natural gas into ethylene, a key ingredient in plastics and antifreeze. An Egyptian company, Orascom Construction, is building a $1.4 billion fertilizer plant in Iowa near a natural-gas pipeline.

Most of the evidence that “reshoring” is happening is anecdotal, and there’s a limit to how far it is likely to go. For one thing, North says, the industries most reliant on cheap labor — including textiles and mass-produced clothing — will likely never return to the United States. Moreover, China has built up a formidable manufacturing infrastructure that will keep many companies there, even as labor costs shift.

“Chinese suppliers have now developed dense supplier networks that now have their own capabilities for introducing new products,” says Suzanne Berger, a political science professor at the Massachusetts Institute of Technology who studies manufacturing. “And, of course, China is a market that’s growing extremely rapidly — so many companies will want to stay in close proximity to those customers.”

But the early signs are notable. Sirkin points out that his model of labor costs didn’t predict that companies would start coming back to the United States until 2015: “We’ve already seen more movement than we expected.”

Industry has changed

Policymakers’ efforts to bolster domestic manufacturing, however, will have to take into account how dramatically the industry has changed since the 1980s.

In a recent report, an MIT task force described how the U.S. manufacturing landscape is no longer dominated by large firms such as Dupont, IBM and Kodak that could handle every aspect of production themselves. Instead, the future of manufacturing will consist of smaller firms that may not always have enough money to train workers, commercialize new products and procure financing on their own.

“There are these holes in the ecosystem, and we have to think of another way to provide all these capabilities if we want to see manufacturing revived,” says Berger, a co-author of the report.

Some firms have partnered with local universities or governments to develop these capabilities, she says. In Rochester, N.Y., for instance, the demise of Kodak meant that there was no longer a dominant company paying to train new skilled workers. So smaller firms in the optics industry banded together to plan new community college curricula and fill the gap.

In New York, the state government has tried to support semiconductor manufacturing by bringing together private firms, research labs and degree programs to share common facilities, expensive equipment, training and research.

The Obama administration is spending $1 billion to fund similar hubs around the country. The first is the National Additive Manufacturing Innovative Institute in Youngstown, Ohio, which will focus on the development of 3-D printing and other processes for manufacturing objects from digital models.

According to the MIT report, such partnerships have the potential to be far more effective than the old model of handing out tax breaks for manufacturers. That’s because they don’t leave a state or locality at the mercy of a single firm that could leave at any time.

How many jobs will return?

There’s also the key question of how many jobs are likely to come back. The United States has 11.9 million manufacturing employees, and experts tend to agree we’re unlikely to see a return even to the much-diminished levels of the 1990s, when there were more than 17 million factory positions.

President Obama has set a more modest goal of 1 million new manufacturing jobs by the end of his second term. But Paul of the Alliance for American Manufacturing says the country is behind pace to achieve even that “reasonable goal.”

The new manufacturing jobs, meanwhile, will also be different from the jobs of old. For one, many plants are now setting up in the nonunion South, and organized labor has largely been shut out of the manufacturing renaissance. On balance, all of the job gains since 2009 have been nonunion. And, unlike 30 years ago, manufacturing jobs no longer have higher average annual earnings than the typical private-sector worker.

At the same time, technological advances will continue to displace factory jobs in the United States and elsewhere. Germany and China — two manufacturing titans — are slowly losing positions because of automation. A report last fall by the McKinsey Global Institute found that the price of robots relative to the cost of human labor has fallen 40 to 50 percent since 1990, and that trend is expected to continue.

Paul, however, points out that Germany has lost jobs at a much slower pace than the United States over the past decade, which suggests that there’s room for improvement. “There’s nothing inevitable about the sort of steep declines we’ve seen here.”

What’s more, experts point out that there are still plenty of other advantages to bringing manufacturing back home. Manufacturing firms tend to spend more on research and development than other businesses, and recent research has focused on the fact that the act of building things can lead to key innovations. Procter & Gamble and Gillette are two companies known for their run-of-the-mill products — diapers and razors — that have turned innovations in the manufacturing process into a key part of their business.

What’s more, the MIT report says, manufacturing can be a potent driver of other service-industry jobs. A small company in Ohio that makes protective sleeves for pipelines, say, will be in a good position to offer technical support for oil platforms and other companies.

“We have the wrong picture if we think on the one hand there’s manufacturing and on the other hand services,” Berger says. “And the idea that we’re going to just go from one to the other is wrong. Almost all valuable things are some bundle of manufactured goods plus services attached.”

SOURCE:  Washington Post
What is Made in America Worth? More than you might think!

What Is ‘Made in America’ Worth?

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Probably more than you think. As more manufacturing returns to U.S. shores, early signs show that a “Made in America” label is a serious competitive advantage.

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Those Manufacturing Jobs Aren't Coming Back You Know, Not Ever

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Every country has them, those who say that the only thing wrong is that there aren’t enough people making enough things that can be dropped on their feet. That everything would be better if we could just have more of those good old manufacturing jobs.

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More Manufacturing Work Returns to U.S. Shores

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Wage pressure in China transportation costs push U.S. companies to shift production back home.
In the corner of a manufacturing plant in St. Charles, a dozen workers steadily assembled electric motors that, until December, were produced in China.

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U.S. Manufacturing, Household Spending Probably Rose

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Economists said before a report today that manufacturing probably picked up in the U.S. in March, showing it is weathering a slowdown in global growth. The Institute for Supply Management’s factory index climbed to 53 from 52.4 in February, according to a median estimate of 55 economists surveyed by Bloomberg News. Readings greater than 50 signal growth. Construction spending rose in February, other data may show.

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The Great Reversal: Playing the U.S. Manufacturing Boom

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Picture Playing the U.S. Manufacturing Boom 

Written by: Jack Hough for The Wall Street Journal
Jack Hough is a columnist at SmartMoney.com
Email: jack.hough@dowjones.com 

Investors who have favored emerging markets like China in recent years should pay attention to another growing manufacturing center. It boasts plenty of skilled workers; cheap and abundant energy; stable institutions; and a large middle class that likes to shop.

It is the U.S., where a long industrial decline might be in reverse.

In March, manufacturing expanded for the 32nd straight month, and contributed 37,000 of the 120,000 U.S. jobs added, the government reported. That’s partly because of the ongoing recovery from the Great Recession. But the economy is also changing.

Manufacturing’s share of gross domestic product plunged to 11% in 2009 from 26% in 1947, according to the Commerce Department. In 2010, it rose to 11.7%—the biggest yearly gain in more than 50 years. The 2011 numbers will be released on April 26, and the anecdotal evidence is promising; companies like Caterpillar,CAT -2.17% Ford Motor F -2.00% and NCR say they are moving some operations back to the U.S.

Three trends suggest America’s “manufacturing renaissance” is just getting started, says Neil Dutta, U.S. economist at Bank of America Merrill Lynch. First, the cost advantages of outsourcing factory work are narrowing. Emerging market wages, while still much lower than U.S. wages, are rising, and high oil prices have made shipping more expensive. That is expanding the range of goods U.S. factories can produce at competitive prices (think sophisticated machines, not toys).

Second, a weakening dollar makes U.S. goods more attractive to foreign buyers. The dollar has fallen by nearly one-third over the past decade against a basket of currencies including the euro, British pound and yen.

Third, energy production is booming in the U.S., and domestic natural-gas prices have recently plunged. That gives an edge to U.S. producers of fabricated steel, transportation equipment, machinery and chemicals, which use natural gas extensively, according to a recent report from Citigroup C -2.36% .

Of course, a sudden rise in the dollar or a spike in natural-gas prices or wages could slow U.S. manufacturing gains. But for now, at least, that scenario appears unlikely. Wall Street expects earnings for the S&P 500 industrial sector to rise 13% this year, versus 9% for the broader index.

There are several ways to invest in the U.S. manufacturing resurgence. An index fund that tracks the Standard & Poor’s 500-stock index has a 10.6% weighting for industrials. Investors should try to increase their allocations to about 16%, says Chuck Severson, a portfolio manager at Baird Investment Management.

Mr. Severson prefers U.S. companies that supply manufacturers, because they stand to gain from a broad rise in factory activity. His favorites include Danaher, a conglomerate with an industrial technology division; Roper Industries, whose pumps and valves are used in factories and refineries; and industrial suppliers W.W. Grainer and Fastenal.

BofA’s Mr. Dutta, meanwhile, favors U.S. companies whose goods and services are used to automate and monitor factories. Examples include Rockwell Automation and Emerson Electric.

U.S. Steel and Nucor are the largest U.S. steelmakers, and analysts say both can reduce their domestic production costs by switching from coal to natural gas where possible.

Jerry Swank, founder of Swank Capital, a Dallas investment firm specializing in energy, says U.S. chemical makers such as Dow Chemical and DuPont should profit from turning natural-gas liquids into materials used in fabrics, pipes, food packaging and other items.

Exchange-traded funds also offer easy exposure, notes Jeff Sica, president of Sica Wealth Management in Morristown, N.J. Vanguard Industrials and iShares Dow Jones U.S. Industrial Sector cost $19 and $47 a year per $10,000 invested, respectively, plus trading commissions. Both count General Electric as GE -1.49% their largest holding. The Guggenheim S&P 500 Equal Weight Industrials is more spread out among smaller companies. It costs $50 a year per $10,000 invested, plus trading commissions.

When it comes to U.S. manufacturing, says Kristina Hooper, head of portfolio strategies at Allianz Global Investors, “It’s time to stop looking in the rearview mirror and start looking ahead.”

3 Reasons America Is Having A Major Manufacturing Renaissance

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Written by:  Sam Ro for Business Insider – Money Game
Contact:e-mail:sro@businessinsider.com
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America is making stuff again.The Wall Street Journal‘s Jack Hough wrote an article about the hot new idea economists are buzzing about: the American manufacturing boom.Hough spoke to Bank of America Merrill Lynch economist Neil Dutta who identified three trends that lay the foundation to a coming American manufacturing renaissance.

First, the cost advantages of outsourcing factory work are narrowing. Emerging market wages, while still much lower than U.S. wages, are rising, and high oil prices have made shipping more expensive. That is expanding the range of goods U.S. factories can produce at competitive prices (think sophisticated machines, not toys).Second, a weakening dollar makes U.S. goods more attractive to foreign buyers. The dollar has fallen by nearly one-third over the past decade against a basket of currencies including the euro, British pound and yen.Third, energy production is booming in the U.S., and domestic natural-gas prices have recently plunged. That gives an edge to U.S. producers of fabricated steel, transportation equipment, machinery and chemicals, which use natural gas extensively, according to a recent report from Citigroup.

Meanwhile, economist Tyler Cowen is out with a similarly-themed essay on America’s great export boom. He also cites three big bullish factors: Domestic energy, huge demand from growing emerging markets, and artificial intelligence that are helping to solve big manufacturing problems.

Bottom line: This is definitely a hot line of thinking across financial and academic circles.

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Manufacturing Jobs Still Matter, As Does the Dollar

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Published in today’s BUSINESS INSIDER Article by: Dean Baker, CEPR | Apr. 4, 2012, Dean Baker is the co-director of the Center for Economic and Policy Research Contact: Mr. Dean Baker Subscribe to his RSS feed
Eduardo Porter had an interesting column in the NYT discussing the future of manufacturing jobs in the U.S. economy and the role of trade. While the piece makes several valid points, it seriously underplays the importance of manufacturing jobs. Remarkably, it also does not discuss the trade deficit and the dollar.The piece is correct in saying that there is nothing intrinsically good about manufacturing jobs and that it makes little difference to manufacturing workers whether they lose their jobs to trade or productivity growth. Nonetheless, it is still true that manufacturing remains a source of relatively high-paying jobs for workers without college degrees. This may be the result of a historically legacy and higher than average unionization rates, but it is still the reality.The issue of trade is also important, because the loss of jobs as a result of trade deficit creates a situation that is in the long-run unsustainable. If the economy return to full employment we would have a trade deficit of close to 5 percent of GDP (@$750 billion a year). A trade deficit of this size logically implies negative national savings of the same magnitude. That means that we must have either negative private savings (i.e. households and firms have negative savings) and/or a government budget deficit that is equal to $750 billion a year.
Of course the main factor in determining the size of the trade deficit is the value of the dollar. If the dollar is over-valued by 15 percent, it means that our exports will cost roughly 15 percent more for people in other countries while imports will cost roughly 15 percent less for people living in the United States. There is no policy or set of policies that can have anywhere near as much impact on trade as the value of the dollar.This is why a discussion of the value of the dollar should be front and center in any discussion of trade. If the dollar were to fall by 10-15 percent, and bring trade back into balance, it would generate close to 5 million new manufacturing jobs in the United States. This would have an enormous impact on the labor market for less-educated workers.The article also includes a comparison of jobs that are subject to international competition and jobs that are not. This is highly misleading. Whether or not a job is subject to international competition is a matter of policy, not an intrinsic feature of the job. The fact that manufactured goods are widely traded is the result of long set of trade agreements over the last three decades that were deliberately designed to make it as easy as possible for U.S. firms to hire low-cost labor in the developing world and ship their production back to the United States. Our trade negotiators could have instead devoted their energies to make it as easier as possible for foreign students to train to U.S. standards as doctors, dentists, lawyers, economists or other professionals. There are tens of millions of very bright people in China, India, Mexico and elsewhere in the developing world who would be very happy to train to U.S. standards in these professions, including becoming proficient in English, and work in the United States for less than $100,000 a year. We do actually bring large numbers of foreign workers into the country in some occupations, but they tend to be low-paying ones. Immigrant workers are enormously important in farm work, restaurant and hotel work and residential construction. They would be equally dominate among physicians, dentists and lawyers if they faced as few barriers as they do to working in these low-paying occupations. The savings to U.S. consumers from this sort of expanded trade in professional services would be hundreds of billions of dollars annually in the form of lower health care costs, reduced university tuition and savings on all other products in which the cost of highly paid professionals is a major input. The reason that trade agreements did not take this route is that U.S. professionals have much more political power than manufacturing workers. As a result, they have been able to maintain barriers that largely protect them from competition with their counterparts in the developing and developed world. (U.S. professionals also make more than their counterparts in Europe.)
We are glad that Manufacturing Jobs Still Matter, how about you?

USA Manufacturing, Household Spending Probably Rose

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By Lorraine Woellert – Apr 2, 2012Manufacturing probably picked up in the U.S. in March, showing it is weathering a slowdown in global growth, economists said before a report today.The Institute for Supply Management’s factory index climbed to 53 from 52.4 in February, according to a median estimate of 55 economists surveyed by Bloomberg News. Readings greater than 50 signal growth. Construction spending rose in February, other data may show.

“Manufacturers are benefiting from a variety of positive catalysts, including the need to replace a fleet of motor vehicles,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. “And we just haven’t got back to the previous peak in inventory that should benefit the sector and the national economy for some time.”

Increased auto sales, sustained corporate purchases of equipment and inventory rebuilding are underpinning the industry that led the U.S. out of the recession more than two years ago. At the same time, less demand from overseas customers remains a risk for manufacturers, which account for about 12 percent of the economy.The Tempe, Arizona-based ISM’s manufacturing report is due at 10 a.m. New York time. Estimates ranged from 51.7 to 54.5. The gauge averaged 55.2 in 2011 and 57.3 a year earlier.Also at 10 a.m., the Commerce Department will release data on construction spending. Economists project a 0.7 percent gain after a 0.1 percent January decrease, according to the Bloomberg survey median. Forecasts ranged from a drop of 0.6 percent to an increase of 1.5 percent.

Regional DataRegional reports reinforce the strength of manufacturing. New York-area factories grew in March at the fastest rate since June 2010 and manufacturing in the Philadelphia region expanded the most in almost a year, figures from the Federal Reserve showed.

While companies are investing in new equipment, a stronger labor market is giving households the means to purchase big- ticket items, benefiting companies like motor-home maker Winnebago Industries Inc. (WGO)

“We’re beginning to see positive signs that the economy is improving,” Randy Potts, chief executive officer of the Forest City, Iowa-based company, said on a March 15 conference call. “Consumer confidence has been trending higher and the jobless rate is improving.”

Manufacturing shares have outperformed the market. The Standard & Poor’s Supercomposite Industrial Machinery Index (S15MACH), which includes Caterpillar Inc. and Deere & Co., advanced 16 percent since the end of 2011 through March 30, compared with a 12 percent increase in the broader S&P 500.

Auto SalesLight-vehicle sales in March, set for release tomorrow, may have run at a 14.6 million seasonally adjusted annual rate, the average estimate of analysts surveyed by Bloomberg. It would cap the strongest quarter since the first three months of 2008, according to Ward’s Automotive Group statistics.

A report last week showed orders for non-defense capital goods excluding aircraft — a proxy for business investment in items such as computers, engines and communications gear — increased 1.2 percent in February.

Business spending on equipment and software climbed at a 7.5 percent pace in the final three months of 2011 after a 16.2 percent surge in the prior quarter, according to the latest Commerce Department data on gross domestic product.

The growth helps explain why companies like Deere & Co. (DE) are expanding. The world’s largest maker of agricultural equipment said March 1 that it would invest $70 million to expand tractor production in Waterloo, Iowa.

Fed’s BernankeFederal Reserve Chairman Ben S. Bernanke said last week that while he was encouraged by the recent decline in the unemployment rate, a further reduction will probably require a quicker expansion of business production and consumer demand, which “can be supported by continued accommodative policies,” he said.

Recent “better news” on the U.S. economy has also included strength in manufacturing, Bernanke said. The improvement could contribute to higher consumer confidence and lead to a self-sustaining recovery, he said. “We haven’t seen that in a persuasive way yet,” Bernanke said in a speech in Arlington, Virginia.

USA Manufacturing, Household Spending Rose

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To contact the reporters on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz in Washington at cwellisz@bloomberg.net

Can Manufacturing Jobs Come Back? What We Should Learn From Apple and Foxconn

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David Paul – President, Fiscal Strategies Group  –  Posted: 02/13/2012 8:30 amApple aficionados suffered a blow a couple of weeks ago. All of those beautiful products, it turns out, are the product of an industrial complex that is nothing if not one step removed from slave labor.

But of course there is nothing new here. Walmart has long prospered as a company that found ways to drive down the cost of stuff that Americans want. And China has long been the place where companies to go to drive down cost.

For several decades, dating back to the post World War II years, relatively unfettered access to the American consumer has been the means for pulling Asian workers out of deep poverty. Japan emerged as an industrial colossus under the tutelage of Edward Deming. The Asian tigers came next. Vietnam and Sri Lanka have nibbled around the edges, while China embraced the export-led economic development model under Deng Xiaoping.

While Apple users have been beating their breasts over the revelations of labor conditions and suicides that sullied their glass screens, the truth is that Foxconn is just the most recent incarnation of outsourced manufacturing plants — textiles and Nike shoes come to mind — where working conditions are below American standards.While the Apple-Foxconn story has focused attention on the plight of workers living in dormitories who can be summoned to their work stations in a manner of minutes, the story has also become part of the debate about whether the U.S. should seek to bring back manufacturing jobs or should instead accept the conclusions reached by some economists that not only does America not need manufacturing jobs, but it can no longer expect to have them.

Nobel laureate Joseph Stiglitz argued recently that our difficulties recovering from the 2008 collapse are a function of our migration from a manufacturing to a service economy. While this migration has been ongoing for years, Stiglitz has concluded that the trend is irreversible. His historical metaphor is the Great Depression, which he suggests was prolonged because the nation was in the midst of a permanent transition from an agrarian economy to manufacturing, as a revolution in farm productivity required a large segment of the labor force to leave the farm.

The problem with this deterministic conclusion that America can no longer support a manufacturing sector is that it seems to ignore the facts surrounding the decline that we have experienced. In his recent article, Stiglitz notes that at the beginning of the Great Depression, one-fifth of all Americans worked on farms, while today “2 percent of Americans produce more food than we can consume.” This is a stark contrast with trends in the U.S. manufacturing sector. Manufacturing employment, which approximated 18.7 million in 1980 has declined by 37%, or 7 million jobs, in the ensuing years. However, the increase in labor productivity over that timeframe — 8% in real terms — explains little of the decline. Unlike the comparison with agriculture, where we continue to produce more than we consume, most of the decline in manufacturing jobs correlated with the steady increase in our imports of manufactured goods and our steadily growing merchandise trade deficit.

The chart below, based on data from the Bureau of Economic Analysis, illustrates the growth in personal spending on manufactured goods in the United States over the past three decades, and the parallel growth in the share of that spending that is on imported goods. These changes happened over a fifty-year period. Going back to the 1960s, we imported about 10% of the stuff we buy. By the end of the 1970s — a period of significant declines in core industries such as steel and automobiles — this number grew to over 25%. As illustrated here, the trend continued to the current day, and we now import around 60% of the stuff we buy.

Over the same timeframe, as illustrated below, the merchandise trade deficit — the value of goods we import less the value we export — exploded. By the time of the 2008 collapse, the trade deficit in manufactured goods translated into 3.5 million “lost” jobs, if one applies a constant metric of labor productivity to the value of that trade deficit.
This is where Stiglitz’ comparison with the Depression era migration from an agrarian economy breaks down. As he duly notes, the economics of food production has changed, and today America’s agricultural sector feeds the nation and sustains a healthy trade surplus as well, with a far smaller share of the American workforce. In contrast, the decline in manufacturing jobs reflects the opening of world labor markets. Unlike agriculture, we are not self-supporting in manufactured goods, we have simply decided to buy abroad what we once made at home.This shift has been embraced across our society. For private industry, outsourcing to Asia has been driven by profit-maximizing behavior and the pressures of surviving in competitive markets. For consumers, innovations in retail from Walmart to Amazon.com have fed the urge to get the greatest value for the lowest price. And for politicians — Democrats and Republicans alike — embracing globalization was part of the post-Cold War tradeoff: We open our markets, and the world competes economically and reduces the threat of nuclear conflict.

The notion that American industry, consumers and politicians were co-conspiring in the destruction of the American working class was a discussion relegated to the margins of public discourse, championed among others by union leaders, Dennis Kucinich on the left, Pat Buchanan on the right and Ross Perot, while largely dismissed by the mainstream media.

While Apple has been pilloried from National Public Radio to the New York Times for its effective support of a slave economy, most electronics consumer goods are now imported. The irony of the Apple story is that the Chinese labor content may well not be the cost driver that we presume it to be. As in many other industries, the costs of what is in the box can be a relatively small share of total costs, when product development, marketing, packaging and profits are taken into account.

This, of course, is why China is not particularly happy with their role in the Apple supply chain. When the profits of Apple products are divided up, far more of it flows to Cupertino than to Chengdu. And that is the reality of modern manufacturing. Based on National Science Foundation data on the value chain of the iPad, for example, final assembly in China captures only $8 of the $424 wholesale price. The U.S. captures $150 for product design and marketing, as well as $12 for manufactured components, while other nations, including Japan, Korea and the Taiwan, capture $76 for other manufactured components.

If anything, the NSF data — and China’s chagrine — reflect a world in which the economic returns to design and innovation far exceed the benefits that accrue to the line workers who manufacture the product. This is one part of the phenomenon of growing inequality, and would seem to mitigate the complaint that is often made that America no longer “makes things.” We may not make things, but we think them up and as the NSF data suggests, to the designers go the spoils.

Yet there is no fundamental reason that the decline in man
ufacturing jobs in America should be deemed inevitable and permanent. For all the talk about the number of engineers in China, the fundamental issue remains price. As a friend who is a consulting engineer who works with Apple in China has commented, “Yeah, they have engineers, but the driver is cost, cost, cost. And the labor quality is awful. We lose a lot of product and have to stay on top of everything, but at $27 per day, you can afford a lot of management.”

This argument conflicts with Stiglitz deterministic thesis. Just as manufacturing jobs left the United States, they can come back as economic conditions change. As wage rates rise in other countries, one competitive advantage of outsourcing shrinks. And if nations — from China to Taiwan — migrate away from their practice of pegging their currencies to the dollar, foreign currency risk exposure will offset some of the cost advantages of outsourcing. And today, as newly industrialized nations like Brazil have seen their own manufacturing sectors ravaged by mercantilist competitors, there is a growing understanding for the need for order and fair rules to govern the forces of globalization.

The Apple-Foxconn affair spooked consumers of Apple products — at least for a news cycle or two. Like Claude Rains in Rick’s Cabaret, we were shocked to confront the reality of labor conditions in China. But the story was less about China than about us. That Foxconn could put eight thousand workers to work within thirty minutes to accommodate a last minute design change by Steve Jobs was not — as Jobs suggested in a meeting with President Obama — an argument for why those jobs could never come back to America, but rather it was illustrative of the astonishing narcissism of the Apple world.

It is true, no American factory could deliver for Apple as Foxconn did. But on the other hand, there really was no need to. That story was less about what Foxconn could deliver than what Foxconn’s customer had the audacity to demand.

This story raised the question of whether we care where our products are made. The answer is unclear, however many Americans have long cared about purchasing cars made in this country, and Clint Eastwood’s Super Bowl ad has raised awareness of this question. What is clear is that if Americans care about where their products are made, companies will care. Therefore, even as the president promoted tax credits for insourcing — the new word for bringing those jobs back — perhaps another step would be to build on the power of choice. Perhaps not all Americans care where their products are made, but many certainly do. But even if one does care, it tends to be difficult to find out.

Perhaps a simple step would be for companies to provide that information to consumers. Even if it was voluntary labeling, knowing who chose to provide information to their customers would tell many of us all we need to know. Then we could find out whether the Apple story really changed anything, and whether consumers might be willing to take more into account that the last dollar saved if it enables us to sustain a diversified economy into the future.

What do you think, Can Manufacturing Jobs Come Back?

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