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Economy
See other Economy Articles

Title: The Decline of Manufacturing in America: A Case Study
Source: Naked Capitalism
URL Source: http://www.nakedcapitalism.com/2011 ... g-in-america-a-case-study.html
Published: Sep 5, 2011
Author: Yves Smith
Post Date: 2011-09-05 10:06:07 by lucysmom
Keywords: None
Views: 9184
Comments: 27

One frequent and frustrating line that often crops up in the comments section of this blog is that American labor has no hope, it should just accept Chinese wages, since price is all that matters. That line of thinking is wrongheaded on multiple levels. It assumes direct factory labor is the most important cost driver, when for most manufactured goods, it is 11% to 15% of total product cost (and increased coordination costs of much more expensive managers are a significant offset to any cost savings achieved by using cheaper factory workers in faraway locations). It also assumes cost is the only way to compete, when that is naive on an input as well as a product level. How do these “labor cost is destiny” advocates explain the continued success of export powerhouse Germany? Finally, the offshoring,/outsourcing vogue ignores the riskiness and lower flexibility of extended supply chains.

This argument is sorely misguided because it serves to exculpate diseased, greedy, and incompetent American managers and executives. In the overwhelming majority of places where I lived in my childhood, a manufacturing plant was the biggest employer in the community. And when I went to business school, manufacturing was still seen as important. Indeed, the rise of Germany and Japan was then seen as a due to sclerotic American management not being able to keep up with their innovations in product design and factory management.

But if you were to ask most people, they’d now blame the fall of American manufacturing on our workers, which serves to shift focus from the top of the food chain at a time when they’ve managed to greatly widen the gap between their pay and that of the folks reporting to them.

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#1. To: A K A Stone, Fred Mertz, Godwinson, go65, war, no gnu taxes, Skip Intro, ferret mike, jwpegler, brian s, mininggpld, mcgowanjm (#0)

This argument is sorely misguided because it serves to exculpate diseased, greedy, and incompetent American managers and executives.

ping

"...all of the equations in neoclassical economics are rubbish. The differential equations describe nothing. Economics is not about mathematics, it is about the human being." Sandeep Jaitly

lucysmom  posted on  2011-09-05   10:08:15 ET  Reply   Trace   Private Reply  


#2. To: lucysmom (#0)

Repeal NAFTA, GATT and other such agreemtments. Thell the WTO to go to hell. Tell the UN to go to hell. Put high tariffs on Chinese goods. Put tariffs on all other imports too. Stop foreign aid. Kick the foreigners out of our colleges.

A K A Stone  posted on  2011-09-05   10:10:10 ET  Reply   Trace   Private Reply  


#3. To: A K A Stone (#2)

Repeal NAFTA, GATT and other such agreemtments. Thell the WTO to go to hell. Tell the UN to go to hell. Put high tariffs on Chinese goods. Put tariffs on all other imports too. Stop foreign aid. Kick the foreigners out of our colleges.

And that would mean the End of the USSA Empire.

Isolation would also eliminate the Federal Reserve and the $ as World Reserve Currency.

The Top 50 000 would look like a satellite on re entry...

I'm all for it....;}

mcgowanjm  posted on  2011-09-05   10:17:24 ET  Reply   Trace   Private Reply  


#4. To: mcgowanjm (#3)

And that would mean the End of the USSA Empire.

Isolation would also eliminate the Federal Reserve and the $ as World Reserve Currency.

The Top 50 000 would look like a satellite on re entry...

I'm all for it....;}

It would make our people better off. As the jobs return they could phase out welfare or reform it.

A K A Stone  posted on  2011-09-05   10:19:11 ET  Reply   Trace   Private Reply  


#5. To: All (#3)

Repeal NAFTA, GATT and other such agreemtments. Thell the WTO to go to hell. Tell the UN to go to hell. Put high tariffs on Chinese goods. Put tariffs on all other imports too. Stop foreign aid. Kick the foreigners out of our colleges.

And that would mean the End of the USSA Empire.

Isolation would also eliminate the Federal Reserve and the $ as World Reserve Currency.

The Top 50 000 would look like a satellite on re entry...

Gorbachev would call that Perestroika...;}

Looking forward to our Putin...;}

Somewhere now there's a Colonel in one of our 'East Germany's....8D

mcgowanjm  posted on  2011-09-05   10:19:39 ET  Reply   Trace   Private Reply  


#6. To: A K A Stone (#2)

Repeal NAFTA, GATT and other such agreemtments. Thell the WTO to go to hell. Tell the UN to go to hell. Put high tariffs on Chinese goods. Put tariffs on all other imports too. Stop foreign aid. Kick the foreigners out of our colleges.

NAFTA, GATT, the WTO, China, nor the UN had one single thing to do with the downward spiral of this manufacturer. It wasn't the union, regulation, government bureaucrats, or the lazy underclass...

From the article: This entire mess was created, of course, by Cerberus mismanagement. They hired the wrong people, gave them impossible marching instructions, and have continue to play an expensive game of musical chairs at the highest levels of the company. The initial strategy of “pump and dump” didn’t work, and now Cerberus is relegated to actually operating a company. This is not their strength. But then, what is their strength?

"...all of the equations in neoclassical economics are rubbish. The differential equations describe nothing. Economics is not about mathematics, it is about the human being." Sandeep Jaitly

lucysmom  posted on  2011-09-05   10:44:57 ET  Reply   Trace   Private Reply  


#7. To: lucysmom (#6)

What I gave is an overall start to the problem.

Do you agree with what I said or do you agree with George W. Bush?

A K A Stone  posted on  2011-09-05   10:49:19 ET  Reply   Trace   Private Reply  


#8. To: A K A Stone (#7) (Edited)

Do you agree with what I said or do you agree with George W. Bush?

Take your meds

mininggold  posted on  2011-09-05   11:05:58 ET  Reply   Trace   Private Reply  


#9. To: mininggold (#8)

Meds? What are you talking about?

A K A Stone  posted on  2011-09-05   11:07:56 ET  Reply   Trace   Private Reply  


#10. To: A K A Stone (#2) (Edited)

The real cause of the decline in manufacturing is government taxes and regulations.

We have an 78,000 page convoluted tax code. It costs corporations over $400 billion a year just to figure out how to pay the taxes. Corporations only paid $147 billion in taxes in 2010. So, it costs corporations in America almost 3 times as much money to figure out what taxes they owe than the taxes they actually owe. The SYSTEM IS INSANE.

There are more than 50 regulatory agencies in the federal government. 50. Every year, these agencies pump out thousands of pages of new regulations, on top of the old ones that have been piling up since the 1930s. There are about 170,000 pages of regulations total. Complying with Federal regulations costs businesses over $1 trillion a year. The regulatory burden on business has skyrocketed in the Obama administration, especially coming from the EPA. Obama just postponed an EPA regulation that would have effectively shut down building construction in the U.S. next year. On tap is a new regulation that will close 8% of the coal- fired electrical plants next year.

No cost benefit analysis is done for any of this. And the Congress doesn't have to approve these new rules.

We have a crazy stupid system.

This is one of the primary reason why manufacturers are fleeing overseas.

40 or 50 years ago, there was no where to flee to.

Today we live in a hyper-connected world. Over the last few decades, countries have reformed their economies, lowered their tax rates, and put their "open for business" signs out.

We have slowly gone in the opposite direction.

This is something that the left just isn't smart enough to understand.


The hippies wanted peace and love. We wanted Ferraris, blondes and switchblades. -- Alice Cooper

jwpegler  posted on  2011-09-05   11:11:20 ET  Reply   Trace   Private Reply  


#11. To: jwpegler (#10)

The real cause of the decline in manufacturing is government taxes and regulations.

That is definitely part of the problem too. A very big part. But in my view you can't discount competing with slave like wages.

A K A Stone  posted on  2011-09-05   11:12:58 ET  Reply   Trace   Private Reply  


#12. To: A K A Stone (#11) (Edited)

But in my view you can't discount competing with slave like wages.

China's wages are skyrocketing due to shortages of skilled labor in the largest cities. Yes, factory labor is still cheaper than here, but it's increase several-fold in the last decade, and the productivity has NOT kept up with wage growth.

Many small manufacturers who outsourced to China a decade ago are bringing their operations back home, because if you look at total system costs -- labor, transportation, management overhead, poor quality, goods damaged in shipment, etc. the U.S. looks more competitive against China than it did 10 years ago.

There have been a ton of articles on this over the last 6 months.

What's needed now is dramatic simplification of taxes and regulations. That would turn the trickle of manufacturers coming back to the U.S. into a flood.


The hippies wanted peace and love. We wanted Ferraris, blondes and switchblades. -- Alice Cooper

jwpegler  posted on  2011-09-05   11:33:09 ET  Reply   Trace   Private Reply  


#13. To: A K A Stone (#9)

To ease your ability to cope when you feel compelled to split.

mininggold  posted on  2011-09-05   11:39:46 ET  Reply   Trace   Private Reply  


#14. To: A K A Stone (#4)

As the jobs return

The jobs will never return.

Lose the idea of 'jobs'.

This neglect of a gigantic fall in the price of corporate Europe’s assets and earnings power is a bit scary. If there is any wonder as to why the alternative blogosphere is gaining readers by leaps and bounds, today’s Bloomberg shows why. The mass media in the U. S. decidedly accentuates the positive.

We're in a Command Economy now.

mcgowanjm  posted on  2011-09-05   20:13:25 ET  Reply   Trace   Private Reply  


#15. To: jwpegler (#12)

What's needed now is dramatic simplification of taxes and regulations.

And then we'd have fully employed slaves.

And revolution....coming right up...

While D.C. and Wall Street burns the middle class flails – top 10 percent control 98 percent of all financial security wealth. For stocks and mutual funds bottom 90 percent controls only 19 percent of total assets.

mcgowanjm  posted on  2011-09-05   20:17:39 ET  Reply   Trace   Private Reply  


#16. To: All (#15)

The USSA became a Third World State today:

The Business & World sections of Google News are also obscuring this.

EU banks down 8%.

EU stocks down 5%.

mcgowanjm  posted on  2011-09-05   20:20:21 ET  Reply   Trace   Private Reply  


#17. To: All (#16)

Mon, 09/05/2011 - 17:31 | Link to Comment bullet357 bullet357's picture

watch for Obummer to tell the nation in his speech that we are at war and have attack Iran....the jobs & economic speech will take a backseat and be forgoten due to the start of WWIII. False flag event coming VERY SOON. When the Major news corps. start ignoreing normal BAD news then you know the jig is up! Time to "HUNKER IN THE BUNKER"......Two words to live by in the coming days...Food & Ammo.

* Login or register to post comments

Mon, 09/05/2011 - 17:56 | Link to Comment john39 john39's picture

possibly related, the turkish general who heads intelligence services in Turkey arrested today in alleged coup plot. Turkey is a hot spot, caught between NATO/ NWO, and its people who are seething with anger at Israel and U.S. for the murders carried out by the IDF on the first Gaza flotilla. getting hot out there: http://www.presstv.ir/detail/197585.html

mcgowanjm  posted on  2011-09-05   20:22:03 ET  Reply   Trace   Private Reply  


#18. To: jwpegler (#10)

It costs corporations over $400 billion a year just to figure out how to pay the taxes. Corporations only paid $147 billion in taxes in 2010. So, it costs corporations in America almost 3 times as much money to figure out what taxes they owe than the taxes they actually owe. The SYSTEM IS INSANE.

Four-hundred billion dollars is spent on tax compliance alone? The amount spent just for the purpose of reporting to investors and Wall Street must be astronomical!

"...all of the equations in neoclassical economics are rubbish. The differential equations describe nothing. Economics is not about mathematics, it is about the human being." Sandeep Jaitly

lucysmom  posted on  2011-09-05   20:25:35 ET  Reply   Trace   Private Reply  


#19. To: mcgowanjm (#14)

As the jobs return

The jobs will never return.

Lose the idea of 'jobs'.

I understand your pessimism. But if the country wakes up and we elect more tea party people in 12 we can change. There is more then one branch of the tea party. Lets call it the Rubio and the Rand Paul wings. I'm in the Rand Paul wing of the tea party. I do like Rubio though but not on everything.

A K A Stone  posted on  2011-09-05   20:38:18 ET  Reply   Trace   Private Reply  


#20. To: A K A Stone (#19)

we can change.

I believe your 'change' implies growth.

Further growth is now impossible.

And the Top 50 000 will never give up what they've taken...

until it ripped out of their cold dead hands...just sayin'...;}

mcgowanjm  posted on  2011-09-06   8:00:46 ET  Reply   Trace   Private Reply  


#21. To: A K A Stone (#4)

As the jobs return they could phase out welfare or reform it.

Reality:

As the jobs never return and get phased out welfare will be reformed into debt slavery...

mcgowanjm  posted on  2011-09-06   8:02:29 ET  Reply   Trace   Private Reply  


#22. To: A K A Stone (#19)

we elect more tea party people in 12 we can change.

Tea Party:

"Gov't, keep your hands off my Medicaid."

8D

Call it the Seneca Effect:

" "It would be some consolation for the feebleness of our selves and our works if all things should perish as slowly as they come into being; but as it is, increases are of sluggish growth, but the way to ruin is rapid." Lucius Anneaus Seneca, Letters to Lucilius, n. 91

Don't you stumble, sometimes, into something that seems to make a lot of sense but you can't say exactly why? For a long time, I had in mind the idea that when things start going bad, they tend to go bad fast. We might call this tendency the "Seneca effect" or the "Seneca cliff," from Lucius Anneaus Seneca who wrote that "increases are of sluggish growth, but the way to ruin is rapid."

mcgowanjm  posted on  2011-09-06   8:52:46 ET  Reply   Trace   Private Reply  


#23. To: All (#22) (Edited)

TS Lee sent all of this ashore somewhere.

Oil has been surfacing all over the northern quadrant of the Gulf of Mexico for several weeks now, according to residents. Reports of slicks that meander for kilometres and huge expanses of oil sheen that look like phantom islands are becoming common again. Fresh oil, only slightly weathered, has been washing ashore in areas hit hardest by last year’s disaster. These areas include Breton Island, Ship Island, the Chandeleur Islands, and northern Barataria Bay, Louisiana. BP has reactivated its Vessels of Opportunity (VOO) Program to handle clean-up operations. [read more]

New leak near Deepwater Horizon site quickly becoming a massive oil slick

mcgowanjm  posted on  2011-09-06   8:55:07 ET  Reply   Trace   Private Reply  


#24. To: A K A Stone (#19)

I understand your pessimism.

I don't think you do, A K.

And I'm not pessimistic. I'm realistic. Very different...;}

Our problems far exceed anything resolvable with a "class war" mindset, but it is nonetheless instructive that a recent study found wealthy people tend to be very self-satisfied with their own merit while lacking empathy for those without their connections:The wealthy lack empathy, are self-centered: Because the rich gloss over the ways family connections, money and education helped, they come to denigrate the role of government and vigorously oppose taxes to fund it.

As I have made clear here many times, Plan A--millions of jobs appearing out of thin air, magically called into existence by the incantations of cargo-cult Keynesians and their Wall Street banker brethren who think all our structural unemployment will go away if only the Federal Reserve shoves another couple trillion dollars into the banks and speculators' hands every year--has failed. We need a Plan B, and we have no models for Plan B.

mcgowanjm  posted on  2011-09-06   9:01:13 ET  Reply   Trace   Private Reply  


#25. To: All (#24)

Like this.

Sunday, September 4, 2011 Labor Day Has Been Rendered Completely Meaningless (Happy Serf Day)

I don't think I heard one word from the MSM on Labor Day, yesterday.

mcgowanjm  posted on  2011-09-06   9:03:24 ET  Reply   Trace   Private Reply  


#26. To: mcgowanjm, A K A Stone (#24)

...a recent study found wealthy people tend to be very self-satisfied with their own merit while lacking empathy for those without their connections:The wealthy lack empathy, are self-centered: Because the rich gloss over the ways family connections, money and education helped, they come to denigrate the role of government and vigorously oppose taxes to fund it.

The truth of that statement is on display in the Man [24 y-o] Dies From Toothache, Couldn't Afford Meds thread. That is not to say those of the "to dumb to live" ilk are wealthy, I doubt they are. Like some death camp inmates, they've identified themselves with their masters and abuse their fellow inmates.

"...all of the equations in neoclassical economics are rubbish. The differential equations describe nothing. Economics is not about mathematics, it is about the human being." Sandeep Jaitly

lucysmom  posted on  2011-09-06   10:42:06 ET  Reply   Trace   Private Reply  


#27. To: mcgowanjm (#25)

Sunday, September 4, 2011 Labor Day Has Been Rendered Completely Meaningless (Happy Serf Day)

I don't think I heard one word from the MSM on Labor Day, yesterday.

I did. The presenter said, "Labor Day means that management gets the day off so no one is around to fire labor".

"...all of the equations in neoclassical economics are rubbish. The differential equations describe nothing. Economics is not about mathematics, it is about the human being." Sandeep Jaitly

lucysmom  posted on  2011-09-06   10:45:50 ET  Reply   Trace   Private Reply  


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