Huffington Hysteria

HuffPo has so much to offer us, but an article run in today's business section can only be described as hysterical. View it here.  It describes the dire consequences of the decline of the industrial side of the U.S. economy.

In reality, there is no such decline except in relative terms. With less than 5% of the world's population, the U.S. accounts for almost 25% of the world's industrial output. China, with 24% of the world's population accounts for about 18% of the world's industrial output.

Additionally, U.S. industrial output has grown every year since 1990 (at least) even through the current recession.

SOURCE: http://investing.curiouscatblog.net/2010/02/17/usa-china-and-japan-lead-manufacturing-output-in-2008/

Industry is not going away. What will go away are the number of jobs provided in the manufacturing sector. As advanced economies automate and robotize their industrial plants, fewer and fewer people will be needed to work in them. This is roughly analogous to the 19th and 20th century decline in the number of farm workers or number of deck hands needed to move a given amount of freight tonnage on a ship across an ocean. (Think labor intensive sailing ships versus the mega cargo ships of today that can be operated with a handful of crew members.)

And consider this from MSNBC: "Whereas a Chinese industrial worker produces $12,642 worth of output... in the United States, a manufacturing employee produced an unprecedented $104,606 of value in 2005."

China's growth has been meteoric, no doubt. But, with 1.6 billion people, it's output is relatively puny on a population basis, and by default much of what China produces is consumed at home. (Japan and Germany lead both America and China when it comes to this population-to-manufacturing ratio. Although it should be noted that the manufacturing fraction of the U.S. economy is much smaller than either China, Japan or Germany, which means our economy is much more diverse.)

The United States must stop looking at China's new-found, if narrowly distributed, prosperity not strictly in Yin terms, but in Yang terms as well. It is a new, vast market to conquer and we have many, many goods (and services) China wants and needs.

Obviously, our government needs to be more vigilant about China's unfair trade practices - the renminbi needs to float, for starters - and we must be vigilant about the constant influx of shabby products the Chinese send here.

Reciprocity is the key word and Washington has to step up on the trade issues, even in the midst of all the other wailing and gnashing of teeth rising above the Capitol.

While we certainly have room for expanding our manufacturing capabilities, now is not the time to be acting as if we're on an industrial-strength bad acid trip. Better to ask ourselves what new industries and markets lend opportunity for expansion. Green Tech? Transportation?

The latter is an interesting case and shows why we feel as if we're stumbling. The U.S. dominates aircraft manufacturing. But we are dead last in manufacturing of heavy and light rail components. Why? We have a thriving airline industry at home, but have little in the way of passenger rail service. That's the main reason we have so little in the way of a rail manufacturing sector. Other countries have put increasing importance on rail, creating new manufacturing opportunities in their home countries but abroad as well.

Lack of progressivism hurts us in business as well as social achievement.

The Counterfeit Country and American Jobs

See "My Home Town Video" at end of post.

Aside from its unapologetic manipulation of its currency, Dark Ages-style wages and working conditions, and import tariffs that make it impossible for any country to have a reasonably balanced trade relationship with it, China is the epicenter of the production counterfeit products.

Indeed, China is the producer of 86% of all counterfeit products in the world.

$500,000's worth of (American company designed and licensed) Chinese-made knock off shoes found their way to Budapest last week.

Illegal American faux-label vodka with 120 times the normal amount of ethanol was marketed in Great Britain in 2009, causing 4 deaths.

The FDA of Nigeria in conjunction with 7 other African countries' enforcement agencies in 2009 seized a large consignment of counterfeit anti-malarial generic medicines with “Made in India” and "Made in USA" labels and later found that the fake drugs had in fact been produced in China. (There is a colder current involved in this one - the drugs are purposely made to be below acceptable standards in order to undermine India's drug market share in Africa.)

$3 billion worth of fake movie DVDs, based on the intellectual property of American studios, were distributed worldwide by Chinese counterfeiters in 2008. The figure is expected to leap by another half billion in 2009. 

Worse still, from the point of view of U.S. companies, is the fact that 80% of all software used on computers in China is counterfeit or illegally copied. (Amazingly, this is down from 90% in 2004.)

A United States patented rolled metal process for the making of fine filaments used in the making of circuitry boards in all kinds of electronics products is used freely in China in spite of the fact that companies from 12 other countries pay their fair share of licensing costs. This costs the American companies of the jointly-owned patents over $27 million per year in lost fees.

The Re-innovation Of Innovation

To add insult and further injury to the damage already stemming from this counterfeiting, China is promoting something they call "indigenous innovation." Sounds benign enough, doesn't it?

But the devilish detail is that the new law, Order 613, mandates that in order for foreign intellectual property (IP) to be put on a government procurement list, the IP must be developed, or owned and trademarked by a Chinese company or government agency.

Foreign Affairs Ministry Spokeswoman Jiang Yu said this:

China’s indigenous innovation includes original innovation and integrated innovation as well as the re-innovation of innovation that is introduced, digested, and absorbed. Indigenous innovation activities are open, and come from within enterprises. The indicators for accrediting indigenous innovation products are not based on the nature of the enterprise, but on whether the enterprise carries out innovative activity and gains products that have indigenous intellectual property rights.

Essentially, "re-innovation of innovation" means stealing.

Every software developer, content provider, film and music publisher in the rest of the world is against this. However, so far, national governments seem to be particularly disinterested.

It's time for the Obama Administration to step up and put real teeth into sanctions on China. American jobs, which are in notorious short supply these days, are being stolen.

While unions in the U.S. aren't free of sin, in prior generations they served as the front line in the battle against unfair trade practices by underhanded competitors.

Jobs mean everything to unions. And jobs mean prosperity. Having a skilled workforce does us not one iota of good if it can't work because of what amounts to piracy by an unfriendly government.

By gutting the unions and battling against active re-unionization, or by permitting "right-to-work" laws in many (mostly Southern) states, conservatives in the United States have taken the union foot soldiers away from this battlefront.

Now we reap the consequences of past right wing deeds.