Do you want to know why American manufacturing is in trouble?
It’s not because of cheap wages, automation or free trade; it’s because the people who really matter in American society -- financiers -- don’t like it.
It’s really that simple.
If you want an example, read the article by Gary Sernovitz in the August 6th issue of The New Yorker, entitled “Why We Pine for Manufacturing.” The article is entertaining, well-written and for me it reads like one of Stephen King’s horror novels.
For those of you who don’t read Sernovitz’s article, here’s the upshot: We want manufacturing to come back like the Biblical prodigal son because we love it, not because we need it. Give it enough time and we won’t miss it. It just doesn’t matter.
Now, if you’re watching this chances are good that you, like me, disagree -- and strongly.
Why? Because manufacturing simultaneously solves four problems:
The first is poverty.
High-paying manufacturing jobs not only give employees sufficient disposable income to create a vibrant middle class, but also act as fuel to the entire economy. The multiplier effect of manufacturing employment is stronger than that of the service or financial industries because manufacturing needs a supply chain that drives other manufacturers, as well as services. Two tiers of major suppliers in the auto industry, for example, employ many more people than the carmakers do themselves.
When there is little disposable income, there is misery, period. Manufacturing creates real wealth.
The second is upward mobility.
There’s an almost universal sentiment that auto workers earned too much money on the lines at the Big Three back in the day.
However, the reality is that $30 per hour compensation meant that a hard working “shop rat” at Buick City in Flint, MI, for instance, could buy a house, a car, take an occasional vacation and send a kid to college. And if the kid wasn’t college material, following Mom or Dad into the plant still meant a decent quality of life. In that world, each new generation had possibilities.
The third is meaning.
The guy bucking rivets on a “Triple Seven” at Boeing Everett is participating in the construction of an important, complex machine. His contribution is critical to the success of the program, just like the contribution of the CEO.
The quality of his work matters, and when his job morphs into programming or servicing robots, it still matters and holds just as much meaning.
I doubt a guy in the trenches at Goldman Sach’s derivatives operations can say the same.
The fourth is economic growth.
Making things means buying lots of other things, from raw materials to management software to vending machines. Each input is an industry in itself, making and moving millions of parts and supplies across the entire continent, and generating millions of jobs.
The 21st Century Wall Street favorites in the banking and software sectors have no supply chain, and the Street actually rewards companies that outsource what things they do buy, which these days includes intellectual processes like coding.
Manufacturing is either done here, or over there, because it’s pretty hard to deliver a Chevy Impala over a Wi-Fi connection. This makes it largely a zero-sum game with jobs, economic growth and prosperity depending on who makes things: us or them.
This isn’t speculation.
Productivity, labor force participation and income statistics all show that the hollowing out of US manufacturing has destroyed the lives of millions of Americans, and eviscerated the middle class.
According to Microaxis.com, Ford employs 199,000 employees and is currently valued at USD$161 billon dollars. Facebook is worth double that figure, at USD$315 billion dollars.
Their employment number? 14,000.
And while employing less than a tenth the number of workers, the multiplier effect of Facebook operations is marginal when compared to that of Ford. Wall Street loves Facebook, and it loves making money without making things of actual value.
Gary Sernovitz is one of those that simply don’t get it. I suspect that this is because when he’s not writing, he’s the managing director of an oil and gas-based private equity firm; and in the Big Apple, what happens in Gary, Indiana, or Amarillo, Texas or Renton, Washington just doesn’t matter.
And unless it starts mattering to Donald Trump or Hillary Clinton, I suggest that Americans consider conversational Mandarin before that executive MBA.