Posted tagged ‘outsourcing’

Trump Meets China

April 2, 2017

President Trump will meet President Xi next week at Mar A Lago, the Florida White House. There will be no loss for topics both sides wish to discuss but almost assuredly the two lists will not include the same items. Maybe they will alternate. Hmmm.

President Trump seems set upon trade issues and steering the “free trade” towards “fair trade”. While this is a worthy objective (assuming that the President was at all interested in anything other than politics, like satisfying 2020 campaign bench marks), free and fair trade are very complex issues. What is fair to one side may be quite the opposite to the other side.

Most likely the upcoming visit will conclude with more of the phrases we have gotten use to… “Two nations pledge to work together on areas of mutual interest…” Hmmm.

China represents a clear picture of globalization and what outsourcing looks like.  Globalization has brought blessings and cruel dislocations in the same breath.

In the 80’s China began to stir. Adopting a more cooperative and welcoming attitude, China invited a few Western companies into their midst assigning them preferential business licenses. China provided space, people, and infrastructure support. The incoming companies provided manufacturing know-how and the promise of large markets overseas. Most of these new comers were American companies and with them came “outsourced” American manufacturing jobs.

On a macro scale, this arrangement seemed ordained in heaven. China got steady work for its peasant class, thereby raising the “lucky” peasant’s standard of living. With increasing volume, China (the Government) got hard currency generated by the sale of goods overseas.  And, of course, a lot of wealthy Chinese became even wealthier.

For the job exporting country (for example, the US), companies were able to offer for sale goods which cost considerably less than if had manufactured these goods been manufactured using American labor. This translated into lower selling prices, greater profits, or both.

For America (the Government), inflation slowed to a crawl. For American businesses, the way was clear to hold down wage and salary increases (because there was no upward inflation pressure).   And even better, the increased productivity could go in greater proportions to top executives and share holders. Hmmm.

So when we hear rhetoric promising to bring back to America manufacturing jobs, one must realize that the “forced” repatriated jobs will drive up the prices Americans pay (this is called inflation).  Worse, there is no reason to believe the returned jobs will pay anything more than minimum wages.  Hmmm.

There is nothing wrong with more jobs for Americans and if free enterprise were alive and well, the shift of jobs from China to the US would be cost/quality driven. (Most Americans would reject more expensive or lower quality goods.)

I wonder whether the Trump Administration will think about closing the barn door, once the lost jobs are back in the barn. Europe deals with “fleeing jobs” by making it costly for companies to simply lay people off.

Hmmm, maybe not.

Right to Work Compromise?

February 27, 2011

It is not clear at all whether a compromise in the standoff with Governor Scott Walker is possible.  It could be his way or the highway.  But consider this…

Collective bargaining is a bed rock principle with American labor.  With a rich history of weak kneed or unabashedly opportunistic State political leaders, unionized State workers should make everyone take notice.  Unless performed well, public sector unions represent an outright license to take advantage of tax payers.

On top of the bargaining process, unions have insisted upon “closed shops”.  This requires any State worker covered by a union agreement to be a “dues paying” member.  No dues, no work.

As a consequence, State workers’ unions have large sums of money with which to back politicians or influence the public through advertisements.  Teachers’ unions have been very effective at expanding their influence.  But now the pendulum is poised to retreat in a less generous direction.

At the bottom of the forces driving this reversal is the resistance of citizens to pay higher taxes.  It is not that they would not pay more in taxes if they thought it was necessary and fair, but they do not.  The average voter feels the tax burden is falling disproportionately upon their shoulders.

While there are many reasons for this, one important factor has been the stagnation of middle class wages and salaries over the past 25 years.  During this same period, globalization has blossomed and thousands of American jobs have disappear.  In their place are goods and services imported from countries in Southeast Asia.  The middle class now sees the rich getting richer and themselves getting squeezed.

Enter public sector service jobs.  All of a sudden, their wages, salaries, and benefits look very attractive.  No good politician has ever lost the opportunity to pick on some group if the politician thought he could divert the public’s attention.  An enemy exposed is time bought.

There are arguments to be made that public service workers should pay more for their health care or retirement funds.  They should at least be on a par with similar private sector employees.  And the notion of closed shops and automatic dues deductions seems a bit outdated.  There certainly seems room for movement without unilaterally repealing workers rights to organize.

There are two questions.

  • Will the unions and the State governors be willing to compromise?
  • Why does anyone think that when the State workers’ beast is slain, life will be any better for the middle class?

The real issue facing all State workers and taxpayers is how can we begin to grow in the general economy, and raise all boats (public and private sector).


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?