Manufacturing in America

D29 has a post challenging the idea that labor costs are the main thing driving the movement out of the country.


David Foster said...

Certainly true that there are plenty of issues other than labor costs harming US manufacturing. But the "direct labor is only 5% of cost" assertion is highly industry-dependent. In cut-and-sew apparel manufacturing, for example, it is surely much higher.

Plus, *direct* labor is not the only cost that is sensitive to where you put your factory. Some of the *indirect* labor is going to move as well, and also gain by the lower local labor costs.

Grim said...

I'm afraid it is outside my area of expertise. :) I do take his point that cutting regulation would also make manufacturing more competitive against global industry, perhaps allowing for more Americans to have manufacturing jobs again.

Edith Hook said...

It's much too complicated for an article. Who among contemporary thinkers (Right, Left, or Whatever) factors in the REAL ECONOMIC GAME CHANGERS: instant global communication, commercial monopolies, automation, computing(including the implications of MEGA data bases), greater interdependence than ever before, the accelerated churn in innovation and the life cycle of businesses and careers, globalization (people used to invest in and purchase from corporations that were relatively known to them and do business face to face, today, it is with strangers on the other side of the planet), and the huge asymmetry in knowledge and power between the regular folks and the Mandarin class (meritocracy).
I am not aware of any politician that seems to grasp the implications of the innovation and engineering advances that have emerged. I don't know if the thinkers who wrote for the Industrial Revolution have that many insights applicable to the Information Revolution, which they could not have imagined.
I don't think that the public, media, academia, or the pols have caught up to these realities and what they portend for the economy or the middle class. Most seem to have an almost adolescent grasp of the realities faced by businesses. Businesses aren't free to do whatever they please; they are caught between their investors (you, me, and those little old ladies from Pasadena), regulators(at all levels, EPA, OSHA,BLM, SEC), creditors, customers, suppliers, energy requirements, tax considerations, competitors, media, communities (employees). Imagine how hard it is to compete with the mind boggling economies of scale coming from the global supply chain.
Small to medium size businesses who could still be categorized as entrepreneurial face as much volatility and uncertainty as the typical wage earner. This reality doesn’t ever seem to factor in to the mindset of the elites, their minions, and their ideological fellow travelers of whatever persuasion. To recap, per the Deloitte Shift Index:
Shorter company life span.
Greater management turnover.
Falling return on assets.
Declining Innovation.
Declining trust in brands.
Less job security.

Please note that Mr Denning extrapolates from the Deloitte Shift Index, which he properly credits for all the heavy lifting. He points out the paradox that corporate executive salaries have exploded while ROA(assets) has been in fairly steep decline. Any thoughts?