Manufacturing Confusion

[bfp]

T. Sowell

"Manufacturing jobs" has become a battle cry of those who oppose free trade and are sounding an alarm about American jobs being exported to lower-wage countries overseas. However, manufacturing jobs are much less of a problem than manufacturing confusion.

Much of what is being said confuses what is true of one sector of the economy with what is true of the economy as a whole. Every modern economy is constantly changing in technology and organization. This means that resources — human resources as well as natural resources and other inputs — are constantly being sent off in new directions as things are being produced in new ways.

This happens whether there is or is not free international trade. At the beginning of the 20th century, 10 million American farmers and farm laborers produced the food to feed a population of 76 million people. By the end of the century, fewer than 2 million people on the farms were feeding a population of more than 250 million. In other words, more than 8 million agricultural jobs were "lost."

Between 1990 and 1995, more than 17 million American workers lost their jobs. But there were never 17 million workers unemployed during this period, any more than the 8 million agricultural workers were unemployed before.

People moved on to other jobs. Unemployment rates in fact hit new lows in the 1990s. But when the very same things happen in the international economy, it is much easier to spread alarm and manufacture confusion.

There is no question that many computer programming jobs have moved from the United States to India. But this is just a half-truth, which can be worse than a lie. As management consultant Peter Drucker points out in the current issue of Fortune magazine, there are also foreign jobs moving to the United States.

In Drucker's words, "Nobody seems to realize that we import twice or three times as many jobs as we export. I'm talking about the jobs created by foreign companies coming into the U.S.," such as Japanese automobile plants making Toyotas and Hondas on American soil.

"Siemens alone has 60,000 employees in the United States," Drucker points out. "We are exporting low-skill, low-paying jobs but are importing high-skill, high-paying jobs."

None of this is much consolation if you are one of the people being displaced from a job that you thought would last indefinitely. But few jobs last indefinitely. You cannot advance the standard of living by continuing to do the same things in the same ways.

Progress means change, whether those changes originate domestically or internationally. Even when a given job carries the same title, often you cannot hold that job while continuing to do things the way they were done 20 years ago — or, in the case of computers, 5 years ago.

The grand fallacy of those who oppose free trade is that low-wage countries take jobs away from high-wage countries. While that is true for some particular jobs in some particular cases, it is another half-truth that is more misleading than an outright lie.
While American companies can hire computer programmers in India to replace higher paid American programmers, that is because of India's outstanding education in computer engineering.

By and large, however, the average productivity of Indian workers is about 15 percent of that of American workers.
In other words, if you hired Indian workers and paid them one-fifth of what you paid American workers, it would cost you more to get a given job done in India. That is the rule and computer programming is the exception.

Facts are blithely ignored by those who simply assume that low-wage countries have an advantage in international trade. But high-wage countries have been exporting to low-wage countries for centuries. The vast majority of foreign investments by American companies are in high-wage countries, despite great outcries about how multinational corporations are "exploiting" Third World workers.

Apparently facts do not matter to those who are manufacturing confusion about manufacturing jobs.

[Adam D]

That's a pretty sad justification for dumping US workers without jobs.

[bfp]

Originally posted by Adam D
That's a pretty sad justification for dumping US workers without jobs.

In 1970, the telecommunications industry employed 421,000 switchboard operators. In the same year, Americans made 9.8 billion long-distance calls. Today, the telecommunications industry employs only 78,000 operators. That's a tremendous 80 percent job loss.

What should Congress have done to save those jobs? Congress could have taken a page from India's history. In 1924, Mahatma Gandhi attacked machinery, saying it "helps a few to ride on the backs of millions" and warned, "The machine should not make atrophies the limbs of man." With that kind of support, Indian textile workers were able to politically block the introduction of labor-saving textile machines. As a result, in 1970 India's textile industry had the level of productivity of ours in the 1920s.

Michael Cox, chief economist at the Federal Reserve Bank of Dallas, and author Richard Alms tell the rest of the telecommunications story in their Nov. 17 New York Times article, "The Great Job Machine." Spectacular technological advances made it possible for the telecommunications industry to cut its manpower needs down to 78,000 to handle not the annual 9.8 billion long distance calls in 1970, but today's over 98 billion calls.

One forgotten beneficiary in today's job loss demagoguery is the consumer. Long-distance calls are a tiny fraction of their cost in 1970. Just since 1984, long-distance costs have fallen by 60 percent. Using 1970s technology, to make today's 98 billion calls would require 4.2 million operators. That's 3 percent of our labor force. Moreover, a long-distance call would cost 40 times more than it does today.

Finding cheaper ways to produce goods and services frees up labor to produce other things. If productivity gains aren't made, where in the world would we find workers to produce all those goods that weren't even around in the 1970s?

It's my guess that the average anti-free-trade person wouldn't protest, much less argue that Congress should have done something about the job loss in the telecommunications industry.

He'd reveal himself an idiot. But there's no significant economic difference between an industry using technology to reduce production costs and using cheaper labor to do the same. In either case, there's no question that the worker who finds himself out of a job because of the use of technology or cheaper labor might encounter hardships. The political difference is that it's easier to organize resentment against India and China than against technology.

Both Republican and Democratic interventionists like to focus on job losses as they call for trade restrictions, but let us look at what was happening in the 1990s. Cox and Alm report that recent Bureau of Labor Statistics show an annual job loss from a low of 27 million in 1993 to a high of 35.4 million in 2001. In 2000, when unemployment reached its lowest level, 33 million jobs were lost. That's the loss side. However, annual jobs created ranged from 29.6 million in 1993 to a high of 35.6 million in 1999.

These are signs of a healthy economy, where businesses start up, fail, downsize and upsize, and workers are fired and workers are hired all in the process of adapting to changing technological, economic and global conditions. Societies become richer when this process is allowed to occur. Indeed, because our nation has a history of allowing this process to occur goes a long way toward explaining why we are richer than the rest of the world.

Those Americans calling for government restrictions that would deny companies and ultimately consumers to benefit from cheaper methods of production are asking us to accept lower wealth in order to protect special interests. Of course, they don't cloak their agenda that way. It's always "national security," "level playing fields" and "protecting jobs". Don't fall for it – we'll all become losers.

[Adam D]

Do you have any more articles stupidly making assumptions and illogical, incompetent arguments about this issue?

[bfp]

Originally posted by Adam D
Do you have any more articles stupidly making assumptions and illogical, incompetent arguments about this issue?

I think he has explained the flow of the free-market, what happens when jobs are lost, and what happens when manufacturers want to lay off workers to invest in new products.

Who is to say that companies cannot lay off workers? Yea, it's tough to face a layoff, but there are other jobs out there.

You want to talk about assumptions, calling companies out for sending jobs overseas because they are 'greedy' is nonsense.

[Adam D]

Originally posted by bfp
I think he has explained the flow of the free-market, what happens when jobs are lost, and what happens when manufacturers want to lay off workers to invest in new products.

And those are all nice ideas if any of them actually explained anythign that was going on.

Who is to say that companies cannot lay off workers? Yea, it's tough to face a layoff, but there are other jobs out there.

Let's not be tangential.

You want to talk about assumptions, calling companies out for sending jobs overseas because they are 'greedy' is nonsense.

I think you're the only person that doesn't believe that companies do so to increase profits.

[johnny861]

one cannot blame the company....

The money has to come from somewhere for the company to operate... if they take a loss, they have to make up for it...


Ignoring that fact is just stupid....

In order for a company to grow, it has to be profitable... in order for its employees to get raises, it has to be profitable... if it's a balanced sheet, employees won't get raises and the company is not growing... flags are raised, because next quarter, that company could be taking a net loss...


It only makes sense, If my outgo is more than my income for a month, I best better figure out how to get myself out of the hole so I can pay next month's rent... and if that means I've gotta get rid of my pool service and do it myself to make ends meet, then I have to do that...

[Adam D]

Originally posted by johnny861
one cannot blame the company....

The money has to come from somewhere for the company to operate... if they take a loss, they have to make up for it...


Ignoring that fact is just stupid....

In order for a company to grow, it has to be profitable... in order for its employees to get raises, it has to be profitable... if it's a balanced sheet, employees won't get raises and the company is not growing... flags are raised, because next quarter, that company could be taking a net loss...


It only makes sense, If my outgo is more than my income for a month, I best better figure out how to get myself out of the hole so I can pay next month's rent... and if that means I've gotta get rid of my pool service and do it myself to make ends meet, then I have to do that...

That's understandable, but I can't remember a time when Nike looked at it's profits and said, "shit, if we don't move some plants to Malaysia, we're going to be broke" and then moved it's factories to Malaysia. They were turning significant profit long before they moved, so were all the other companies who have continued to move factories offshore.

[johnny861]

Originally posted by Adam D
That's understandable, but I can't remember a time when Nike looked at it's profits and said, "shit, if we don't move some plants to Malaysia, we're going to be broke" and then moved it's factories to Malaysia. They were turning significant profit long before they moved, so were all the other companies who have continued to move factories offshore.

I'm not for sure, I haven't actually seen the books or the trend reports from Nike, corp. to make an accurate assessment as to the intentions of their change in ERP...

Manufacturing is going overseas, and yes, there's a few companies like Hondai and Kawasaki moving their manufacturing over here, but I think using manufacturing to make a point about domestic job loss is going to lose its foundation for the following reason.

With the continual increase in technological innovations in the manufacturing industry, I think we are going to see down the road a new trend in the reduction of manufacturing staff globally... I think this shift to foreign workers is a temporary effect... The other day, I was doing a small contract for a company who manufactures cheerleading uniforms... And I got to see the demonstration of a ribbon making machine... computerized. And I thought to myself... how many people would it have taken to make x amount of ribbon in 1920's era shop as opposed to one person literally pushing a couple of buttons and letting the software and the machine do the rest...

it's one small example... but eventually, plants will acquire or develop the techniques to automate the things that workers still have to do today... I believe that is an inevitable reality.

I also remember a few year's ago, we developed a website and an application backend, that would automate pre-press production items and send them directly to industrial digital printers... previously.. they accepted an order.. then a staff of 50 for this division would create the pre-print layouts and the cells then set them up on the printers for their clients... now they just need 10 people to just offload the production pieces and pack them for shipping...

another tiny example, but its examples like these, that are happening EVERYWHERE and in every industry...

[Adam D]

Originally posted by johnny861
With the continual increase in technological innovations in the manufacturing industry, I think we are going to see down the road a new trend in the reduction of manufacturing staff globally... I think this shift to foreign workers is a temporary effect... The other day, I was doing a small contract for a company who manufactures cheerleading uniforms... And I got to see the demonstration of a ribbon making machine... computerized. And I thought to myself... how many people would it have taken to make x amount of ribbon in 1920's era shop as opposed to one person literally pushing a couple of buttons and letting the software and the machine do the rest...

it's one small example... but eventually, plants will acquire or develop the techniques to automate the things that workers still have to do today... I believe that is an inevitable reality.

I also remember a few year's ago, we developed a website and an application backend, that would automate pre-press production items and send them directly to industrial digital printers... previously.. they accepted an order.. then a staff of 50 for this division would create the pre-print layouts and the cells then set them up on the printers for their clients... now they just need 10 people to just offload the production pieces and pack them for shipping...

another tiny example, but its examples like these, that are happening EVERYWHERE and in every industry...

There's some crazy political science stuff written that talks about how our country, as well as Europe, is moving away from manufacturing and industry to becoming a service economy. I don't know that I entirely agree or disagree with that. I don't know that I really think there's much written behind it as to why that is happening. But I agree, there's growth in service sectors and loss in manufacturing. But by no means is this country ready to be that reliable on others for manufacturing, and I would even say such a move would be disasterous for the entire world.

But you're talking about something entirely different. When technology advances and jobs get cut out, generally jobs are created by the advances that generally balance out the loss. But when you're moving jobs away, jobs that are still needed to other countries, that's another effect altogether, because there's no jobs coming back from jobs leaving. The two are not relation, as much Sowell would like to believe. Sending jobs to Tawain does not encourage Toyota to send jobs here.

[johnny861]

Originally posted by Adam D

There's some crazy political science stuff written that talks about how our country, as well as Europe, is moving away from manufacturing and industry to becoming a service economy. I don't know that I entirely agree or disagree with that. I don't know that I really think there's much written behind it as to why that is happening. But I agree, there's growth in service sectors and loss in manufacturing. But by no means is this country ready to be that reliable on others for manufacturing, and I would even say such a move would be disasterous for the entire world.


True, There's definitely a change to a service economy. The last 10 years has made this apparent with a lot of dot-coms introducing virtual inventory and supply-chain management. Hotels.com is a good example of this kind of service economy style corporation, which they are expecting to gross a revenue of 1 billion by the end of their fiscal year. As for being disaterous, I'm not for sure if it would be necessarily negative nor positive, but rather a transition. Change will always be disruptive, but in this scenerio, it is really hard to say. Having our manufacturing base on foreign soil will certainly be interesting for the USA and perhaps a possible bargaining chip for foreign nations to wrestle with American foreign policy, but again, It's not entirely certain as to what the negatives and positives are.




But you're talking about something entirely different. When technology advances and jobs get cut out, generally jobs are created by the advances that generally balance out the loss. But when you're moving jobs away, jobs that are still needed to other countries, that's another effect altogether, because there's no jobs coming back from jobs leaving. The two are not relation, as much Sowell would like to believe. Sending jobs to Tawain does not encourage Toyota to send jobs here.

Not necessarily. 1,000 skilled laborers could be replaced with automation and a handful of engineers. It's not so much technological advances as they are more slight innovations.

To make a broad statement, It's safe to say Henry Ford invented the production line concept, inherited by other companys and creating many jobs for people, however, innovations to the production line process has increased the speed and efficiency of production line processes and reduced the man power involved with the process.

One thing I used to joke around with coworkers about, when I worked for a dot com, was making the statement, "man... there are so many people in the technology field from everywhere else! At this rate we're going to run out of stuff to do... "


When looking at the manufacturing shift to third world countries and our transition to a service economy, it will eventually be relative. Not in the immediate now. But I'm sure a factory in a country with weak labor laws and no unions will have an easier time streamlining their production lines than here at home.

As for the encouragement of companies to set up shop here, you're right. There is no relation. There are other independant motivations behind those needs.

[Hey Bubu]

Could a possible shrinkage in the basic labor type jobs force people to get a "better education" and aim for higher end jobs?

[Adam D]

Originally posted by TypeH
Could a possible shrinkage in the basic labor type jobs force people to get a "better education" and aim for higher end jobs?

Not likely. If you don't have a job, how are you going to afford to go to school? Or what if you don't do well in school? Do you default to working in fast food to feed your family?

When thousands of people get dumped out of their jobs a factory at a time, it's hard for all of those people to enter colleges. They are usually looking to find another job so they can pay their bills.

The "better" jobs these people usually get are lateral moves from a line to a cubicle, assuming they are computer literate. Or worse they end up at Wal-Mart.

[johnny861]

Originally posted by Adam D
Not likely. If you don't have a job, how are you going to afford to go to school? Or what if you don't do well in school? Do you default to working in fast food to feed your family?

When thousands of people get dumped out of their jobs a factory at a time, it's hard for all of those people to enter colleges. They are usually looking to find another job so they can pay their bills.

The "better" jobs these people usually get are lateral moves from a line to a cubicle, assuming they are computer literate. Or worse they end up at Wal-Mart.

True... it's a sad reality... but keeping factories here will most likely only prolong the inevitable, which will hold us as a progressing nation, back...

However, I think corporations should be held more accountable for these kinds of moves... perhaps some sort of tax break incentive programs by the government to help displaced workers get basic education and training in other fields...

As for manufacturing jobs, I'm still convinced those jobs will begin to disappear further over the years to automation...

[bfp]

Originally posted by Adam D
Not likely. If you don't have a job, how are you going to afford to go to school? Or what if you don't do well in school? Do you default to working in fast food to feed your family?

When thousands of people get dumped out of their jobs a factory at a time, it's hard for all of those people to enter colleges. They are usually looking to find another job so they can pay their bills.

The "better" jobs these people usually get are lateral moves from a line to a cubicle, assuming they are computer literate. Or worse they end up at Wal-Mart.

Do you have any evidence to back up these claims? Saying that the people that have lost their jobs 'usually' go straight to a cubicle or straight to Wal-Mart? How can you determine the motives of thousands of people?

Maybe they were able to get a loan on their college tuitions. Maybe not.

Maybe they got tired of working the way they did and decided they wanted to make a change and open up a small buisness? No, of course not, because everyone in your view is indeed illiterate and needs help. Specifically from the gov't. The gov't should provide people with jobs, homes, health-care, househeld computers, etc to keep up with the rest of society.

Maybe, they immediately found another good-paying job that was better than the last.