The Jobs Question

Now that the mid-term elections are over and we’re returning to some level of rationality, people are talking less about socialism and more about jobs.  This is good, as I think it’s one of our greatest challenges going forward.  It’s also one of the things I feel most comfortable writing about because of my experience in staffing.  There are a lot ideas and opinions being throw around, so I thought I’d add my two cents.

The success of our country in the twentieth century had everything to do with our successful move from an agricultural to an industrial-based economy.  Henry Ford saw the potential in this transition.  Up until this point, people worked six days a week, beyond eight hours a day.  Because of the efficiencies of the assembly line, Ford could get a lot more product out of a lot less human effort.  At this point, industrial production was a value-adding system few had mastered.  In terms of the product, it allowed him to create a better-quality vehicle for less money.  The automobile was transformed from a rich man’s toy to the backbone product of our economy.

In terms of the workers, he did what many thought was crazy at the time: he gave them more pay for less time on the job (forty hours a week to be exact).  What he understood was if people had more money and more leisure time, they’d spend more and allow the economy to grow.  This is the model that propelled the US to becoming the world’s economic powerhouse.

There are two problems with this model going into the 21st Century:

First, the basis of the model’s success is industrial production as a value-adding system.  So what happens when it no longer is?  Starting in the latter half of the century, advances in technology and energy commoditized manufacturing.  That means almost anyone can do high-value manufacturing anywhere in the world.  When that happens, the only advantage anyone can offer is price.  The cheaper you can do it, the more successful you become.  This is a fact that no trade agreement or tariff can change.  If you can make something in China and ship it on the cheap, there’s no reason to make it anywhere else.

The only way to work against this is if the buying public makes a value-based decision to buy products only made at home for a higher cost.  For all of the American public’s finger pointing, the success of Wal-Mart has shown we have little interest in value-based purchasing decisions.

The second is huge increases in productivity through technology.  Up until now, we’ve always viewed productivity as a positive thing.  It’s good if a company can produce more for less.  Things like robots in factories or software which eliminates complicated filing systems cost pennies compared to what they replaced.  Unfortunately, what they replaced was people. 

The pain from this has gone beyond manufacturing jobs, even.  Let’s use the music industry as an example.  The day digital downloads went mainstream, CD sales started to plunge.  It took a handful of programmers and IT support people to replace the people in CD manufacturing, the folks who shipped them to warehouses, the warehouse employees who distributed them, the truck drivers who got them to stores, the employees from the now-defunct music stores (bye Tower Records and Harmony House), and even the executives in charge of that entire operation.

When we made the move to an industrial society, it caused a lot of pain for those who had spent their entire life in farming.  Many found themselves with no more work, just like now.  The difference is manufacturing created even more jobs (that paid better) and over time, it was a net positive for us as a society. 

The current revolution, which some call a move from an industrial to information-based economy, has not offered the same thing.  For the educated, there are high-skill technical jobs.  This is a growing field with not enough people to fill the openings.  If you’re an Electronic Hardware Engineer, the future looks bright.  For the first time in almost ten years, I’m seeing salaries for skilled engineers going up to levels I didn’t think were possible in the short term. 

The crux of our problem is our success over the last one hundred years was based off of the growth of the middle class.  The backbone of this growth was the manufacturing work force.  This is the group that’s been hit the hardest by the recession, shaking up the foundation of our previous successes.  If/when some of these jobs come back, they’ll pay less money.  Of course, they can move into the service sector as well, but those jobs also pay less money.  Less money paid equals less money in the economy.  This is the middle class squeeze everyone is talking about.   

This is why I roll my eyes at people who insist companies aren’t hiring because of things like not being sure about tax rates going forward.  So why aren’t major companies hiring more when they’ve made billions of dollars in the last year?  The answer is in the question.  They’re making billions of dollars with the staff levels they have.  Why change that?  Now GM and Chrysler are back in hiring mode, but the concentration is on engineers and specialists, not line workers.  Those are the positions that hold value going forward and the numbers of engineers needed doesn’t match the number of production people let go.

I’m not saying things like outsourcing haven’t taken their toll.  They have but it’s impossible to un-commoditize manufacturing, so I think those jobs are lost and that’s all there is to it.  Also, companies will need less and less people to make things going forward anyway, so it’s a losing proposition.

This is why we have to stop talking about things like tax rates or repealing NAFTA as the key to our economic recovery.  Those are great topics for riling people up and winning elections but they aren’t the heart of the problem.  I’ll write again in the next couple of days about what the possible solutions could be.

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3 thoughts on “The Jobs Question

  1. You said that “if you can make something in China and ship it on the cheap, there’s no reason to make it anywhere else”. I disagree. I think that there are plenty of reasons not to do so. First, Chinese workers work in conditions that are far below the conditions that our workers do. If we won’t allow a company (we shouldn’t) to use these labor practices here, we shouldn’t allow trade with a company that does it there. Second, the biggest cost savings that most manufacturers get in China is due to lack of environmental regulations, not cheaper labor. If we don’t allow our manufacturers to pollute (we shouldn’t), then we shouldn’t allow trade with one that does. Third, the Chinese artificially devalue the Yuan, which makes their exports even cheaper for us to buy. Fourth, and possibly most important, it isn’t what is best for our country. The presence of a trade agreement implies that the lack of an agreement would serve to prohibit trade. Therefore, the government enables this to the detriment of it’s own people when it is clearly not a level playing field. The government can, and should, rework the agreements to make them fair trade agreements. If a country like China or Vietnam wants to allow its industry to pollute or wants to allow poor working conditions, then it should pay a calculated tax or tariff upon exporting the goods to the US to level the playing field. I am convinced that it would have been this way from the start if our political leaders didn’t stand to gain personally (whether through investments or campaign contributions from interested parties). Another big reason that we shouldn’t just accept this is for our nation’s security. What would happen if you enter into a military conflict with a country that manufactures your goods? It didn’t work out too well for the Confederacy.

    More to come later.

    1. I think there are plenty of moral reasons to continue to make products here. I think we’ve done ourselves a disservice by letting it slip this far but it’s done and I don’t think there’s any looking back. And even if we make them enforce better environmental codes (which they should) and stop manipulating their currency the main problem won’t be solved. Even with these things in place, it’s still much cheaper to produce consumer goods in China or other Asian countries than here. Yes they save money by not handling pollution well but a rural Chinese worker is still far cheaper than an American one at every level.

      The other item up for debate is not should we change it up but will we change it up? Americans are great at being morally indignant but we’ve made our choice when it comes to cheap goods versus purchases I feel good about. Here we are suffering from the loss of these positions in a real way and there is still no big push to change anything on a policy level. Let’s not put everything on the politicians. If we really wanted to change it up we could force them to.

      As to the question of warring with a country that manufactures your goods? It could happen but would destroy their economy like ours. So yes, it’s precarious and a threat but no more than many others. We could go back and forth about punishing them for their policies but it will only move the needle a little, not swing everything back in our favor.

  2. As I said, our government enables this type of trade, so I’m not letting politicians off the hook. I agree that there is not much political will to do anything (should we vs. will we), but this can be changed. That is a whole other topic, so I won’t get into it here.

    The move from an industrial-based to information-based economy actually has the potential to create even more damage to our jobs market. There is not much standing in the way of my job being done by someone in India or another country where you have well-educated but low paid (relative to us) workers. I could e-mail everything needed to design a site around the world in a second. Many more jobs could be at risk. Once an engineering firm starts doing this, others will need to follow suit in order to compete. This could also apply to the example you gave about the engineers and specialists for GM and Chrysler. Where does it end? What is wrong with protecting your industries and their workers?

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