I work in one of the last remaining large industrial manufacturing labs in the US. Some of my colleagues worked at Bell before that was shuttered.
My sense from talking to the previous generation is that financialization of the US has started (finally) failing the American people.
The previous generation cashed in on major profits by off shoring (Kodak), but we overdid it.
In a round about way our company is run by pension funds, and I work on projects that would get 8-9 figure investments if we were doing this in APEC, but we would rather have stock buybacks, so we end up getting 6 figures and puttering along.
Meanwhile the higher ups wonder ‘what happened to R&D?!’
Yeah, "financialization" is absolutely the answer and the articles' claim of lack institutional integration (or whatever) seems wrong.
You can look at how Boeing gutted it's highly skilled Pacific North West operations to move lower skilled, lower paid areas elsewhere and generalize this to a multitude of similar industries.
Yes, I think the correlation between MBA popularity as a degree and failing of US industry is fairly causal.
It's the same in universities, where more and more time and money is spent on "management" (extracting value) and less and less is spent on actually teaching stuff (creating value).
Unsurprisingly, when a (somewhat large) portion of the population in a high productivity society realizes they can just skim off the top without doing any actually useful work, bad things happen.
An important point is that the recent wave of globalization has been very good for poor people in developing countries outside of the US. From the perspective of US workers, outsourcing looks greedy. From the perspective of foreign workers, outsourcing looks altruistic.
Even with recent globalization, Americans are still far richer than most people in other countries. I believe those people matter just as much as Americans do.
I work on projects that would get 8-9 figure investments if we were doing this in APEC
Are the apac equivalents of those projects generating returns commensurate with the extra investment? Or is it a strategic choice that they typically focus more on advanced manufacturing while the US focuses more on software? I'm just wondering what the right way to think about this is.
Correct. The problem with "America's manufacturating problem" is it's oligarchic class rise. The rich control the US through favorable laws and protection. You need to remove the scabs at the top to have a healthy economic comeback.
This is an anecdote. R&D as a percent of US GDP has never been higher than it has been in the 2020s. Even more than back in the 60s. The source of the R&D has changed (less federal government) but it’s not financialization. https://ncses.nsf.gov/pubs/nsf23339#:~:text=The%20ratio%20of....
The production of physical goods - physical capitalism - no longer had anywhere to go really when most people employed started having a decent standard of living, so we looked for ways to continue infinite GDP growth and we found it in financialisation. It worked but only by destroying/rotting away everything else.
Note the absence of tax policy changes that favor manufacturing. Here are a few:
* A tax on financial transactions. This is sometimes called a "Tobin tax".
The US financial services sector has doubled in size as a fraction of the economy. It's currently around 12%. That's an overhead cost, and a big one. Could be half that.
* A tax on advertising. The tax deductiblity of advertising as a business expense should be limited. No more than a few percent of the cost of a good or service should be advertising. Domestic US advertising is almost zero sum, anyway, because Americans are spent out. All advertising does is move consumption around a bit.
* Standards for imports. If it plugs into AC power, it has to have UL certification.
No more fires from power supplies, including small electric vehicles.
Anything medical has to be sample tested after import. Criminalize willful violations.
Hold resellers (i.e. Amazon) criminally responsible.
Big agree on UL certification of electronics imports. So much dangerous stuff is coming in and getting sold in places like gas stations where customers probably won’t suspect safety issues.
>A tax on financial transactions. This is sometimes called a "Tobin tax". The US financial services sector has doubled in size as a fraction of the economy. It's currently around 12%. That's an overhead cost, and a big one. Could be half that.
What reason is there to believe that this is an overhead cost?
As I mentioned in another comment, over the past ~10 years or so, US median earnings have grown remarkably fast compared with other large countries: https://news.ycombinator.com/threads?id=0xDEAFBEAD Hard to argue with results.
Taxing financial transactions intuitively seems like the sort of thing which would put a drag on economic growth. And manufacturers need to transact just like any other sort of business; I don't see how taxing transactions encourages manufacturers relative to other firms.
I like the tax on advertising though. I would tweak it so the tax only kicks in once your spending on ads exceeds, say, $10 million per year. That way innovative new products can advertise to customers tax-free. This method also encourages big monopolies to spin-off individual product lines, which could reduce monopoly power.
Capping tax deductions for advertising and progressively taxing it is a good one. Indeed, most advertising past a certain budget seems to be a zero-sum game and should be discouraged, not encouraged.
I don't see that taxing financial transactions would cause a phase change. Each financial transaction already has an associated cost of the people employed to create it, and yet complexity still grows. The real problem is that the financial industry has access to extreme amounts of cheap leverage, which forces everyone to play (aka the "everything bubble"). Witness all of the crying about interest rates having gone up a modest amount. Interest rates need to be held at least where they are long term, which is still lower than they were before they were dropped to distract from the needless and destructive conquering of Iraq.
I would say that eliminating tax deduction for advertising expenses is the wrong way to go about things as well. Adverting is a bona fide business expense, so it makes sense as a deduction. Rather, a direct tax should be levied on advertising, to account for the externalities of us all having to suffer the cacophony. This could even be done state-by-state rather than federally (a la sales tax).
Wholeheartedly agree on the certification. It blows my mind how cavalier people are about plugging Amazon's gensym branded products into mains power - especially given how shoddy even NRTL-tested products seem to be built!
I own a 100 shares of Apple. Tim Cook goes on CNBC and says he’s all in on printers. So I want to sell my Apple shares and buy Microsoft, where Satya Nadella is pushing Cloud and AI.
I’m being a smart investor, moving a small bit of capital allocation intelligently.
Taxing this decision discourages making it—even if only marginally—and makes capital markets dumber and less efficient.
This is a tax on the middle class. Plenty of countries have stamp taxes on trades, for example. The wealthy structure to avoid a books-and-records trade. The average person can’t do that and so pays.
If you’re upset about the size of finance, just tax that directly.
Here are the key points the article suggests (it spends quite a long time explaining how we got here):
1) Improve the [government sponsored] Manufacturing Institutes
2) [federally] Back R&D for manufacturing technologies
3) Provide scale-up financing [by the government]
4) Use government procurement power to promote new manufacturing technologies
5) Direct production support [to sectors deemed critical]
6) Provide both “top-down” [gov picks a tech and supports development of it] and “bottom-up” [broad incentives like IRA] support
7) Build a manufacturing focus into existing industrial policy programs
8) Map and fill gaps in supply chains
9) Fix workforce education [by refocusing on legitimate vocational tracks]
10) Put someone in charge [of coordinating agencies, budgets, and efforts]
This is all effectively trying to copy large segments of the China playbook, but in my opinion it misses some rather important points. Namely, protectionism and implicit incentives. On the first point, you can't really compete with China when it is actively hostile to foreign companies and de facto encourages outright theft of knowledge and expertise in exchange for access to its market. As long as we have a significant portion of people yelling about "trade wars don't solve anything" any time someone proposes leveling the playing field, competition is a nonstarter.
On the second point, the elephant in the room is that smart people in the US can make 2-3X as much in software or finance as they can in manufacturing, so what do you think they're going to pick? Which company is private investment going to fund - the SaaS co. with 40% margins and rapid growth or the manufacturing co. scraping 10% margins and 5% CAGR? It's hard to see where the skilled labor and private investment side of the equation is supposed to come from when the incentives are so mismatched - you almost have to find a way to decrease incentives in the currently lucrative pools first.
The Triffin Dilemma plays a big role here. Debt substitutes exports in the balance of trade; running the reserve currency pumps assets and dump exports. If you want to export from the US, you have to compete with a literal money printer for access to talent and resources.
This is going to be hella difficult to unwind, especially given the current state of macro awareness in the US: if I had a penny for every time someone in an export industry panicked over the possibility of a declining dollar, even though this would be in their best interest, I'd have too many to carry. Arguably worse, we have an otherwise respectable top 10 list that doesn't include macro anywhere, which is like teleporting onto the Titanic only to hear that the conversation is all about how to best duct-tape the doors. Sigh.
“Which company is private investment going to fund - the SaaS co. with 40% margins and rapid growth or the manufacturing co. scraping 10% margins and 5% CAGR?”
2 of the most valuable companies started in the last 20 years in the US are SpaceX and Tesla. You can still build a huge amount of value with non-SaaS margins.
I think part of the problem here is how structurally unfit VCs are to fund such companies (ie investment horizon and fund lifecycle is 5-7 yrs). THat’s where scale-up financing by the government can make a huge impact.
> On the second point, the elephant in the room is that smart people in the US can make 2-3X as much in software or finance as they can in manufacturing, so what do you think they're going to pick?
Make unions stronger and kill off all of Wall Street finance shenanigans that's purely devoted to creating money out of thin air or skimming (especially HFT). That house of cards is going to crash hard anyway, so best tear it down in a controlled fashion than risk yet another 2008-style uncontrolled implosion.
>On the second point, the elephant in the room is that smart people in the US can make 2-3X as much in software or finance as they can in manufacturing, so what do you think they're going to pick? Which company is private investment going to fund - the SaaS co. with 40% margins and rapid growth or the manufacturing co. scraping 10% margins and 5% CAGR?
Ooh, this one's easy. Make software companies give back some of the money they make data-brokering and administering platforms where the vast majority of the advertiser-attracting content is provided, for free, by users. That's where the margin is coming from: users being scammed out of the true value of their contributions. Tax or regulation, pick your poison.
Someone brought up Tesla and SpaceX in another reply. The Tesla whose market share growth was driven largely by EV tax incentives, of course. The SpaceX that built heavily on gifted NASA research and expertise, of course.
When did China ever rely on protectionism? I'm sure they have bouts of it here and there but the overt part of their strategy has been a willingness to work hard for low wages combined with refusing to let Chinese land or companies be sold to overseas buyers. But I claim no expertise. There should be a more serious effort to figure out what China's strategy was before there is a conversation about how best to copy it. Focusing on why China succeeded is more interesting and harder to get good information about.
> ... smart people in the US can make 2-3X as much in software or finance as they can in manufacturing...
Sounds like the price of manufactured goods is unsustainably low. Prices will need to go up or a new source of cheap labour be found outside the US.
The article raises and goes fairly deep into explaining many important issues, but I find it's naive belief the numbers China presents quite surprising.
Take this for example:
>China dominates the production of full electric vehicles
And put it in context with the recent revelations of hectares of abandoned new EVs rotting in many locations in China. Why? The financial policy gave incentives to making more EVs, some enterprising individuals managed to manufacture very low quality cars while funding it with "shared car startup model". Then when these car sharing schemes went bankrupt (because many cars wouldn't complete a single trip without malfunction) they had enormous profits regardless. How? The cost of manufacturing was funded by investors in these startups(a third party, or a client from the manufacturer's point of view). After they went bankrupt there would be no warranty claims etc. While the per car gov subsidy was pure profit.
I cannot understand why anyone in the West would believe any economic statistic or number coming out of China. The country is known for fudging numbers at all levels. The corruption is endemic to the point one actually pays for government positions with cash (as a bribe to higher ups) and considers it an investment to recoup in own bribes in future.
It's Soviet Union all over again. Back then The West to the last moment had many prominent authors praising Soviet advancements in many fields until the very end and the collapse that was a complete surprise to many.
> Back then The West to the last moment had many prominent authors praising Soviet advancements in many fields until the very end and the collapse that was a complete surprise to many.
I hear you. But I am not worried about whatever economic modellers say, or what prominent authors write. What I am worried is when huge companies, predominantly preceived as western ones, spread their arms and swear there is no way they can make their gizmos in the USA.
Look at Apple for example, most valuable company on the whole world and 44-47% of their production sites is in china. Did we had anything like that in the Soviet block?
Rent seeking behaviour is so deeply entrenched in US-led business culture, that any time potential advances are figured out they are viewed through the lens of "can we patent this?".
If the answer is "No", then funds for developing that potential advance - eg concept dev, prototyping, potential field testing - just don't exist.
It's not about being able to improve manufacturing. It's become "what's the greatest ROI on spending these dollars? Can we lock in a monopoly around it somehow too?".
While that short sighted foot gun approach remains prevalent, "fixing" the advanced manufacturing problem is going to proceed pretty damn slowly.
Outright abolishing all patents might get things going in the right direction, but the heart attacks that would cause in business circles makes that impractical. ;)
This is simply because the American elites have chosen a different way to prosper. They have chosen, to reach the top of the world, and then ripe the easier and larger pies. The might of the US military protects the interests of the financial institutions (and some other oligarchs), and this can go on as long as the US military is strong enough. It is thus NOT the interest of the American elites to promote manufacturing. Not only that, even the American people are getting used to it too, they too do not want to work in manufacturing, tiring and non-prestigious.
I don't really see a way to reverse everything. It is not about investing more in education or patching up policies. We are talking about a whole generation, maybe two, of elites and (some of the) people who profit from globalization. You simply cannot rely on the hands to chop themselves off. This is going to be a violent, bloody process because changing tides in politics is always bloody, literally. This is also going to touch the cake of numerous upper-middle class interest groups: landlords, bankers, you name it, anyone who prosper from the last 40 or so years, especially last 10 years since the first QE. Why? Because you are basically saying, OK I'm going to create a new group of middle class people but hey the cake is just that big so I need to cut someone else's piece.
Of course, everything has a cheat. The cheat, which I believe was already chosen by the American elites, is to instill conflicts globally and create mass exodus of highly skilled workers from other countries to the United of States.
Non-union manufacturing work is nearly suicide. Horrid safety, abusive work mandates, random hours, barely any PTO. The list goes on. I wouldn't wish it on anyone.
My son joined a non-union shop last year, recruited by his instructor while in a training program for machinists. They had an "assembly department" that was under extremely arbitrary and shifty requirement metrics. They had long time machinists who worked there and if they got hurt (after getting back from medical leave) they were thrown into the assembly department until they quit.
That was the tip of the iceberg in that place. Asking for PPE to mitigate cancerous fumes from various chemicals got my son fired. He suffered chemical burns during his short time there and witnessed several serious random safety events involving 400amp 220v live electrical wires making contact with carts and shelving.
This was not a small rinky dink shop. They have multiple large facilities in the US.
>>The Department of Defense’s (DoD) mission has traditionally been one of military security rather than economic security and assuring a strong American industrial base. Yet economic security and military security are now inseparable.
I think a big, poorly understood part of these stories is "advanced games" or "long term degeneration."
Take government procurement, like fighter jets or new hospitals. Post-war, the way this worked was "cost-plus." Companies accounted for their costs and were promised a fixed profit. The obvious flaw is that companies lose interest in efficiency. But... it did work during the war and resulted in more tanks, ships and jets than anyone thought possible. It also worked post war.
But, such games mature. Under "cost-plus" a company increases profits by spending. That's an incentive that will bite eventually. So... they move to competitive bidding. This degenerates into a lawyers-only game, etc.
That's the administrative layer, but game maturation also exists at the political layer. Rooseveltism was a thing for a while, and then anti-rooseveltism became it's competition. During the neoliberal era, industrial policy was the devil. Half the international institutions (trade deals, imf, wb) exist mostly to enforce bans and limits on industrial policy.
During this era, when governments' job was to "get out of the way," the alternative to (now evil) industrial policy was either big trade deals, or tax policies. Tax breaks and tax complexity counted as "getting out of the way" while trade deals structured markets (eg auto-manufacturing) with more detailed rules than a Soviet five year plan.
Anyway.... the statement about making economics a defence job... it feels like an attempt to declare bankruptcy on the "trade-deals and tax breaks" era, and move to an weirder and more awkward model. A bad idea that hasn't played out might be better than a better one that has.
"America" is so hideously crippled by the heavy duty ethnic cleansing and regimes of social control baked into land use laws and transportation/mobility networks that 'advanced' problems are not even eligible to be solved.
Sorta a 'do not pass go, do not collect $200, until {x} is solved' situation.
If a city still has parking minimums on the books, I evaluate all involved parties as utterly unserious, pseudo-scientific religious zealots.
Do you think the American south, in the era of chattel slavery, could solve 'advanced manufacturing problems'? NO! of course not! So why does anyone think 'america' could solve an advanced problem?
Meh. I shouldn't be surprised by the article, though. The authors probably think the USA isn't a backwater country that is 'on top' only via a willingness to use economic and actual violence to achieve all aims.
> If a city still has parking minimums on the books, I evaluate all involved parties as utterly unserious, pseudo-scientific religious zealots.
You speak the truth here...
The rest I could take or leave. It's not completely wrong but I think it's a more nuanced situation. I'd summarize it more along the lines of "America has become too classist to respect manufacturing. See Britain."
Much of this is about the dirty part of the supply chain. Take solar panels, china makes like ~90% of the worlds supply, yes there is the high end research, but then there is the poly silicon mining and refining/ingots, wafer, cells, and modules. You can’t just reshore some it - you have to do all of it, otherwise it doesn’t make a ton of sense, and that means mines and refineries which we’ve rightly or wrongly stopped building here in the US.
It's more than factories that are missing today in the US. It's the millions of workers that have the skill-sets to work those factories.
In the 40 years that the US has offshored manufacturing, all of those guys that used to know what's what have retired or died. There's nobody left. It's going to take another 30-40 years to replace them. The US doesn't have the luxury of having those 30-40 years.
The key topics missing from this article are management and culture. Manufacturing companies by and large are stubborn with outdated practices that haven’t kept up with the times. The number of mechanical engineers who switched to web development, for instance, because of poor pay and improper management is insane. And during the pandemic, even more either fled or were pushed out from lack of opportunity. It’s easy to blame these policies and say that industries aren’t connected, but when these firms are refusing to embrace new technologies and take calculated risks, they do this to themselves all by themselves.
They commonly keep employees using the simplest heuristics that someone at some point in the past developed which worked then, so why break it? And they push this mediocrity throughout the entire organization and industry. Then they swap out one failed CEO for the same person with a different name like a pair of gloves, wondering what ever happened as there was nothing more that could be done. Meanwhile their ageist management policies block out the insights of the young, all but ensuring that no new ideas are brought into the mix—all until it’s time for another bailout.
OK, but this was also true of many software companies in the past. What is keeping manufacturing companies from experiencing the same kind of disruption?
I really don't see Chinese-style whole government response with state-owned-enterprises and all happening in the US. That may not even work if it were possible. A viable domestic manufacturing sector is just not a goal of US decision makers (donors and kingmakers). At this point, career administration staff have been so fanatically selected for ideological loyalty that I don't think Washington can accomplish much of anything outside of accounting gimmicks.
In my very opinionated view, the concept of new company towns is missing. All the current efforts are around bringing jobs to people. Jobs are a side effect, things shouldn't be done for the sake of jobs.
The plains of nebraska for example are an excellent place (again, opinionated) for an assembly plant like foxconn but american. Mainly because a crapton of freight via railways passes through there and plenty of undeveloped cheap land. Such factories have high shipping/receiving volume and new towns with new cheap housing for potential workers is feasible.
Yuma is another great location because of it's stable (sunniest in US) climate, proximity to mexico boarder and like with TSMC and Tuscon it is very disaster safe, right on I10 and close to CA (the US might starve if Yuma was destroyed! A lot of food processing there for these reasons).
Manufacturing at old towns and factories will have minimal competitive advantage.
Lastly, the US does not have a "success at any cost" mindset towards manufacturing as the fuel for economic success. It is very much an afterthought. A lot of this and many other issues are a result of political divisions.
PE firms and Opiate Addiction gutted the US manufacturing industry over the last 30 years. It’s not hard to see, but since a significant portion of these workers are white men, no one blinks an eye.
Advanced manufacturing, R&D, and high quality STEM education are three sides of the same coin. Shenzhen is the manufacturing capital of world because all three is tightly integrated.
Has anyone asked Elon how to fix manufacturing in the U.S? Has he given anyone any ideas. The guy probably does as good or better job at manufacturing in the U.S than anyone else, and he has plenty of plants in foreign countries, so he can compare and contrast. Alas, the current administration hates the guy, and you can't have a guy who's clearly on the wrong team get to take credit for anything these days.
Edit: He did have something interesting to say about the "idiot index" which is the price of a component over the cost of the raw materials. If that's very high, it means there are serious problems at that manufacturing organization.
Building a subway is infrastructure, not manufacturing. Elon recently said the sheet metal in the cyber truck needed to be machined to the precision of a red blood cell. This is not somebody who understands manufacturing.
Hate seems like a strong word for a person with multiple dod contracts (and a new one recently for military starlink) and one of the most obviously already qualifying companies for the administration's most touted achievement (US made cars + whole home battery systems)
I agree that you shouldn’t discount what Elon does or says. He’s clearly one of the most important individuals of our time. Doesn’t mean whatever he says is gold though. Same standards should apply.
I agree that his naysayers are making a grave mistake of calling him universally stupid. He’s a vile selfish person, who makes a lot of bigoted stupid statements and actions, but ignoring him would be the end of us.
A Tamil saying I like translates (by ChatGPT) in English as, “Regardless of the speaker’s guise,
Seek the truth that in the statement lies.”
I think this thread encapsulates the politicization of society, basically determining all credibility and worth based on who is on what political team. This reality has been causing a lot of problems with getting productive work done in the U.S as everything becomes about power and giving out favors vs. a meritocraticly organized society. We need to become more of a society where people don't change their opinions on someone's ability to do rocket engineering based on whether they think their tweets are mean or not.
For the most part Musk (and his businesses) and the administration, as well as US auto manufacturers, are playing nice now and realize they need to work together. The sniping between them has decreased a lot and is mostly coming from elsewhere while their collaboration has increased. Mostly because the economics of EVs have shown resistance is futile and SpaceX' capabilities are so useful.
Honestly we need more strong figures like Musk if we have any chance of pulling this off (preferably the pre insane Musk because that Musk seemed way more capable and productive). Bureaucratic, ladder climbers are not going to be able to pull something hard like this off.
Some of this isn't as bad as it looks due to the way the accounting works. Take Apple products. They basically lead the world in laptops and phones, designed in America but because the manufacturing is done abroad it appears as a trade deficit even though most of the design and profit accrue to Apple shareholders.
> Currency manipulation by the Japanese government further aided its exports, and the oil shock of 1973 was helpful to Japanese automakers given that they specialized in smaller, more efficient cars while the United States produced gas-guzzlers. Japan’s exports to the United States soared. U.S. automakers, in contrast, took too long to understand and then adjust their manufacturing technologies and techniques to the quality revolution.
This ushered the era of Japan (where Japan almost "overtook" the US as the first economy). You can draw lots of parallels to what's happening with China now.
I am afraid, given the size of China, that it'll not "just" reach US GDP but will skyrocket beyond it to the stars. The era of Western/US dominance might be over and it's inevitable.
It can’t be fixed with the current form of government and financial system, and no amount of central planning within the confines of the current system will fix this.
DC politicians redistributing money to advanced manufacturing will generate wealth for transnational corporations that siphon wealth out of the source economy. It will serve as a grift for those with political connections more than it will repair our industries. The playing field is not level because of regulatory capture and inefficient regulation, and the talent pool that can fill the roles has both dwindled in number and chosen other career paths.
The authors state that the US "is not a global leader in the advanced manufacturing of the twenty-first century" but don't actually support that claim; we're kind of supposed to take it for granted.
A piece like this is not a self contained textbook. It's a hot topic with 100 years of history near the centre of political and economic discourse. Contentious claims are inevitable.
The reverse claim also gets made, and whether or not the claim is "supported," it's never sufficiently supported. The reality is that there's a whole debate with vountermoves behind either claim.
One side looks at employment, tonnage, plant construction, anecdote and common sense. The other looks at accounting.
Accounting says that "manufacturing" has increased. Skeptics consider this an accounting fiction. The reality is that "manufacturing" in 2023 is not quantifiable in the way that it was in 1923. Accounting semantics are abstract and past a point turn into a matter of accountants' naming convention.
A 1923 ford factory represented most of the "manufacturing" represented by the cars that they produced. As the industry splits into OEMs, T1s, T2s, toolers and whatnot^ we move into more abstract definitions. Has one of Ford's industrial engineering teams ceased to be "manufacturing," because they now design processes for a Mexican subsidiary? How about the US-based management/overherheads for the subsidiary? Irl, accountants can represent these any way that the tax man, board or market prefers. The same physical change can represent 20% or 5% decrease in manufacturing.
There's just a point where quantifications fail, and can't be used to decide such debates conclusively.
Where we're at now, imo, requires us to keep purpose in mind, and forget about a single, neutral quantification. If you're quantifying manufacturing for maximum military potential, employment or resilience to trade problems... You probably need different definitions/quantifications of "manufacturing."
^These specific conventions were created to structure trade deals and regulate tarrifs.
Where does this come from? It looks like BS to me. The idea that China has the most advanced aircraft engine manufacturing is truly insane: that belongs to the US and UK. China can't even fully build their own commercial aircraft because of this; they have to buy engines. For their military planes, they get engines from Russia.
I think that the American manufacturing problems are beyond fixing at this point. Between higher energy costs, higher regulatory/legal costs as well as numerous labor problems, it's just not realistic to imagine that American manufacturing could be competitive.
The US had for most purposes a system of quasi-owned state enterprises after WW2. The US gov had zero equity, but was a partner providing research, funding, and diplomatic backing. The list included companies like IBM, GE, Exxon, AT&T/Bell Labs, Boeing, etc. All these companies had large R&D departments financed directly or indirectly by the gov.
Most of this was dismantled after the Raegan era, when they decided to move all production to other countries with the goal of running everything from Wall Street, through the power of dollar-based financialization. They wanted to control everybody else as modern colonies, where developing countries would perform the role of workers and the US the role of a business owner. It just happened that some countries never really wanted to play by these rules, that's why the US is threatening to dismantle the globalization system.
Obvious Solution: Re-establish the military draft, but with a far smaller pool of potential draftees - and make sure the families of current & recent members of Congress, Wall Street big-shots, Fortune 500 CxO's, McKinsey consultants, and such are all assigned to serve in front-line "meat shield" battalions on the western shores of Taiwan, just south of Korea's DMZ, etc.
You should remember that the US military is a two-tier system: there are the officers who rarely see real battle, and the rank and file who effectively die. In the case of war, if the rich ever serve they will be officers, they will only command other less fortunate to battle.
mensetmanusman|2 years ago
My sense from talking to the previous generation is that financialization of the US has started (finally) failing the American people.
The previous generation cashed in on major profits by off shoring (Kodak), but we overdid it.
In a round about way our company is run by pension funds, and I work on projects that would get 8-9 figure investments if we were doing this in APEC, but we would rather have stock buybacks, so we end up getting 6 figures and puttering along.
Meanwhile the higher ups wonder ‘what happened to R&D?!’
joe_the_user|2 years ago
You can look at how Boeing gutted it's highly skilled Pacific North West operations to move lower skilled, lower paid areas elsewhere and generalize this to a multitude of similar industries.
fastball|2 years ago
It's the same in universities, where more and more time and money is spent on "management" (extracting value) and less and less is spent on actually teaching stuff (creating value).
Unsurprisingly, when a (somewhat large) portion of the population in a high productivity society realizes they can just skim off the top without doing any actually useful work, bad things happen.
0xDEAFBEAD|2 years ago
https://ourworldindata.org/extreme-poverty-in-brief
Even with recent globalization, Americans are still far richer than most people in other countries. I believe those people matter just as much as Americans do.
version_five|2 years ago
aa_is_op|2 years ago
supportengineer|2 years ago
gWPVhyxPHqvk|2 years ago
di4na|2 years ago
You are close to realising the problem. Financialization is a consequence not a cause.
The cause is demographic. Why and how did pension funds grew so much need to own everything and get money?
Spoiler: this happened in steps with Boomers investing in their retirement. Because they were so numerous it flooded everything.
Second Spoiler: they also had (and still have) the political power by sheer number, which warped the regulatory environment.
kranke155|2 years ago
Animats|2 years ago
* A tax on financial transactions. This is sometimes called a "Tobin tax". The US financial services sector has doubled in size as a fraction of the economy. It's currently around 12%. That's an overhead cost, and a big one. Could be half that.
* A tax on advertising. The tax deductiblity of advertising as a business expense should be limited. No more than a few percent of the cost of a good or service should be advertising. Domestic US advertising is almost zero sum, anyway, because Americans are spent out. All advertising does is move consumption around a bit.
* Standards for imports. If it plugs into AC power, it has to have UL certification. No more fires from power supplies, including small electric vehicles. Anything medical has to be sample tested after import. Criminalize willful violations. Hold resellers (i.e. Amazon) criminally responsible.
jwells89|2 years ago
0xDEAFBEAD|2 years ago
What reason is there to believe that this is an overhead cost?
As I mentioned in another comment, over the past ~10 years or so, US median earnings have grown remarkably fast compared with other large countries: https://news.ycombinator.com/threads?id=0xDEAFBEAD Hard to argue with results.
Taxing financial transactions intuitively seems like the sort of thing which would put a drag on economic growth. And manufacturers need to transact just like any other sort of business; I don't see how taxing transactions encourages manufacturers relative to other firms.
I like the tax on advertising though. I would tweak it so the tax only kicks in once your spending on ads exceeds, say, $10 million per year. That way innovative new products can advertise to customers tax-free. This method also encourages big monopolies to spin-off individual product lines, which could reduce monopoly power.
ramblenode|2 years ago
mindslight|2 years ago
I would say that eliminating tax deduction for advertising expenses is the wrong way to go about things as well. Adverting is a bona fide business expense, so it makes sense as a deduction. Rather, a direct tax should be levied on advertising, to account for the externalities of us all having to suffer the cacophony. This could even be done state-by-state rather than federally (a la sales tax).
Wholeheartedly agree on the certification. It blows my mind how cavalier people are about plugging Amazon's gensym branded products into mains power - especially given how shoddy even NRTL-tested products seem to be built!
twoodfin|2 years ago
I own a 100 shares of Apple. Tim Cook goes on CNBC and says he’s all in on printers. So I want to sell my Apple shares and buy Microsoft, where Satya Nadella is pushing Cloud and AI.
I’m being a smart investor, moving a small bit of capital allocation intelligently.
Taxing this decision discourages making it—even if only marginally—and makes capital markets dumber and less efficient.
JumpCrisscross|2 years ago
This is a tax on the middle class. Plenty of countries have stamp taxes on trades, for example. The wealthy structure to avoid a books-and-records trade. The average person can’t do that and so pays.
If you’re upset about the size of finance, just tax that directly.
seizethecheese|2 years ago
This is only true when productivity between firms is constant. Advertising helps direct consumption toward more productive firms.
mdorazio|2 years ago
1) Improve the [government sponsored] Manufacturing Institutes
2) [federally] Back R&D for manufacturing technologies
3) Provide scale-up financing [by the government]
4) Use government procurement power to promote new manufacturing technologies
5) Direct production support [to sectors deemed critical]
6) Provide both “top-down” [gov picks a tech and supports development of it] and “bottom-up” [broad incentives like IRA] support
7) Build a manufacturing focus into existing industrial policy programs
8) Map and fill gaps in supply chains
9) Fix workforce education [by refocusing on legitimate vocational tracks]
10) Put someone in charge [of coordinating agencies, budgets, and efforts]
This is all effectively trying to copy large segments of the China playbook, but in my opinion it misses some rather important points. Namely, protectionism and implicit incentives. On the first point, you can't really compete with China when it is actively hostile to foreign companies and de facto encourages outright theft of knowledge and expertise in exchange for access to its market. As long as we have a significant portion of people yelling about "trade wars don't solve anything" any time someone proposes leveling the playing field, competition is a nonstarter.
On the second point, the elephant in the room is that smart people in the US can make 2-3X as much in software or finance as they can in manufacturing, so what do you think they're going to pick? Which company is private investment going to fund - the SaaS co. with 40% margins and rapid growth or the manufacturing co. scraping 10% margins and 5% CAGR? It's hard to see where the skilled labor and private investment side of the equation is supposed to come from when the incentives are so mismatched - you almost have to find a way to decrease incentives in the currently lucrative pools first.
jjoonathan|2 years ago
https://en.wikipedia.org/wiki/Triffin_dilemma
This is going to be hella difficult to unwind, especially given the current state of macro awareness in the US: if I had a penny for every time someone in an export industry panicked over the possibility of a declining dollar, even though this would be in their best interest, I'd have too many to carry. Arguably worse, we have an otherwise respectable top 10 list that doesn't include macro anywhere, which is like teleporting onto the Titanic only to hear that the conversation is all about how to best duct-tape the doors. Sigh.
nibab|2 years ago
2 of the most valuable companies started in the last 20 years in the US are SpaceX and Tesla. You can still build a huge amount of value with non-SaaS margins.
I think part of the problem here is how structurally unfit VCs are to fund such companies (ie investment horizon and fund lifecycle is 5-7 yrs). THat’s where scale-up financing by the government can make a huge impact.
mschuster91|2 years ago
Make unions stronger and kill off all of Wall Street finance shenanigans that's purely devoted to creating money out of thin air or skimming (especially HFT). That house of cards is going to crash hard anyway, so best tear it down in a controlled fashion than risk yet another 2008-style uncontrolled implosion.
yterdy|2 years ago
Ooh, this one's easy. Make software companies give back some of the money they make data-brokering and administering platforms where the vast majority of the advertiser-attracting content is provided, for free, by users. That's where the margin is coming from: users being scammed out of the true value of their contributions. Tax or regulation, pick your poison.
Someone brought up Tesla and SpaceX in another reply. The Tesla whose market share growth was driven largely by EV tax incentives, of course. The SpaceX that built heavily on gifted NASA research and expertise, of course.
psychlops|2 years ago
unknown|2 years ago
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roenxi|2 years ago
> ... smart people in the US can make 2-3X as much in software or finance as they can in manufacturing...
Sounds like the price of manufactured goods is unsustainably low. Prices will need to go up or a new source of cheap labour be found outside the US.
Roark66|2 years ago
Take this for example: >China dominates the production of full electric vehicles
And put it in context with the recent revelations of hectares of abandoned new EVs rotting in many locations in China. Why? The financial policy gave incentives to making more EVs, some enterprising individuals managed to manufacture very low quality cars while funding it with "shared car startup model". Then when these car sharing schemes went bankrupt (because many cars wouldn't complete a single trip without malfunction) they had enormous profits regardless. How? The cost of manufacturing was funded by investors in these startups(a third party, or a client from the manufacturer's point of view). After they went bankrupt there would be no warranty claims etc. While the per car gov subsidy was pure profit.
I cannot understand why anyone in the West would believe any economic statistic or number coming out of China. The country is known for fudging numbers at all levels. The corruption is endemic to the point one actually pays for government positions with cash (as a bribe to higher ups) and considers it an investment to recoup in own bribes in future.
It's Soviet Union all over again. Back then The West to the last moment had many prominent authors praising Soviet advancements in many fields until the very end and the collapse that was a complete surprise to many.
krisoft|2 years ago
I hear you. But I am not worried about whatever economic modellers say, or what prominent authors write. What I am worried is when huge companies, predominantly preceived as western ones, spread their arms and swear there is no way they can make their gizmos in the USA.
Look at Apple for example, most valuable company on the whole world and 44-47% of their production sites is in china. Did we had anything like that in the Soviet block?
justinclift|2 years ago
Rent seeking behaviour is so deeply entrenched in US-led business culture, that any time potential advances are figured out they are viewed through the lens of "can we patent this?".
If the answer is "No", then funds for developing that potential advance - eg concept dev, prototyping, potential field testing - just don't exist.
It's not about being able to improve manufacturing. It's become "what's the greatest ROI on spending these dollars? Can we lock in a monopoly around it somehow too?".
While that short sighted foot gun approach remains prevalent, "fixing" the advanced manufacturing problem is going to proceed pretty damn slowly.
Outright abolishing all patents might get things going in the right direction, but the heart attacks that would cause in business circles makes that impractical. ;)
hnthrowaway0315|2 years ago
I don't really see a way to reverse everything. It is not about investing more in education or patching up policies. We are talking about a whole generation, maybe two, of elites and (some of the) people who profit from globalization. You simply cannot rely on the hands to chop themselves off. This is going to be a violent, bloody process because changing tides in politics is always bloody, literally. This is also going to touch the cake of numerous upper-middle class interest groups: landlords, bankers, you name it, anyone who prosper from the last 40 or so years, especially last 10 years since the first QE. Why? Because you are basically saying, OK I'm going to create a new group of middle class people but hey the cake is just that big so I need to cut someone else's piece.
Of course, everything has a cheat. The cheat, which I believe was already chosen by the American elites, is to instill conflicts globally and create mass exodus of highly skilled workers from other countries to the United of States.
datavirtue|2 years ago
My son joined a non-union shop last year, recruited by his instructor while in a training program for machinists. They had an "assembly department" that was under extremely arbitrary and shifty requirement metrics. They had long time machinists who worked there and if they got hurt (after getting back from medical leave) they were thrown into the assembly department until they quit.
That was the tip of the iceberg in that place. Asking for PPE to mitigate cancerous fumes from various chemicals got my son fired. He suffered chemical burns during his short time there and witnessed several serious random safety events involving 400amp 220v live electrical wires making contact with carts and shelving.
This was not a small rinky dink shop. They have multiple large facilities in the US.
dalbasal|2 years ago
I think a big, poorly understood part of these stories is "advanced games" or "long term degeneration."
Take government procurement, like fighter jets or new hospitals. Post-war, the way this worked was "cost-plus." Companies accounted for their costs and were promised a fixed profit. The obvious flaw is that companies lose interest in efficiency. But... it did work during the war and resulted in more tanks, ships and jets than anyone thought possible. It also worked post war.
But, such games mature. Under "cost-plus" a company increases profits by spending. That's an incentive that will bite eventually. So... they move to competitive bidding. This degenerates into a lawyers-only game, etc.
That's the administrative layer, but game maturation also exists at the political layer. Rooseveltism was a thing for a while, and then anti-rooseveltism became it's competition. During the neoliberal era, industrial policy was the devil. Half the international institutions (trade deals, imf, wb) exist mostly to enforce bans and limits on industrial policy.
During this era, when governments' job was to "get out of the way," the alternative to (now evil) industrial policy was either big trade deals, or tax policies. Tax breaks and tax complexity counted as "getting out of the way" while trade deals structured markets (eg auto-manufacturing) with more detailed rules than a Soviet five year plan.
Anyway.... the statement about making economics a defence job... it feels like an attempt to declare bankruptcy on the "trade-deals and tax breaks" era, and move to an weirder and more awkward model. A bad idea that hasn't played out might be better than a better one that has.
wonder_er|2 years ago
Sorta a 'do not pass go, do not collect $200, until {x} is solved' situation.
If a city still has parking minimums on the books, I evaluate all involved parties as utterly unserious, pseudo-scientific religious zealots.
Do you think the American south, in the era of chattel slavery, could solve 'advanced manufacturing problems'? NO! of course not! So why does anyone think 'america' could solve an advanced problem?
Meh. I shouldn't be surprised by the article, though. The authors probably think the USA isn't a backwater country that is 'on top' only via a willingness to use economic and actual violence to achieve all aims.
edrxty|2 years ago
You speak the truth here...
The rest I could take or leave. It's not completely wrong but I think it's a more nuanced situation. I'd summarize it more along the lines of "America has become too classist to respect manufacturing. See Britain."
goodluckchuck|2 years ago
unknown|2 years ago
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balderdash|2 years ago
simonblack|2 years ago
In the 40 years that the US has offshored manufacturing, all of those guys that used to know what's what have retired or died. There's nobody left. It's going to take another 30-40 years to replace them. The US doesn't have the luxury of having those 30-40 years.
tacocataco|2 years ago
Almost there.
lemonwaterlime|2 years ago
They commonly keep employees using the simplest heuristics that someone at some point in the past developed which worked then, so why break it? And they push this mediocrity throughout the entire organization and industry. Then they swap out one failed CEO for the same person with a different name like a pair of gloves, wondering what ever happened as there was nothing more that could be done. Meanwhile their ageist management policies block out the insights of the young, all but ensuring that no new ideas are brought into the mix—all until it’s time for another bailout.
throw__away7391|2 years ago
unknown|2 years ago
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onthecanposting|2 years ago
badrabbit|2 years ago
The plains of nebraska for example are an excellent place (again, opinionated) for an assembly plant like foxconn but american. Mainly because a crapton of freight via railways passes through there and plenty of undeveloped cheap land. Such factories have high shipping/receiving volume and new towns with new cheap housing for potential workers is feasible.
Yuma is another great location because of it's stable (sunniest in US) climate, proximity to mexico boarder and like with TSMC and Tuscon it is very disaster safe, right on I10 and close to CA (the US might starve if Yuma was destroyed! A lot of food processing there for these reasons).
Manufacturing at old towns and factories will have minimal competitive advantage.
Lastly, the US does not have a "success at any cost" mindset towards manufacturing as the fuel for economic success. It is very much an afterthought. A lot of this and many other issues are a result of political divisions.
vuln|2 years ago
tacocataco|2 years ago
0xDEF|2 years ago
narrator|2 years ago
Edit: He did have something interesting to say about the "idiot index" which is the price of a component over the cost of the raw materials. If that's very high, it means there are serious problems at that manufacturing organization.
https://officechai.com/stories/elon-musk-idiot-index/
There's so much inefficiency in American manufacturing. It cost SF $1 billion a mile to extend the subway for example.
aphyt|2 years ago
smileysteve|2 years ago
ramraj07|2 years ago
I agree that his naysayers are making a grave mistake of calling him universally stupid. He’s a vile selfish person, who makes a lot of bigoted stupid statements and actions, but ignoring him would be the end of us.
A Tamil saying I like translates (by ChatGPT) in English as, “Regardless of the speaker’s guise, Seek the truth that in the statement lies.”
narrator|2 years ago
SyzygistSix|2 years ago
mortureb|2 years ago
6kVShitPost|2 years ago
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tim333|2 years ago
klyrs|2 years ago
csomar|2 years ago
This ushered the era of Japan (where Japan almost "overtook" the US as the first economy). You can draw lots of parallels to what's happening with China now.
I am afraid, given the size of China, that it'll not "just" reach US GDP but will skyrocket beyond it to the stars. The era of Western/US dominance might be over and it's inevitable.
willmadden|2 years ago
DC politicians redistributing money to advanced manufacturing will generate wealth for transnational corporations that siphon wealth out of the source economy. It will serve as a grift for those with political connections more than it will repair our industries. The playing field is not level because of regulatory capture and inefficient regulation, and the talent pool that can fill the roles has both dwindled in number and chosen other career paths.
bandrami|2 years ago
dalbasal|2 years ago
A piece like this is not a self contained textbook. It's a hot topic with 100 years of history near the centre of political and economic discourse. Contentious claims are inevitable.
The reverse claim also gets made, and whether or not the claim is "supported," it's never sufficiently supported. The reality is that there's a whole debate with vountermoves behind either claim.
One side looks at employment, tonnage, plant construction, anecdote and common sense. The other looks at accounting.
Accounting says that "manufacturing" has increased. Skeptics consider this an accounting fiction. The reality is that "manufacturing" in 2023 is not quantifiable in the way that it was in 1923. Accounting semantics are abstract and past a point turn into a matter of accountants' naming convention.
A 1923 ford factory represented most of the "manufacturing" represented by the cars that they produced. As the industry splits into OEMs, T1s, T2s, toolers and whatnot^ we move into more abstract definitions. Has one of Ford's industrial engineering teams ceased to be "manufacturing," because they now design processes for a Mexican subsidiary? How about the US-based management/overherheads for the subsidiary? Irl, accountants can represent these any way that the tax man, board or market prefers. The same physical change can represent 20% or 5% decrease in manufacturing.
There's just a point where quantifications fail, and can't be used to decide such debates conclusively.
Where we're at now, imo, requires us to keep purpose in mind, and forget about a single, neutral quantification. If you're quantifying manufacturing for maximum military potential, employment or resilience to trade problems... You probably need different definitions/quantifications of "manufacturing."
^These specific conventions were created to structure trade deals and regulate tarrifs.
unknown|2 years ago
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thewanderer1983|2 years ago
midoridensha|2 years ago
g42gregory|2 years ago
Rooki|2 years ago
coliveira|2 years ago
Most of this was dismantled after the Raegan era, when they decided to move all production to other countries with the goal of running everything from Wall Street, through the power of dollar-based financialization. They wanted to control everybody else as modern colonies, where developing countries would perform the role of workers and the US the role of a business owner. It just happened that some countries never really wanted to play by these rules, that's why the US is threatening to dismantle the globalization system.
Liam2010|2 years ago
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bohadi|2 years ago
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peepeepoopoo36|2 years ago
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Slava_Propanei|2 years ago
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WhiteMasterRace|2 years ago
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bell-cot|2 years ago
edrxty|2 years ago
Taek|2 years ago
coliveira|2 years ago
avs733|2 years ago
That would seem to be simpler