When I talked on the phone recently with Harry Moser about all the hysterical arguments this year’s presidential candidates are having about immigration, I could almost see the mischievous twinkle in his eye. Moser is the founder of the Reshoring Initiative, a Chicago-based organization dedicated to bringing manufacturing back to America. And in his view, the solution to the immigration problem is pretty simple.
“If I were running for president,” he told me, “here’s what I’d tell everybody I would do on day one. I would call the president of Mexico and say, ‘Why don’t you and I target certain industries in Asia, and have the U.S. and Mexico cooperate as a team to bring those manufacturing operations back to North America.'” Moser explained that some of that work would be best suited to the labor force in Mexico, and some is best done in the U.S. His point is that, with a little planning, our two countries could create a whole new manufacturing infrastructure on this side of the world, and a host of new jobs. This would cut our trade deficit with Mexico, boost our neighbor’s economy, and raise its workers’ wages. That, in turn, would reduce the pressure on immigration and eliminate the need for a wall — no matter who pays for it.
There’s only one small problem: Neither Mexico nor the U.S. has a workforce with the full complement of skills needed to fill those jobs. Many factory workers in China aren’t much better, but they’ve been working so cheaply that U.S. businesses haven’t minded. “You might get a third of the quality you had in the U.S., but you only paid a quarter of the cost,” Moser says. “So you could have all kinds of difficulties and still come out ahead.”
Over the years, however, this paradigm has started to change. When the off-shoring movement first began, way back in the 1960s, Chinese factory workers were being paid the abysmal wages being quoted by people like Bernie Sanders: an average of 50 cents an hour. But those wages have been rising every year — as China’s economy has grown, as its people have gotten richer, and as its manufacturing skills have improved.
Today, U.S. industries have to pay Chinese laborers $4 to $5 an hour. When those labor costs get added to the troubles with doing business overseas — the constant miscommunications, the difficulty supervising production, the cultural resistance to innovation, the frequent labor turnover, the often poor results, the returns, the long-distance shipping costs (and the carbon emissions that result), the delayed deliveries to an ever-changing market, the downside of minimal regulation overseas, the political instability there, and the negative publicity that offshoring generates — all of a sudden, a new local factory starts to look pretty good.
Given offshoring’s many pitfalls, one can’t help wondering why American business leaders didn’t see them coming. For many years, Moser says, they were somewhat hidden. During a U.S. executive’s first meetings with overseas contractors, he or she is likely to be shown some impressive prototypes, manufactured by a relatively skilled production team. By the time the second and third rounds of deliveries are made, the quality of the materials has declined. And, as Moser puts it, “the work isn’t being done by the A team anymore. The plant now has its C team on the job.”
As this paradigm took shape (call it the Asian version of that old cliché, there is no free lunch), more and more companies started to “reshore” operations that they once gleefully offshored. Over the last decade, according to data Moser has compiled, the U.S. has gone from losing approximately 140,000 manufacturing jobs each year to gaining 10,000 a year. This trend has slowed somewhat during the last year or so, as the price of oil has fallen (and the cost of shipping along with it). By the Reshoring Initiative’s calculations, however, there are still three to four million manufacturing jobs overseas that are suitable for American industry — “a huge potential for U.S. economic growth,” Moser writes.
Playing leapfrog
Underneath all the overseas production problems is a much bigger trend: the dawning of the age of the smart factory. This is the moment when today’s digital capabilities — for modeling software, remote control, prototype testing through 3-D printing, even virtual reality — intersect with real machinery for making stuff. Some industry leaders describe the new factories following this model as “cyber-physical systems,” which will lead to a new age of manufacturing that the Germans call “Industry 4.0.”
Christine Furstoss, who is Technical Director of Manufacturing & Materials Technologies for General Electric, is so into these possibilities that she helped GE launch a program called the Brilliant Factory Initiative. “For you gaming fans,” she writes, “it’s like massive, multi-player online gaming meeting the real world of manufacturing.” Furstoss foresees an unprecedented range of efficiencies in this future, as computer modeling and 3-D printing help factories speed up the testing of new components, eliminating waste in the process. “It would essentially create a self-improving factory that never stops.” With 3-D printing, for example, “you can come up with a design, print it out in an hour, and then test it in an engine that runs at 2,000 degrees.” In some GE factories, she says, workers are already working with mechanical partners, called “co-bots.”
Boosterism or not, GE has been putting its money where its mouth is. It has renovated factories in Louisville, Kentucky, and elsewhere that make water heaters, refrigerators, and washing machines — a move that has allowed the company to bring 1,300 jobs back from China. To underscore just how bright the future looks to GE, the company is now selling off its iconic appliance division to focus on a bigger project: upgrading 400 factories that make everything from jet engines and medical imaging scanners to power generation equipment and locomotives.
This kind of activity suggests that American business leaders are starting to make an entirely new set of calculations. Yes, the U.S. might impose higher costs than the Chinese do for items such as labor and regulatory compliance. In the coming years, however, if that expense buys innovation, efficiency, and dominance of new markets, what’s not to love?
Should those calculations succeed, it will be thanks to what might be called the Leapfrog Principle of Economics. The pattern goes like this: After Henry Ford invented the assembly line, the U.S. dominated manufacturing for much of the coming decades. Then, when Asia, beginning with the Japanese, introduced new methods of efficiency and automation, its economies jumped over our greasy assembly lines, stealing our business in the process. Now, quite possibly, it’s our turn to retake the lead, with all the technical innovation pioneered in recent years by American entrepreneurs. As long as we can find enough workers with the right skills.
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