American Elephants

Outsourcing and Insourcing: Where Should Stuff Be Manufactured? by The Elephant's Child

What about manufacturing, aren’t all the jobs going overseas where people work for extremely low wages?  How can we compete with that? It’s true that fewer people are employed in manufacturing plants, but we’re still manufacturing lots of stuff. We’re just doing it with fewer people.

The production line has been changing ever since Henry Ford invented it after visiting a meat-packing plant that was already using the concept.  For simplification sake, at one time someone stood at a particular spot along the assembly line and separated the stream of parts into two different streams, but they developed gates or electric eyes that would do that without a constant attendant, eliminating the need for a worker. But that step was a long time ago. These two videos explain how the world has changed.

Here is a BMW USA manufacturing plant, in 2009. Body shop: spot welding by robots. Mounting of side sills on body structure. Hot-stamping: Heating, compression molding, quenching. Wedding: Drive unit engine, transmission, axle, exhaust system is bolted to the body. Final assembly: BMW 5 Series Sedan rolls out of factory.

There are lots of decisions built into every manufacturing plant, and every product. Skilled workers or cheap workers who can be trained to be skilled. Energy costs. Some manufacturing processes need to be located next to water. Some need rail transportation. Some big things need to be moved, and freeway overpasses are a problem. Is shipping a major expense or minor — depends on the size, fragility and weight of the product. Raw materials: where do they come from, what kind of transportation is needed — some manufacturing plants need to be close to the source of their raw materials. Some need to be close to their market. Where is speed a factor?  Regulations play a part.  Unions v. right-to-work.The decisions are complex, and involve far more than greedy businessmen looking for cheaper labor.

The New York Times recently explained why Steve Jobs bragged when Apple began building the Macintosh in 1983 that it was “a machine that is made in America.” Today, the iPhone is made in China, and the Times article explains the details:

Mr. Jobs angrily held up his iPhone, angling it so everyone could see the dozens of tiny scratches marring its plastic screen, according to someone who attended the meeting. He then pulled his keys from his jeans.

People will carry this phone in their pocket, he said. People also carry their keys in their pocket. “I won’t sell a product that gets scratched,” he said tensely. The only solution was using unscratchable glass instead. “I want a glass screen, and I want it perfect in six weeks.”

After one executive left that meeting, he booked a flight to Shenzhen, China. If Mr. Jobs wanted perfect, there was nowhere else to go.

The facility in Foxconn City, where the iPhone is assembled, has 230,000 employees, many work six days a week, often spending up to 12 hours a day at the plant. Over a quarter of the workforce lives in company barracks, and many workers earn less than $17 a day, a good salary in China. When the first truckloads of cut glass arrived at Foxconn City, in the middle of the night, thousands of workers were aroused and lined up to assemble iPhones by hand. Since then they have assembled more than 200 million iPhones.

China could also supply engineers at a scale the US could not match. Apple executives had estimated that about 8,700 industrial engineers were needed to oversee and guide the 200,000 assembly line workers.  Do read the whole article. It offers a valuable insight into manufacturing and trade that really helps to explain a very complex problem. Not all of it, certainly, but it’s a help in telling when the politicians are knowledgeable or just pandering.


4 Comments so far
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Very nice. Harvard Business School’s Institute for Strategy and Competitiveness ( has been undertaking a large number of studies of what are countries’ strengths and weaknesses.

Michael E. Porter and Jan W. Rivkin have just published the results of the findings of Harvard Business School’s
survey on U.S. competitiveness (Prosperity at Risk. To produce the report, the authors asked HBS alumni to complete an in-depth survey on U.S. competitiveness. Nearly 10,000 business leaders responded worldwide, resulting in a first-of-its-kind analysis of data from a broad group of central actors in the global economy.

To quote the blurb, “The survey results provide strong evidence that America faces a deepening competitiveness problem.” It should be stressed, though, that most of these problems have been building for years. Intrinsic strengths include the nation’s high-quality universities, flexibility in hiring and firing, the quality of its capital markets, the protection afforded to property rights, and the country’s innovation infrastructure.

What the respondents considered were worrying trends, however, related to:

the poor state of the nation’s K-12 education system;*
the complexity of the U.S. tax code;
the legacy of under-investment the nation’s logistics infrastructure;
the nation’s often sub-standard communications infrastructure;*
its macroeconomic policy;
its burdensome and often conflicting regulations;
and its increasingly ineffective political system.

*This is confirmed by the OECD’s periodic PISA (Programme for International Student Assessment) surveys.

**Americans tend to not believe it, but study after study show that telecoms and internet connections are both better and cheaper in many other countries.

There’s only so much that the federal government can do about primary and secondary education, but there is a hell of a lot it can do to remedy the tax code, prioritize investments in infrastructure (whether through public spending or enabling of private spending), and reform its regulations.

The candidates for Congress and president that speak concretely and wisely to these issues will be the ones that get my vote.


Comment by Subsidy Eye

Good luck with that. Obama has already said forcefully that our problem is a lack of regulation, not too much. He has already started with a national curriculum, but the thing we want most is to get the federal government out of education — completely. Republican candidates are far too busy sniping at each other to discuss things like regulation and education, they can’t even get around yet to spending and the economy. We have a month free of debates, so perhaps they will get their act together.

I haven’t experienced it, but I’ve long understood that the internet can be speedier. Comcast was reduced to a v-e-r-y slow resolution today, fallen trees somewhere they said.


Comment by The Elephant's Child

Agree that a national curriculum is not needed. National standardized tests, the growth of the International Baccalaureate® (IB) degree, and other sources of information that highlight the deficiencies of particular school systems are doing the job already.

I wouldn’t get the federal government totally out of education, but I would pare down its role considerably, perhaps maintaining a small research center that advises the president on the implications for education of policies that are not targeted at education. But I’m talking here of a few dozen people at most, not a big bureaucracy.

One would hope, nonetheless, that common to all students’ experiences across the United States is some grounding in civics and in U.S. (not just local and state) history.


Comment by Subsidy Eye

Education will not improve until we get rid of the Schools of Education, and the teachers’ unions. We got a lot better teachers back when elementary school teachers graduated from 2-year Normal Schools, and “Professors of Education” weren’t trying to make education a ‘science’. The “New Math” made a whole generation of kids unable to do basic arithmetic. It was once pretty well agreed upon that there were basic lessons that kids needed to learn and that it might take some drilling. How to read and write, calculate, memorize, basic geography, basic US and World History, Civics- how governments work. Kids no longer learn to use cursive writing — it’s assumed that they will only use keyboards. Math, no problem, they’ll always have calculators. Kids learned to use computers long before the educators did, and the educators saw a whole new exciting world to explore, and all the old boring stuff could be dispensed with.

We are on the brink of huge changes, and huge battles over the changes. It’s going to be interesting.


Comment by The Elephant's Child

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