Is manufacturing the answer to fixing the US economy? Should we concentrate our efforts on building more and better goods and then supplying the world with those great products? Or should we drop manufacturing all together?
In past decades the USA was a great consumer and producer. The products manufactured in the USA were desired all over the world. Should we be concentrating our efforts in finding the next big product that we can produce and export? No, we should not! In fact, we should start shipping our manufacturing jobs to Mexico and Latin-America, China, India and other Asian Countries.
For many years the USA, like many first world countries, had an agricultural economy. After the industrial revolution it embraced and thrived as a manufacturing economy, while Third World countries were moving into agriculture. Third World countries were considered agriculturists or farmers, it was in the core definition of a Third World country.
Today we have a shift; these same Third World countries are manufacturing powerhouses. They have cheap labor, good engineers and great equipment. The new Third World country definition is a “Manufacturing Economy.” Does the US want to stay, compete and hang on to a manufacturing economy and compete with them on their terms? No, it does not.
We can take a look at the suffering US car industry as a perfect example. Can the USA make the best and most inexpensive cars in the world? The US can’t compete in quality and it certainly can’t compete in price. The US government has to impose tariffs and special taxes on cheaper and better built imports to even give Ford, GM and Chevrolet a fighting chance.
The USA can’t beat German, Japanese, Korean and the up and coming Chinese cars. Our labor pool gets paid $30 to $40 per hour for an industrial worker (even more with union costs and benefits) and competes with countries like Mexico that spend $2 to $3 per hour for a worker complete with tax, insurance and social security. US labor costs are 10 times higher and our cars are not better. Other fixed costs like rent, electricity, phone or water are also less expensive in other countries like Mexico and China.
Here is how the numbers look for the US car manufacturers. Let’s just say we need to allocate 100 man hours of employee work into building our car. In the USA the straight out labor cost would add up to $4,000 at $40 per hour with benefits, workers compensation, and employment taxes included in the calculation. In Mexico the same car would cost $300.
Yes, there are many variables to costs including fixed and adjustable. Some big variables could be in the acquisition of raw materials or transportation of raw materials and finished products. You also have to consider import and export tariffs for entering or leaving countries. Taking just the labor costs as an example might not be fair. Or is it? Well, imagine having 1,000 employees at $3 per hour or the same for $40 per hour. If you were the CEO, a member of the board or a stockholder in the company what would you do?
Holding on to our old manufacturing economy will not solve our present or future financial situation. In order to achieve lasting success the USA has to let go of those jobs and invest in new ones; jobs that can’t be exported or performed in Mexico, China and India; jobs that include research and development, service, technology and innovation and not production or assembly. We are no longer an agrarian society, we are no longer a manufacturing society, let’s get ready to be a service and information nation.