Thursday, June 16, 2011

Prepare: Manufacturing

Warning: This is a highly inflammatory subject akin to discussing religion, guns or hockey teams. Everyone has an opinion which they are entitled to and I welcome civil discourse.

We all have this sepia toned image of thousands of blue shirted, hard hat and lunch pail in hand American men marching through the gates of large factory complete with smoke stacks and assembly lines and bringing home a pay envelope on Friday which provides for a comfortable cottage, white picket fence and Mom at home making pot roast and apple pie for hard working hubbie and children Mary and Bobby.

Ah, the transitory past.

Unfortunately, that image of America is no longer reality. More Americans work in the service or professional trades and fewer work in manufacturing than in years past. Has it negatively effected our nation? Yes and no. Our standard of living is higher, but so is our debt. Further, what we make is worth less due to the negative effects of inflation.

Many lament the fact that fewer people work in manufacturing and make statements like "We sent all of our manufacturing jobs overseas" or "we don't make anything in America anymore". Actually, these statements aren't entirely true.

The fact is we still make quite a bit of stuff here in the U.S. So much, that the U.S. manufacturers are responsible for 21% of what is built in the world, that according to the National Association of Manufacturers. How does that stack up against the Chinese or Japanese? The Chinese come in at 15% and the Japanese at 12%.

What surprises people is what is built in the U.S. versus what is no longer manufactured. For instance, we still build tractors, tanks, airplanes and cars in the U.S. Many of these products have price tags in the millions of dollars and the employees in these fields enjoy wages several thousand dollars above the annual salary of other employees in the private sector.

What we don't manufacture in the U.S. are low end, lost cost consumer products such as plastic laundry baskets. Plastic laundry baskets can be purchased at the discount store for ninety nine cents. There is no way an adult can work in a factory in the U.S. making plastic clothing baskets with a retail price of less than a dollar and survive financially. However, a person in a third world nation with a daily per capita cost of living of less than $2 a day can squeak by.

We also don't make commodity consumer electronics. Why? A flat screen, high definition television comes to market Christmas 2010 with a retail price tag of 1499.99. In one year, that same TV will be discounted to 999.99 as newer and better models come out. Will the workers who assembled that fifteen hundred dollar retail price TV in 2010 be willing to take a commensurate pay cut which reflects the price one year later? Of course not.

Consumer electronics are a losing proposition to a working class with a high cost of living such as we have in the U.S. Consumer demand for consumer electronics is fickle and unreliable for the cost of goods and labor.

Let's consider some other factors.

Automation, consolidiation and specialization.

Automation - During the 1940's and 50's, much of the work done in factories was manual as it still is currently in much of the third world. Thousands of low skilled workers assembled and produced products from raw goods. For the past 30 years however, more and more work is being done by precision robots using computerized instructions. The result is higher quality and more productivity. So much so that American manufacturing outproduces its competitors two to one. Human operators are still needed as are quality control inspectors but fewer workers are needed for production and than means fewer jobs in manufacturing.

Consolidation - Both products and production have become consolidized. We have smart phones which have replaced a half dozen or more devices (land line phones, personal computers, personal organizers, calculators, the Rolodex, personal stereos and so on) so we buy and thus manufacture, fewer things (although it doesn't feel like it with kids!)

Further, companies which used to have multiple factories making dozens of different products are using technology and automation to consolidate manufacturing. More products are being produced "just in time" based upon real time demand from retail and industrial customers rather than being built and waiting to be purchased from a warehouse.

Specialization - Along with automation, we have a manufacturing industry with needs for specialized skills rather than general, low skill/low education like we needed a generation ago. So the need for large numbers of high school graduates to fill cavernous facilities moving goods down an assembly line tweaking one screw or part is no longer needed. Rather, the need is for employees with advanced computer and industrial engineering skills operating more and more advanced machines.

In the end, the demographic which has been hardest hit by this recession and recent recessions in the past, the adult with a high school education, cannot rely upon manufacturing employment for a stable career as his father or grandfather could in years past.

Now, there is a part of U.S. manufacturing which is a sore spot with me. Strategic disadvantage. When your nation is dependent upon foreign manufacturers for key industrial products such as generators, electrical grid transformers, digital communications components and such, than your nation is at risk. There are some industries which demand a domestic production base for its strategic needs.

In the end, manufacturing exists in the U.S. but it is not longer the panacea for long term unemployment nor is it the cause of our problems. Rather, we have to adapt to a changing landscape and plan accordingly. The successful individual (and nation) adapts, rather than regresses.

As I said, this is an inflammatory subject. Everyone has an opinion and some are not as popular as others. Feel free to leave a comment and explain your position.

1 comment:

Anonymous said...

When I was a kid the two biggest industries where I lived was processing cow skins into leather and the shoe industry. There were literally large 7 story buildings where women worked in long rows of machines (not just sewing machines) cutting and sewing leather into shoes. I myself worked in a leather factory when I was about 19. 100% of those industries are gone. I'm not saying there are no shoes made in the USA but in the state where I lived there are none. hundreds of thousands of jobs gone. There are a lot of industries like that. The transition was not always easy, many small communities sufferred before they recovered.

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