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Monday, March 30, 2009

High Energy Costs to Change Corporate Model, Return Manufacturing to U.S.?

Just in time to take up the remaining lots in the federally subsidized Dwaine Chapel Plaza:

There may well be a different pattern of global production and distribution when the world economy emerges from the current crisis, says George Stalk, senior adviser to the Boston Consulting Group. Assuming that long-term oil prices average $80 a barrel or so, and that roads, ports and airports continue to be congested, smaller factories closer to home — in the Midwest or Mexico, for example — may be more economical and flexible than those in Asia. “For a lot of goods, China will no longer be the preferred source,” Mr. Stalk said [Steve Lohr, "How Crisis Shapes the Corporate Model," New York Times, 2009.03.28].

Even South Dakota can't compete with low wages in China. But increased transportation csts could level that playing field, restore competitive advantage for Gehl, Rosebud, et al., and maybe even draw some manufacturers back to the Midwest. Forget those call centers: let's get back to making actual stuff!


  1. CAH:

    I can't post this article because it's from a private journal, but here is the citation and summary:

    The truth about outsourcing
    Rodgers, T.
    Design & Test of Computers, IEEE
    Volume 22, Issue 1, Jan.-Feb. 2005 Page(s): 12 - 13
    Digital Object Identifier 10.1109/MDT.2005.24
    Summary: The outsourcing of jobs has become a red herring for the media and politicians. Outsourcing is a normal, healthy part of the evolution in the US workforce - one that creates American jobs, boosts productivity, and improves the standard of living for all US citizens. In fact, far more US workers lose their jobs to technology than to outsourcing. But an interesting phenomenon occurs as economies seek greater efficiency: low-quality jobs are destroyed, while high-quality jobs are created. Another reality ignored in the outsourcing debate is the business the rest of the world outsources to the US.

    I found this article enlightening because it breaks down job losses and creation due to either outsourcing or greater efficiency through technology. Also, it was published through my professional society and I actually buy the arguements the author is making here. I would encourage you to grab a copy from your campus library.

  2. Don't toss those call center jobs out yet! We'll take EVERY new job we can take. The volume of new jobs will decrease our unemployment rate which will begin to move wages higher. The law of supply and demand should help the Madison area if we can attract the jobs. Building spendable household income should be our goal along with quality jobs.

  3. If folks believe in a "right" to out-source capital; then do they also believe in a right to out-source ones labor? That's what immigrants do - out-source their labor; whether the Irish from the 1800s or the Hispanics this century. Lou Dobbs be darned.

    The Sykes call B-to-B call center in Minot is closing because they were unable to find enough workers.

  4. One way to rapidly accelerate local growth across the US would be to stop socializing the costs for energy. If with each gallon of Mid-Eastern oil we also had to pay proportional cost for basing troops in the Middle East, we would have more than enough incentive to grow our fuel here.

  5. Energy costs would not have to be so high if the adminsitration were to focus more on nationalism instead of globalism, and would let us develop our own energy supplies. Obama wants one world globalism at the expense of our nationality. And cost and our national security be damned.

    So, Cory, you think it's just fine and dandy to increase the cost of everything and redistribute our wealth to third world countries and thereby manufacturing will return to the US because all costs are now sky high?

    And Obama himself stated at his online meeting that the jobs already outsourced are gone and not worth bringing back anyway. So don't worry about them. This from a candidate who promised that he would end outsourcing. Yeah, right.

  6. "Assuming that long-term oil prices average $80 a barrel or so, ..."

    They won't.

  7. Tony: Interesting to note the author of your article is a CEO who is justifying his own decision to put 250 American workers out of their jobs so his company could make more money. Of course, if the alternative is going out of business completely, what's a guy to do?

    Everyone is free to outsource, says Rodgers... but even he recognizes that's not much comfort to the friends and neighbors you put out of work. If I'm a skid-steer maker or cabinet maker here in Madison, maybe I'm just not interested in outsourcing. Maybe I have my business here because I have a sense of connection and commitment to my community. (And maybe soft-hearted notions like "community" will drive my business into the ground.)

    But the point is that the outsourcing equation may be changing. If higher transportation costs start to negate the lower labor costs, might we not see manufacturing return to plants closer to the point of sale? And would that have a negative impact on the economy? I would think having more competitive manufacturing jobs here would be great for our labor force, where there are indeed a number of people who can add more value with their mechancial skills than they could with a four-year degree.

  8. Point taken CAH. I certainly agree that transport costs may be a factor in returning some jobs to the US. Unfortunately, I don't think these jobs were lost simply because transport costs were so low and have been going down. Fundamentally, it's cheaper to buy a machine that can work 24 hours a day to weld together a bobcat than it is to pay a welder to do the same job.

    The problem is that any repetitive job can be automated with a machine for a fraction of the cost of employing a person. Further, the advancement of computer vision/robotics/computing power is lowering the bar of what is considered "repetitive". The constant advancement of technology is at the heart of the manufacturing job losses.

    Anyone if free to reject technology and hire people to do those jobs, but someone else will buy the tech and put him out of business.

    It's a rather grim future for employment, but I don't really see any other way to go.

  9. Depressing -- what are people for then? Pushed out by machines... this isn't Terminator, but Grapes of Wrath. As Jim Casy said, folks "wanta jus' fling their goddamn muscles aroun' an' get tired." Do folks like my dad—and yours?—have much place left in this world?

  10. In the long term, I think that we will progressively value a person that just does one thing over and over again progressively less as has been shown throughout history. Farmers are a good example of how technology displaces workers. Similarly, technology will replace factory workers. In terms of my dad's work, he employs bobcats/backhoes/etc. for moving earth that could just have been done with shovels.

    In the long term, technology will replace these jobs and most simple manual labor type jobs. My personal hope is that this frees people up to be creative/artistic, pursue science, or other things that they would choose to do and still allow them to live a decent life. I hope that we view this transition as an opportunity to free the masses from mindless labor rather than a terrible tragedy.

    Further, I hope we adopt a more European view of a job as something that we do part of the time rather than something that defines us. I have generally found that Europeans have much deeper social relationships which I attribute primarily to working so much less and accordingly spending so much more time with each other.

    For those that find personal value in "a hard day's work", I hope that such a person could find equal value doing it for themselves on their own, rather than deriving it through a job.


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