Innovation and production
Yves Smith points to a MIT study on how much bigger the conversation should be than the political arguments of offshoring and outsourcing suggest. And the complexities of applying ‘just in time’ sorts of global production systems through a complicated supply chain.
From that post is this excerpt:
And a new report by MIT on innovation and production (hat tip Marcy Wheeler) has an almost desperate undertone. It starts by pointing out how the data understate how bad the competitive erosion is:
One of the key danger points identified in these reports is the declining weight of the U.S. in the global economy. Even though the U.S. share of world manufactured output has held fairly steady over the past decade, economists have pointed out that this reflects good results in only a few industrial sectors. And even in those sectors, what appear to be productivity gains may be the result of underestimating the value of imported components. A close look at the composition of a worsening trade deficit shows that even in high-tech sectors the U.S. has a deteriorating picture. While the output of U.S. high tech manufacturing is still the largest in the world and accounted for $390 billion of global value added in high-tech manufacturing in 2010, U.S. share of this world market has been declining, from 34 percent in 1998 to 28 percent in 2010, as other countries made big strides ahead into this market segment.
Jobs are another huge concern. The great spike in unemployment over the past five years was disproportionately due to loss of manufacturing jobs. And as the economy revived, such jobs were very slow to return. In fact it is clear that many of them never will.
It makes clear how far hollowing out has gone in the manufacturing sector, and how the economy has lost so many components critical to innovation that it isn’t clear how to restore them. The researchers went beyond the venture capital darlings to find what it called “Main Street Manufacturers.” It found they were at a serious disadvantage due to the lack of firms with complimentary know-how in their ecosystem. After quoting the experience of one firm, the authors noted:
Read more at Naked Capitalism
I think liberals and liberal economists are too soft on the issue of “free trade”. While obviously *some* elements of free trade are good, not all of them are. Why would we import goods from another country?
1: Honest competitive advantage – the Saudis export oil, Canadians import bananas. All is well and good with that
2: Specialized or customized goods – not every nation needs its own iPhone fab, or high-end Italian cheese workshop. It makes more sense to only have a few places make such things and ship them world-wide
3: Tax arbitrage – attempts to lower corporate tax burdens by moving production to places with lower taxes, or to secure tax concessions for moving (or even not moving) ones headquarters, R&D, or manufacturing
4: Regulatory arbitrage – attempts to increase corporate profits by locating corporations in places that allow them to externalize, defraud, pollute, or otherwise gain unfair advantages over competitors and customers
5: Labor arbitrage – attempts to drive down wages by locating where cheap workers can be found, or lower wages in higher-income countries by threatening to move
Now, obviously, free trade is good as long as it primarily consists of the first two elements. But the third and fourth are purely negative sum, and the fifth at best a wash. So while “free trade” overall is almost certainly a net positive, this doesn’t imply that unfettered free trade is optimal. Rather, free trade that is limited to the first two elements and has been purged of the third, fourth, and worst parts of the fifth is best.
chad
absolutely.
too late.
Outsourcing is a rear guard action. Even in China with its vast population, labor costs are rising. Eventually it is going to make more sense to save the shipping costs, as low as they are, and use cheap robots.