Steve Klingaman

Steve Klingaman
Location
Minneapolis, Minnesota,
Birthday
January 01
Title
Consultant/Writer
Bio
Steve Klingaman is a nonprofit development consultant and nonfiction writer specializing in personal finance and public policy. His music reviews can be found at minor7th.com.

Editor’s Pick
JANUARY 25, 2012 11:54AM

Let’s Not Kid Ourselves About Manufacturing Jobs

Rate: 34 Flag

State of the union 

State of the Union:  “The U.S. manufacturing sector is about this big.”

Image: nytimes.com

 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.

 

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A very impressive piece of writing and research, Steve, albeit one that's scary as hell. Rated, and posted to FB. As I write this, Apple stock? - +27.24 (%6.48) based on their incredible quarter.

As Nick Hanauer said in an interview with Margaret Brennan on Inside Business (Bloomberg) this morning: "If there was a shred of truth to the argument that the richer the rich got, or the more profitable companies got, the more prosperity we would have, we would be drowning in jobs." "Corporate profits are at a 50 year high. The rich in this country have never been richer and yet, unemployment is also at a 50 year high, and that's because we're in a death spiral of decreasing demand." And the reason for increasing demand? The middle-class's real income hasn't risen in 30 years as those jobs disappeared and the increasing pool of workers left behind could be hired for less and less and less...

Hanauer's article on taxing the rich (including himself) and whether they are "job creators" (He said in that interview that's akin to "saying a squirrel is responsible for evolution, not the other way around") can be found here: http://www.businessweek.com/news/2011-12-07/raise-taxes-on-rich-to-reward-true-job-creators-nick-hanauer.html
That should be "decreasing demand".
The whole problem lies with the people who run todays American companies. They think about only one thing, the bottom line. They cut costs, at the expense of losing business to companies abroad. Who, think of their future, and not their bottom line.

It all started when we switched, to a "service economy". They outsourced all the jobs, thinking we would run everything from over here. ( which for the most part, a few people still do ). Kids were steered toward business courses, rather than technical programs. All we have left are a bunch of management people!
We have a system that says support the bottom line or die. Who can expect any different outcome than what we see now? Willful ignorance is today's hallmark for making arguments but self-deception won't change reality. We have what we have because we have chosen it.
This is a sharp analysis.

When I dropped out of college in the 1970s, I worked for a manufacturing firm. The pay and benefits were decent, and a worker could support a family. Those jobs disappeared in the 1980s to a place where wages - and union activism - were lower, and they haven't been replaced. Today, a guy like me dropping out of college would be lucky to make lattes at Starbucks or selling clothes in the mall, with barely minimum wage pay and probably no benefits.

The NY Times Apple story confirmed my belief that a lot of economic cliches are outdated at a time when our manufacturing base has gone offshore. Spend a little money to stimulate the economy, so buy an iPhone! But who's being stimulated? It's not creating jobs here, it's creating jobs in China. The only American Apple employees who benefit are the upper management. We may think we're helping the economy, but we might actually be reinforcing income inequality.
Cranky, I agree. Apple's standing in all of this, while problematic, is highly complex. Knights in shining armor? No way. Outright villains? Not so fast. By the time they committed to taking their iPhone manufacturing offshore, the infrastructure base for electronics manufacturing had already migrated there--and that was only partially their doing. Plus they probably correct that their mature market growth will be Asian and worldwide, as the executive alludes to in the NYT quote I used. You look at the phone and ask, why can't we do that here? You know, clean rooms, booties, good pay, and all that; and then you realize...that's not what we do here anymore.
The fact of the matter is that NOTHING in the so-called laws of economics dictates that an advanced, mature economy can't have manufacturing jobs.

The example of Germany, South Korea and Japan show us that advanced economies CAN engage in high level manufacturing, and do amazingly well.

There has been a great deal of mythologizing in US economic discussion. This storytelling tells us that we are a so-called "post-industrial" economy, and that industrial manufacturing jobs are "ancient" and "obsolete" and that "service" jobs are more advanced and suitable for a "more modern economy."

Again, this is hogwash.

The problem is that America's manufacturing and industrial base, from the late 19th to the mid 20th century focused on QUANTITY, rather than QUALITY. This is how we won WW1 and WW2, against countries like Germany, which had qualitatively superior equipment (generally speaking, give or take certain things, like radar and late war piston engine propeller aircraft).

After WW2 we basically swamped the globe with massive amounts of cheaply produced manufactured goods. The world bought this stuff because 90% of its industrial base was devastated by the war. We built up the globe's industrial production base through Marshal Plans and the like, but we never re-tooled the US industrial base.

As such, come the 1970s, the US is still producing industrial and manufacturing goods on a mass production, quantitative, cheap-quality basis, while German, Japan and South Korea (by way of US assistance) have moved into high quality manufacturing.

As China, Latin America and India in the 1990s start moving into mass industrial manufacturing and the like, Germany, Japan and South Korea can hold their own, because of the quality of the goods they produce. These high quality goods have a different niche market that doesn't overlap with the market that purchases cheap quantitative Chinese goods. In fact, they compliment eachother.

For example, German industry produces a type of machine part that the Chinese need for their mass production lines. The part is a very precise, handmade steel and diamond bit cutting tool, and it is used to make other tools. It is only made in Germany and it is in high demand in industrializing countries. As other countries industrialize, Germany makes more money from selling this high-quality product.

Same thing goes for a Mercedes Benz. Rich Chinese businessmen don't want to buy cheaply produced Chinese or Indian cars. They want an expensive Mercedes (they often refuse a Lexus, b/c its made by the hated Japanese). Again, the markets don't overlap.

The US has been hurt because we were, in the past, basically a smaller scale version of China---producing a large amount of low quality manufactured goods. We never updated stuff, or reinvested in our manufacturing or industrial infrastructure and never focused on matching the Europeans in terms of quality, because we never thought that anybody would ever be able to compete with us in terms of quantity.

We bet on the wrong horse and now we are reaping the consequences.

The ONLY way to hold your own against superior quantity, is through quality. And the US needs to revamp the QUALITY of our manufacturing if we are to compete with the Chinese and developing world, and all their attendant low-wage and low-regulation advantages.
"The entire infrastructure in all its aspects went, over time, poof."

The entire piece is outstanding and points out things that have troubled me for a long time but I couldn't verbalize. I've been wondering since this recession started what will happen when people who were still doing well a few years ago figure out that the jobs physically can't come back, no matter what any president does?

It was good when those moves meant many still had extra money to buy so much for so little and retirement accounts were growing because of outsourcing. It was good while it lasted, but that's all over. Now what?
Those Chinese workers, willing to work for $1.75/hour, 12 hours a day, 6 days a week, and live in a dormitory far from their husbands, wives, and children, are only a few short years from starvation. We can't remember starving, but they can.

So is that really the kind of world we want to live in, where we bank on the work of recently starving, frightened people who work like human robots, and make everything we've fought for (the 8 hour day, the weekend) a mockery?

I've been working hard throughout Christmas and into the new year to buy local. I know I can't do that with an iPad. But I can do it with gifts, clothes, as much as possible to benefit people living and working in the USA. The trouble is, it limits me to my local craft market, a few farmer's market, and a "Made in Oregon" boutique gift shop. That's it.

It's very, very hard to find anything made in the USA.

I have a middle school son who is good at math and science, and loves to work with his hands. I'd love to point him toward mechanical engineering, I think he'd love it, but I wonder if he'd ever find work.
I also think we need to copy, verbatim, the German system of apprenticeship in industry, where vocational schools and businesses and governmental licensing authorities work together to pump out certified specialists in key economic sectors. These licensing and training schools, in Germany, are run by their Department of Commerce and Business, not their department of education. They are also assisted by tradition: these apprenticeship traditions go back hundreds of years.

It ensures that every jobsite has experts and NCO-type folks, even for basic vocational tasks. Only a small minority of the country, from what I have read, is truly considered "unskilled."
RW, I would not be inclined to argue with any of your points, but the proof is in the puddin', so to speak, and the job count is anemic, the prospects for growth, given status quo trajectories: pretty anemic.

l'Heure Bleue, Indeed, "Now what?" is the $64 billion dollar question. To be fair, our existing base of manufacturing is enjoying an uptick. The seemingly impossible part is how to recapture the better half of mfg jobs lost.

Froggy, You are correct: many workers at Foxconn earn less than $17 a day. Those particular jobs aren't going to do us much good. As for your son, the fact that we are training so few mechanical engineers and two-year degreed technologists means the work is likely to be out there for them. It's just a small and rather stagnant pool.
A status quo trajectory can change, provided new inputs are entered into the equation, or prior inputs removed.
Very informative, Steve. Great job. Not sure if this is a quibble or just something added: I think using Apple's iPhone is a fair example -- yet technically these were not manufacturing jobs "lost" overseas. Those jobs were never here to begin with because no smart phone that I'm aware of has been manufactured in the US. Regardless, your larger points are completely valid.

Yet the bigger picture isn't all gloom; the development and very successful marketing and distribution of the iPhone has created thousands of jobs here in the US, jobs that did not exist before. Yes, the manufacturing is happening elsewhere but by essentially innovating (once again) their way into a new category of device, Apple has created an ecosystem that has expanded the market – and added lots of jobs in the process.

I'm not making apologies for Apple's manufacturing elsewhere; it is what it is and the source article you cite and your analysis highlight the dilemma facing the growth of manufacturing in the US. But Apple's success with iPhone and iPad and iOS devices have meant well-paying jobs in design and marketing at Apple, good jobs in retail (all things relative) at Apple stores etc -- and, most often overlooked -- a great many hi-tech jobs at the thousands of developers making the tens of thousands of apps for these devices -- a market that did not exist before the iPhone. Moreover, over half of Apple's sales are overseas. That's net money coming into the US.

All told, there's clearly a shift in the center of gravity of our industries. Is it reversible? Perhaps not. But it's not entirely undesirable either. Like I said; more an addition to what you write rather than taking issue with it. Rated.
Drew, yes, the jobs for developers making apps are something that Apple points to in defense of its strategy. Those certainly are good jobs. I wouldn't argue with that and I think the distinctions you make are all accurate. It's a complicated picture. But when discussing manufacturing per se, I have a harder time with cheerleading that misses the thorny issues.
The logic of what was said seems to be what I have been thinking for years: the combination of the Industrial Revolution, Robotics, and Globalisation means that NO policy will create enough jobs for all who want them. My solution: Benevolent Nepotism for Everyone! On a" world" scale
Hey Steve -- When it comes to the picture of manufacturing jobs, per se, I certainly don't intend to cheerlead away the dilemma. That's why I admire your piece; it's right on the money. You are right that it's complicated and one of the reasons is that the larger picture does contain some positive things that, while good, complicate how most people see these things -- in black and white. Apple's an interesting case for sure but hardly typical of the many many businesses, indeed industries, that have wholesale moved offshore and provided absolutely nothing in return -- except, perhaps, to their executives. Cheers.
We can get every job we have lost to overseas immediately by simply getting enough American workers to do the work for the same price it gets done overseas. If enough American workers can be obtained to work for 75 cents an hour…those jobs are back here tomorrow. The quality will take care of itself.

But where are you going to get American workers to work for 75 an hour…or a $1.50 per hour…or even $2.35 per hour?

No job that can be done elsewhere for appreciably less will ever be returned to the United States…no matter what kind of imaginative scenarios are invented.

And as the technology continues its geometric progression…and with the possible introduction of a cheap, renewable energy source…75 cents an hour will soon become prohibitively expensive.

This problem is simply not being conceived of in a reasonable way.
It is terrible what has happened in the US. I am old enough to remember when "made in America" was a sign of good quality. One of my aunts had a GE refrigerator (bought in the 60s) that lasted more than 30yrs. Don't talk about the cars. The list could go on, that's just an example.
A deeper question to ask is: What kind of country is it that creates a political economy, designed by its elites, that results in the hollowing out of its manufacturing capacity and capability? Germany and Japan never went down this road because their elites had some fundamental loyalty to the Homeland, the People, the Country, call it what you will. The United States ruling class, the elites, have become so completely corrupt over the last 30 years, countenancing and actively encouraging the hollowing out of the country in return for personal financial gain, that it leads one to ask: From what source springs this hatred and contempt by the country's elites for its own working class? Is it the Amerikan cowboy culture that glorifies the gunslinger and a fuck-you ethos... or is it the myth of the permanent frontier, of mythic limitless possibilities that lulled the decision makers into thinking that there would always be new opportunities and ergo there was no need for long term planning, an industrial policy; was it because the working class in the US was commingled with the black race problem for which the elites maintained a paternalistic antipathy, and from which they kept a profound distance, and could therefore indulge themselves in complete disregard for the welfare of the black, brown and white trash workingman that was not possible in more homogeneous and long-lived nations like Germany and Japan. Whatever the causes it all smacks of contempt and indifference. Whither now?
And they call me cynical -- not that I disagree, but I think this is far more complicated than the willingness of Chinese workers to be wage slaves housed in corporate prisons.

The first problem is our mythology, which begins with the historically inaccurate notion (despite historian Newt's pandering) of rugged, frontier individualism and ends with the hideous, xenophobic notion of "American exceptionalism". Clearly, neither Jobs or the Chinese are buying that laughable (if the consequences weren't so tragic) bit of self-aggrandizing nonsense.

That mythology feeds an ideology that keeps us in the virtual Dark Ages. To wit: "China went ahead and built the square footage on spec, courtesy of government supports and encouragements." It's become a cliche, but it's nonetheless true that private industry did not build the interstate highway system or the Hoover Dam.

The fact is the pathological aversion to all things governmental by think-tank conservatives, and a vast number of rightwing voters far more interested in maintaining the faint hope that they will one day be able to rape and pillage others and become as obscenely rich as Romney, prevents us from doing what is the blatantly obvious first step toward resolving our problems: Adopting a national energy policy and a national industrial policy.

Instead, we let Exxon Mobil and Enron -- as well as foreigner multi-national corporations like Shell (that's Royal Dutch Shell, by the way) and BP (successor to the East India Trading Company) dictate our energy policy -- aided and abetted by know-nothing sycophant flunkies like Joe Barton and James Imhofe.

Instead, we incentivize (don't you just love wonkspeak?) tax-cheats like GE to ship jobs offshore, let banksters cook the books and suck investment capital out of the system as massive bonuses (even when they fail), and grant massive tax breaks to hedge-fund managers and corporate titans, who rather than invest their loot in "job-creation" all too often piss it away on $6,000 shower curtains and million-dollar birthday parties for soon-to-be ex-trophy wives.

Now I'll admit that last "investment" probably created a few jobs for birthday bash entrepreneurs and male strippers, but it's hardly what I'd called a sustainable business that will promote "an economy built to last."
Interesting post Steve and some well thought out comments too. Like you, I'm skeptical that the U.S. economy will ever revert to the large manufacturing base it once housed. But I think you were overly dismissive of RW's German analogy. Some improvement and restoration can be had with the right training and tax incentives.

Investing in green energy and pollution abatement industries has been advocated for so long that it's reached cliche status. Nonetheless it remains true.

Longer term it's hard to discern the happy trail that avoids the Chinese wages for Chinese working conditions or the inevitable calls for tariff wars, er, barriers. More education and better training always help.
Abrawang, I didn't mean to come across as dismissive over the German model; I think it's completely valid. I just don't think there is any chance of the U.S. ever adopting such an approach. We give lip service in that direction from time to time but don't really change direction.
This news is disappointing, butnot surprising. The only way to bring jobs back is through local, collective, cooperative enterprise. Multinational corporations have no interest in creating American jobs. R
Nothing of value to add here, just wanted to thank you and let you know I read and appreciated your piece, and all the comments it generated.

Rated♥
"rich people march on washington every day"
--i.f. stone

"We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can't have both."
--supreme court justice louis brandeis

"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!"
--upton sinclair

"One withstands the invasion of armies; one does not withstand the invasion of ideas."
--victor hugo

"The greatest evil is not now done in those sordid dens of crime that Dickens loved to paint. It is not done even in concentration camps and labour camps. In those we see its final result. But it is conceived and ordered (moved, seconded, carried, and minuted) in clean, carpeted, warmed, and well-lighted offices, by quiet men with white collars and cut fingernails and smooth-shaven cheeks who do not need to raise their voice. Hence, naturally enough, my symbol for Hell is something like the bureaucracy of a police state or the offices of a thoroughly nasty business concern. "
--cs lewis


gamechanger-- occupying republicans
Good post. A related article with thoughts on Chinese manufacturing I thought I'd share.

http://www.thestar.com/article/1119078--ipad-factory-misery-leads-to-suicides
Steve, on the subject of the German model with a strong trade-school program in secondary schools. There was an interesting article in my local paper about the disconnect between high school guidance counselors (mostly women, mostly college educated) and the skilled trades. A local consortium of skilled trades (electricians, pipefitters, etc.) put on a teaching day just for high school career counselors, to tell them about their training programs, about how to get into them, what classes to take at community college, and so on. They even taught basic wiring to the career counselors. The guidance counselors loved it, but the sadder part was that none of them knew about these programs. Many are sponsored by unions. The connection between the work world and secondary education is broken.

(My dad worked for Ma Bell for nearly forty years, and was recruited out of his high school electronics class. Those days are gone).
While U.S. politicians have repeated the "free trade" mantra for decades, other countries have pursued national manufacturing strategies designed to attract and build specific businesses and products. A number of countries won't even allow products that aren't made in the country to be sold there. Sometimes countries subsidize specific industries and build the infrastructure for them. They manipulate their currencies so as to make their products cheaper. Some of their products are sold overseas at below cost.

While this is going on, the U.S. does nothing. Instead, we often give away the farm in exchange for some kind of geopolitical advantage, as when we give away technology for free in exchange for a military base.

Ultimately, U.S. workers lose out. Business executives don't care, and our so-called representatives don't care. The most recent state of the union address was the first time that manufacturing has even been mentioned in one of those speeches in a long time. In general, I think most of our politicians really couldn't care less if Americans have jobs making plasma displays or coffee drinks.
"It’s about seamless sourcing and logistics in locations close to explosive consumer demand."

That doesn't make any sense. The entire Asian labor phenomenon is about sourcing and logistics far from demand.
1. The US dollar is significantly overvalued vs China. This is an additional headwind that is very important over long periods of time.

2. The US is still the world's leading manufacturing country. Labor is only part of the cost of doing business. When labor is a smaller part of the total cost -- for example, highly automated processes -- there simply isn't a cost benefit to offshoring.

The flip side is the more labor intensive stuff involves a lot of jobs. Hence we are losing jobs, but still making a lot of stuff. Like 18% of the world's total manufacturing.

3. In the 20th century, farming in the US was automated and enormous numbers of farm jobs were 'lost'. They never came back.
http://open.salon.com/blog/nick_carraway/2010/08/04/these_jobs_arent_coming_back_--_thank_god

Textiles were high tech in the early 19th century. However, they have been migrating out of the US for decades. Goodby Norma Rae. This is now moving out of China to lower wage Asian countries.

In order to offshore manufacturing complex stuff, it is essential to have automated supply chain management. That has been a huge change over the last couple of decades.

"The "nearshoring" and "reshoring" trends that are bringing manufacturing back to nearby countries and the end consumer market, respectively, are picking up steam for a reason that nobody has mentioned: in a consumer environment that demands constant availability (i.e., out of stock = lost customer) and constantly changing products with increasingly short "shelf lives," manufacturing closer to the end consumer can be a smart and profitable strategy. If you can load a truck full of a hot new product made in Mexico and have it on store shelves in the United States three days later, that could be a huge competitive advantage compared to a company that makes a similar product in China and takes 40 days from factory to store shelf.

Of course there are a multitude of cost and time factors that influence a company's decision regarding where to manufacture. Availability of raw materials and components, mentioned in the article, is just one. We use the term "total landed cost" to include things like labor, local transportation, freight forwarding and customs clearance, import duties, taxes (different countries' tax regimes can greatly affect total cost calculations), the international transportation leg, warehousing, regulatory controls like export licenses, and a lot more. And most of these costs accrue on BOTH ends of a product's journey--in the originating country and in the destination country. Add in things like the time and cost to replace defective products shipped from the other side of the world (and compare them to the same time and cost for locally made products) and it's clear that manufacturing in Asia often is not as "cheap" as many companies think."
One other comment:

US manufacturing has US health care costs loaded into the price of goods. In contrast, counties with health care funded by the national government, exports are cheaper.

Simply allowing foreign countries to subsidize exports via currency manipulation and other indirect subsidies is a huge part of the problem.
The real question is, if those jobs are not coming back, and no combination of government or "enlightened businessmen" (who are as fictional as blue fairies) can do it, what can Americans do?

Die. This has been happening on a slow but growing level. And it's been supported by the Republicans and Teabaggers who want to keep people from getting health care, let them have guns, get them angry through talk radio, and let them get hooked on drugs. This last is especially important in the rural areas, where making crystal meth is the only real growth industry.

Kill off several million of America's 99 percenters, and the economy will improve rapidly. Seems to me that Stalin practiced this to keep the Soviet Union solvent. Maybe the Republican candidates and Rush Limbaugh have learned lessons from the people they supposedly hate. Only they don't need guns and soldiers to do it, just a "Closed" sign on doctor offices.
Other comments say the big, bad corporations only want to support the bottom line in the USA. Yep, they do. I just got laid off from a small business that is trying to stay afloat and increasingly, cared more about the bottom line than me. I saw the lay off coming months before. China and its companies obviously REALLY care about the bottom line: "manufacturing technologists are willing to live in factory dorms and work on demand in 28/9 shifts" - Obama is already envisioning us in factory dorms, working on demand and he and his cohorts will accomplish these work camps with social engineering plans that we are going to be forced into by increments - but not just Obama's vision but all the political elite (both sides of the aisle) in league and legislating for the international mega corporations. First, they have to make enough of us homeless, jobless and desperate with no alternatives. They already have us dependent on the government and looking to the government to make everything in our lives right. As we continue to relinquish our independence and self-reliance, and we continue to naively believe that we are voting, endorsing and campaigning for politicians who have our best interests at heart, we should not be too surprised when we start resembling China and its government, the current successful economic model that our government has already mortgaged us to.
Wow, so many great comments popped up overnight, I can't keep up, mostly because of the time it takes to really get into theses topics. There are a couple of claims we could clarify. American teachers are not the highest paid in the world by several measures, although, Baltimore, I agree with you here more than I usually do. And no, President Obama is not planning factory dorms. And yes, new factories are popping up. There is a difference between manufacturing job growth and recapturing jobs already expatriated. Finally, the issue of education for technological careers; that is a biggie, one that I could write about weekly for a year, having spent a decade working for a technical college. But what I usually find is that as soon as one digs into the real issues in all their complexity, the audience dozes off. One important point: in addition to guidance counselors steering students away from technology education, parents steer their children away from it, and from manufacturing in particular, largely because of family experience with boom-bust cycles like the one in which we are now in the just-post-bust portion, Finally, to the extent that applied, non-B.A. degrees are required, these educational programs are underfunded, under-resources and often out-of-date and largely irrelevant to rapidly changing markets. So, to become competitive, we have a huge gap to make up, and no one has contemplated the real costs of so doing.
The title of this essay would be funny were it not for the deadly earnest nature of the problem facing the United States. That problem is history, the irresistible tide of it, and that notions of American Exceptionalism are farcical in comparison. History is the aggregate of the actions of men and women as they respond to events both human and natural. And here in the United States people's lives are being slowly but permanently immiserated in the name of profit. The worship of profit for its own sake is not new, but what is new is a nation - any nation - deliberately destroying its own middle and working class. The whys and wherefores of this - the stuff of this essay, in other words - is irrelevant and immaterial.

The only thing that matters now is that it is happening, and that people will react over time. Do you suppose that the French Revolution happened because of Elightenment theories of the rationality of mankind and the inevitability of the rights of man? Or that the Russian Revolution happened because scientific Marxism made the dictatorship of the proletariat inevitable? Oh God no, the former was about the peasants having no bread and the bourgoisie getting fed up paying the Boubons' bills while having no say, while the latter was all about the almost animalistic suffering of the Russian peasant and Lenin's endless outrage and grief over the execution of his brother and imprisonment of his sister when he was a teenager. The rest was window dressing.

Our own Lenin, our Robespierre, is coming. He will be uniquely American in nature and quality, but he will come. All the Homeland Security machinations of our pathetic elites, the skullduggery of our FBI, will be as ineffective in stopping him as were the Royal Guards in France or the Tsarist Secret Police in Russia. But more importantly, we will have earned him. Our elites will have earned their mass murder at his hands, and the "99%" will have earned the deliverance he will provide. What happens after that is anybody's guess. The only guarantee is that it will be historic, and the United States will never be the same again.
Rob, Personally, I don't believe a savior is around the corner, nor is the apocalypse. Revolution is not around the corner. What is around the corner is a long, hard slog of an anemic recovery under a political system that will change but little in the next several years at least. I think much of rhetoric we hear about the economy, and our political system, today is a tad overwrought. That isn't to say that destructive, corrosive influences aren't at work; I think they are. But the sky is not likely to fall next, week, year, or whenever.
Yeah, yeah, yeah...

Obama said much of the same when he was campaigning in 2008.

That's one of the reasons I voted for him. Since then he hasn't done squat to help manufacturing.

He turned out to be a corporate-owned chickenhawk like the rest of them.

One of the problems is that China demands that companies must move their manufacturing there in order to be given access to their "growing" consumer market.

The joke is that the companies are getting ripped-off, the Chinese still roadblock their products.

However, jobs are coming back because China has fallen short of all the rosy predictions -- and isn't that cheap anyway.

.
Steve, it is not only manufacturing.....the last five years of my hi-tech career were spent working in Colorado as the base with almost weekly forays into California (hard disk drive manufacturers).
It is well known that there is a very substantial population of researchers, engineers, software developers from India and all of the Far East (japanese are not in this population); it is also well known that, as Gates has been saying over the past few years, that:
. quite a few of those people are going back to their respective countries lured by their governments either to universities or to their sprouting hi-tech enterprises
.high american wages are keeping the home repatriation to small numbers for the time being, but the wage situation can and will be fixed by these countries
. americans are in no way able to supply the hi-tech personnel needed by the industry to continue to lead (same story in Italy)
. au contraire China and India also have first rate universities which output thousands of hi-tech graduates (I personally hired a lot of graduates in New Delhi when we started a design center there in the early 90's)
So the battle for economic supremacy is from the top down and from the bottom up, make no mistake; however it is saddening that while the concept of country, the magnification and invocation of patriotism are the daily bread that is being sold to the 99%, the 1% laugh all the way to the most receptive tax heavens (it is not only manufacturing!) meanwhile instructing their puppets to win on the slogan of "we want our country back".
Thanks for a sober well researched report
Steve, your article as well as the New York Times' stories of Sunday and this morning reveal the magnitude of this country's economic problems. All of the platitudes about the need to build a knowledge- based economy can't counter the evidence that a huge chunk our our adult and adolescent population can't read, compute, or understand scientific reasoning well enough to cope with the technological and information demands of this century. Hence, they will never be a part of a knowledge-based economy and, for that reason, the need to invest scare funds to improve public education for future generations has never been greater.

In the long run, the migration of jobs to Chinese and Indian sweatshops and other third-world countries will prove self-defeating: An increasingly impoverished middle class here in the U.S. will eventually be unable to purchase the high-end goods that out-soured manufacturers such as Apple wish to sell to domestic consumers. Thus, over time, as economic inequality continues to grow and purchasing power erodes , the life-styles of perhaps a majority of Americans will be reduced to that of most Chinese and Indians today. Is that progress? Isn't that what capitalism is all about? short-term profits and the long term consequences be damned!

The migration of American manufacturing began in earnest with the passage of the Taft-Hartley Act. Shortly thereafter, Southern states out-bid one another in a collective race to the bottom as they rushed to enact "right-to-work" laws that destroyed families and unions and impoverished manufacturing in New England and the Mid-West.

Today, out-sourcing works even better because corporations such as Apple can avoid the expense of employing a domestic labor force and can thus be free of all government regulations that concern safety conditions, workers' rights, and wage and hour laws and pensions.

Apple's predatory capitalism and its exploitation of vulnerable Chinese workers is reminiscent of the factory conditions in Lowell, Massachusetts at the beginning of the Industrial Revolution during the 19th century. The difference, however, is that the descendants of those exploited workers were able to move on and up . The social mobility enjoyed by our grandparents and even our great grandparents, I fear, will be alien to our children and grandchildren.

You are quite right that there are no easy solutions to this crisis, but the purported "laws of economics" do not operate in a vacuum and there is nothing inevitable about the operation of economic trends . They can be countered by intelligent and carefully crafted monetary and fiscal policies, and intelligent legislation. "In extremis," even the "laws of economics" - as articulated by the proponents of classical, orthodox liberal economic theory - can even be suspended by operation of law.

All of the empirical evidence suggests that out-sourcing, deregulation and a commitment to the myth of "free-trade" have been major contributing factors to the loss of manufacturing, stagnating wages and the growing impoverishment of the former middle class.

Economic systems and political systems are the products of human imagination and ideology as they are shaped by historical forces. In a democracy, citizens have the capacity and the ability to imagine and to create new political, economic and social structures and arrangements that are rooted in a shared commitment to social justice and a recognition of the mutual obligations that we owe to one another as members of a political community. Policies can designed to protect the rights of workers, re-vitalize the union movement, to create an industrial policy, to re-impose selective tariffs (as the Chinese now do), to enact a tax code that punishes out-sourcing and domestic dis-investment and provide incentives for job-creation and domestic re-investment.

All that we lack is the commitment - and a sense of urgency.
Steve, a very disappointing read. Not that it wasn't well researched and well written, accurate and properly formatted. It's just so disappointing at every level.

Then again, what will it take to wake up the People of this country and demand a level playing field? Every company here that makes money by investing overseas should pay the same tariffs the country they make that shit in, makes us pay to sell our products over there. Then we'd have to realize the cost of doing business.

Another issue is that of rates of exchange. It's highly unfair to compare the $17.00 a day an average Chinese worker earns in an industry that paid me up to $24.00 an hour before my skill set was outsourced. That Chinese worker, through currency manipulation, economies of scale and the average amount of yuan it takes to live a daily life has no actual bearing on how much it takes an American to live the same way in American dollars.

That Chinese worker earning $17.00 a day is like the American manufactory worker that earned $245.00 a day. After paying rent, getting taxed on the various government programs we have to pay out, buying our food, pricing our transportation, our clothing, our work related supplies (much of which cannot be deducted unless you hit a magical % of Adjusted Gross Income,) school supplies, loans for education, it's a wonder the American Worker has the ability to live as well as that Chinese guy does on $17.00 a day.

The currency difference being so great is what allows American companies to fuck their own countrymen for profit. Why should they care, we still just put it on our credit cards, robbing Peter to pay Paul and they make even more money from the financing of the American indigent with an iPhone, sipping a $4.00 Starbucks mochaccino half latte decaf vente while trying to fill out an application they can barely understand, because our public schools have become minimum security day care facilities complete with barb wire topped fences, metal detectors and unwarranted searches conducted at random by the warden --errr -- administrator (they don't even call them principals any more, sheesh!) and all the while, they wonder why the kids don't learn? (How's that for a ranting run on sentence, huh?)

And while I'm on a roll, I do think there's hope. We just have to recognize that the current Corporatocratic Mindset and our elected (non) Leaders are not going to be the people who promote what they promise, because they have no intention of providing the funds out of pocket to reinvest in making this country a place where opportunity to work, earn a decent living wage, get a reasonably satisfactory public education or be able to rely on public infrastructure to support all that. No fucking way, they'll simply hire more Blackwater Security to run interference on the crumbling city streets, shooting citizens indiscriminately for not getting out of the way fast enough.

A modern version of the local lord being presaged by his Royal Guard, running down the serfs if they can't move quickly enough. Next thing you know, we'll have prima nocta all over again.

To forestall this, I don't think we need a fighting revolution. I do think we need to fight a revolution, though. One of community common interest and a desire to rebut the oligarchs with the power of saying, "No." No, we will not be controlled by you. No, we will not allow our representatives to be coerced by corporate and wealthy landed interests alone. No, we will not allow you to defund our nation while making a profit. No, we will not re-elect you. No, we can do it ourselves, fuck you very much, sir.

Until the common man realizes his salvation is in banding together and demanding equality and fairness, we will continue to slide deeper into what could effectively be called a Corporato-Fascist State on par with William Gibson's Poli-Corp.

So you can see why I am disappointed. You did a great job of showing where we're headed, how we started the long slide, and how dire the situation is. Now if only the rest of my fellow commoners will just wake the fuck up and take action, we'll have a great chance at preventing losing the freedom our forefathers fought and died to create and establish.

--r--
@dunniteowl,

Excellent posting, and I agree with all of it except your hope. Sorry, but I can't go there, not with what I understand about our socio-cultural structures and how they undergird our socio-economic ones.

Your point about "waking up" is very well taken, and the Occupy movement has done that, spoken up about the elephant that's been in the room for 30 years. Now that they've broached the unbroachable, spoken the word "revolt", others are speaking it, and many of them are not so non-violent in their point of view.

After four years of being unempl0yed I am homeless and destitute. No booze, drugs, gambling or other stupidity in my story, just off-shoring and budget cuts, and the insane "logic" of hiring in America, where a person who once had a remunerative career can't get a job at McDonalds because, after all, as soon as they find a better one in their field they'll be gone. That "logic" made some sense 20 years ago and before, but no longer, but I rather doubt anyone is going to wake up to the new reality any time soon, because the implications are too frightening. No shop owner or franchisee wants to hire people who they *know* possess superior education and skills, but who are having to stoop, because it rears the ugly head of class in their place of business, not to mention uncomfortable truths about their own place in the economy. It was much the same in Russia throughout the 90s and '00s. And while living on the street, I'm beginning to hear the first, faint rumblings of disunion. Men who, like me, spent their whole lives following the rules and being dilligent are discovering that they were played for chumps, that once they have fallen past a certain point our system sees to it they stay where they are, no matter what they do. If you could see the dark rage that I do, hear what these men are starting to say, witness how they're starting to feel, you would understand why my previous comment was absolutely correct, and why I cannot feel any hope. The wheels of economic destruction grind ever onwards, even as some new jobs are added. There will always be the lucky who can be shaken in the face of the damned. Only problem is the damned now know the score, and are no longer listening.
There is so much meat in this post that I wouldn't know where to begin...except to say that the myths are far older than we think. These problems began to emerge after the Civil War, when the overbuilding of war industries in the North and the decimation of the South after Grant brought his theory of attrition to bear on the war effort combined to create the first iteration of the boom-bust cycle that we have been in ever since. (There were earlier mini cycles after each of our previous wars. War consolidates. Peace dissipates. Fact of life.)

The combination of abundant natural resources, cheap energy, good river and rail transportation systems, abundant labor from immigration, cheap energy, protective tariffs, lack of competition, and a growing domestic market is what made the American economic miracle possible.

After WWII, we were the last man standing. Europe and Asia were decimated. South America and Africa were underdeveloped. We had no competition through the 1950s and into the 1960s.

The Vietnam War bolstered the economy through the sixties and into the seventies....and then the shit hit the fan.

From the mid-seventies until 2007, housing became the driving engine of the economy while every other sector of the economy - except aircraft and computer production faltered.

The problem with an economy driven by housing is that you can't export housing, so the balance of payments deficit grows and grows, leaving us with what appeared to be a healthy economy that was actually rotten to the core.

This is a very simplistic analysis by comparison with the foregoing summaries. It's just another part of the puzzle that needs to be understood....the America we all grew up in was built upon a foundation of coincidental circumstances.

What most people believe - that the period of our prosperity was the normal consequence of "American exceptionalism" - was actually a historical anomaly based on a series of accidents.

We're actually reverting the old normal, but we're not going to like it now any more than we did then.
Manufacturing base? We don't need no steenking manufacturing base!
Sage, Thanks for the perspective of a larger historical window, and for an assessment of recent developments that my hero, Robert Reich, would agree with. On a related note, I like the long term perspective of "Booms and Busts: An Encyclopedia of Economic History from Tulipmania of the 1630s to the Global Financial Crisis of the 21st Century," edited by James Ciment. (Of course it's a $300 3-volume book, so I can only refer to it at the library.) While it focuses more on financial history than the history of jobs per se, whenever the economy goes bust so do jobs.
More and more it underscores how prescient John Naisbitt was. We allowed this to happen and it didn't happen because we quit trumpeting a "Made in America" theme. It happened because it just became too big a pain in the butt to try to keep the jobs here and thin margins didn't make sense to the stockholders demanding constant and consistent quarterly returns.
When did it become that a job selling i-Phones is considered a "good job"? Our emphasis on a "service based" economy has relegated us to a consumptive economy which exacerbates the growing schism between have and have not, 99% and 1%.
Thank you for this thoughtful, exceptionally well written, and sadly accurate piece. Unfortunately, I think you've hit the nail on the head. A nail made in China, no doubt.
The sadness of reading posts such as this arises from the constant drumbeat of the misguided notion that government can help fix this. The first idea always seems to be some form of the notion that we can use “ . . . . government incentives and disincentives . . .” to rethink our (in this case) manufacturing sector from the ground up. That one assertion alone makes it difficult to believe the author understands anything about America's free-enterprise system.

Why implement tax disincentives to prevent the loss of manufacturing jobs instead of providing tax incentives to lure them back to our shores? The real answer here lies in the thinking, or lack thereof, that led to the question.

It can only be an ignorance of not only what is wrong with our Tax Code but also what is wrong with governments trying to control markets and centrally plan economies. If governments could correctly pick winners and losers, or run businesses, then the USPS wouldn’t on the verge of bankruptcy and Solyndra would be still be an employer.

Such people place little trust in a free-enterprise system. They likely don’t understand how economies and markets work together to adapt to changing demands and technologies. Their substitute belief is always that unilateral, monolithic, government policy making is the best answer for any trade or industrial malaise.

It’s a mystery how thoughtful people cannot deduce that government interference takes away the ability of economies to engage in the kind of creative destruction that makes them vital. These same people seem unaware of the historical correlation between the absence of such interference and the ability of an economy to adjust, and thereby to flourish.

The lessons of the USSR and Cuba are lost on such people. Their examination of China overlooks the fact that China’s governments allow its manufacturing sectors to govern themselves for all practical purposes.

It’s true that China’s disinterest in such issues allows excessive harm to come to both environments and people. However, the whine of this post is that the manufacturing jobs that once were here are now there; and it is unaccompanied by the cheese of the common sense to understand why this situation seems so entrenched today.

During my last séance with Steve Jobs, I asked him the question posed in the first section of this post. Mr. Jobs, when asked by President Obama why the iPhone jobs couldn’t “come home”, was thinking the following as he gave his blunt response to the incumbent Socialist:

“You’re an idiot! This is what we get when we elect a neighborhood activist who doesn’t even understand how impossible it is to return to the conditions that allowed companies to consider keeping these jobs here. The national government regulated, and unions negotiated, these jobs out of here.”

“Too bad, you never ran a business yourself. You had better hope another demand soon arises in this world that America is uniquely positioned to meet. Otherwise, our economic goose is cooked.”

“There are too many here who feel entitled to what they had in the past to ever make us competitive again in those areas that have left our shores. They’re all going to have to die first, and we are going to have to develop a desperate population, divorced from welfare, before we can get this place going again.”
I am glad someone around here is not Kidding...
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See Does the American Apple Rot at its Capitalist Core?

http://open.salon.com/blog/f_arouete/2012/02/23/does_the_american_apple_rot_at_its_capitalist_core

To quote John Perkins in his jaw-dropping book Confessions of and Economic Hit Man

"Today, men and women are going into Thailand, the Philippines, Botswana, Bolivia and every other country where they hope to find people desperate for work. They go to these places with the express purpose of exploiting wretched people - people whose children are severely malnourished, even starving, people who live in shantytowns and have lost all hope of a better life, people who have ceased to even dream of another day. These men and women leave their plush offices in Manhattan or San Francisco or Chicago, streak across continents and oceans in luxurious jetliners, check into first-class hotels, and dine at the finest restaurants the country has to offer. Then they go searching for desperate people.

Today, we still have slave traders. They no longer find it necessary to march into the forests of Africa looking for prime specimens who will bring top dollar on the auction blocks in Charleston, Cartagena and Havana. They simply recruit desperate people and build a factory to produce the jackets, blue jeans, tennis shoes, automobile parts, computer components, and thousands of other items they can sell in the markets of their choosing, Or they may elect not even to own the factory themselves; instead, they hire a local businessman to do all their dirty work for them.

These men and women think of themselves as upright. They return to their homes with photographs of quaint sites and ancient ruins, to show to their children. They attend seminars where they apt each other on the back and exchange tidbits of advice about dealing with the eccentricities of customs in far-off lands. Their bosses hire lawyers who assure them that what they are doing is perfectly legal. They have a cadre of psychotherapists and other human resource experts at their disposal to convince them that they are helping those desperate people.

The old-fashioned slave trader told himself that he was dealing with a species that was not entirely human, and that he was offering them the opportunity to become Christianized. He also understood that slaves were fundamental to the survival of his own society, that they were the foundation of his economy. The modern slave trader assured herself (or himself) that the desperate pople are better off earning one dollar a day than no dollars at all, and that they are receiving the opportunity to become integrated into the larger world community. She also understands that these desperate people are fundamental to the survival of her company, that they are the foundation for her own lifestyle. She never stops to think about the larger implications of what she, her lifestyle, and the economic system behind them are doing to the world - or of how they may ultimately impact her children's future."