Can A Country Survive By Flipping Hamburgers and Retail Jobs?

Great Debates
21

Here’s a few numbers for you:

  • India’s middle class has over $470 billion to spend
  • They are larger than they entire population of the United States
  • The have a penchant for labels and name brands - Nokia, Levis, Apple, Armani, etc.

From Business 2.0

…umm where was that MBA from?

Sikorsky - Stratford, CT - They make Black Hawks and Super Stallion helicopters
http://www.sikorsky.com/details/0,3036,CLI1_DIV69_ETI726,00.html

General Dynamics Land Systems - Sterling Heights, MI - M1 Tanks
http://www.gdls.com/

Raytheon - Waltham, MA - Missles and shit

Boeing, AMC, Textron Lycoming, General Electric,

…and so on.

All these companies and more have tremendous manufacturing facilities in the US. They also make weapons if we need them.

Did they also figure in the aggregate savings from the lower prices on goods that people purchased from Walmart?

Besides, if they are so stupid to give tax concessions for a retailer to come in that’s their problem. Municipalities are supposed to give incentives to industries that provide jobs and a tax base - Automotive, aircraft, high tech, whatever. You don’t give incentives for low margin businesses and services like groceries stores and Walmarts.

22

Since we’re talking about the Chinese buying the same Chinese-made goods that get sent to Wal-Mart in the United States, isn’t this an admission we’re screwed?

23

The upper middle class in India is indeed doing extremely well, but they account for only 40 million people, roughly 1 person out of every 25 people.

The middle of the middle class in India, which is estimated at 150 million people, has a PPP (purchasing power parity) of $20,000, which is about what a pizza delivery driver (and there’s nothing wrong with doing this job, thanks) makes in my area. I don’t see them sporting a lot of Armani, and I’m guessing they aren’t logging in on a Mac G5.

There is no estimate on the PPP of the lower middle class, which is another 110 million people. It’s obviously lower than $20K, so I don’t see them purchasing a lot of American name brand goods. This is not a middle class by American standards, not even close to one. These people are poor, just not as poor as the majority of India, which is insanely poor by our standards.

In the 1990s, inflation was very bad in India, but it has tapered off lately, mostly due to having too many skilled workers, and not enough jobs to support them. The number of skilled graduates has been steadily outpacing available jobs for several years now. There are currently no signs of this changing for the better.

You have to keep in mind that India ia a very, very, very, very poor country. 46% of the households in India have a PPP of less than $10K. 72.5% have a PPP of less than $15K. Only 8% have a PPP of over 35K. Some of what constitutes the middle class there is the equivalent of living in the “projects” in America.

Just some facts to keep in mind when questioning someone’s credentials.

24

Yes, we are screwed **IF ** we try to compete with the Chinese at what they can do for less than we can. That’s a hopeless cause. Always has been and always will be. But the same argument can be made within the US. I live in CA, which has one of the highest costs of living in the country. If I try to do something that someone in North Carllina can do do more cheaply, then I’m “screwed” too. So you basically have two choices: try to fight this fact or recognize that you have to earn your living by offering people something they are willing to pay for.

25

I didn’t think direct flames were allowed in GD. Did you care to argue against my points this time, or will your usual insults suffice?

26

Well, what is the point of citing a past trend? Isn’t the implication that the trend will continue in the future?

Often such trends don’t. The libertarians who post on this board are always resassuring us that things will be A-OK, simply because things have always worked out for the US.

But some countries DO go down the drain, some decline. Look at Japan for the past 10 years. Wreckage. Did the trend from the late '60s until the late '80s indicate that this would happen? No, rather people were predicting Japan’s world domination.

27

I asked specificially how much is saved when an offshoring takes place. People whine about offshoring but I never see the numbers that lie behind the motivation to move production to China and elsewhere.

So, is it your belief that getting an MBA involves learning every trade statistic? That’s a laugh.

28

I’m not talking about the exact same goods and services. What I was alluding to was exports as a whole, that a rich China will consume American products like nothing else. Not cheaply manufactured goods that China can produce at home, but high-tech American goods, American business services, American mass entertainment and American media. A macro-economic view, if you will.

To that msmith’s numbers as an example:

Developing the economies of one’s foreign trade partners is clearly within domestic interests.

29

Just to add to John Mace’s response to this, the underlying concern of rjung’s post seems to be that the US might not be left with any industries. This is a common fear and it’s understandable, because the job losses from increased trade are visible and foreign competition is always given a fair bit of prominance in explaining why a plant is going to close. The job gains tend to be less lumpy, and some people don’t think they’re there. But it has to be the case that there are gaining industries and gaining occupations because otherwise no-one in the US would be able to buy any of the imports. After all, foreigners aren’t willing to accept US dollars because they like the design: they want them because they can buy stuff [the fact that the US is running a trade deficit doesn’t really alter this argument].

Back to the question I piked on last night: there will be losers from increased trade. Lots of them. Some of them will be damaged in the transition to other industries, some of them will permanently lose their livelihood. Some workers will suffer. Some capitalists will suffer - the value of assets in damaged industries will decline. Regions where losing industries are concentrated will suffer, in some cases wounding communities irreversibly.

So, what to do? The first thing is information. Policy-makers need to know what’s going on in detail. Saying the US will gain x% of GDP by lower tariffs or growing trade just isn’t enough. You need to know by industry, region and occupation who’s going to gain and lose and by how much. You need to know what the prospects are for an industry and how much its growth or decline over the next 20 years (or the last 20) is due to technological change, how much change in consumer demand and how much by secular or policy-induced trade effects. A fair bit of this work is being done. At a world level, the GTAP modelling group (for example) is doing this kind of thing. I’m sure such work is being done with a US focus.

This is important for politics as well as policy. If the US steel industry is going to be disadvantaged by freer trade, it will lobby against it. Same with unions. Some framework that can convincingly show that their fears are overstated is required if the US wants to take advantage of the opportunities that greater trade affords.

For policy, knowing that the US jute and twine industry is concentrated in such and such a state and that moves to freer trade is going to reduce employment in that industry by x% (and have various knock-on efects in upstream, downstream and regional service industries) is useful in that it indicates a role for (public or private) retraining for displaced workers. Or signals a need for local governments to focus on developing new and more sustainable industries to replace them, so that you don’t end up with abandoned industrial precincts and a generation of wasted talent. Or, maybe compensation - after all, if an industry has been going ok because of protection and the government decides now that it was never that good an idea, that’s hardly the fault of the guy who decided to become an apprentice twine-winder.

IMHO, the crucial thing is to acknowledge that there are winners and losers from secular increases in trade and from lower trade barriers. The appropriate policy reponse is then to try to reduce the costs of transition and ease the pain of those who would otherwise get trodden on.

30

I would have thought that you might have done a case study or two on overseas outsourcing. For individual companies, the decision is a no-brainer for certain products and is easily quantified. Unfortunately, I don’t have links to any such case studies but I’m sure they’re available somewhere.

Actually, I too would be interested in seeing numbers on how outsourcing effects the economy as a whole. Generally they just publish the employment statistics because it gets people riled up.

Partially true. The average income is much lower, however the demand is still there for the brand name products. Indians don’t want the cheap Chinese cell phones. They want the brand name Nokias and Motorolas. But as you say the country is poor. True, this new middle class has much more disposible income and are willing to spend it, but how do you sell to them and make a profit. The article goes on with some creative marketing programs that companies have used - small packets of products instead of the jumbo-sized containers we Americans buy, pre-paid phone cards,

31

At some point, fat is gone and you are cutting into bone. Avery good series of articles on Wal-Mart’s effect on the world economy was done bythe L.A. Times this year on just how much bone Wal-Mart has cut.

Also, Wal-Mart is close to a monopoly on certain items. What’s their incentive to keep cutting when their the only game in town for a product?

True.

True, but not very much.

True.

’
Until, apparently, they qualify for benefits. Or until they bring up the thought of Union negotiations.

They also keep their second and third jobs, if they can. See “Nickel and Dimed” by Barbara Ehrenrich.

No doubt.

Except for the ones that work at Wal-Mart or one of their domestic suppliers.

Yes, the parking lot of the Wal-Mart near my house is full of the Jags, Beemers and Benz’s that their customers bought with the money they saved. :rolleyes: People with disposable income do not shop at Wal-mart, they consume conspicuously.

Except the ones that have had to cut their profit margin further down to nothing each year to keep the Wal-Mart contract, or the ones that sell similar items that Wal-Mart does.

Not the ones that have to keep cutting back to keep Wal-Mart supplied, or the ones who have offshored their own manufacturing.

IT IS?!? :dubious: What’s with all the boarded-up storefronts I see on a daily basis then?

Until Chinese workers unionize for a bigger share of the pie and Wal-Mart searches for greener pastures, which has already been happening in China in other manufactureing areas for some time.

Haven’t you ever wondered why you see “Made in Korea” more often than you see “Made in China” anymore?

Numbers, please.

Numbers, please.

Numbers, please.

Wal-Mart happy, other businesses not so much.

Sometimes three or more businesses employ the same worker, as above. Other former workers are out of luck.

WHAT American workers?

32

Another thing that seems to get lost in these discussions, is that the world economy consists of more than just the US and China. Protect US companies against low cost competition, and who else in the world is going to buy from the US? Go ahead and make shoes that cost $100 to produce in the US, but if I’m a Canadian, I’m gonna buy the ones from China that cost $10 to produce.

33

Perhaps my meaning was not clear. I recognize that offshoring can be a profitable move. But rarely are you given numbers (as you recognize) about particular cases so that you can understand the motivations of the decision makers. Sometimes, in fact, those decisions end up being wrong. Sara Lee moved the Totes glove factory from the Phillipines to China to save a few pennies, and the result was an abosulte disaster in terms of quality and eventually the bottom line. I am also have a very hard time believing that Levi’s, with its brand so based in an American tradition and image, is making the right decision to move production almost totally out of the US. Again, I’d like to see how much they’re going to save. Is it 10%? 90%? At what level do companies think it is a good idea to totally flush American production. I’m genuinely curious.

34

Why don’t you post this question in GQ. Seriously, there are a lot of really smart folks who post in that forum, but don’t like to post in GD because of all the bickering.

But keep in mind that there is no simple answer to your question. Some of the decision involves translating **increased risk ** to a cost. You might save 80% in labor costs, but if your factory shuts down every forth day due to electrical grid problems, or you can’t easily convert the local currency back to US$, or there is a chance the government will nationalize your company in a state of emergency, how exaclty do you cost that out?

35

I can. Look at Ohio Art, makers of Etch-a-Sketch, among others things. The state name is right in their corporate name, yet they moved all their manufacturing to China. (It’s kind of weird watching the movie Elf and watching elves make Etch-a-Sketches, then realizing that, as far as ohioans are concerned, they might as well be.)

36

“High-tech American goods”? Considering that most American electronics today are manufactured overseas, that doesn’t sound like a winner.

“Business services”? Like the customer support call centers that are getting outsourced to India? :dubious:

“Mass entertainment and media.” Okay, that one could work… if you can put a cork in the rampant piracy of mass entertainment and media in those selfsame overseas markets. Good luck selling American media to that crowd…

37

The company I work for does supply chain consulting for large multinational corporations. The numbers can vary widely depending on the company, industry product, suppliers the economy and other factors. Typically, price is not the only deciding factor. If I can save 5% by moving facilities offshore, I might not consider it. 40%, I’d be foolish not too.

I don’t really deal with facilities though. Mostly I deal with should we buy Mitsubishi motors or General Electric.

Doesn’t matter who makes them. All that matters is who puts their logo on the box and sells them.

What “bone” is Walmart cutting into? Are they selling items below cost? What items do they have a monopoly on? There are little to no barriers to entry for their business. If they raise prices, it’s easy for someone else to come along and sell clothes, DVDs and home goods.

38

So what does that have to do with American jobs then?

39

I refer you to : (subscription to LA Times site may be necessary)
this set of articles

40

For those who are concerned about American jobs being lost to outsourcing: I’m curious if you’re equally concerned about jobs being lost to technological innovation?

If not, why?