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 Part 2

What can a closed society really produce? That which is safe, proven, nonthreatening. Thus it is with China.

Even modestly open societies such as Japan and South Korea are more capable of innovation than a closed system like the one in China.

Taking the idea of copying to its ultimate extreme, in January a Counterfeit Mall opened in Nanjing (click). It's a stunningly offensive idea, although not much more than Canal Street in New York, where many of the same fake brands made in the same shoddy way are sold under the nose of New York City authorities.

Why should we care? As the currency of advanced countries becomes more enmeshed with intellectual property, that currency becomes the source of our wealth. Agree or disagree with the value of the real liquids in PepsiCo's products, or the quality of Izod shirts, the people who own those brands have spent decades investing in their images, enhancing their desirability. And they've spent billions.

Moreover, products that rely almost solely on intellectual development - movies, books and music - take an enormous economic hit when illegal or pirated copies flood the market worldwide. One can argue that George Clooney or The Beatles don't really need the extra dollars that the fakes drain away. But, that money also ends up not going to small bit players and staff, and importantly is not re-invested in the companies that produce our intellectual or cultural products. So, lower earners, from the go-fer getting coffee for the main actors, to the gaffers, electricians and so forth are penalized by not having unrealized profits plowed back into new productions. Jobs are literally stolen.



Here are a few other examples of counterfeit brands and some of the not so pretty effects counterfeiting engenders. Click on the brand name:

Godiva   Nokia   Colgate  The Case For Cognac  Chinese Car Copies  

Hand Trucks   Tubular Steel  Various brands   Fake Eggs

...