Thomas Sowell: Manufacturing confusion

Townhall.com ^ | January 15, 2004 | Thomas Sowell

[xsysmgr]

"Manufacturing jobs" has become a battle cry of those who oppose free trade and are sounding an alarm about American jobs being exported to lower-wage countries overseas. However, manufacturing jobs are much less of a problem than manufacturing confusion.

Much of what is being said confuses what is true of one sector of the economy with what is true of the economy as a whole. Every modern economy is constantly changing in technology and organization. This means that resources -- human resources as well as natural resources and other inputs -- are constantly being sent off in new directions as things are being produced in new ways.

This happens whether there is or is not free international trade. At the beginning of the 20th century, 10 million American farmers and farm laborers produced the food to feed a population of 76 million people. By the end of the century, fewer than 2 million people on the farms were feeding a population of more than 250 million. In other words, more than 8 million agricultural jobs were "lost."

Between 1990 and 1995, more than 17 million American workers lost their jobs. But there were never 17 million workers unemployed during this period, any more than the 8 million agricultural workers were unemployed before.

People moved on to other jobs. Unemployment rates in fact hit new lows in the 1990s. None of this is rocket science. But when the very same things happen in the international economy, it is much easier to spread alarm and manufacture confusion.

There is no question that many computer programming jobs have moved from the United States to India. But this is just a half-truth, which can be worse than a lie. As management consultant Peter Drucker points out in the current issue of Fortune magazine, there are also foreign jobs moving to the United States.

In Drucker's words, "Nobody seems to realize that we import twice or three times as many jobs as we export. I'm talking about the jobs created by foreign companies coming into the U.S.," such as Japanese automobile plants making Toyotas and Hondas on American soil.

"Siemens alone has 60,000 employees in the United States," Drucker points out. "We are exporting low-skill, low-paying jobs but are importing high-skill, high-paying jobs."

None of this is much consolation if you are one of the people being displaced from a job that you thought would last indefinitely. But few jobs last indefinitely. You cannot advance the standard of living by continuing to do the same things in the same ways.

Progress means change, whether those changes originate domestically or internationally. Even when a given job carries the same title, often you cannot hold that job while continuing to do things the way they were done 20 years ago -- or, in the case of computers, 5 years ago.

The grand fallacy of those who oppose free trade is that low-wage countries take jobs away from high-wage countries. While that is true for some particular jobs in some particular cases, it is another half-truth that is more misleading than an outright lie.

While American companies can hire computer programmers in India to replace higher paid American programmers, that is because of India's outstanding education in computer engineering. By and large, however, the average productivity of Indian workers is about 15 percent of that of American workers.

In other words, if you hired Indian workers and paid them one-fifth of what you paid American workers, it would cost you more to get a given job done in India. That is the rule and computer programming is the exception.

Facts are blithely ignored by those who simply assume that low-wage countries have an advantage in international trade. But high-wage countries have been exporting to low-wage countries for centuries. The vast majority of foreign investments by American companies are in high-wage countries, despite great outcries about how multinational corporations are "exploiting" Third World workers.

Apparently facts do not matter to those who are manufacturing confusion about manufacturing jobs.

[Agnes Heep]

Many would argue We should somehow protect the typesetting industry.

Well, I hope you're not imputing that to me, even though I suffered on account of what happened. What was I supposed to do, solicit the government to put a huge tax on every PC or Macintosh sold? What would that have done to the computer revolution that has provided millions of good-paying jobs, even in industries that have nothing to do with computers, such as plastics, or transportation, and a myriad more that I can't even imagine? I've never been a protectionist, even when my own career and livelihood were on the line.

[jeremiah]

Spot on.

[Land of the Free 04]

Getting laid off sucks and I've been there, but when it happens it is MY responsibility to make myself useful somewhere else.

Ditto! I sympathize with conservatives who lose the courage of their convictions when it comes to their own jobs, but they're nonetheless wrong.

[Taliesan]

You are an exception. Glad you survived!

[Agnes Heep]

I don't think Sowell is a fool.

I was actually speaking rhetorically. Sowell himself would immediately understand, because I think he's used the analogy himself at one point.

[Agnes Heep]

You are an exception. Glad you survived!

Thanks! Not only survived, but actually prospered, though it was tough going for a while.

[sixmil]

Apparently facts do not matter to those who are manufacturing confusion about manufacturing jobs.

Wow, I was just about to say the same thing. It is an interesting stretch that farmers put out of work due to technological advance is equated with factory workers put out of work due to low wage outsourcing. Where is the technological advance?

[conservatism_IS_compassion]

You can't have a $500 billion trade deficit am tell us we are gaining jobs - not gonna drink that Kool-aid.

Do you think American investment in the Third World (exporting jobs, I think it's called) is bad?

Well, foreigners investing in America is the opposite of that--so that must be good. Well, if foreigners invest in America they buy land, buildings, etc which stays in America with money that they obtained by selling more to America than America sold to them.

IOW, a trade deficit is the mirror image reflection of incoming foreign investment--one does not exist without the other, they are an accounting identity. If we had a "trade surplus," you think that would make you happy--but all that would mean is that Americans were investing overseas.

[theFIRMbss]

>So who would you like to guarantee a certain job - the government? Labor is what it is - a means for a company to produce something to sell...

No, I've no desire
for any leftist crap, no
guarantees at all.

The Industrial
Revolution, though, was once
a Dissenter thing,

and they managed to
get its benefits without
reducing humans

to par with fuel oil.
Only after secular
Britain adopted

the practices and
inventions of Dissenters --
sans their social thoughts! --

did all the pieces
come together for today's
de-humanized realm.

I don't think we need
guarantees, but ideas
have consequences

and the idea
that humans are resources
I think is damned bad.

[over3Owithabrain]

and the idea that humans are resources I think is damned bad.

Put that on a bumper sticker, Haiku Boy. To a business, humans are resources. If you want to get paid for your work, you're a resource. If you want to live in a commune and delve out jobs like veggie picker and weed roller, go for it.

[Willie Green]

Drucker points out. "We are exporting low-skill, low-paying jobs but are importing high-skill, high-paying jobs."

Wake up, Pete.
"High-skill, high-paying jobs" are also being exported.
And the only reason transnational corporation import high-skill labor is to undermine the livelihoods of similarly skilled Americans.

[Willie Green]

.... but our GDP is growing.

Well, here are the facts:

Gross Domestic Product (GDP), the measure of the USA's output of goods and services, is calculated by the Commerce Department's Bureau of Economic Analysis using the following items:

• Personal consumption expenditures: Personal consumption expenditures are far and away the largest and tends to be the most stable of the four expenditures, averaging about 65-70% of gross domestic product.
• Gross private domestic investment: Expenditures on capital goods to be used for productive activities in the domestic economy that are undertaken by the business sector during a given time period. Gross private domestic investment tends to be the least stable of the four expenditures, averaging between 12-18% of gross domestic product.
• NET EXPORTS OF GOODS AND SERVICES Net exports of goods and services is the smallest of the four expenditures, averaging around 2% of gross domestic product. Unlike the other expenditures, net exports of goods and services can be either positive or negative. They are positive when exports are greater than imports (Trade Surplus) and negative when exports are less than imports (Trade Deficit). In recent years, net exports of goods and services have been negative.
• Government consumption expenditures and gross investment measures government purchases undertaken by the government sector. Government consumption expenditures and gross investment averages between 15-20% of gross domestic product. This percentage tends to be ebb and flow a little with the political winds.

The BEA News Release for FIRST QUARTER 2003 provides us with the following current data for these items. (Seasonally adjusted at annual rates)

Gross domestic product (GDP)............................. $10,697.7 billion
Personal consumption expenditures.......................... 7,502.8 (70.13% of GDP)
Gross private domestic investment.......................... 1,626.9 (15.21% of GDP)
Net exports of goods and services........................... -485.7 (-4.54% of GDP)
Government consumption expenditures and gross investment... 2,053.6 (19.20% of GDP)

The current BALANCE OF TRADE is in deficit, which is considered unfavorable.
That is why it is SUBTRACTED from the values that comprise GDP.

And at historic highs, it diminishes our domestic economy by about 4½% - more than twice the normal variation. This is NOT insignificant.

[WilliamofCarmichael]

Yes, Dr. Sowell is the best.

. . .India's outstanding education in computer engineering. By and large, however, the average productivity of Indian workers is about 15 percent of that of American workers.

I've posted the info on the ETS canceling the GRE in computer science in 2002, 2003 because of widespread cheating in India so many times that I won't do it now. Cheating in general seems to be widespread. google, India cheating. Ditto China. Especially China! "Outstanding education?" Not for every Indian.

Facts are blithely ignored by those who simply assume that low-wage countries have an advantage in international trade. But high-wage countries have been exporting to low-wage countries for centuries.

In some cases low-wage countries need extra help to develop their comparative advantage.

Free traders talk about comparative advantages. But what of us exporting our advantage, technology? Once in place “over there” our capitalists now use “over there's” advantage, cheap labor. Here I am talking about “emerging” nations especially Communist China.

To add insult to injury our free traders dance around thumbing their noses at Americans declaring that Americans have no “right” to a job but Communist China's cheap labor does – with a lot of help from our free traders.

But did Communist China have an advantage, even its cheap labor? No. Free traders willingly give away technology for a promise by the lying “the ends justify the means” Communists.

I remember when color TVs were introduced. It didn't take long before American manufacturers had the price down to where most Americans could afford one. (Mid-1950s to early 1960s.) They did it without cutting wages by 90 percent.

Our free traders are not looking out for American consumers. Though Hillary F. Trader says, “It's for the consumers.”

They are looking for those billion “consumers.” Fools. Useful idiots.

[ex-snook]

"Every modern economy is constantly changing in technology and organization. "

So how come in the 90's we added 20 million jobs. It's been downhill since China was made a favored trading partner.

Patriotism needed in the war on America's jobs.

JOB - IT'S WHAT'S FOR DINNER.

[Taliesan]

Where is the technological advance?

Whatever technology which now allows the cheap labor to be accessed, when it couldn't be 20 years ago.

[dennisw]

In Drucker's words, "Nobody seems to realize that we import twice or three times as many jobs as we export. I'm talking about the jobs created by foreign companies coming into the U.S.," such as Japanese automobile plants making Toyotas and Hondas on American soil.

"Siemens alone has 60,000 employees in the United States," Drucker points out. "We are exporting low-skill, low-paying jobs but are importing high-skill, high-paying jobs."

 

And the profits go to Japanese and Europeans. Not too clever Professor Sowell. In his two scenarios we are "importing jobs" in foreign corporations where profits are repatriated to Japanese and European investors who don't have America's best interests in mind. Not that our American investors do these days. American working class and middle class who serve in our armed forces are the America lovers these days. They show it by their actions while our "investor class" cares only about profits even if they come at the expense of the America he lives in.

GWBush's scheme to legalize illegal alien lawbreakers is a grossly unpatriotic insult to our working class and middle class. The same pool that our fighting forces are drawn from

 

[Gritty]

For a less cheerful (but morbidly entertaining) look at what is going on in economic America, see Borrowing to Stand Still -- Economic Commentary by the Mogambo Guru.

[Protagoras]

And the only reason transnational corporation import high-skill labor is to undermine the livelihoods of similarly skilled Americans.

Those bad old businessmen, they don't want to make money, they want to undermine livelihoods. And they eat little children.

Thomas Sowell,,,, Willie Green.

No contest.

[Last Dakotan]

Milton Friedman used to illustrate this by asking his readership whether, solely on their own initiative, they could produce a common pencil.

If I can take from Professor Friedman's lesson that the barriers to entry for manufacturing are huge - I fully concur. I live it everyday. Manufacturing is unique in its demands on intellectual skill and capital. That's why when its gone - its not coming back. The Asian currency manipulators are banking on this with enormous subsidies of their currencies.

BTW I don't think Sowell is a fool, and am normally inclined to agree with him.

[Agnes Heep]

BTW I don't think Sowell is a fool, and am normally inclined to agree with him.

I don't think he's a fool either. The "fool" analogy I think came originally from Plato, or one of those early Greek philosophers. I was just trying to say, in an imaginative way, that Sowell knows that neither he nor anyone else is smart enough to take every market force into consideration when looking at things from an economist's perspective. However there is a class of people who think they are smart enough to do the feat. They're called Marxists.