Become a Manufacturing Powerhouse in 2020—An Economic Recipe for Our Times

Yves here. This post focuses on one set of policy objectives, which is the sudden desire of countries to become more self-sufficient, or more specifically, more of an autarky. One set of complicating factors with promoting more domestic manufacturing is that hardly any countries possess enough raw materials and engineering/technological prowess to pull that off. And I don’t mean people with STEM degrees; I mean people with practical know-how in running large operations. Ironically, Russia arguably fits this bill the best of any large-ish country.

Second is that higher levels of domestic manufacturing means accepting more pollution. In some parts of manufacturing, it is feasible to impose high environmental standards; in fact, it’s not all that costly to implement them in new facilities, but expensive and not fully effective to try to retro-fit existing plants to be cleaner. But there are some areas where no one yet has “clean” or even “clean-ish” solutions, like mining rare earths.

Third, of course, is the overarching problem of climate change. Bringing manufacturing home presumably means new construction, which will require significant energy expenditures. And those in turn will draw heavily on our existing fossil fuel infrastructure.

By Marshall Auerback, a market analyst and commentator. Produced by Economy for All, a project of the Independent Media Institute

Seldom a day goes by lately without politicians and pundits from countries all over the world calling for re-establishing their manufacturing base to avoid the vulnerabilities exposed in the wake of COVID-19. Whether it be Canada, Australia, the United Kingdom, or the United States, to cite a few examples, the neoliberal agenda of outsourcing manufacturing abroad in search of lower costs for “cheaper goods” now rings as hollow in these debt-ridden economies. An “every country for itself” attitude is starting to catch on. If an industrialized country can’t supply itself in an emergency, is it truly industrialized? National security dimensions of economic planning that have receded and were dormant for decades are back in play.

But the process of moving essential supplies back (or closer) to home is easier said than done: Reassessing capacity-planning strategies on the grounds of national security, redomiciling supply lines or reviving homegrown industry all entail significant geopolitical ruptures with the patterns that have formed for the past 50 years. The process requires a fusion of old ideas projected into new technological capacities, like automation and quantum computing, and a design that promotes a continuum of stability and cooperation from the old order.

And while every nation will certainly think of itself first, it would be suicidal not to think outside of one’s borders, starting with regionalization. It’s easy to realize that wider common human welfare must be incorporated in the planning for the future, as so many of our challenges, from public health to the environment, are of a planetary scale. But there is also an element of Voltaire’s dictum of tending to one’s own garden that must come into play as well. The World Trade Organization (WTO) and other multilateral entities must accommodate both realities or go the way of the dustbin.

So where is a nation-state in 2020 going to start with this transition? Where is the multilateral red tape? Regarding the WTO specifically, Trade-Related Investment Measures, or TRIMs for short, must be abrogated if countries are serious about re-establishing domestic manufacturing capability. These are regulations that explicitly prohibit local content requirements, prioritization of domestic firms for public works procurement, foreign exchange restrictions (which are particularly important for emerging economies now totally reliant on dollar funding access by the U.S. Federal Reserve) and export restrictions.

As TRIMs are annexes to the main WTO accord, they can be abrogated without stepping outside the bounds of the main agreement itself, which means that their elimination doesn’t necessarily presage a return to some kind unregulated law of the jungle with respect to global trade. During the current pandemic, virtually all of these provisions, especially the export restrictions, are routinely broken, as every nation scrambles for vitally needed medical supplies. Yet the world’s global trading system has not collapsed into a total free-for-all, which suggests that such restrictions are not essential to the operation of a rules system for globally traded goods (especially once some degree of homegrown manufacturing is re-established).

It’s also worth noting that many other supposedly sacrosanct rules on “trade” embedded in recent agreements have little to do with actual trade. Dressed up in dry, legalistic terms as neutral operating rules, these agreements more often than not simply embed “the politics of global arbitrage” which, as Michael Lind has highlighted, “reflect the interests not of national working-class majorities but of the managerial elites that dominate western governments.” To illustrate, Lind points to the arbitrariness of the enforcement provisions:

Harmonizing labor standards or wages would undercut the labor arbitrage strategy, while transnational crackdowns on tax avoidance would thwart the strategy of tax arbitrage by transnational firms. Instead, the emphasis in harmonization policy has been on common industrial standards, the liberalization of financial systems, and intellectual property rights, including pharmaceutical patents. These kinds of harmonization benefit transnational firms, investors on Wall Street or in the City of London, and the holders of intellectual property rights in Silicon Valley and the pharmaceutical industry.

In other words, the rules that govern “free trade” today often have little to do with the mechanics of reducing transactional costs in traded goods, and everything to do with privileging the position of global multinational firms and their investors at the expense of smaller domestic industries. That’s why countries like Ireland, as Brad Setser has noted, show up as the biggest global market for U.S. exports of research and development services: precisely because trade agreements do not extend to the harmonization of global tax. Ireland’s “gains” are largely a product of tax arbitrage by big U.S. multinationals like Apple or Johnson & Johnson, who establish subsidiaries in tax havens such as Ireland, Bermuda, or Jersey in the Channel Islands.

It’s also clear that today’s trade and manufacturing disruptions are not unique to COVID-19. As Professor Willy Shih has argued, “the current pandemic is not the only black swan event of the last 15 years. Arguably there have been several—including the 2008 financial crisis, the 2011 Tohoku East Japan earthquake and tsunami, the flooding in Thailand, and the U.S.–China trade war”—they may be forgotten now, but in the midst of each of those crises were many reports about critical supply shortages.

What these disruptions do illustrate is that a country that has a deeply embedded manufacturing sector can promptly shift production priorities to alleviate shortages better than a country whose limited manufacturing capability is held hostage to the provision of offshore specialists. Over the past 20 years, China has developed a health-centered industrial cluster of biopharma, diagnostic equipment and drug manufacturing, which makes them less prone to disruptions and shortages. Likewise in the area of electronics, Taiwan Semiconductor, as Willy Shih has pointed out, “has spread its most important fabs [semiconductor factories] across three science parks in Taiwan.” Even here, however, total self-sufficiency is unrealistic. China, for example, has become heavily dependent on Switzerland for the provision of key components to further increase domestic production of ventilators to meet global demand. Regionalization would likely go some ways toward mitigating this problem, as would the creation of strategic stockpiles, as we have today in the oil markets (even though the challenges in crude today are ones of oversupply and collapsing demand, rather than critical shortages).

By the same token, countries such as Japan and Germany have demonstrated that a modern, well-developed economy needn’t foist an exploitative manufacturing process on the developing world on the grounds of low-cost labor alone.

For one thing, complex, high-tech, and high-priced goods are less dependent on cheap labor; both Germany and Japan excel in technology-based competitiveness that does not rely on pricing advantages per se to dominate their respective export markets. The most successful Japanese or German manufacturers invest in the businesses, as opposed to engaging in extensive share buybacks and dividend payouts, the result being massive productivity gains that more than offset (relatively) high labor costs. It presents a double pain for offshore paradises like China—the loss of foreign direct investment plus the awareness that a wealthy country reinvesting in its industries to gain on productivity can eventually challenge low labor costs and save on transport and security costs. This process is what caused President Xi to bristle at news of a Japan-led manufacturing exodus from China.

Behavior like this in the United States is more rarely seen than the California condor. But as the condor program has proven, careful planning and dedication can bring anything back from the brink of extinction. Just look at Sematech, a government-industry consortium created in the 1980s to successfully revitalize the American semiconductor industry (where the United States has now re-established its global dominance). An example even more germane to the current pandemic is a new ventilator 100 percent developed in New York in less than a month.

Productive capacity can and will likely be added as supply chains are redomiciled in, say, the United States, or Canada, or other places that aspire to revive manufacturing, but in the first instance, there may be potential demand leakages as these stimulus funds inevitably “leak” to countries that already produced the required goods. By contrast, from the point of view of quickly reviving manufacturing growth down the road, countries like Germany or Japan have a head start precisely because their governments can direct stimulus toward existing productive capacity that can be ramped up quickly and therefore generate employment gains faster.

Today, China is now reopening and building inventory—while others are engaged in forced savings (due to lockdown and economic survival). That means that Beijing may have first-mover advantage to fill the orders when the pent-up demand is first unleashed via a re-establishment of economic stimulus (as opposed to economic relief, which simply puts a floor on demand, rather than expanding it).

Assuming Western countries that have eviscerated manufacturing get past that first challenge, the economies of scale also become a consideration here. A combination of a relatively large domestic market, cheap capital and protectionism, the Japanese state was able to assist in the buildup of high-value-added industrial sectors. The country’s keiretsu—a conglomeration of businesses linked together by cross-shareholdings to form a robust corporate structure—also enabled smaller to medium-sized businesses to enjoy benefits of scale via informal cartelization. That is harder to achieve in smaller countries, whose manufacturing sectors will likely entail enveloping them in a larger regional trade bloc. In Canada, for example, this likely means an extension of the pre-existing United States–Mexico–Canada Agreement (USMCA, the new NAFTA).

Even assuming a new trade framework that facilitates local content requirements and other measures to enhance the revitalization of manufacturing in developed economies, these countries will also have to embrace a higher degree of increased automation in the workforce, Mark Cuban is the latest business leader to argue. Automation, however, need not be antithetical to allocating wealth to workers and the larger public.

There are two sides to this: First on the ownership side, careful attention must be paid to automation technologies from the outset, because they concentrate wealth at a scale that would make Andrew Carnegie and John D. Rockefeller blush. Governments will have to contemplate rules to limit stock buybacks, as well as considering alternative ownership structures, such as Germany’s codetermination (which involves the right of workers to participate in the management of the companies they work for) to ensure a better distribution of wealth and profits. With advanced technologies entering all areas of economic life, it is essential to develop a culture that thinks of ownership, tax payments, and profits as something to distribute—to workers, to various levels of government. In short, a revival of an old style of “tripartism,” what Michael Lind defines as “the collaboration of labor, business, and government in the national interest.” Antitrust may have some role to play here as well, but in general a size-neutral form of oversight and effective regulation is likely to be more effective in terms of achieving a better balance of income distribution, as well as ensuring an industrial policy consistent with a broader public purpose.

On the labor side, machines can either replace labor totally (e.g., washing machines replacing domestic labor), or they can complement labor, allowing one worker to be more productive (partly robotic, partly human assembly lines). Jobs (or unpaid household labor) are lost in both cases, but the mechanisms are different. One is pure labor substitution; the other is productivity and labor enhancing.

In order to maximize the benefits of automation, a key consideration is re-establishing the linkage between real wages and labor productivity, which for much of the post-World War II period was, as the economist Bill Mitchell has argued, “the source of increasing living standards for workers and allowed them to maintain growth in consumption expenditure commensurate with the growing output of the economy.” That link has been largely severed in the past 40 years, as business’s attacks on labor and unionization intensified. And if productivity-lowered prices give consumers more discretionary income and they spend it on labor-consuming services, there will be new jobs in labor-intensive sectors (or household activities) that can’t be automated.

The other policy solution, as I’ve written before, lies with local content provisions:

Here’s how this would work: Every large nation or bloc (it doesn’t work for small countries) would be allowed to adopt local content requirements [LCRs] for the industries it wants, ranging from zero to 100 percent (100 representing the highest military or economic importance). The rest of the world can compete for the remaining share of the national/bloc market.

Free trade theologians will no doubt rebel, but the virtue of this idea is that it reduces the incentive for mercantilism precisely because LCRs make it impossible to drive your trading partner out of a desired industry by dumping. Likewise, currency manipulation doesn’t work to wipe out your trading partner because a large percentage of, say, semiconductor chips must be made in the U.S. under this program, whether the dollar is high or low.

If we want production in our country, incentivizing it via tax policies is the equivalent of bringing a pocketknife to a gunfight (since state capitalist regimes with deeper pockets can always out-subsidize us). We must require in-market production by law (and procurement), period, though profits can be repatriated to foreign firms or owners.

If nations subsidize the research and development (R&D) on the home market but not the production, the firms will just do the R&D in the home markets and make the product in a low-cost jurisdiction and then ship it to the United States. That’s largely what Apple does today, to cite one example. How is that different from the present system where companies leech off public and university R&D and build up manufacturing in other countries? And if we try to subsidize local production as well as R&D through tax credits, China and even the EU can always provide a bigger tax credit or labor so cheap it neutralizes the tax credit. The result will be offshore production shipped from abroad to the United States (and possibly global supply gluts, as subsidized manufacturing exceeds global consumer demand and leads to excess industrial capacity and overemployment). Local content requirements neutralize this impact.

Bearing in mind Lord Palmerston’s dictum that countries have eternal interests, if not eternal friends (or permanent enemies), trade regionalization also needs to be mindful of national security considerations. So if one of the consequences of this pandemic is a prolonged Cold War 2.0 between the West and China, we don’t want to offshore everything to India simply on the grounds that India is anti-China (and the same reasoning may apply as much to Japan; it may eventually decide that its long-term fortunes rest with China as part of a growing Asian regional trade bloc, especially as China grows and Japan shrinks in relative terms).

If that means crude selective protectionism and deliberate deglobalization, so be it. Regional proximity can enhance both national welfare and regional security. In the Americas regional bloc for example, national security likely requires supply chains to be redundant “and located either in the United States itself or in close allies who cannot be threatened by blockades—Canada and Mexico, for instance, rather than Japan or South Korea or Europe,” writes Michael Lind. Alan Beattie of the Financial Times has gone further, suggesting the involvement of the military in order to do national stockpiling logistics effectively.

How does “regionalization” look in practice? For one possible example, consider a Japanese-style model with suppliers clustered in a tight geographical area to supply chains connected by dependable geographically proximate and predictable logistics links. That is vastly superior to a “just-in-time” inventory system featuring multinational firms who squeeze inventory out of geographically remote supply chains that are today proving more unpredictable from a geopolitical standpoint.

If our dependence on other countries (not just China) for medical essentials does not make clear the case for immediate naked national protectionism in certain essential industries, requiring 100 percent U.S. supply chains, from to the chemical precursors to the factory labor, it’s hard to know when we should consider this. At a minimum, let’s stop the pretense that globalization in and of itself constitutes some kind of panacea for enhanced global cooperation. That was neither true in 1914 (when we reached the last high-water mark in globalization), nor is it true today. We should consider the alternative: namely, some degree of national self-sufficiency, strategic stockpiles, and regionalization, all of which might actually do better to diminish international tensions if it means less scrambling around and fighting each other for ventilators or surgical masks.

These are all radical concepts that mark a significant departure from the way things have been done for the past half-century, but these are precisely the kinds of hard conversations that need to be had if countries are serious about reviving homegrown manufacturing.

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21 comments

  1. PlutoniumKun

    This is an important conversation, but its important to recognise just how fundamental a restructuring this type of policy requires. Going back to the mid 20th Century, there was a huge interest in regional industrial policy, mostly to address the then urgent issue of massive de-industrialisation, plus of course bringing industrialisation to the developing world. It has to be said that vast sums of money were wasted in trying to develop industries in places they were never intended to be. Growth Pole Theory was very much a fad of the 1960’s and 1970’s – the idea being that if you put lots of, for example, chemical plants in an area, then they would all start working together to create an ecosystem and it would become self-supporting. It rarely worked, for all sorts of reasons, but mostly because countries were simply not prepared to put in the sort of focused, decades long single minded approach needed – something that (for example), the South Koreans were prepared to do in their inland cities like Daegu (which were pretty much started from scratch) or their ship building port cities. It should be said that Irelands ‘tax haven’ status started out as an attempt to ‘seed’ plants in areas which would then develop into native local industries. But over time, this simply didn’t work and the tax breaks became the end, not the means for industrial development. Although interestingly, Ireland pioneered one form of urban industrial development at Shannon, which ironically enough became the model for much of Chinas policy from the 1980’s onward.

    New technology may however help – with 3D printing, it is possible now for far more parts to be manufactured ‘on site’ for many industries. This still happens in some countries – in Germany, its not unusual to find companies which make almost every component going into their final product – an example being Ortleib bike bags. But the result is an expensive product – so there is a consumer side to this as well, it means goodbye to many types of bargain if it becomes government policy to support this type of manufacture.

    This is, in short, far more difficult than it looks. It means wiping out everything that has been thought as standard in MBA courses for the past 4 decades and starting from scratch. This will be much easier for the Germans, Koreans and Japanese, as they haven’t forgotten how to create chains from raw metal and plastic to a final product (even the Chinese rarely do this type of manufacture, thanks to all their US trained business leaders). Its not just how you make things, its how you conceptualise business and manufacturing. But I do think its absolutely essential.

    Reply
    1. RabidGandhi

      Adding to your point about how far away this all is, it should be noted that the US’s latest moves are actually pushing it in the opposite direction, namely in the form of the latest bailout bills.

      The trillions poured into the hands of the richest companies are already fueling an incipient Saturnalia of mergers&acquisitions and stock buybacks. A company that is flooded with cash when domestic demand has fallen off a cliff has no impetus to make the R&D and productivity investments Auerback rightly champions. Yes, adopting LCRs are a step in the right direction in this regard, but it is no use producing trinkets with local content if no one is going to buy them; better just to blow it all on further financialisation and buybacks.

      Attaining Auerback’s goals will take the diametric MBA re-think you mention, but also more immediate government moves to pull aggregate demand out of the abyss.

      Reply
  2. Sound of the Suburbs

    Diagnosing the problem (UK).
    (Everyone thinks pretty much the same things, it’s the same everywhere)

    Free trade, free markets and EU membership will bring us all prosperity.
    Did you mean ten years of austerity?
    Something has gone badly wrong.

    The liberals try and pretend nothing is wrong, and we should just plough on with the status quo.
    The Conservatives have placed the blame on the EU.
    What’s the real problem?

    No one knew how to use debt to create growth efficiently during globalisation.
    The secret is to lend into areas that grow GDP, and not use it to inflate asset prices, e.g. real estate, stocks and other financial assets.
    You should use bank credit to increase the productive capacity of the economy, and that way you won’t overwhelm the economy with debt and cause a financial crisis.

    The UK is the best example.
    https://www.housepricecrash.co.uk/forum/uploads/monthly_2018_02/Screen-Shot-2017-04-21-at-13_53_09.png.e32e8fee4ffd68b566ed5235dc1266c2.png

    What happened in 1979?
    The UK eliminated corset controls on banking in 1979 and the banks invaded the mortgage market and this is where the problem starts.
    The transfer of existing assets, like real estate, doesn’t add to GDP so debt rises faster than GDP

    Before 1980 – banks lending into the right places that result in GDP growth (business and industry, creating new products and services in the economy)
    Debt grows with GDP
    After 1980 – banks lending into the wrong places that don’t result in GDP growth (real estate and financial speculation)
    Debt rises much faster than GDP
    2008 – Minsky Moment, the financial crisis where debt has over whelmed the economy
    After 2008 – Balance sheet recession and the economy struggles as debt repayments to banks destroy money. We are making the repayments on the debt we built up from 1980 – 2008.

    Everyone has done pretty much the same thing and the US did the same thing in the 1920s as well.
    Underneath the new, neoliberal ideology lies 1920s economic thinking.
    The belief in free markets and price discovery, that comes from neoclassical economics, gets everyone thinking they are creating wealth by inflating asset prices.
    Bank credit flows into inflating asset prices rather than growing GDP.

    At 25.30 mins you can see the super imposed private debt-to-GDP ratios.
    https://www.youtube.com/watch?v=vAStZJCKmbU&list=PLmtuEaMvhDZZQLxg24CAiFgZYldtoCR-R&index=6
    Debt rises faster than GDP until you get a financial crisis.
    1929 – US
    1991 – Japan
    2008 – US, UK and Euro-zone
    The PBoC saw the Chinese Minsky Moment coming and you can too by looking at the chart above.

    Reply
    1. Sound of the Suburbs

      The Americans worked it out in the 1930s.

      The US free market thinkers of the 1930s wanted to use the Chicago Plan to take away the banks ability to create money.
      To get meaningful price signals from the markets you need to take away the ability of banks to create money.
      Henry Simons wanted free markets in every other area, but he wanted the Government to create the money supply as he had worked out the problem with free markets that had occurred in the 1920s.

      Henry Simons was a founder member of the Chicago School of Economics and he had worked out what was wrong with his beliefs in free markets in the 1930s.
      Banks can inflate asset prices with the money they create from bank loans.
      https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
      Henry Simons and Irving Fisher supported the Chicago Plan to take away the bankers ability to create money.
      “Simons envisioned banks that would have a choice of two types of holdings: long-term bonds and cash. Simultaneously, they would hold increased reserves, up to 100%. Simons saw this as beneficial in that its ultimate consequences would be the prevention of “bank-financed inflation of securities and real estate” through the leveraged creation of secondary forms of money.”
      https://www.newworldencyclopedia.org/entry/Henry_Calvert_Simons
      Real estate lending was actually the biggest problem lending category leading to 1929.
      Richard Vague had noticed real estate lending balloon from 5 trillion to 10 trillion from 2001 – 2007 and went back to look at the data before 1929.

      Henry Simons and Irving Fisher supported the Chicago Plan to take away the bankers ability to create money.
      “Stocks have reached what looks like a permanently high plateau.” Irving Fisher 1929.
      This 1920’s neoclassical economist that believed in free markets knew this was a stable equilibrium. He became a laughing stock, but worked out where he had gone wrong.
      Banks can inflate asset prices with the money they create from bank loans, and he knew his belief in free markets was dependent on the Chicago Plan, as he had worked out the cause of his earlier mistake.
      Margin lending had inflated the US stock market to ridiculous levels.

      The IMF re-visited the Chicago plan after 2008.
      https://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf
      The IMF are sniffing around in the right area, they just need to work out what the Chicago Plan was really for.

      “To get meaningful price signals from the markets you need to take away the ability of banks to create money.”
      That was the solution the 1930s free market thinkers came up with.
      OR ……
      You could use the corset controls the UK used before 1980.
      This kept bank credit away from financial speculation and debt grew with GDP.
      OR …..
      Richard Werner worked out what went wrong in Japan.
      The BoJ used to use window/credit guidance to steer bank credit away from financial speculation and this was the basis for all the Asian Tiger economies, until they discovered financial liberalisation.
      OR …..
      Germany uses small non-profit banks that are very local to communities and businesses.
      There is no gain from financial speculation and they are closely tied to the people they serve.

      Reply
  3. JTMcPhee

    Seems to me “we,” whoever the indeterminate “we” is in these kinds of discussions, have all kinds of things “we” can or should or must “consider” in confronting the likely approaching dead end of “modern life.”

    But “we” have no agency.

    “Who,” exactly, is going to pry the levers of power from the cold, dead “invisible hand,” the Ringwraith called neoliberal exploitation or whatever is a more accurate pejorative for “capitalism-globalism?”

    “How” will that prying loose be done, by what tools wielded by “whom?” Biden? Congress? The Fed? The IMF? The EU?

    “What” revisions to the political economy are agreed upon by “us” as the ones that are curative of the disease processes of the current global political economy?

    “When” is all this change going to happen, bearing in mind that “change” in the form of the expansion of the house of cards is going on as “we” confer?

    Going to take a whole lot of of naked power to force that change. Talk is cheap — maybe necessary to focus some energy on the likely violent change needed, but a starting point is meaningless if there’s no motion from there.

    And it’s disheartening that all these ideas are still wedded to “growth,” Measured by GDP, just with the hope that the cancer that is “growing” in the heart of human commerce might be directed in different channels that like a dendritic stream, all still tend to feed back to a central channel?

    Reply
    1. Pelham

      Good question about who “we” are. Over the 50 years of my adulthood I’ve gotten the distinct impression that the “we” is actually a small club whose interests and loyalties diverged from those of the rest of us beginning, oh, I’d say about 50 years ago.

      Reply
  4. SteveB

    Manufacturing is hard and risky. As long as it is easier to trade pieces of paper backed by an implicit government guarantee, sane people will trade pieces of paper.

    If you want manufacturing in the USA, take away the incentive to make easy money trading pieces of paper.

    I watched as we closed the second largest ESOP in 1987. One million sq ft of manufacturing and engineering might, 3000 people gone. That knowledge and ability is gone. The apprentice program gone.
    I still have all the engineering design and manufacturing manuals. The product of many years experience and toil. I just can not throw them away. But the pages are brittle, the memories faded and when I die they will be tossed in the landfill their contents forgotten.

    Reply
    1. Duspaz

      Absolutely agree. Manufacturing takes time and effort, knowhow and human capital. I was in similar situation you are describing in late 90’s, beginning 2000’s (ironically, my company at that time was making Melt-blown and Spun-bund machinery, the type of machines making materials that are used for filtration, medical gowns, masks etc.). Major competitors were from Germany. As there was no support for manufacturing in the US, we were eventually bought by one of the competitors, manufacturing facility shutdown immediately (and this was high end manufacturing facility) and eventually all people form manufacturing and engineering (I was Engineering Manager at the time) laid off. If today somebody would give me and $100 M and told me to recreate this business, I do not think this would be possible, at least not in 3-5 years, at best.
      Process of bringing manufacturing back will have to be sustained national policy for years to become reality.

      Reply
    2. John Wright

      Re: your “engineering design and manufacturing manuals”. Have you considered scanning them in and posting them to one of the archive sites?

      I worked in the Northern California electronics industry for 35+ years and watched it move much manufacturing overseas.

      It took many years to move stuff overseas. It is not just final assembly, it is all the lower level components and fabrication that also moved.

      Moving a factory back that assembles a final product only helps somewhat in building up an industrial base. In many cases there will still be long supply lines tied to Asia to source the components/sub assemblies.

      The USA does still have a lot of manufacturing expertise, but I view it as being at the small shops that could not do labor arbitrage.

      What is interesting is that many USA citizens do like to build stuff (woodworking, metalworking, home remodeling, crafts).

      Then there is the UK rocker Rod Stewart who builds his own model railway: https://www.bbc.com/news/entertainment-arts-50403561

      But there seems to be a great emphasis on “get a college degree and get a white collar job” for the USA youth, so the USA society tends to look down on manufacturing..

      I took several vocational ed classes at the local JC (machining, auto mechanics) about 15 years ago.

      One instructor suggested the vocational ed part of the junior college was not highly valued by the “college prep” oriented school administrators and asserted “but we get the jobs”.

      As you suggested, when a manufacturing enterprise is moved overseas, there is a lot of knowledge transfer. Left unstated was that the overseas operation continues to evolve the process and increase their knowledge while this experience is no longer gained in the USA.

      Where I worked this was known as the loss of “next bench” products, which are future products developed in response to manufacturing/production problems.

      Kevin Phillips wrote in his “Bad Money” book (2008)

      “My summation is that American financial capitalism, at a pivotal period in the nation’s history, cavalierly ventured a multiple gamble: first, financializing a hitherto more diversified U.S. economy; second, using massive quantities of debt and leverage to do so; third, following up a stock market bubble with an even larger housing and mortgage credit bubble; fourth, roughly quadrupling U.S. credit-market debt between 1987 and 2007, a scale of excess that historically unwinds; and fifth, consummating these events with a mixed fireworks of dishonesty, incompetence and quantitative negligence.”

      Reply
  5. chuck roast

    Say it Marshall: you are writing about developing a National Industrial Plan. And autarchy increasingly becoming part of the conversation…it’s enough to make a man stagger to the fainting couch. They are circling the wagons at Chicago and George Mason.

    This writing was on the wall 10 years ago when the Doha Round was sputtering towards it’s anti-climax. It really did give me hope. For the first time the transnational corporations couldn’t enforce their will on the LDCs. The WTO finally tossed in the towel in 2016. The beginning of a well deserved end for these swine and their scandalous international commercial courts…lawfare at its best.

    And let me take a moment and thank Dani Rodrik for clarifying things (at least for me) with his Globalization Paradox about the inability to simultaneously pursue democracy, national self-determination and economic globalization. It seems as though the world suffers from advanced infantilism. Eventually we “get it”. It just takes a while for us bone-heads.

    I do believe that the tide is turning. The question is: “Will the waters recede before the icecaps melt?”

    Reply
  6. sam

    I knew I could depend on NC to spotlight this absolutely critical issue. But how to move the discussion to a broader audience? Many MSM stories note that there is a shortage of PPE as we wait for more to come from China. Politicians squabble about “testing, testing, testing” as though someone can conjure up millions of test kits vs waiting for them to come from China. Similar issues with swabs, medical equipment, etc. How about using the Defense Production Act to compel China to supply more? As the piece says globalization has clearly failed the majority in the US and if we don’t recognize that now when will we, yet those who have benefited from labor arbitrage seem determined to avoid any discussion of the issue, which shows how far we are from any meaningful change in policy.

    Reply
  7. BlakeFelix

    It has always seemed to me that a country should set target levels of autarchy that it doesn’t want to fall below, and then defend them with tariffs. If the domestic economy isn’t producing enough of product x, raise the import tariff on x until the price rise causes someone to step up. These tariffs can replace other, worse taxes(payroll, income, improved real estate) or fund useful programs (or however an MMTer would put it). I don’t see any real avoidable inefficiency there, and sin taxes and tariffs were how the Federal government funded itself in the good old days, so it’s nothing new or untested. It allows free trade, and turns aggressive mercantilist policies from trading partners into a solid benefit, they can price themselves as low as they like, they will just end up paying you more tax. I like the idea of pollution tariffs as well, but they are a separate issue I guess…

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  8. Susan the other

    Do profits translate across national governments? So that the answer to the question, how does all this regionalism and control over supplies and production translate into corporate profits without extracting it from labor or the environment? might be that all that profiteering was just a by product of big corporations squeezing little producers and suppliers and local labor but it really didn’t matter. The bigs can just as easily go without that bad behavior and they will willingly share their former profits with local labor and producers. The disconnect for me is the morality of bigness. Maybe not so much in Japan or Germany, but here in the USA there seems to be no capitalist morality at all. Above and beyond that the concept of regionalism is better for the environment because it involves less expensive transportation; less pollution. But it doesn’t solve the problem of compete or die. And probably lots of other stuff.

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  9. marku52

    That device mentioned in the article is not a “ventilator”. It is a device that replaces a nurse squeezing an ambu-bag, a manual breathing aid.

    It’s a useful device, especially when a hospital is shorthanded, but it is not a “ventilator”, which has programmable pressure and volume profiles.

    Bringing back manufacturing when all of the infrastructure and ecosystem has been dismantled and sold for scrap will not be easy.

    First we shoot all the MBAs.

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  10. MichaelSF

    New technology may however help – with 3D printing, it is possible now for far more parts to be manufactured ‘on site’ for many industries.

    3D printers doing additive machining are nifty and have a definite niche for various items, but they, in general, are not very fast. Prusa gets around this in using them to manufacture plastic parts for their own 3D printers by having large numbers of their hobby-level printers working in parallel. Many of those parts are not very complicated and the finish on them can be crude. Printers capable of printing metal parts are quite a big step up in price, and they still are not very fast on the printing, plus the parts may have to go through a lengthy high temperature/pressure sintering process.

    Subtractive machining with traditional machining processes still has a place, especially for production. Plus, for a small business there are various “entry level” industrial CNC machine tools that can be had for reasonable prices. Some small businesses get a start with high-end hobby CNC machines, but it isn’t uncommon to see them have to move to true industrial machines if their business needs to ramp up. But those hobby machines let them get a foot in the door for not a lot of money, just as making things with the hobby 3D printers can do.

    CNC has made inroads in foundry work too, whether doing patterns/molds with CNC mills or printing the sand molds with 3D printers and skipping making a pattern. I’ve helped a friend with some foundry projects and a complicated pattern made from wood with traditional techniques can be something that can suck up (in one case) 200+ hours of work.

    Once a CNC program has been debugged the machine can keep running it time after time with no concerns about getting tired and messing up. But you may have 1 operator babysitting 3-4 machines, instead of a large plant with hundreds of workers standing at individual lathes/mills, each turning out their particular widget. Freeing those workers from that monotony is nice, but it is also nice to not have their way of making a living eliminated.

    Ideally, all of the different techniques get considered and used where they are the best fit for the job that needs to be done.

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  11. Ian

    One simple solution to addressing automation fears and anxieties – a majority of the profits derived from automation is automatically given to those made redundant by it. Not just a one time pay off but periodic payments.

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  12. Sound of the Suburbs

    We need to put down a firm base.

    William White (BIS, OECD) talks about how economics really changed over one hundred years ago as classical economics was replaced by neoclassical economics.
    https://www.youtube.com/watch?v=g6iXBQ33pBo&t=2485s
    He thinks we have been on the wrong path for one hundred years.
    They actually knew what small state, unregulated capitalism looked like in those days as they could observe it in the world around them.
    Where have today’s ideas come from?

    The people at the top lived in luxury and leisure while others did all the work; the last thing they needed was The Enlightenment.
    People would work out what was going on.
    They did work it out in the 18th and 19th centuries, but what was found then was gradually hidden again.

    Economics has always been a problem.
    Everything had been going well for 5,000 years and then the classical economists turned up.
    Those at the top had been living in luxury and leisure while other people did all the work.
    The European aristocracy were just the same, they lived in luxury and leisure while other people did all the work. The Classical Economists realised they were being maintained by the hard work of everyone else.
    The Classical economist, Adam Smith:
    “The labour and time of the poor is in civilised countries sacrificed to the maintaining of the rich in ease and luxury. The Landlord is maintained in idleness and luxury by the labour of his tenants. The moneyed man is supported by his extractions from the industrious merchant and the needy who are obliged to support him in ease by a return for the use of his money.”

    Economics was always far too dangerous to be allowed to reveal the truth about the economy.
    How can we protect those powerful vested interests at the top of society?
    The early neoclassical economists hid the problems of rentier activity in the economy by removing the difference between “earned” and “unearned” income and they conflated “land” with “capital”.
    They took the focus off the cost of living that had been so important to the Classical Economists to hide the effects of rentier activity in the economy.
    The landowners, landlords and usurers were now just productive members of society again.

    It was a nightmare in those early days as people started to work out the stuff that allowed people at the top to live in luxury and leisure while other people did all the work.
    They then worked out how banks created money out of nothing, this wouldn’t do at all.
    Bankers have been living the life of Riley for centuries, and the last thing they want is anyone knowing how it all works.
    Our knowledge of privately created money has been going backwards since 1856.
    Credit creation theory -> fractional reserve theory -> financial intermediation theory
    “A lost century in economics: Three theories of banking and the conclusive evidence” Richard A. Werner
    http://www.sciencedirect.com/science/article/pii/S1057521915001477
    Today’s policymakers think banks are financial intermediaries and there is no way they will rumble what the bankers are really up to.

    Richard Werner produced empirical evidence of how banks really worked and this seems to have got central banks to reveal the truth.
    https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
    They kept quiet about it and policymakers seem none the wiser.

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    1. Sound of the Suburbs

      What did we get from Ricardo and what is now missing?
      We got Ricardo’s Law of Comparative advantage.

      Ricardo was an expert on the small state, unregulated capitalism he observed in the world around him. He was part of the new capitalist class and the old landowning class were a huge problem with their rents that had to be paid both directly and through wages.
      “The interest of the landlords is always opposed to the interest of every other class in the community” Ricardo 1815 / Classical Economist.
      What does our man on free trade mean?
      Disposable income = wages – (taxes + the cost of living)
      Employees get their money from wages and the employer pays through wages.
      Employees get less disposable income after the landlords rent has gone.
      Employers have to cover the landlord’s rents in wages reducing profit.
      Ricardo is just talking about housing costs, employees all rented in those days.
      Employers and employees both win with low housing costs and a low cost of living.

      There were three groups in the capitalist system in Ricardo’s world (and there still are).
      Workers / Employees
      Capitalists / Employers
      Rentiers / Landowners / Landlords / other skimmers, who are just skimming out of the system, not contributing to its success
      From Ricardo:
      The labourers had before 25
      The landlords 25
      And the capitalists 50
      ……….. 100
      He looked at how the pie got divided between the three groups.

      Ricardo supported free trade and knew it required a low cost of living so employers could pay internationally competitive wages and this is why he supported the Repeal of the Corn Laws to get the price of bread down. They housed workers in slums to get housing costs down.
      Employers could then pay internationally competitive wages and were ready to compete in a free trade world.

      The West’s high cost of living meant it was at a huge disadvantage in a world of free trade and Western companies off-shored to where they could pay internationally competitive wages.

      Maximising profit requires minimising costs, e.g. labour costs.
      Why will China do so well?
      China had coal fired power stations to provide cheap energy.
      China had lax regulations reducing environmental and health and safety costs.
      China had a low cost of living so employers could pay low wages.
      China had low taxes and a minimal welfare state.
      China had all the advantages in an open globalised world.
      It did have, but now China has become too expensive and developed Eastern economies are off-shoring to places like Vietnam, Bangladesh and the Philippines.
      An open, globalised world is a race to the bottom on costs and the West doesn’t look that clever.

      Reply
      1. Sound of the Suburbs

        Productivity.
        You have a machine or production line that produces widgets.
        Turn the dial to max. and that’s as fast as it goes.

        Where do you put it?
        To maximise profit you put it in China, but that has got a bit expensive these days, perhaps Vietnam, Bangladesh or the Philippines might be better.

        Reply

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