Another aspect of "how does cheap Chinese manufacturing fit into an economic picture in which workers in both the US and China can make more money?": The American workers benefit from the work being done by people working for less than the US minimum wage, becaue the American workers pays lower prices for stuff than they would if it were manufactured locally.

The American workers benefit from the work being done by people working for less than the US minimum wage, becaue the American workers pays lower prices for stuff than they would if it were manufactured locally.

I think this side of it gets exaggerated. All too often the offshoring means same old price but now with five times the profit margin. And so what if a toaster is 20 bucks instead of 50? Most of people's incomes are going to toward housing, transportation, etc., not gadgets.

I don't know that anyone has a clear answer on how to preserve the future welfare of less-skilled workers in rich countries. Manufacturing makes sense in countries with weakened currencies. But a currency in the process of weakening and high inflation hurts both people with accumulated wealth and also people on a nominally fixed income.

Looking at cheap consumer crap first is IMO a mistake, as solar panels as well as sensor components to allow measuring pollution are cheaper along with flip-flops and roombas. Also off-patent antibiotics.

I don't know that anyone has a clear answer on how to preserve the future welfare of less-skilled workers in rich countries.
We used to have an answer.

Obviously, one big thing that would help the situation is for workers in low-wage countries like the PRC to have independent, democratic unions. Of course, the big problem with that starts with a "C" and rhymes with "ommunistpartyofchina". My mother worked in an electronics assembly plant for awhile before I was born, and that sounded like just about the lousiest work you could imagine, especially since she was from the East Coast and had a college degree, so no one would sit next to her in the break room. My point being, simply turning back the clock is not the way to go here. We don't want the rivers on fire again, and we don't actually need most of this crap that the manufacturing imbalance produces.

2: Without looking at any statistics, lots of things seem cheaper now than when I was a kid (in nominal, not real, terms) because of outsourcing. Casual clothes (t-shirts, jeans, and the like) are a lot cheaper, and tailored clothes have seen an even bigger drop in price. Electronics, of course, have gotten a lot cheaper and better at the same time.

I have much better food options, too, and it's definitely cheaper in real terms; not sure about nominal food price over time, though. Ditto for cars, in real terms, when adjusted for performance/safety/room/cargo space.

I don't have a good sense of what separates industries which do pay a high wage from ones which don't

Strong, organized labor. Unions.

Cars really did used to suck.

as solar panels as well as sensor components to allow measuring pollution are cheaper along with flip-flops and roombas. Also off-patent antibiotics.

Come on, your average American worker is not seeing significant portions of their income go towards these things. And usually "cheaper" for that type of manufacturing is due to "we efficiently pour our heavy metal waste directly into the river."

You see the "cars and electronics are better" argument a lot, but it doesn't really make any sense as a rebuttal. Technology was going to improve whether or not we pay people a livable wage.

IIRC the largest car and component manufacturers are the U.S., Germany, and Japan. And have cars really gotten cheaper. I think the Accord LX my mom bought around '88 was 12K. MSRP on those now is like 22K. Have incomes gone up at that same rate?

Obviously high-wage manufacturing jobs still exist, both in the US and, famously, in Germany, and I don't have a good sense of what separates industries which do pay a high wage from ones which don't, but I'm inclined to think that those are two different types of jobs.

My guess would be that the jobs that take a lot of training and that have high capital costs tend to pay well. I don't keep up with semiconductor manufacturing costs now that I don't work for a company that manufactures its own chips, but back when I did (2003), a new fab cost about $4B. If you didn't upgrade the equipment in the fab it would be noticeably dated after two years and pretty much obsolete after five years. With depreciation costs that large, paying workers $30+/hr doesn't seem unreasonable to management. The jobs also took a decent amount of training. Community colleges in the cities that had fabs all had programs developed specifically for fab techs, which were often sponsored by the companies.

In that industry, jobs were moving overseas, not because of cost, but because overseas workers produce better products. It's easy to track defects in semiconductors and it's a disaster when a defective product leaks out. Fabs in the U.S. have some of the highest defect rates in the world (IIRC, there are some European countries which are worse, but not many). Japanese and Korean fabs are the best, and Taiwanese fabs are pretty good, too. Here, I'm not talking about fabs run by Japanese or Korean firms, but rather, fabs run by the same company in different countries. You're not going to save any salary by having a fab in an expensive Asian country, but you'll save a ton of money on not having to throw away bad parts, not to mention the reputation hit you take when a server crashes because it has a defective chip in it.

Cars really did used to suck.

This is in fact a thing. During the heyday of Detroit in the post war boom, the rest of the world regarded American cars as a joke. You could get a laugh by a derogatory reference to the fins on a Chevy Impala, and the upmarket models were referred to as "aircraft carriers." People regarded them as curios, and, as far as I can see, they exported them to Batista supporters in Cuba and not much else.

These days Ford/GM models are generally international and well regarded world wide. They may be cheaper to make in Valencia or Luton, but although labour may be cheaper there it isn't qualitatively so. I don't understand why the rust belt is rusting quite so badly.

Fabs in the U.S. have some of the highest defect rates in the world

So why is that?

My guess would be that the jobs that take a lot of training and that have high capital costs tend to pay well. . . . In that industry, jobs were moving overseas, not because of cost, but because overseas workers produce better products.

One of the interesting things in the breakdown of the cost of an iPhone, in the OP, is how much of the value comes from countries oversees other than China. Japan, Germany, & South Korea combined to produce 64% of the wholesale value of an iPhone, whereas China produced 3.6%. That represents the difference between making components and doing assembly.

So, honest question, how competitive is the US internationally in terms of that sort of high-value production? My sense is that there is genuine competition, that the US still does a sizable amount of manufacturing, and that if other countries do better at chip fabrication there are still areas in which the US is a global leader. But I don't know any numbers to support that belief.

13: The aircraft carriers ruled, but when they tried to make something a bit efficient, they had no clue.

14: I suspect it's because workers here expect to be treated better and not have to work as hard. A Korean might say that it's because Americans are lazy.

None of the Americans I know who have worked in manufacturing for Samsung (at locations here in the U.S.) could stand their jobs. Most have quit. The ones that haven't are looking for other work. They expect perfection from their workers, not to mention long hours. That works ok if your entire worker pool is from a country where people expect that from employers. Over here, people find easier jobs that pay the same or better.

I was surprised to hear that Samsung was building a fab here in town a few years ago. A lot of Asian companies closed down fabs in the U.S. a decade ago because they couldn't get their defect rates low enough. I remember laughing about that with co-workers, because our defect rates were much higher, and no one thought that getting our defect rates down the level of their failed fabs here was even a possibility.

Sometime in the 90s, there was a conference where semiconductor manufactures talked candidly about this sort of stuff. That's very rare -- you normally only here about this kinda of thing through word of mouth. It turned out that Asian companies had defect rates that were an order of magnitude better than companies here. It's gotten a lot better since then, but we still don't have parity.

|| You know, at some point I wondered about Yglesias possibly supporting Romney. From his twitter:
The true contrarian argument for Romney (may even be correct!) http://www.businessinsider.com/mitt-romney-and-paul-ryan-will-save-the-us-economy-2012-8
|>

Jammies works for an electronics company which, in the time he's been there, have moved their fabrication plants overseas to various Asian countries.

What's most striking is how poorly they've executed this move. All kinds of people who need to talk to each other can't communicate whatsoever. In the various foreign countries, they pay well enough that they attract good people - but only for about six months. So there's monstrous brain turnover over there.

I guess the savings are worth it, or they wouldn't have done it, but it sounds like it's made it a much more difficult place to work. And that the products have gotten much shittier along with all the communication/retention problems.

11: I think the Accord LX my mom bought around '88 was 12K. MSRP on those now is like 22K. Have incomes gone up at that same rate?

I don't think the general argument of new cheap gadgets making up for economic losses holds water on bit, but it is true htat the recent Accord is not only a lot better, but it has a lot more "features"*. You probably cannot buy an Accord as basically configured as that '88 Accord (and even the new one is 15 inches longer, 8 inches longer wheelbase and 5 inches taller--the current Civic is even a bit bigger). The current equivalent is probably an entry-level Hyundai Elantra (and even that will have more stuff).

*Personally I find this problematic--it is hard to find well-manufactured but basically configured stuff in general, much less cars--options are where the profit margins are (also service). I suspect I will never again own a car as basic as my 1986 Mazda 323 (which I loved).

The argument of these pieces seems to be.

1. The value added by Chinese workers, and the profit they make is quite small.
2. The companies are still US owned.
3. Therefore US workers still benefit.

This might work if you mentally fill in (1) by saying "actually american workers are the ones adding most of the value and making most of the profit." But of course that isn't true, and the articles all have to admit that. The work being done isn't in the US; its is all over Asia. So in fact US workers are still screwed.

If you phrased everything honestly at the outset, you would say "The US doesn't really have a high trade deficit with China. It has a high trade deficit with all the Asian nations combined." But none of those guys would say that, because it doesn't help the cause of globalization one bit.

18: In the vein of "nice little economy you got here, be a shame if it got much worse".

However, in the midst of total asshattery from various Slate contributors this weekend, this piece of his was a breath of fresh air.

19: Any chance he works for I/B/M Au/stin? If so, I don't think it's been worth it for them. I know a lot of folks there, and I literally don't know a single person who isn't an exec who thinks that outsourcing has helped them overall. Most people think it's been a disaster.

Salaries for R&D people in India and China are rapidly increasing, so the savings gets smaller by the minute. Many of the best people overseas come here, so it's hard to get good people in the first place. Then, if you get someone good, the experience at at U.S. company on their resume makes them much more valuable, so they can demand 50% more at another company after six months or a year. I/BM often gives people who are good performers (according to their rating system) raises that are less than inflation. What could possibly go wrong?

Some companies have done a good job with outsourcing, but it's really hard. I don't know how anyone got the impression that adding a 12 hour time gap between groups that have to interact with each other would be an easy cost saving measure.

A 2012 Accord is almost incomparably safer, more reliable, and more powerful (and more efficient, though with about the same MPG) than a 1988 Accord, and is substantially bigger; even an Elantra is not close. Cars really have gotten a lot better.

The US auto industry is still a really really big employer -- something like 800,000 workers, not counting indirect job creation. It's just not as big as it once was.

Cars got boring, but better.

The argument of these pieces seems to be.

Notably, the argument of all of those pieces except the James Fallows article -- since he's coming to it from the perspective of being interesting in China, rather than being interested in US corporations (and what is a "US" corporation these days?).

That's why I found his perspective interesting -- it framed the question as something other than a contest between US workers / government / civil society on one hand and corporations on the other.

He doesn't provide any suggestions except to make clear that many people in China aren't any happier with the status quo than people in the US.

Or, put another way, a 2012 Accord is massively heavier than a 1988. A 1988 had a curb weight of about 2400 pounds; a 2012 Accord has a curb weight of around 3400 pounds. This is also why a 1990 Geo Metro got 40mpg or roughly the same mpg as a 1st generation Prius.

Some companies have done a good job with outsourcing, but it's really hard.

A big chunk of the business for the small company that I work for is with a large industrial multinational company. It's often kind of bizarre. It just makes me appreciate how large the returns to economies of scale (and physical capital investment) can be -- there day-to-day administration is much less efficient than I would expect, but their revenue stream is so large it's absurd.

For our foreign readers: a 1990 Geo Metro was a really, really, really bad car.

It was no '77 Pinto.

30: But then, nothing is, except possibly a '77 Vega.

11: People underestimate the impact of inflation. 12K in '88 is $23K today - or so I am told by the Bureau of Labor Statistics' CPI calculator.

My parents had a Vega that they bought some time around then ('76? 75?). They believed in buying American. Not long afterwards later they were buying another car and looked at the Ford Fiesta. There were big gaps between the doors and the body of the car because the edges of the doors were slanted in weird directions. When they mentioned this to the salesperson he said it was no problem and pointed out that all the cars had that same 'feature'. They went to a VW dealer and bought a Rabbit (Golf) while swearing never to even consider an American made car.

33: The two GM cars we bought in the Seventies tended to leave us stranded on the side of the road. That was less than amusing with two small children to deal with in hot humid weather. I haven't bothered looking at a Detroit product since and neither have the now-grownup kids.

As the past owner of mid '70s Datsun I can say that it sucked as well (in slightly different ways from American cars of that vintage).

My late-'70s Datsun was great. I mean, aside from the lack of heat, lack of dashboard lighting, functioning gas gauge, or rear bumper. But considering all that, it was a pretty fun car... in the early '90s.

Survivor bias?

None of the Americans I know who have worked in manufacturing for Samsung (at locations here in the U.S.) could stand their jobs. Most have quit. The ones that haven't are looking for other work. They expect perfection from their workers, not to mention long hours.

I wonder how this applies to, say, semiconductor plants in Germany. I had assumed that such plants would follow what I take to be the standard German practice of generous vacation days, non-crazy hours, etc. Am I wrong in that? (I just finished reading this book, so I "know" that Modell Deutschland has been disintegrating for decades, but still.)

13: I understood that the Fords sold in Europe were very good cars.

Early 70s Japanese cars were apparently painted with salt water.

My BF's company just shut its research operation in Switzerland. They are moving some of the jobs to Germany, but they ate fighting the unions there and want to move high-end research to the U.S. I think that they find the ways that the Ph.ds work with techs on Germany problematic, but they also can't drive them as hard. At the same time they ate contracting out the preparation if certain intermediate compounds to Indian and Chinese chemists. The stuff coming out of China is usually impure, and my BF has to spend a lot of time purifying things. Hoc life would be a lot easier if his group had another chemist.

39 -- Ford has been the best-selling brand in Britain for something like 40 years.

17

... A Korean might say that it's because Americans are lazy.

Or a Korean might say it is because Americans are (comparatively speaking) stupid .

3

I don't know that anyone has a clear answer on how to preserve the future welfare of less-skilled workers in rich countries. ...

It seems obvious that decreasing the supply by restricting the immigration of less skilled workers from abroad would help.

The thing about the German manufacturing sector is that it doesn't do much consumer electronics plastic assembly. The reason why left-wing people in the rest of Europe like Germany is that they have so many craftsman-level manufacturing jobs.

I do think the point about Apple/Foxconn is a good one. It's not widely known outside the trade that Apple actually owns the machine tools a lot of its subcontractors use. TBH, once you're buying the tools (and therefore probably designing the line), it's hard to say that you're actually "outsourcing" anything rather than just having a plant in China.

(hmm, I wonder how that's captured in the trade stats?)

Also, a lot of people who buy "a reliable Japanese car*" actually buy "a reliable British car" but don't notice.

*or indeed French or even BMW

|?

THESIS 3: Despite this permanent malaise, capitalism has managed so far to get out of its blind alleys and to invent effective ways for adapting to the demands posed by changes in the balance of social and international forces. This reminds us that the progress of the productive forces (its pace and the directions it takes) is not some independent exogenous factor, but one that results from class struggle and is embodied in production relations--that it is modulated by the ruling classes. This thesis reminds us that the Taylorism of yesterday and the automation and "technological revolution" of today are responses to working class struggle, as are also the centralization of capital, imperialism, the relocation of industries, and so on.

So long as capitalism has not been overthrown, the bourgeoisie has the last word in class struggles. This must never be forgotten. It means that unless crises lead to the overthrow of capitalism--which is always a political act--they must always be solved in the bourgeoisie's favor. Wages that are "too high" are
eroded by inflation, until the working-class, exhausted, gives in. Or else "national unity" makes it possible to shift the burden of the crisis onto others' backs.

Samir Amin, Law of Worldwide Value

|>

I guess the savings are worth it, or they wouldn't have done it, but it sounds like it's made it a much more difficult place to work. And that the products have gotten much shittier along with all the communication/retention problems.

No, it works like this.

A: executive makes plan to outsource
B: executive collects on bonus associated with cost savings
C: executive move to another division or company before the disaster fully is apparent
D: everyone who has to work in the process is miserable, but the person who had the moronic brainwave is long gone and it would be bad for the current executive's bonus to persuade the company to pay more to revert to the previous process, especially since the pain of the new process doesn't fall on their heads.

Repeat ad infinitum.