Letβs Not Kid Ourselves About Manufacturing Jobs
State of the Union: “The U.S. manufacturing sector is about this big.”
Last year President Obama was out in Silicon Valley for a fund raiser with leaders from the technology sector. At a meet and greet with Steve Jobs, President Obama asked him about the (relatively decent) manufacturing jobs created by iPhone demand, “Why can’t that work come home?” Jobs looked him in the eye and replied, “Those jobs aren’t coming back.”
One wishes one could have heard the inflections in his voice. Was it emphatic? “Those jobs aren’t coming back.” Or was it simple declarative finality? “Those jobs aren’t coming back.” And how did Obama react? Did he actually hear Jobs? Taking a measure of his message during Tuesday’s State of the Union message, one would have to guess the answer was no.
The tale of the iPhone’s stunning success is a tale of American jobs lost—and, if we can believe Jobs (and you know we can), jobs lost for good. As late as 2002, Apple manufactured some of its products in the U.S. How that changed was the topic of an eye-opening article in last Sunday’s New York Times. The article, “How U.S. Lost Out on iPhone Work,” is a useful primer on the real dynamic of recent offshoring of manufacturing jobs. It was also the source of the reported interchange between the president and Jobs.
It’s a story of critical mass, at the level of one iconic company and an industry as a whole. The truth is, it’s not just iPhones, though they are an amazing high-volume item at the moment. It’s iPads, iPods, Kindles, Androids; in short, every computer, phone, pad, and gadget of the moment—they’re all made in China's Foxconn City and Shenzhen. What began with the offshoring of lower level manufacturing jobs morphed over time into a landslide of work that accrued to state-of-the-art manufacturing centers designed to capture sourcing, manufacturing, and assembly in gargantuan new-industry complexes of enormous capacity. Meanwhile, in the U.S., the entire infrastructure in all its aspects went, over time, poof.
Need 3,000 trained workers in two weeks? No problem. China has them living in dorms adjacent to the line. Thinking—merely thinking—of expanding your iPhone launch capacity? China went ahead and built the square footage on spec, courtesy of government supports and encouragements. These, as they say, are facts.
It’s not just about wages anymore. In fact, it may not be about wages at all, given the margins in certain cutting-edge consumer electronics. It’s about seamless sourcing and logistics in locations close to explosive consumer demand.
Given this state of affairs, the tax credits proposed by President Obama are less than half-measures, they are nano-measures—and I would argue he more or less knows it, which isn’t to blame him for America’s manufacturing demise. And that isn’t to say that he shouldn’t be Cheerleader-in-Chief for middle class jobs. And it isn’t to say that we cannot manufacture anything here. He is correct to point proudly to the jobs his administration were instrumental in saving in the auto industry. But he didn’t repatriate those jobs from a monolithic competitor that had already cornered the market.
Apple executives and many others say we have stopped training workers in intermediate-level jobs for technical fields in the U.S. That is mostly true. And as an anonymous Apple executive put it in the Times article, “We don’t have an obligation to solve America’s problems. Our only obligation is making the best product possible.”
But as one who worked for a decade raising millions of dollars to improve capacity in an American technical college during the 1990s, I can tell you that appeals to ramp up support for the sector fell upon deaf ears except amongst a small circle of visionary companies. And students avoided state-of-the-art manufacturing education like the plague. While that has changed to a small degree today, we are still talking about an educational sector poised to turn out maybe 50,000 technologists a year, and they go entirely into jobs that merely maintain capacity or expand it on a tiny scale.
Economic observers like Jared Bernstein, who previously served as Chief Economist and Economic Policy Adviser to the Obama administration, point out that this state of affairs related to consumer electronics is just one facet of the world manufacturing scene. While that is true, the Chinese have already kicked serious butt in manufacturing wind turbines, and they pretty much ramped that up from scratch while we sat around offering lip service to green jobs.
Further, medical device manufacturing is more than a distant relative to iPhone manufacturing; it’s more like a fraternal twin. That means we are more at risk to lose high-value manufacturing jobs than we are to repatriate them. One wishes the tax penalties would have been in place a decade ago, heck, a generation ago, but it wouldn’t have dissuaded Apple. Apple wanted perfection, control, and capacity on its own—one hesitates to use the word—nearly totalitarian, terms; and that meant China. Don’t believe me. Read the article.
Apple has 43,000 workers in the U.S., and maybe another 20,000 overseas. That includes the guy at your local Apple store. But roughly 250,000 jobs have been created in China and elsewhere in Asia to produce the iPhone. Most of those jobs are in assembly, but as the Times article points out, “It’s not just cheap labor.”
In 1960, manufacturers made the whole shebang onshore. Names like GM, Ford, GE, ITT, Westinghouse and General Dynamics, to name but a very few, powered the old way of American manufacturing with truly astounding head counts. GM supported 595,200 jobs in 1960. Today, Apple is worth $400 billion. It dwarfs even the old GM in pure market scale. Yet it supports just 63,000 jobs worldwide.
Simple logic holds that those who say we retain the design jobs, the intellect jobs, here, are talking about infinitesimal job counts in the larger scheme of things. While it takes a robust team to develop the iPhone, the lion’s share of the work is done by maybe 250 people. And Jobs himself—one guy—held sway on a good number of final design decisions on the unit.
So where is the good news, where is the upbeat takeaway? Well… There are types of manufacturing that are more resistant to offshoring, and they aren’t all that high tech. The trick is to not lose them in the first place, so tax disincentives may be far more effective than reimportation incentives are likely to be. On another border, let’s face it; the only thing that will bring jobs home from Mexico is the intensification of their drug war, not incentives around the edges.
Construction-related manufacturing might be a good bet to encourage—except for the fact that housing is in the dumps and such manufacturing hijacks jobs from the onsite construction sector. Large-scale infrastructure like the Bay Bridge project would be a good bet…oh, wait, we already offshored that project to China. All the steel, everything. We just do the assembly.
If we were to build the Hoover Dam today, would we find a way to offshore the concrete? The steel rods?
Most likely, reinforcing manufacturing begins with Thinking Different about the sector from the ground up—and using government incentives and disincentives to do so. We can encourage small-scale, high value, light manufacturing. This is actually where we still have an edge. The problem is, even increasing this niche capacity nationwide by 100 percent might yield just another 300,000 jobs. And it would cost a bundle. But hey, as soon as our young manufacturing technologists are willing to live in factory dorms and work on demand in 28/9 shifts, we’ll get that edge back. Yes, and we’ll build a new middle class on the back of manufacturing the next generation of groundbreaking products…the next big thing…by golly. As soon as we sweep up all this fairy dust.