Friday, March 27, 2009

Why It is Crucial to Maintain Manufacturing Plants and Jobs In The US If We Wish to Retain Related Design Jobs

My previous post ended with a number of questions. Let's consider one. I will restate it for convenience and clarity.

Do we understand that it is crucial to maintain manufacturing jobs within our country if we want to dominate related design fields and keep those jobs in the US? (Hint, the answer is "Yes, some of us do.) Why do I pose this as a question? Simply because this experienced fact known to every fashion and every industrial designer, is in complete disagreement with the current paradigm, that I admiringly call "The Chicago Economic School's Standard Business Model" (CESSBM.) They have Nobel Prize winners aboard, so they have cachet and respect and admiration. However they have very limited knowledge and understanding of the design field. (Do they even watch "Project Runway"?) Certainly no understanding of any field where both the "raw materials," i.e. hardware and software used in the design, and the resulting designed product are in fact manufactured products. Design fields where this is true include women's clothing fashion design, computer chips, network computers, missile design, automobile design, aircraft design, office design, etc. The list of design fields for which it is true is long and very real.

Now let's list some design fields where dominating the manufacturing industry does not make the design field fall into your hand like a ripe plum off the tree... There must be quite a few, since the "Chicago Economics Group" says it is the norm that giving away the manufacturing industry leads to ensuring and maximizing control of the design process and the retention of all the design jobs for lots and lots of designers making good money. They claim you will have a much more focused effort and therefore a tighter grip of the design field.

I can't offhand come up with a good example. I am at a loss... Can someone help me out here. Does someone know of any field where this is, or was, actually the case?

The (CESSBM) also claims that US workers are much more innovative, and that training foreign students in our schools will have no negative unintended effects on our industry when they return to their countries of origin. Is that even politically correct? PC or not, it is totally false! Engineers from all over the world with whom I have worked are sharp as tacks.

So, why and how is it that shedding control of the manufacture of a product gives your company or your country an advantage in retaining and expanding quality, well paying, jobs in the associated design industries?

I cannot think of even one reason or example, so let's see what manufacturers and designers themselves, in a few disparate fields, say about that.

Women's Clothing, The Fashion Industry of New York

Anna Sui, a successful New York Fashion Designer was born in Detroit and educated at Parsons School of Design, Ms. Sui made all the journeyman stations of the cross before achieving overnight success when she was close to 40. Her company is privately held and remains profitable, she says. (Dun & Bradstreet estimates annual sales of $20 million.) Her clothing label is substantially underwritten by earnings from the 14 global fragrance and cosmetics licenses she operates in partnership with Procter & Gamble and her 42 store franchises in China, Japan, Taiwan and Kuwait. — Excerpted from a New York Times article titled “Testing Her Strong Suit,” by Guy Trebay, The Times, Feb. 12, 2009. In the article, Ms. Sui points out

“It’s not just designers who are affected,” by the impact of the economy on fashion, she said. As a longtime advocate for preserving the Garment Center, Ms. Sui is attuned to the perils to the industry over all when any designer or collection fails. Long before the recession hit, high rents had driven businesses out of the area. Employment in the apparel trade has shrunk drastically from its 1950s peak of 250,000 jobs to fewer than 20,000 today."

Now here is the key point:

"Without a production core, it becomes increasingly difficult for young designers to set up shop in the city," Ms. Sui said. “When I was starting, there were wool mills in the U.S. that could make you anything. The U.S. used to produce the most beautiful cotton denim in the world. Now all that is gone.”

The article continues... A person walking down Seventh Avenue runs little risk anymore of being mowed down by a pushcart. Just a handful of workrooms remain that can whip up custom trimmings, and there are few skilled workers capable of operating the bulky machinery required to make gossamer fripperies like Schiffli lace. Come 2010, when the runway shows move from Bryant Park to Lincoln Center, the last symbolic link between Seventh Avenue and Fashion Week will also be lost.

Fashion was a radically different business when she was starting out in the 1980s, Ms. Sui said — less corporate, more subject to the whims and intuitions of gifted merchants and also influenced by the fact that department stores could still afford to showcase unknowns thanks to open-to-buy budgets.

“Every decision is harder for everyone to make now because things are so expensive,” Ms. Sui said, referring both to the steep cost of retail goods and the expenses designers incur to produce and mount collections two times a year.

A New York Times article titled Rents Falling In New York's Garment District , observes that

High rents are hardly the only problems plaguing the city’s fashion industry. Employment in the apparel trades has been shrinking drastically for decades, as tens of thousands of jobs have moved to China and other low-wage countries. After peaking around 275,000 in the 1950s, the number of apparel manufacturing jobs in New York has steadily declined to around 20,000 today, according to Barbara Byrne Denham, the chief economist at Eastern Consolidated, a New York broker.

Some fashion designers like Ms. Nanette Lepore, a New York fashion designer who manufactures 85 percent of her clothing line in almost 30 independent factories within a few blocks of her office on West 35th Street, says that unless the remaining core apparel industry is preserved, it will be difficult for them to design their fashion lines in New York — and next to impossible for young designers coming out of school to set up shop in the garment district, which spans the West Side of Manhattan on streets numbered in the 30s.

Computer Processor Chips:

Is Intel pushing to divest itself of chip manufacturing so it can do even better at design? Or is it finding and hiring the best design teams and providing them with state of the art manufacturing facilities to work with? It's the latter. Intel, a multinational company, has manufacturing and design teams in close proximity in the US, and in India, and in Israel. It is running into significant challenges from Taiwan, where other companies outsourced to separately owned Taiwanese companies to manufacture computer components. As a result, control of network computer design is rapidly evolving to Taiwanese hardware and software designers.

In an insightful article in Wired magazine The Netbook Effect: How Cheap Little Laptops Hit the Big Time, Clive Thompson writes:

"In The Innovator's Dilemma, Clayton Christensen famously argued that true breakthroughs almost always come from upstarts, since profitable firms rarely want to upend their business models. "Netbooks are a classic Christensenian disruptive innovation for the PC industry," says Willy Shih, a Harvard Business School professor who has studied both Quanta's work on the One Laptop per Child project and Asustek's development of the netbook."

" Clive Thompson then drives in to the key point: "The Taiwanese firms, Shih argues, now have enormous clout in the PC industry. In the US, we regard branding and marketing—convincing people what to buy—as core business functions. What Asustek proved is that the companies with real leverage are the ones that actually make desirable products. The Taiwanese laptop builders possess the atom-hacking smarts that once defined America but which have atrophied here along with our industrial base. As far as laptop manufacturing goes, Taiwan essentially now owns the market; the devices aren't produced in significant volumes anywhere else."

Here he really rubs it in:

"If you had asked Taiwanese hardware CEOs a few years ago about their relationship with Dell, HP, and Apple, they'd have told you that the American companies did the branding and sales while outsourcing their design and production to Taiwan. Today the view from Asia is increasingly the reverse."

"When I talk to them now," Shih laughs, "they say, 'We outsource our branding and sales to them.'"

Well now, to me, that says it all... In a relatively short time, the manufacturer inevitably sets the rules.

So we have seen that in computers and in fashion, design jobs physically follow the manufacturing jobs. The Chicago Economic School's Standard Business Model (CESSBM) that claims they are spatially decoupled is dead. The facts do not support CESSBM dogmas. The facts always rule.

If you want sustainable design jobs in your country or company, you had better retain the manufacturing jobs, since they are key to all wealth producing activities, and well paying blue collar jobs, as opposed to lower paying service industry jobs.

But you will say, (assuming you have internalized the Chicago school of economics dogma,) we got rid of our "low margin jobs" and kept the good jobs. There was nothing about these jobs that was "low margin" until the government decided to remove all equalizations because of differences in wage scales. Suddenly, "unfair competition" became acceptable and desirable Our Japanese competitors (head of Sony) thought our policy was madness, but he raised no voice of protest. All's fair in love and insanity.

The lobbyists for the multinational manufacturers say in addition to getting rid of these "low margin jobs," in favor of the remaining good jobs, the US was now free to concentrate on creating lots of new high paying, high skill, "post industrial jobs." The remaining good, i.e., "high margin jobs" are meant to include design and production of aircraft, and automobiles for example. The even better new "post industrial" jobs include the creation and sales of derivative type investment vehicles and credit default swaps. (The Government and financial whiz kids at the bloated banks did not even understand why the latter instruments could not possibly reduce risk, and, of course they did not reduce risk. I may get around to explaining why that was obvious to anyone who looked at them even casually, as I did). Remind me if I forget.

As an aside, I discovered that, being a Physicist trained in systems engineering, made it easy to see things not visible to economists and financiers. I will only explain that, if asked. It's a really big deal, and President Obama and Treasury Secretary Tim Geitner do need to understand it. Their current economist advisors with their Chicago Economic School's Standard Business Model (CESSBM) do not. That's a guaranteed lock!

I should make it clear that the close relationship between manufacturing and design; and the need to have them in close proximity is well understood by technical people. Clearly the current crop of economists do not get it. I assume that is because most economists advising the US Government have not produced anything, so they have no technical or factual knowledge concerning it at all... Just dogma! Unfortunately it's the wrong dogma, and it's toxic.

To see for yourself that what I am saying is well understood by tech folks, take a look at this website assessing the likelihood of finding design engineering jobs The article, written before 2006, states:

" Additionally, some companies use design firms overseas, especially for the design of high-technology products. These overseas design firms are located closer to their suppliers, which reduces the time it takes to design and sell a product—an important consideration when technology is changing quickly. This offshoring of design work could continue to slow employment growth of U.S. commercial and industrial designers."

"Despite the increase in design work performed overseas, most design jobs, particularly jobs not related to high-technology product design, will still remain in the U.S. Design is essential to a firm’s success, and firms will want to retain control over the design process."

Job prospects.

"Competition for jobs will be keen because many talented individuals are attracted to the design field. The best job opportunities will be in specialized design firms which are used by manufacturers to design products or parts of products. Designers with strong backgrounds in engineering and computer-aided design and extensive business expertise will have the best prospects."

"As the demand for design work becomes more consumer-driven, designers who can closely monitor, and react to, changing customer demands—and who can work with marking and strategic planning staffs to come up with new products—will also improve their job prospects."

"Employment of designers can be affected by fluctuations in the economy. For example, during periods of economic downturns, companies may cut research and development spending, including new product development."

Source: Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, 2008-09 Edition

So as you can plainly see, even the government knew it. However the US Government for the last thirty years at least has continued to actively push for the movement of manufacturing jobs to locations in other countries where the cost of labor is lower.

Who benefits from this? Its main beneficiaries are the multinational companies whose profit is raised dramatically through a lowering of their labor costs, and a happily gratuitous lowering of their corporate taxes. Their Management team benefits, and so do their shareholders. Workers clearly do not. It is the major reason that the real wages of American workers in the US have not risen, and have even declined, while the incomes of wealthy non-wage earners has risen dramatically. Municipal, State and Federal corporate tax revenues from these companies do not benefit. The manufacturers spin this as good for the consumer, since prices for goods do decline. So yes, the consumer does benefit from the lower prices. However that is more than offset by the loss in real income, combined with the hidden costs to the same consumer of degradation of the infrastructure, public buildings, services to the poor, services to the middle class, lowering of healthcare and other benefits to all; the disproportionate income taxes at the lower levels, and the increase in sales taxes, education costs, health costs and property taxes. The float was kept going by the apparent rise in the sales prices of houses. The rise in perceived value of their houses was a Ponzi scheme of gigantic proportions. Those rising house prices pushed by risky mortgage terms enabled the government to claim the GDP was rising steadily, when it was not!. The Ponzi House Price Rises orchestrated by Government and its agencies, enabled the spin to be continually pushed by multinational manufacturers, their lobbyists and the esteemed Chicago School Economists, who, unfortunately are still the President's Advisors.

Why do I say "unfortunately"? Because their weltaunshang, i.e. the CESSBM leads to preventing the rapid creation of lots of high paying jobs that are sustainable. It seeks to get rid of such jobs as demonstrated by history and many public statements. Plus, the remedial approaches floated and implemented to date are accompanied by the semi permanent need for a long term dole, which, is unsustainable.

Thursday, March 26, 2009

Do You Know, and Does it Matter, How Many Items In Your Favorite Store Are Made in The United States?

During the Clinton Administration, I started counting, rather informally, the number of items in my local hardware store that are made in the United States and the number made in other countries. I began counting because it was becoming clear that a significant fraction were manufactured in other countries. I wish I had saved those results year by year. But the trend is startlingly clear. In my first census or on shelf item count, in Lynn Massachusetts, at my local True Value store, the percentage of items manufactured outside our metes and bounds was less than 50%, but growing rapidly. I knew someone personally who was moving a fraction of his production from Peabody, Massachusetts to China. I liked him a lot. He and his wife were beloved in China. His local Massachusetts workers were not as happy... He felt that he had no choice in order to stay in business and sell to the dominant stores, such as Walmart.

My last census took place, about six months ago, at my nearest hardware store, an Ace Hardware in Tucson Arizona. It was no longer a counting operation. It was a desperate search through a much larger store. It took all morning for me to get about halfway through the store. I stopped because I needed to pee. I had found less than five items made in the United States of America!

Would you call that a sea change? I think that conveys the right impression. The perfect storm is upon us. I will explain the arguments why this made perfect sense to a small group in our society and our nation. For most of us the results are rather grim. Jack Welch, was from Lynn, MA, where I counted my first stock in a hardware store, and realized how bad this accelerating trend would be for the cities and towns, and for the national budget. For Mr. Welch, reshaping and transforming General Electric into General Financial was the path to personal riches. His mantra? If you are not number one in an innovative age, stop wasting money on tough, possibly slow improvement through R&D. Just get rid of the difficult-to-create-and-nurture technical skill set, and move into areas that require no technical skill, or very little. The new mantra is: Just switch to creating information laden or financial products that only need the agreement of a few in power and the skill set of an alley cat. The short term results of changing the company's focus are spectacular, when they reach the near term bottom line for the enterprise. The shareholders, the customers (a different set of customers of course), and the management stand to profit beyond their wildest dreams. The "method of steepest descents" takes you to the nearest local minimum (or maximum in the case of profits.) It is unlikely to be the actual maximum for profits in the longer term, but the long term is years away, since spending money now on research and development, so necessary for maximizing future profits, reduces this year's profits. Not to worry. It's not on my watch man!

Once you have the keys to the candy store, who needs to manufacture candy? And then later, comes the new paradigm realization, that it's even more profitable to sell the illusion, the smell of candy, and no candy to back it up. That's much more profitable. And apparently legal. I suppose it depends on who is writing the laws. Just walk around Kendal Square, near MIT, in Cambridge Mass, and inhale the wonderful Necco factory aroma to get that paradigm message. It does smell good. But, I digress. Please forgive me.

Not 20 years earlier than my first True Value hardware store "stock characterization counting" in Lynn, this country was the greatest manufacturing giant the world had ever seen. In my childhood it was known as The Arsenal of Democracy. This country has undergone a major change, to put it mildly. No one I know thinks the results are an improvement. The implications for the future are equally vast, and left unchanged, much worse.

Don't we need to ask, how did this happen? And, why was it allowed to happen? What are the implications and inexorable concomitants that cannot any longer be avoided by ignoring the reality and enormity of this "event"? It has unfortunately turned out to be one of the four or five major events of my lifetime. If you are in your fifties or younger, it may be the the single most important event of yours. "Event" is not the right word. Would "Change" be more accurate or meaningful? We are witnessing the final chapter of a major change in the "book of business" of this country. It didn't just happen by chance. It is the result of concerted national economic and social policy. An important part of the basis for this policy was, and still is, the belief of a new group of economists, whose main center of learning was in Chicago, that we should stop manufacturing any item in the US that could be done more cheaply (they use the word "efficiently") in any other country in the world. The US would be fortunate to enter the Information Age, and become the first Post Industrial Society.

We will have to explore a bit the implications of their definition of "efficient" in economics. This is not nuclear physics, and it is not rocket science, but it is extremely important to our day-to-day, year-to-year and decade-to-decade well being and happiness. Or is the pursuit of happiness no longer a motivator in the post industrial world? Shades of 1984 indeed! Unfortunately we are the target of this economic rocket and it is carrying the economic equivalent of a nuclear weapon on our used-to-be way of life.

Here are other questions we need to address:

Is efficiency as defined by the Chicago School a reasonable definition of efficiency? What key elements, crucial to The American Dream, or any Sane Society does it ignore?

What is the actual impact of manufacturing and manufacturing jobs on national wealth, not just short term corporate profits?

Do we understand that manufacturing jobs are crucial to maintain within our country if you want to dominate design fields? (Hint, the answer is "Yes, some of us do.)

Since they are a crucial part of job formation and "job retention," aka "Job Sustainability,"of many blue collar, well paying jobs, what steps are needed to rebuild our manufacturing sector to at least be able to supply our day to day needs as a society? (We can identify those.)

Is it true that the steps needed can result in creation of sustainable good incomes with reasonable growth? (Hint, the answer is yes.)

Is it also true that doing the steps is a lot cheaper than borrowing vast sums to mitigate the collapses that the financial wiseguys can bring upon us if we don't stop this foolishness? (Hint, the answer is yes.)

Monday, March 23, 2009

President Obama's Economic Stimulus Plan

Main Observation: The President's stimulus package is geared to mitigating the effects of unemployment. This has a number of forms or approaches. Today, we will address two approaches.

One approach is to prolong unemployment and even enhance unemployment benefit packages. Enhancing unemployment benefits to provide healthcare is an option. Such action can possibly lead to new job creation in the healthcare fields.

A second approach to dealing with unemployment is to stimulate economic activity so new private sector jobs based on private sector activities are created. Has anyone seen any information that shows self sustaining economic growth based on the current "post industrial" model for the US economy? You know, that's the one where we create or manufacture few of the physical goods people need to sustain and conduct their lives, just services and financial products of whatever quality, durability, and reliability. (Much more to come on this topic in subsequent blog entries.)

An unstated assumption in Approach 2 is that to make the economy grow and create new self sustaining jobs we have to do two main things. The first is to "save" the banking system as it currently exists; and the second is to create new R&D activities, or greatly enhance existing R&D funds available for business and government to spend productively.

The first idea for job creation via economic stimulation is that the banking system (including bank insurers) just needs to be coddled and coaxed using vast capital infusions to return to the old style functions of the banking system. You know, those are the ones that involved making loans to businesses and consumers whom the banker knew and trusted to run businesses and even expand the businesses in a safe manner, and to make consumer purchases in an orderly manner so as to not overextend. That means returning to the thrilling days of yesteryear when securitization was not yet invented. In future blog entries, we will discuss why securitization was invented. Of course, this will require a much diminished financial industry in terms of employment. We simply cannot survive as a society in which the fantasies of infants are allowed to dominate the adult world and expect to survive as a culture, and economic model, or perhaps as a nation.

The second idea for job creation mentioned above is to create or enhance research and development activity in productive areas leading to the creation of scientific and engineering R & D jobs themselves and also leading to opportunities for new commercial products to be manufactured.

In the time remaining today, let's go back and say a bit more about the impact of enhanced benefits for American workers on sustainable job creation. It is a surprise each day to see that there has not been explicit information presented about how to make any such newly created jobs resulting from government benefit programs self sustaining. That would require putting an unemployed person to work in a new or previously existing job that caused a profit to be generated somewhere or somehow that is sufficient to at least cover the cost of the new benefit.

Let's explore that a bit. Let's say an unemployed person who has a new healthcare benefit causes a new job to be created in an ER (emrgency room), Urgent Care facility, or possibly in other existing and/or new types of medical facilities. That's good, but clearly the unemployed person is not paying additional or any taxes to cause that healthcare job to be self sustaining for the following year.

What about employed persons who have a new or enhanced health benefit. Someone will be paying for that increased benefit. Is it the worker through enhanced taxes, the employer through enhanced healthcare benefit contributions, or solely the government? If solely the government, it is again not self sustaining. If it is the employer and/or the worker then the American worker under the current "post industrial" model that our esteemed Economic theorists and B school professors have successfully sold and totally implemented in this country, those jobs will not exist here for long. They will be offshored as soon as offshore employers can figure out how to do the same work abroad for a lower delivered price. More on why this is true in subsequent blog entries.