The fact that we are borrowing money from future generations and spending it like drunken sailors on shore leave is well documented. Less clearly known is that we are putting it to them on the other end, as well. Not only will they pay taxes through the wazoo to cover the bailout bill for our greedy excesses and the Obama spending orgy, they will be paying a lot more for just about every manufactured item they buy. Unless we get back into manufacturing and get real lean real soon, that is. And assuming the grandchildren have any money with which to pay taxes or buy things.
In an article from the BBC, a guy named Haruhiko Kuroda who is the big thinker behind the Asia Development Bank, stated the obvious. He said that Asian countries needed to reduce their reliance on exports and build up their own consumer demand. Good thinkin', Haruhiko, except for one small detail: The economies of Asia are pretty well built on cheap labor. Cheap labor, by definition, means you don't pay your folks enough to buy anything. If you want to boost consumer demand in your own countries, you're gonna have to pay the people working for a living a little bit more. That, of course, means you are not a cheap labor source any more. So there you have the conundrum.
I have stated time and again that no country can build an economy on the strength of being a cheap labor source, and Mr. Kuroda and his buddies at the ADB are going to figure that out pretty soon, if they haven't already. The foreigners who are paving your streets with gold now have no loyalty to you and your countries, Haruhiko. They will pack up and move out so fast your head will spin as soon as they find a place where people will work for a few grains of rice per day less than your people. Don't let the economists fool you into thinking the rest of the world wants you to make their Weed Wackers and Barbie Dolls because you are particularly good at it. They are in your country only because you are willing to keep your people in deep enough poverty to do this mundane work cheap.
Mexico already learned the hard way that as soon as the working stiffs wanted an extra peso or two the great American and European outsourcers packed up their signed, leather bound volumes of "The World Is Flat", and headed for Korea, then China and India, and now points south.
The problem is that we – the American and European consumer – want stuff now and we want it cheap. We don't want to do the hard work of overhauling our management practices, rethinking our tax policies, and getting lean. That will take too much time and will rock too many comfortable boats on Wall Street, in Washington and in the hallowed halls of academia.
At the same time, we don't want to pay the cost of labor when we make things in the old, non-lean way. American and western European labor costs include stuff like good food, good schools, health care, time off with the family and all sorts of things we want everyone in our country to have, but we don't want to have built into the cost of the things we buy. So we outsource – save all the pain and effort that goes with getting lean, and avoiding having to pay for all of the creature comforts it would cost to make things here in our old non-lean model.
The problem is that it is not sustainable.
I figure that by the time our grandchildren come of age, the jig will be up. We will have built a factory in the last, remote corner of Africa where we can find someone to work for nothing – the last folks who think that a hot meal and a cot is luxury – and we will be back where we started. We will – or more accurately the grandkids will since I will be long gone by then – have to figure out how to manufacture stuff efficiently. They will be painted into a corner where lean is their only way out.
That, of course, assumes there will be any money left in the US or Europe with which to buy anything at all. The ridiculous notion that we could bail out of manufacturing, become a service economy, and somehow be able to export those services is quickly coming unglued. No one is lined up to have our service experts – the financial wizards, teachers and lawyers - come to their countries to help out. And all of the technical support and customer service has proven as out-sourceable as manufacturing. In the height of irony, Slum Dog Millionaire, a movie largely centered on the outsourcing economy of India won 8 Oscars, thereby demonstrating that even the glittering service industry of Hollywood can be imported from a cheap labor country.
So we buy manufactured goods from other places (money out) and export less and less (money in). The lotta money out -little money in' math may well kick in before we run out of cheap places to build stuff. Any way you cut it, if we don't get lean manufacturing going in the US and Europe very soon, the grandchildren are up a long, long creek.
ni says
How to solve the economic crisis? See here Here will tell you a good answer
http://www.money-business.com.cn
Kurt says
Ford created his own consumer demand by paying his people enough so they could afford to buy a car. Pretty neat idea.
Mike says
I used to work for a plant manager who never let anyone voice a problem unless they also voiced a potential action to start solving the problem. Just saying “we have to get lean” isn’t enough. Just saying “we have to start manufacturing again” isn’t enough. HOW to make these happen is the difficult part, but also the vital part of the equation. Rants are fine, but unless you are Sean Hannity, I’m going to ask for more solutions–not LEAN, because we already know that, but rather how to wake up those who need it, get the message out, start moving things in the right direction, etc.
tom berend says
love your posts, but lighten up on the grandkids. they’ll be fine.
the next generation is inheriting a huge pool of intellectual capital – unimaginable advances in genetics, nanotechnology, materials, robotics, and a dozen other fields are arriving every day.
this asset is worth far, far more than the potholed roads that we are leaving them.
Kevin Carson says
There’s a good side to the Nike “outsource everything” model of distributed production.
The HQ retains control only of branding, IP and marketing. Artificial property rights like the trademark and patents and copyrights are the only real basis for the institutional power of the corporation. It’s the brand name markup, the value of the “Swoosh,” that is the source of some 80% of the retail price.
Under those circumstances, the corporate HQ becomes just a redundant node to be routed around. If the shoe factories in Asia decide to start ignoring Nike’s trademark and patents, and produce identical shoes (perhaps with the Swoosh in a circle-and-slashbar) without the brandname markup, they can simultaneously raise wages and cut prices by several hundred percent, and market domestically.
Tom Peters likes to gush about the 90% of commodity price that’s “ephemera” or “intellect” (IOW, embedded rents on artificial property rights). Do away with such artificial property rights, and that part of price will implode.
Specifically, do away with patents and copyrights (which are an abomination in free market terms), and with all aspects of trademark beyond protection against actual fraud, and the legal barrier walls that protect Microsoft from Linux and the record companies from file-sharers will dissolve. What’s more, the rents on proprietary information in the design stage of physical manufacturing will implode, as open-source design becomes predominant. And finally, the role of IP in criminalizing the competing production of cheap spare parts and generic modular components for other firms’ platforms will disappear, which will eliminate the legal sanction for planned obsolescence.
These structural supports to state capitalism have played a huge role in protecting Sloanism from free market competition.
IP plays the same protectionist role for TNCs today that tariffs did for the old national industrial corporations a century ago. Considering the vast regions of the economy in which human capital has surpassed physical capital as the main source of book value, considering the implosion of cost for even physical capital (what with increasinlgy cheap and miniaturized numerically controlled machine tools, desktop manufacturing technology, etc.), and considering also the exploding potential of networked, crowdsourced credit through LETS systems and the like, the corporate walls are becoming unsustainable.
Chui says
Bill,
You are quite wrong about people in low-wage countries being unable to afford products they manufacture. The facts simply do not bear out.
Can a potter who makes pots not afford to have pots himself? If he wants them badly enough, he will have them. After all, he has the equipment and the know how.
A society with manufacturing capability will figure out how to make an excess so that their own needs are satisfied.
Bill Waddell says
Mr Chui,
I believe the facts are on my side. I suppose a theoretical country can theoretically figure out how to make pots their people theoretically can afford, but as we read this China is full of plants making IPods, laptops, automotive components, home appliances and the like. And the people working in those plants spend as much as 1/3 of their paycheck just on food. It is going to to take some pretty fancy figuring to put a car in every driveway in China – and an IPod, a laptop, and a refirgerator with an ice-maker in every home.