Vail Daily letter: Make jobs work
July 31, 2010
So, you want a job? How about this one? Wanted: Come join with 800,000 of your comrades in manufacturing and assembling products for Apple, Dell, HP, Nokia, Microsoft and Intel among many others. Starting wages competitive with the region. Subsidies available for 300-square-foot apartments in workers quarters, all complete with walk-out closets. We are a successful company with $62 billion in annual revenues. You can apply at Hon Hai Precision Industry (aka Foxconn), Shenzhen, China.
The want ad is fictitious. Unfortunately, the content is not — right down to the walk-out closets. The statistics come from Andy Grove, CEO and chairman of Intel from 1987 until 2005, in the article “How to make an American job,” originally published in Bloomberg Businesweek and recently reprinted in the Denver Post.
In the article, Grove recalls how companies like Intel, Tandem Computers, Sun Microsystems, Cisco, Netscape and other such companies situated in Silicon Valley all followed a similar path from invention to prototype to mass production. He calls this process “scaling up,” a sequential phasing of design details, analyzing affordability models, developing mass production techniques, building factories and yes, hiring Americans by the thousands. That model no longer functions. In example, Grove states that “some 250,000 Foxconn employees in Chine produce Apple products … while Apple has about 25,000 employees in the U.S.”
Grove concludes that “the scaling process is no longer happening in the U.S. And as long as that’s the case, plowing capital into young companies that build their factories elsewhere will continue to yield a bad return in terms of American jobs.” Read that last sentence again, and then remember to ask the next politician who promises to aid small businesses with tax breaks and other incentives, where are the new jobs going to be located?
While he acknowledges that our free market principles have demonstrated clear superiority over planned economies, he notes that developing countries with rapidly expanding economies and substantial job growth are successful because of control and direction by central governments in targeting manufacturing industries.
The U.S. has lost and will continue to lose manufacturing jobs because our cost of labor is too high. Given the combination of wages and benefits, we can’t compete with foreign labor, particularly in Asia which is where most of our outsourcing has occurred. In free markets and increased importance of globalization, jobs move around the globe like water reacting to gravity. Even China is losing lower-paying textile industry jobs to countries such as Sri Lanka, Vietnam and Cambodia. As incomes in China have increased with successful industrialization, the Chinese are now experiencing loss of outsourced jobs in the lower wage categories for workers elsewhere who will work for less.
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There is a contingent of economists who insist that loss of manufacturing jobs in the U.S. is inevitable and not to be concerned about. I remember listening to a Stanford graduate school professor making that very point in 1983. The future was information technology and the U.S. would be the leader. “Bending metal” as he called the fabrication of auto body panels would be done in Mexico or in Asia. That time came and it past. Education was to be our key to growing high value jobs serving our population and others. Now higher value jobs in accounting and engineering are being outsourced to countries like India. Once again our labor price is too high.
By other measures our future doesn’t look bright in building an economy based upon a better educated work force. According to the College Board, “The U.S. has fallen from first to 12th in the world in the share of adults ages 25-34 with post-secondary degrees (associate degrees or higher). The U.S. ranks somewhat higher, sixth, among all nations when older adults are added to the equation.” This is not comforting. Us old folks are better educated than our offspring? How has this happened? One of Grove’s solutions to rebuilding our industrial commons is “to levy an extra tax on the product of offshored labor. (If the result is a trade war, treat it like other wars — fight to win).” Unusual advice from an icon of private industry. Economists are almost universally opposed to tariffs. They correctly assert that free markets without national subsidies of one form or another, produce the lowest cost for all goods and services and thereby represent the greatest efficiency and value for humankind. What they seldom mention is that what is best for humankind is not equally distributed around the globe. Some countries are winners, others are losers. Guess where we fall?
I have another idea. We need to encourage public-private partnerships in new technologies and infrastructure such as renewable energies, building out the power grid, advanced battery technology, etc. The public sector would be an equity holder and could be required to sell its position within a specified time or when certain conditions are met. On condition: The jobs created must be located in the U.S. with few exceptions (e.g., foreign sales offices and distribution centers).
As you listen to candidates for national office, pay attention to their solutions for job growth. Should legislation that economically encourages business development have a requirement that resulting jobs be situated in the U.S.? You decide.
About those walk-out closets. High population-density cities in Asia such as Shenzhen are renowned for constructing high-rise buildings on structural platforms that seem no larger than a postage stamp. High-rise residential apartments typically have small outside balconies (perhaps 24 square feet). Residents use these small balconies as walk-out closets and thus are filled with clothes hanging from the ceiling grid.