The China Manufacturing Syndrome

Jan. 1, 2005
It seems clear that manufacturing is tending to migrate away from the United States for a variety of factors, not the least being the development of a negative image.

Programmable logic controller inventor, author and technology guru Dick Morley suggests that the idea that manufacturing is somehow bad has caused jobs to be driven out of the United States. While high-tech and financial jobs are desirable, no community in North America really seems to want a new cement plant, a printed-circuit board facility or an old-fashioned factory with three-shift production lines. NIMBY (Not In My Backyard) attitudes are driving manufacturing offshore.

In the United States, manufacturing companies are penalized with high taxes, strict zoning regulations and excruciating bureaucracy. By contrast, countries such as Ireland, China, Korea and Hong Kong invite manufacturing plants to locate there with open arms and deferred taxes.

According to a recent U.S. Bureau of Labor survey, manufacturing’s share of the U.S. economy as measured by real Gross Domestic Product has been stable since the 1940s. During this entire time, the ratio of manufacturing output to GDP has ranged from 16 percent to 19 percent. As of 2002, it was 16 percent. During this same 60-year time span, with alternating booms and recessions, the number of manufacturing employees has remained fairly constant, oscillating at around 16.5 million. In the recent downturn, manufacturing employment fell to 14.8 million.

Manufacturing has sustained its share of a growing economy with the same number of workers, mainly due to faster productivity growth through automation. As the economy has grown, manufacturing’s share of non-farm employment has decreased from 32 percent in 1947 to 11.5 percent in 2002.

China rising

In the meantime, China is attaining pre-eminence in global manufacturing. The country already produces 50 percent of the world’s cameras, 30 percent of air conditioners and televisions, 25 percent of washing machines, and 20 percent of refrigerators. One private Chinese company manufactures 40 percent of all microwave ovens sold in Europe. The city of Wenzhou in Eastern China produces 70 percent of the world’s metal cigarette lighters.

U.S. companies are no longer investing in new capacity, and the ranks of U.S. engineers are thinning. By contrast, the number of Chinese engineers is growing by 350,000 annually. And China has direct sales channels into U.S. commercial markets through large retailers. Wal-Mart alone sells about $12 billion worth of Chinese products per year.

Chinese producers continue to move forward, investing strongly in new plant and equipment. Ninety-one percent of U.S. manufacturing plants are more than a decade old, vs. 54 percent in China, according to a recent survey of Chinese and U.S. manufacturers by “Industry Week.” In the same survey, 54 percent of Chinese companies cited innovation as one of their top objectives, compared with only 26 percent of U.S. respondents.

Dick Morley proposes these solutions for the China manufacturing syndrome. First, the United States should stick to high-value non-commodity items. The thinking that innovation is high-risk and high-cost should stop. The United States has a significant level of entrepreneurship and talent that should be encouraged and stimulated. Mini-enterprise zones should be developed.

The statistics do reveal a positive side. According to another Bureau of Labor survey, the household survey, during the same period that some 2 million manufacturing jobs were lost, 3.25 million new jobs have been created. In other words, millions of people are simply not reporting to work. They’re starting new businesses. Perhaps that is America’s best response to the China manufacturing syndrome.

Jim Pinto is an industry analyst and commentator, writer, technology futurist and angel investor. You can e-mail him at: [email protected]. Or review his prognostications and predictions on his Web site: www.jimpinto.com