Posted tagged ‘manufacturing’

The China Reveal

January 18, 2011

Every so often fate deals you a good break.  Sometimes what you have not recognized, even though it was right before your eyes, comes into focus.  The visit this week of China’s President Hu Jintao will provide that peak.  Will anyone take the time to notice?

President Obama’s aids have said he will act tough with Hu over the openness of China to US products and over the belief that China is manipulating its currency in order to give China exports an advantage.

While the merits of these arguments may be sound, there is much more to be seen in China.  On one hand the Chinese government has raised almost half the country’s population from poverty to a decent and still improving life.  The government takes this responsibility seriously.  Hmmm.

In the field of manufactured goods, everything from clothing to watches to furniture, China manufactures to specification, on time, every time.  A few decades ago, the first wake up call for Americans came from the Japanese who made camera that worked and cars that ran forever.  China is doing that now and far cheaper than the Japanese.  How did they get so smart.  Hmmm.

In a recent comparison study of the world’s 15 year olds, students from China finished at the top of the pack in reading, math and science.  The US finished way down the list.  Hmmm.

With an educated work force, there is no telling what industries will fall to China’s competitiveness in the future.  The US needs to wake up and understand we are living in a global market place where quality, cost, and service are no longer restricted to “made in America”.  There is a new standard of excellence and we need to open our eyes and start reacting.

China is not without its weaknesses too.  One of the largest is its huge population and it will be no small task to raise the poverty stricken half up.  On top of that, China has been growing at 10% per year for quite some time.  Soon the infrastructure that was put in place during this growth will need fixing.  This will require money that might have been targeted someplace else in the Chinese economy (like education, health care, military, etc).  Social problems will likely arise and require top level attention.

So, we should not relax and think “if only China would buy more US goods” or “if only China would allow the RMB to rise” that life in the US would suddenly get better.  China is a wealthy country because they make things… a lot of things.  Two hundred years ago, America began its path to become a wealthy country by making things.  The lessons cannot be clearer.


Waiting for Snow

December 26, 2010

It is a cloudy, cold morning and the prediction are dire.  Moisture from the south will mix with cold from the west, and bingo, a lot of snow will arrive.  The streets are dry now.  There are no signs of snow but the forecasters are adamant, look out for 20 inches or more.

Political forecasters are much the same.  They continually predict unfavorable consequences but like the pros, always leave themselves a way out.  This morning a employment prognosticator allowed that in 2011, the economy would most likely improve, but only modestly.  From the current almost 10%, this forecaster predicted a level of 9% for the end of 2011.  Well, he stated, you know, maybe 8.5 to 9%.  Of course, it could move less and maybe end up at 9.5%.

This is winter time.  Storms come and go, and the occurrence of snow is sort of expected.  After over 20 years of growth and low unemployment, most Americans are not shocked that the economy has slowed or that the unemployment rate has risen.  But the same Americans had expected the economy to bounce back just like it always has.  Why is it this time, we are waiting for jobs?

With the weather, we don’t know about tomorrow, but we are very certain when Spring and Summer comes, it will be warm.  Jobs and the economy are another expectation altogether.  They are not tied to seasonal changes.

We must remember that with the globalization of manufacturing, objects meeting high quality standards can be made just about anyplace in the world with low wage labor.  High intellectual content things, which should be a strong point for the US finds other countries competing very strongly.  These other countries, surprise, surprise, also have younger generations which are scoring very well on standardized math, reading, and science tests.

A wise man, when he waits for snow, readies his snow shovel and salt.  A wiser man, when waiting for jobs, ensures that his schools are first class and emphasize high achievement in math, reading, and science.


Already Discounted

April 26, 2010

Headlines in todays papers cry that the “signs” all point to the end of the recession. You might ask, especially if you are unemployed or a public service employee awaiting a pending layoff due to budget shortfalls, what “signs”?

One sign is the stock market which is now above 11,000 and looks like it still has a lot of momentum. The sages say the stock market is always priced at what the near future will bring, they say it has already discounted the recovery and its high price reflects that.  If the market keeps rising, sages predict a stronger economy and more jobs.

More traditional economists point to factory inventory levels and orders placed upon these factories. These indicators, too, are positive because inventories are low and orders are beginning to mount up. Businessmen do not want to lose orders and will react by running their factories more. In short they will hire workers and buy more from others who in turn must hire more workers.

Memories are short. Most workers remember the last boom driven by the housing industry. New homes coupled with the real estate boom combined to both employ a lot of Americans and to create the allure of increased wealth through property appreciation. The lesson that should have been learned is that there are only so many houses that Americans can afford so building more does no one a favor. Another lesson is your house or property is worth only what someone else will pay for it. I wonder whether the market has discounted these realities too?

Balance holds the keys to the future. Our economy needs some value creating engines that will produce earnings and enable workers to buy other goods and services. We can’t all work at Starbucks, and we also cannot all build houses.

Alternative energy projects offer one of the greatest areas of new jobs and new wealth creation. From sequestering carbon dioxide from the burning of coal to the conversion of wind and solar energy into electricity to power our cars, heat our homes, and light our paths, these type of projects can be game changers.

General manufacturing (anything from underwear to toys to furniture to garden equipment) should also be a candidate for new jobs. These jobs probably won’t look like the ones that once existed here before exiting to China and other southeast Asian locations. They will need to have a higher “tech” component that in turn will allow manufacture at quality and productivity levels that can support good pay and competitive prices.

Both of these sources of new jobs will not be overnight happenings. They both require time and patience. They both will require a steady hand to guide the necessary investments with a promise of an adequate return. They both can support an American manufacturing rebirth.

I wonder whether the market has discounted these too?

The Fuzzy Future

December 31, 2009

It is traditional at this time of the year to reflect upon the past and consider what the future holds. After 8 years of darkness, the beginning of 2009 featured hope and expectations of better times ahead. While this is still possible, one must admit there are few signs that better times are just around the corner.

Islamic extremists present what appears to be an interminable threat internationally. Failed States, like Somalia, provide sanctuary for pirates who are highjacking ships as if there were no force to stop them. Domestically, we have a political system totally corrupted by the cost of campaign financing. To add to this ethically devoid political process, special interests such as the NRA, Catholic Church, Trial Lawyers, Unions, and the wide swath of for profit evangelical/fundamentalist Christian churches have decided to place their personal interests above the needs of the Country.

It is conventional wisdom that free enterprise and marketplace economics have been the backbone of American growth and wealth. But one must ask whether the near implosion of Banks and Investment firms through the use of CDOs and CDSs (and the subsequent drop in stock prices and 401K values) were the desired result of free enterprise and marketplace economics. When the day of reckoning arrived and these banks were about to fail, Government had to step in and “bail” them out. No sooner had these firms regained their footing, did they insist upon paying hugh, over the top, salaries and bonuses to executives who had faced no accountability for their past (or future) decisions. What is behind this?

Through most of 2009, unemployment rolls increased monthly. For months pundits blamed the housing bubble. Unfortunately housing is only a small piece of the US economy, but here lies a clue. Housing cannot be outsourced to China or anyplace else. In 2009, the US woke up to the fact that its backbone, manufacturing, had evaporated over the past 20 years. Combining the loss of manufacturing with the loss of ethics, as seen in banking, investment, and Congress, the current US position is engulfed with fog and a course to a brighter future is difficult to see.

I would have described the future as bleak were it just the US that counted. The insular world that American media projects where the white hats are worn by only the US and what is good only can be found here is totally misguided. The good news is that the US is still a wealthy land and global competition is just that. There is an opportunity to wisely invest and compete globally bringing some of the jobs back to the US. Manufacturing jobs need not require a PhD and are far better than paying unemployment benefits. Employed workers pay taxes and do not require government payments thereby helping balance the budget. Investing in education (math, science, engineering, as well as basic manufacturing skills) will pay even greater dividends over the years to come.

The “fuzzy” future comes from the question of whether we have the necessary ethics to help ourselves. Can Congress work for the benefit of Americans or will it stayed tied just to special interests? Will sensible regulations harness the greed of Wall Street? Will religious groups stick to preaching to their flocks and resist trying to influence those who do not belong? Will Americans return to images that manufacturing jobs are good jobs and that the television bunk of fast cars and slick clothes are both not typical or all that they are made out to be? Will Americans remember that most all this can be done on their own without the need for big brother?

The Health Care Mask

September 1, 2009

A friend of mine recently defended a US House member who made a speech basically saying “how un-american it seemed that 80% of the people (those who have employer provided health insurance) should have something taken away to give to the other 20% who have no coverage”. My friend did not literally defend this incredible position but  said people are worried about the future and do not see things getting better. Despite their actual words, they are crying out for actions that will stimulate productivity and growth, thereby creating national wealth.

I, too, am very worried about the loss of competitiveness in America and can see his point that “giving” people things probably does not spur on drive and innovation. During his and my working careers we have seen a steady erosion of manufacturing jobs flowing from the US to other places. I believe that a good deal of this erosion was inevitable since its peak was post WWII when the rest of the world was in ruin and the US was untouched. But not all of the erosion was necessary.

As you know it is said there are three ways to create wealth. You mine it (that includes drilling for oil and gas, and would include converting solar or geothermal energy), you grow it, or you make it (manufacturing). Now the country is waking up to the unpleasant truth that 85% of our Christmas toys are made in China (how hard is it to make a toy?) and the Chinese auto manufacturers are poised to export to the US market. The country, under both Administrations has looked the other way when it came to creating wealth, and instead felt content to see Health Insurance Companies and large banks and investment firms create obscene (and record) profits. And our politicians called that a victory for the free market.

It was refreshing to speak with someone not about death panels or government run health care but about the real underlying concerns.