Cheers!
Until the early 1970’s the US had the largest and most efficient manufacturing infrastructure in the world. American products were known for quality. American industry was highly innovative. American industry landed men on the moon.
Until the 1960’s American manufacturing companies were led by executives from the “product” side of the business. They either came up the ladder through sales and marketing and understood how to design and develop innovative new products. Or, they came up through manufacturing and engineering where they understood how to design and build products to manufacture efficiently.
In the 1960’s the financial people wrested control of executive management from the sales and manufacturing executives. These new executives were not producers, they were administrators. They came from top 10 business schools armed with their MBA’s and academic theories as to how to make companies more financially efficient and attractive investments to Wall Street. They slashed sales forces, marketing budgets, product development teams, and capital spending in order to improve reported earnings. They directed the engineering and purchasing staffs to “cost reduce products” by using cheaper components. By starving the factories of capital to purchase new equipment, they ensured the factories would not be able to compete with the new factories in Asia.
There is a knee jerk tendency on Free Republic to blame the loss of US manufacturing on greedy unions. Perhaps that was true in some industries but unions did not control the factories of the South and those factories also fled to Asia. I sat in executive suites in the 1990’s when the outsourcing decisions were made. The financial people, armed with studies from their buddies at Goldman Sachs, wanted the quick Wall Street fix. Announce a big outsourcing effort with a big PR splash telling the market you are going to reduce your cost of production by 20-30%. There will be a quick bounce in the price of the stock. The Wall Street bankers will help finance the move, sell off the assets, and provide capital for the new, highly efficient factory in China. Then, the savings can be plowed into stock buybacks and acquisitions, enabled by the same Wall Street banks. This was the real story of the great outsourcing, not greedy unions.
The US manufacturing people asked for the same new equipment being funded for the Chinese factories and were denied, being told to compete with modern technologically enabled Asian factories using the equipment purchased in the 1950’s and 1960’s before the financial people took over. The US manufacturing managers and engineers were aware of the lean manufacturing techniques and asked for funding to reconfigure the assembly lines and train the workers in the new processes. The financial people running the firms told them it was a waste of money to spend on obsolete factories. The marketing and sales people asked for funding for new product innovation. The financial people told them they couldn’t having funding for products that would take 2-3 years to develop and bring to market. Any investment had to have an immediate payout and impact on the bottom line.
The truth is, the decisions to outsource American manufacturing were made by Harvard MBA’s in the executive suite and on Wall Street. The takeover of corporations by financial people who put in huge bonus incentive structures which provided zero incentive for long term investments in products and production resulted in the stripping of American companies and outsourcing of factories. What CEO would make a three year investment in making a 1950’s factory state of the art when he could see an immediate gain by shutting it down and moving the production to China?
Thanks for the ping!
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# 8 and # 17 are interesting from a different angle.
Thanks, grey_whiskers.
Outsourcing has its place. But the whole-sale gutting was silly..
Thanks for the ping. I don’t think it’s smart if your R & D is thousands of miles away from where the products are made except for the more simple items. I think we should do like the Germans concentrating on specialty manufacturing.