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The Future of America

Posted by Larry Doyle on May 29, 2009 2:19 PM |

On this historic day in which the government of the United States of America is on the doorstep of taking a majority equity stake in General Motors, I thought it may be prudent to address manufacturing in America.

To that end, former Clinton administration Secretary of Labor Robert Reich provides highly insightful commentary at Wall Street Pit: The Future of Manufacturing, GM, and American Workers (part I).

As we wonder what the future of our automotive manufacturing industry may look like as well as manufacturing in general, I strongly recommend we take Reich’s words to heart. Let’s take a round trip as we review the dynamics of the Industrial Revolution and the road ahead:

What’s the Administration’s specific aim in bailing out GM? I’ll give you my theory later.

For now, though, some background. First and most broadly, it doesn’t make sense for America to try to maintain or enlarge manufacturing as a portion of the economy. Even if the U.S. were to seal its borders and bar any manufactured goods from coming in from abroad–something I don’t recommend–we’d still be losing manufacturing jobs. That’s mainly because of technology.

When we think of manufacturing jobs, we tend to imagine old-time assembly lines populated by millions of blue-collar workers who had well-paying jobs with good benefits. But that picture no longer describes most manufacturing. I recently toured a U.S. factory containing two employees and 400 computerized robots.
The two live people sat in front of computer screens and instructed the robots. In a few years this factory won’t have a single employee on site, except for an occasional visiting technician who repairs and upgrades the robots.

Factory jobs are vanishing all over the world. Even China is losing them. The Chinese are doing more manufacturing than ever, but they’re also becoming far more efficient at it. They’ve shuttered most of the old state-run factories. Their new factories are chock full of automated and computerized machines. As a result, they don’t need as many manufacturing workers as before.

Economists at Alliance Capital Management took a look at employment trends in twenty large economies and found that between 1995 and 2002–before the asset bubble and subsequent bust–twenty-two million manufacturing jobs disappeared. The United States wasn’t even the biggest loser. We lost about 11% of our manufacturing jobs in that period, but the Japanese lost 16% of theirs. Even developing nations lost factory jobs: Brazil suffered a 20% decline, and China had a 15% drop.

I’m fairly certain this message is not one commonly promoted by our media. I believe we strictly hear how our manufacturing jobs are purely shipped overseas and especially to developing countries.

What happened to manufacturing? In two words, higher productivity. As productivity rises, employment falls because fewer people are needed. In this, manufacturing is following the same trend as agriculture. A century ago, almost 30% of adult Americans worked on a farm. Nowadays, fewer than 5% do. That doesn’t mean the U.S. failed at agriculture. Quite the opposite. American agriculture is a huge success story. America can generate far larger crops than a century ago with far fewer people. New technologies, more efficient machines, new methods of fertilizing, better systems of crop rotation, and efficiencies of large scale have all made farming much more productive.

Manufacturing is analogous. In America and elsewhere around the world, it’s a success. Since 1995, even as manufacturing employment has dropped around the world, global industrial output has risen more than 30%.

We should stop pining after the days when millions of Americans stood along assembly lines and continuously bolted, fit, soldered or clamped what went by. Those days are over. And stop blaming poor nations whose workers get very low wages. Of course their wages are low; these nations are poor. They can become more prosperous only by exporting to rich nations. When America blocks their exports by erecting tariffs and subsidizing our domestic industries, we prevent them from doing better. Helping poorer nations become more prosperous is not only in the interest of humanity but also wise because it lessens global instability.

Want to blame something? Blame new knowledge. Knowledge created the electronic gadgets and software that can now do almost any routine task. This goes well beyond the factory floor. America also used to have lots of elevator operators, telephone operators, bank tellers and service-station attendants. Remember? Most have been replaced by technology. Supermarket check-out clerks are being replaced by automatic scanners. The Internet has taken over the routine tasks of travel agents, real estate brokers, stock brokers and even accountants. With digitization and high-speed data networks a lot of back office work can now be done more cheaply abroad.

Well, if some would prefer to blame new knowledge, I am all for embracing it and pursuing it. Those who undertake those initiatives and challenges will win as we move forward in the Brave New World of the Uncle Sam Economy, regardless of how the old man behaves.

Any job that’s even slightly routine is disappearing from the U.S. But this doesn’t mean we are left with fewer jobs. It means only that we have fewer routine jobs, including traditional manufacturing. When the U.S. economy gets back on track, many routine jobs won’t be returning–but new jobs will take their place. A quarter of all Americans now work in jobs that weren’t listed in the Census Bureau’s occupation codes in 1967. Technophobes, neo-Luddites and anti-globalists be warned: You’re on the wrong side of history. You see only the loss of old jobs. You’re overlooking all the new ones.

The reason they’re so easy to overlook is that so much of the new value added is invisible. A growing percent of every consumer dollar goes to people who analyze, manipulate, innovate and create. These people are responsible for research and development, design and engineering. Or for high-level sales, marketing and advertising. They’re composers, writers and producers. They’re lawyers, journalists, doctors and management consultants. I call this “symbolic analytic” work because most of it has to do with analyzing, manipulating and communicating through numbers, shapes, words, ideas.

How does one optimize his position in the context of this new Technological Revolution? One simple approach–education!! Individuals who truly develop their talents and skills via education will have fabulous opportunities. I am concerned for our nation as a whole, though, given our position of 18th out of 24 in educational rankings amongst the industrialized world.

Symbolic-analytic work can’t be directly touched or held in your hands, as goods that come out of factories can be. In fact, many of these tasks are officially classified as services rather than manufacturing. Yet almost whatever consumers buy these days, they’re paying more for these sorts of tasks than for the physical material or its assemblage. On the back of every iPod is the notice “Designed by Apple in California, Assembled in China.” You can bet iPod’s design garners a bigger share of the iPod’s purchase price than its assembly.

The biggest challenge we face over the long term — beyond the current depression — isn’t how to bring manufacturing back. It’s how to improve the earnings of America’s expanding army of low-wage workers who are doing personal service jobs in hotels, hospitals, big-box retail stores, restaurant chains, and all the other businesses that need bodies but not high skills. More on that to come.

Thus, while our government takes on the challenge of remaking an automotive industry, the bigger picture over the longer haul has to do with educating ourselves and our nation to succeed in the Technological Revolution.

LD

  • donnie

    Maybe you should email this article to the White House so the Chief can get a better idea about what’s going on in America.keep up the good work.

    • Donnie,

      Thanks for the plug. We are living in very interesting times. Perhaps more interesting than we really needed.

      Will try to stay ahead of the curve here at SoC.

  • freemarket

    Larry,

    What’s your view on the value of an mba? I’m interested in getting one and going into industry finance, but it seems like there’s limited payoff in the short run since we’re moving into a more government controlled economy with Democrats holding all 3 levers of power. Great site btw.

    • Mr. Freemarket,

      Love your name!!

      In regard to the MBA. I am neither categorically for or against getting an MBA. I am categorically for:

      1. maximizing skills
      2. maximizing relationships

      If you are in a position or a firm that allows you the opportunity to do both of those so that you do not have to get the MBA, then proactively work with your manager to chart a plan of action.

      If you are not in that position (and there are less of them right now given the economy) then an MBA may be a great course of action. That said, if you do pursue it maximize your efforts in the process so the degree really works for you. Additionally, network extensively while you do it so you grow relationships and then leverage them.

      I am convinced that through this economy more and more companies will selectively upgrade their talent/ employees. The more skills and relationships you have, not only at this point but throughout your career, the better off you will be.

      In regard to the political part of the equation, I would not get overly concerned about that. First off, there is truly nothing you can do about who is in office. There is everything you can do about how you manage your affairs. Assuming you will be working for the next 30-40 years, don’t get overly worked up over the politics. Control what you can and don’t worry about that which is out of your control.

      Focus on continually getting further up the learning curve and growing your network.

      To that end, please utilize the Career Planning tab here at Sense on Cents. I have always collected articles and information I found of interest on these topics. I have upwards of twenty years worth of material which I have organized into a Workshop and Must Reads. I think you will find them helpful.

      Glad you found and like Sense on Cents. Share it with your friends.

      Let me know what you think!!

      LD

      • freemarket

        Thanks Larry!

        I’ll keep what you said in mind.

  • fiscalliberal

    Could I suggest that the robots example is to simplistic and misleading. To be specific, there is the trade off of initial capital. skilled trades maintenance and material supply control to feed the robots. Oh by the way if production has to be cut, you are still encumbered with the fixed cost of depreciation, versus the variable cost of labor. I have installed production robots and they are only good for simple well coordinated jobs. We tore out one line that was a failure.

    The auto folks are held up as the standard for expensive labor, however they are only 15% of the labor force. A far bigger issue is the competence of the manufacturing work force, which is the function of our culture not knowing what doing a good job is. Part of this is the unwillingness to accept responsibility in getting the job done.

    We might ask ourselves as to why the high quality batteries for automotive comes from foreign companies. Part of the problem of quality assembly. Over ten years ago GM had a pilot plant in the U.S. and could not make it go from a quality perspective. Workers or management? I do not know. Today I hear of small business machine shops who want to hire foreigners, not because of wages, simply because the quality of work comes from them. You ask them to machine a part and it is right the first or second time. U.S. citizens have to be hand held.

    Today we bought a hamburger from McDonald’s. The kid running the register did not have a clue in terms of operating it correctly or that the customer was unnecessarily waiting. The manager was appraise if the incompetent he hired

    When going to post high school training, I worked in the school cafeteria, starting as a buss boy and worked up to the steam line. One common rule taught by the manager was, never let a customer stand waiting for service or to spend his money at a cash register.

    We need to have more of the recession to get people oriented to the understanding that business pay salaries and that is only possible when customers are happy and jobs get done.

    I would also put little faith in Robert Reich as I doubt he ever worked a assembly line to know what has to be done. He is all reading and annunciating with little practice experience.

    • Fiscal…thank you for your insightful perspective. You do hit upon a critically important point: pride of ownership in everything we do. Whether flipping burgers or being a CEO, I do think our culture has lost part of that American work ethic and pride. Why is that? In my opinion, the more time and effort one vests in an exercise the greater the degree of pride one will typically take.

      On that front, I keep coming back to education and skill development. In order to get ahead and improve one’s lot in life, one needs to get educated, formally or informally. That said, an education takes time and effort. Having a role model, mentor, counselor to guide you along that path is critically important. There are no better role models than parents who express love and caring along with instilling the hunger, desire, and motivation.

      Don’t mean to get off topic but like you, I do hope this recession reteaches our country these lessons. We need them.

      Thanks again for adding real substance to Sense on Cents!!

  • coe

    LD – a true gem of a piece and a wake-up call for sure..and while I find the economic linkages and implications quite interesting (you are right to embrace the positive), I think the most alarming thread in your article that will come to haunt us is your reference to the poor position we as a country hold in the ranks of how we are educating our children – 18th out of 24 in the industrialized world – shameful! Talk about the real tax on our future! I also wonder if it might be too provocative to add another alarming dimension to the debate on the future – and to me, that is simply that in the history of civilization, the Greek, the Roman, and even the British Empires all ultimately declined to a major extent because of the decay in what can broadly be described as “morality”..let’s just think about it – political correctness bans any reference to a moral or religious compass in our public schools; one consequence of the explosion in single family formations carries with it images of latch key kids glued to TV and video games dripping in sex and violence (PS – this is also true in the more traditional families as well); there is no real sense of right and wrong translationg into an accepted community ethos or a cultural imperative for positive peer pressure – individual liberties trump group responsibilities ..and even the rituals and statistics tied to the traditional religious/Church-going experience that forged the back-bone of this country have all reflected a dramatic decline in participation over the past fifty years (and it is only accelerating because of the self-inflicted wounds of scandals and hypocrisy)…
    by the way, it seems to me that many of the lessons we are learning in our current economic crisis are in no small way also evidence of these factors as well..the examples are way too numerous to cite…

    Truth is, now more than ever, the world has gone global across economic, cultural, and philosophical boundaries. Sure, on one levelit is about productivity, shapes, words, and ideas – but it is also about the complex backdrop – education, ethics, accountabilities to the slew of “communities” we belong to..I would really love for our political, business and moral leaders to stop skirting these topics in the interest of “correctness”, or even worse, use them for their own misguided agendas, and try to get to the heart of the matter…lest we all too quickly and inevitably join our Greek and Roman and British predecessors in the annals of societies that found ways to collapse for reasons that were perhaps avoidable..

    Sorry for the Sunday morning rant, LD..no reason to be all negative …need to skip church – too much to do… catch the morning recap of last night’s murders and mayhem, watch the political talking heads pontificate on the bankruptcy of GM and the death of our manufacturing prowess, measure how many municipalities will be forced to cut services and education budgets in response to the economic crisis triggered by unethical lending/greedy leverage/dishonorable business and political leaders and global economic stupidity, and be full frontally bombarded by graphic trailer ads for “Drag Me to Hell”..who needs to be dragged anyway – follow the yellow brick road, and pay no attention to the man behind the curtain!

  • SkilledLabor

    Your manufacturing model is over simplified and thus misleading. A good manufacturing company is going to provide many, many skilled jobs. Not just people screwing in bolts on an assembly line. You are going to have company Managers/CEO, accountants, Office workers, buyers, shipping and receiving, QA people. And then assuming the factory is automated, that is a higly technological and skilled field of workers to keep the robots running. We will lose many design and engineering jobs, which are tightly integrated with manufacturing as well. Selling out all our skilled manufacturing jobs overseas is the equivalent of shooting a bullet in the air directly above our foot. It will come down and hit us right in the toe in about 20 years. We are a country driven by our quarterly and annual earnings numbers and are willing to send factories and jobs overseas to save a couple bucks short term on cheaper labor. Once these overseas companies develop, wages go up and we are competeing with the people in them for the goods they are producing.. It will be a sad time for America. Of course a person on wallstreet looking to make there quarterly numbers isnt concerned about this… A bit of irony however, financial workers should have more incentive then every to keep jobs like these around now that the days of made up number profits and derivatives are over 😉 Life isn’t lived on a peice of paper my friend.

    • Skilled Labor….thanks for your insights. The opinions I reference in my post are those of former Labor Secretary Robert Reich. I just so happen to agree with them.

      That said, I appreciate your comments.






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