What happened, though, wasn't that manufacturing shut down; it shifted to higher margin products. TVs and mass-production stereos are low margin products. Amateur gear, for example, was higher end. It came under intense price competition from the Japanese companies, the so-called Big Three of Icom, Kenwood, and Yaesu, but high end ham gear from RL Drake, Rockwell Collins, and others continued to be made in the US long after most consumer electronics was overseas. There are still a host of smaller companies in America making and selling ham radio gear - along with high end audio gear, commercial radios, and all sorts of products that aren't amenable to turning on a production line and shipping millions of units.
I started my career at a company that made measurement and control peripherals for other manufacturing companies. They eventually sold these peripherals into the nuclear power industry. As such, they stressed ultimate reliability, and high-end, high-reliability electronics is the backbone of American manufacturing. I worked there six years. After that, I worked in DOD aerospace systems for a contractor for 13 years, followed with 20 at Major Avionics Corporation.
The point of this isn't to show off my 40 years in electronics; it's to point out how, despite the constant claims of the death of manufacturing America, there's a healthy electronics manufacturing sector in the US that's doing fine. There always has been and always will be a constant struggle to increase productivity - to always do more with less - but the sector is fine. Taken by itself, US manufacturing is the 9th largest economy in the world. That is, the manufacturing sector in the US produces more than the GDP of all but eight countries in the world (one of which is the rest of the US).
We're hearing a lot about this on the news these days, as an undercurrent to the chatter about North Korea. We can't put a pressure on China, the pundits say, what if they start a trade war? We'll have nothing in the stores! There would be a period of adaptation, but the profit motive is strong and I have no doubt things could start flowing.
The National Association of Manufacturers is the trade organization that gathers data on the manufacturing sector. Let me share a few bullet points. There are more on the NAM website - and I've edited these to try for a little brevity.
- In the most recent data, manufacturers contributed $2.18 trillion to the U.S. economy in 2016. This figure has risen since the second quarter of 2009, when manufacturers contributed $1.70 trillion.
- The vast majority of manufacturing firms in the United States are quite small. In 2014, there were 251,901 firms in the manufacturing sector, with all but 3,749 firms considered to be small (i.e., having fewer than 500 employees). In fact, three-quarters of these firms have fewer than 20 employees.
- There are 12.3 million manufacturing workers in the United States, accounting for 9 percent of the workforce. Since the end of the Great Recession, manufacturers have hired more than 800,000 workers.
- In 2015, the average manufacturing worker in the United States earned $81,289 annually, including pay and benefits. The ... average manufacturing worker earned nearly $26.00 per hour, according to the latest figures, not including benefits.
- Over the past 25 years, U.S.-manufactured goods exports have quadrupled.
- Manufacturers have experienced tremendous growth over the past couple decades, making them more “lean” and helping them become more competitive globally. Output per hour for all workers in the manufacturing sector has increased by more than 2.5 times since 1987. ... Note that durable goods manufacturers have seen even greater growth, almost tripling its labor productivity over that time frame.
- Over the next decade, nearly 3½ million manufacturing jobs will likely be needed, and 2 million are expected to go unfilled due to the skills gap. Moreover, according to a recent report, 80 percent of manufacturers report a moderate or serious shortage of qualified applicants for skilled and highly-skilled production positions.
- Manufactured goods exports have grown substantially to our largest trading partners since 1990, including to Canada, Mexico and even China. .. The United States enjoyed a $12.7 billion manufacturing trade surplus with its trade agreement partners in 2015, compared with a $639.6 billion deficit with other countries.
- World trade in manufactured goods has more than doubled between 2000 and 2014—from $4.8 trillion to $12.2 trillion. ... U.S. consumption of manufactured goods (domestic shipments and imports) equaled $4.1 trillion in 2014, equaling about 34 percent of global trade in manufactured goods.
- The cost of federal regulations fall disproportionately on manufacturers, particularly those that are smaller. Manufacturers pay $19,564 per employee on average to comply with federal regulations, or nearly double the $9,991 per employee costs borne by all firms as a whole. In addition, small manufacturers with less than 50 employees spend 2.5 times the amount of large manufacturers. Environmental regulations account for 90 percent of the difference in compliance costs between manufacturers and the average firm.
- Manufacturers in the United States perform more than three-quarters of all private-sector research and development (R&D) in the nation, driving more innovation than any other sector. R&D in the manufacturing sector has risen from $126.2 billion in 2000 to $229.9 billion in 2014. In the most recent data, pharmaceuticals accounted for nearly one-third of all manufacturing R&D, spending $74.9 billion in 2014. Aerospace, chemicals, computers, electronics and motor vehicles and parts were also significant contributors to R&D spending in that year.
I think that the most common manufacturing facility is going to look a lot less like a big car assembly line and a lot more like a Makerspace. Or hobby machine shop.
And if we had to make up the slack if we lost some Asian display manufacturer, I'm sure quite a number of those 189,000 companies could expand quite quickly.
ReplyDeleteYes, there is still a lot of manufacturing done in the US. But the VOLUME is where the money is. The average consumer wants whatever it is they want as cheap as possible. And since the average consumer makes up 90 odd percent of buyers then cheap is what most products are. Yes...we still can make world class products. But if they only represent 5% of the MONEY in that sector they aren't going to do much for the economy as a whole. As long as new innovations keep coming along that we build for a while and then eventually farm to turd world countries for cheap production our economy keeps moving. The innovation stops though and the economy grinds down. And with the state of education and the average apparent IQ of the 'man on the street' things are not promising.
ReplyDeleteYes, volume is key. Lose a little on each unit but make it up in volume. I jest but international competition is a very unfair playing field. Living as an expat in a foreign land, I see price fixing everywhere, inventory games played with consumers choices severely limited compared to the US, and employees working for literally peanuts with long days, no benefits or job security, and all the "normal" costs that US businesses see as regular cost of business simply flowing to the bottom line. So, in a sense, US consumers are being subsidized by workers around the world taking it in the shorts, literally. The myth that off-shore manufactured products result in cheaper products, at least for the US market, needs to be exposed and corrected. While Americans might think they are in favor of better working environments and better jobs and wages for others around the world, the truth is much more complex and is part of the conflict going on right now between China and the US with economic sanctions. Americans can't manage their own households, have too much debt, and yet are getting a break on the backs of workers in foreign lands. ASEAN governments are not doing right by their own workers as they are getting played much like US workers are by crony capitalists and globalists work their malevolent games.
DeleteThe little company I worked for in high-school is still around, and still making niche products in the industrial controls sector.
ReplyDeleteThey started making relays and lamp dimmers, and then years later, the Engineer bought the place from the owner and went upscale. I worked for him again in the mid/late 1970's and he was still producing simple designs, very inexpensive to manufacture, and with a HUGE profit margin.
Little black boxes that cost him $8 out the door were sold for $75, and he sold tens of thousands of them.
A "double" version of the same black box cost him $11 out the door, and he sold those for $150.
And he sold thousands of those, too.
He passed away two years ago, and his widow called me asking if I could recommend somebody to run the operation for her, or if I'd be interested in moving back to Illinois to do it.
I came *this close* to doing it.
So yep, manufacturing is alive and well in the USA. It just looks a bit different than US Steel!
It never ceases to amaze me how so many people assume the cost of materials and labor are the only components of what it costs a business to make an item. To be accurate "$8 out the door" certainly doesn't include his overhead: infrastructure costs (rent or mortgage for the facility and property taxes and utilities, etc.), cost of employees, benefits for those employees, cost of staff to deal with all of the regulatory issues presented by the scum at EPA, etc., worker's comp costs, etc. etc. I've never run a business, but even I know that there is no way in hell that materials and labor were his only expenses.
DeleteI'm not Walter Williams or Thomas Sowell, but I seem to recall that, in a free market economy, scarcity drives price. I can't imagine that this business would have stayed solvent if they were charging more than other companies producing the same - or similar - products.
And a "niche" product is rarely sold in enough volume to enable a reduction in sale price. Of course, business owners are entitled to make a profit, aren't they? How do we decide what a "HUGE profit margin" is without knowing all of the expenses involved in running that particular business? Is it up to us to decide that, or the market? Will he be turned away from the Pearly Gates for having asked too much for his products?
Thanks for the enlightening info SiG. It is great to know that this base of manufacturing and technical expertise is out there. If only I was younger, I would head out to this area for some fun and challenges.
ReplyDeleteThe problem is that when you move an entire sector offshore you are then dependent on those foreign countries for those products. If we went to war tomorrow it is likely that we would have to build many of these product in the U.S. But the U.S. wouldn't have the facilities to do this nor the trained workers. It is a strategic problem to not retain at least some ability to manufacture products or an entire sector of products within our own country.
ReplyDeleteGreat post GB. Will link tonight.
ReplyDelete