A recent article in ZDNet “Is the American tech industry oiling its own guillotine?” discussed in detail what Andy Grove, former president and CEO of Intel had to say about the decline of American manufacturing.
The upshot of the argument is something that has been said for the last 20 years, that many manufacturing jobs have been transferred overseas where labor costs are cheaper, (not only payrolls but also benefits…no health insurance, or social security to pony up, or time off, like vacations, and corporate taxes are less.)
The question is, are manufacturing costs too high in the US, and also countries like Great Britain or other western countries?
The jury is no longer out on this, because yes they are too high. So many companies, like Apple, and Dell, and others have raced to the low cost countries to keep their stock value high by having high production at low cost and yielding high profit margins.
But like anything else, the chickens will come home to roost. When manufacturing costs are high in foreign countries, then what? Will the manufacturing come back to the US or other western countries? Not if these countries have lost their manufacturing backbone, which is what Andy Grove is suggesting.
Perhaps this tendency might not happen. I mean the manufacturing may not come back to the US, and it will abandon Asia; but not all of it.
With a world population of 6 billion people, there are still many countries that can be the low-cost bottom-end totem pole country that will benefit for a few years with new factories and plants to make the next next next next generation of iPhone, or iPad or the like. This could continue for another 50 years, where companies keep moving their manufacturing facilities around the world trying to find the lowest cost location to build their immensely popular gadget sold to drooling Americans.
This sounds cynical, but it is true. The problem is that companies must be aware of what their shareholders will do, where quarterly reports and daily Wall Street stock prices reflect how the company is doing. One solution is that companies will abandon quarterly reports and the like and look to something like a “5 year” plan like in the old communist days (boy that didn’t work, did it). That doesn’t sound very promising.
So what is the solution? Business can’t fix the problem because they work in an environment that dictates how they have to behave on a daily, and quarterly basis. The solution is having a responsible government that changes the environment and provides quiet but viable alternatives for business to operate in.
We’re talking about a new model of business in a different environment. So are there any economists, finance people, or investors, or professors of business that know how to do that, or make it happen?
See: Is the American tech industry oiling its own guillotine?
