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Bringing U.S. Manufacturing Back Home

Editor's Note: This article originally appeared in the December 2012 issue of The PCB Magazine.

What can we do about the declining nature of the U.S. PCB industry? It’s hard to write this month’s article on looking back at the past year and not think about the recent election. Unlike you, reading this when it publishes in December, as I write this, I don’t know who won. According to polls, one candidate was more trusted about generating jobs and the other candidate was more trusted about protecting the middle class. What a strange way to separate the candidates. It would seem to me a leader that could generate jobs would also be a leader who would be good for the middle class. But politics seems limitless in its capacity to create division on issues and division between people.

And with division comes confusion and fear. For example, articles with scary titles like, “The middle class is on the ropes because class warfare exists,” and, “America’s real crisis is the shrinking middle class,” or, “Census shows shrinking middle class.” It gives readers a sickening feeling--as if we are on the Titanic and about to go down to the bottom of the icy Atlantic. Politics, hopelessness, and despair; they all seem to be strange bedfellows.

What I find strange is that nobody seems to be standing up for the manufacturing jobs that help support the middle class. In the PCB industry over the last 10 years, we all have seen high-paying, high-technology jobs, go offshore with nothing more then a whisper in the press or any apparent knowledge by the general public. Does anyone care? Apparently not, because in fact, at times it seems that losing all of these jobs and all of our manufacturing capacity and know-how was patriotic. What happened? Where did this mindset come from?

As far back as the 1980s there was rhetoric about the fabric of the economic landscape and how it was changing and that manufacturing wasn’t important. It’s the information age! It’s a service economy! Stuff like that. But nobody bothered to explain any details. What would be the specific services we provide? What would create the reasons for demand? What kind of jobs would we have? What would we sell to other countries that were manufacturing goods that we wanted?  The so-called “experts” on this new frontier provided little detail. With the emergence of the internet and the new information age (which came to be thanks to all the circuit boards we made for routers and switchers and servers), this anti-manufacturing position was amplified. It amplified, if I can be impolite here, stupidity! And it continues to do so.   

Let me demonstrate. I floated around a Forbes blog and found an article from Tim Worstall, entitled, President Obama Was Right About Those Chinese Manufacturing Jobs: They’re Never Coming Back. 

In the blog, Worstall references the October 2012 presidential debate moderated by Candy Crowley, in which President Obama made comments about some jobs not coming back.

If you scroll through the blog's comments, you’ll see mine, to the author, and our subsequent exchange. In the exchange, it is pointed out that President Obama was quoted as saying many of these jobs aren’t coming back because they are low-paying low-skill jobs. As you will see in a moment, this is ironic.

In his own “called-out” comment about his own article, Tim Worstall references my comment to him:

“Are we going to build our intellectual capital in manufacturing with the ‘just cause’ of becoming the most efficient manufacturing country in the world?”

Worstall replies, “The U.S. is already the most efficient (hmmm, perhaps Germany, but only maybe) manufacturing country in the world.” Worstall then makes other comments about how more manufacturing wouldn’t add many jobs because we are so automated. The machines would build stuff, not us. Finally he says, “That’s the reality that we need to get used to. Within another generation, 90% of jobs are going to services.” 

I don’t know. Maybe sitting high up in that glass tower would make me comfortable about a nation with no middle class working at McDonalds.

According to an article I found written by Dustin Ensinger, Service Economy Taking over U.S., he says, “High-paying manufacturing jobs are rapidly disappearing, only to be replaced by low-paying, and often menial, service sector jobs that produce absolutely nothing of value.”

So, let’s get back to Obama saying these low-paying, low-skill jobs are not coming back. Yet the jobs we are going to create as a service economy are low-paying, low-skill jobs. According to the 2009 Occupational Employment and Wages report there were 8.9 million workers in production occupations earning an average salary of $33,000/year and 11.2 million workers working in the food preparation and service-related occupations making about $18,000/year. If we want to create jobs in this country, don’t we want to create manufacturing jobs instead of service jobs? Why wouldn’t we want to compete for those manufacturing jobs that went over to China? The ones you said were never coming back? And if they were to come back, wouldn’t they have to be done differently where a higher worker skill level with more pay would be required in a more automated, flexible factory? 

This past October I went to the Informs Annual Meeting in Phoenix. This is attended by practitioners in operations research, optimization, linear programming, modeling and simulation. Companies like Chevron, Boeing, Rand, and IBM were on the floor trying to learn the latest and the greatest methods for understanding their business and finding new opportunities to prosper. I got to listen to Wallace Hopp (co-author of the book I mentioned over a year ago in my article, “Are we nothing more than a pair of socks at Walmart?”) from the University of Michigan’s Ross School of Business and the author of Factory Physics, give the keynote address, entitled, “Manufacturing--Fading or Phoenix?” It was a highly informative and engaging presentation. Many of the ideas presented can be found in the paper he helped author from Booz & Company, entitled Manufacturing’s Wake-Up Call. 

According to Hopp, and others, the common myth for losing manufacturing jobs, including in our own PCB industry, is wages. This myth isn’t true, because we need only turn to Germany to find an exception to this rule.  Germany has high-paying wages and “a higher export rate and hasn’t seen similar manufacturing declines [1]." They go on to cite the factors they believe are important for a company deciding to build a manufacturing plant, such as worker skill level, the presence of industry clusters, nearby emerging consumer markets, and competitive regulatory and tax rules. Germany apparently understood these factors and put policies in place to attract and sustain manufacturing in their country some years ago. And it seems to be working very well since they aren’t losing manufacturing jobs to Poland, which has a much cheaper wage rate. The authors also say that education was vital to our past success for manufacturing jobs, but we have lost our way by dropping vocational training in favor on an emphasis of a college degree. They make this powerful observation:

“The study notes that manufacturing’s reputation lags behind other industries among students and graduates, despite the buzz surrounding exciting products like the iPad. ‘Modern plants are exciting, technical places to work, but the perception has not caught up with reality.’”

They also make the case that if we were to have a more stable and solid Mexico, without the drug cartels at our border, we would be far better off having low-skill production jobs go there instead of Asia. In other words, proximity matters. Low-skill production jobs staying close to home would encourage more manufacturing and innovation for higher technology products made here. So, it may be true that we don’t want the low-skill jobs to come back to the U.S.; however, it is to our advantage to grow them and have more of them in the Americas.

On one hand, we have people like Wally Hopp who offer us hope and optimism, provided we do the right things. On the other hand we have people like Tim Worstall, who make us think the game is already over.

Let me share with you a comment I made on another Tim Worstall article entitled, If Apple Onshored iPad Production it Would Create 67,000 American Manufacturing Jobs! Of course, he goes on to suggest such an idea is a pipe dream. My comment to the author:

“Tim. You are clearly very smart and very analytical. You almost sound like a lawyer defending your point of view where it should end case closed and the rest QED. Your point of view is flawed as most POVs are that are individually derived in one’s own head. The issue Apple has isn’t the cost per unit as much as it is their ability using Foxconn to saturate their distribution channels almost instantly and at the last minute. The price sensitivity stuff and cost stuff is all highly speculative given that an iPad factory in this country would have to be very different then what it is at Foxconn today. And the price/sensitivity/margin stuff is ancillary to Apple’s needs and concerns about having a U.S. factory. For example, ‘What U.S. factory could instantly hire 3,000 workers overnight?’ What you also fail to realize is what Foxconn can do today is in a way a temporary freak of nature. It isn’t sustainable into their next generation. They will have to develop a very different model of how they make iPads and iPhones and other gadgets in the future. What I believe to be true is if we accept your proposition that our economy will be 90% service based in the next generation then I am moving to Shanghai. I won’t want to live here. Making French fries, I am afraid, just won’t be challenging enough for me. What would be fantastic is for you to take up the opposite POV and with the same energy and zeal see what you come up with. This was exactly what Motorola did (during a time when they had their act together) with Dr. Mikel Harry, who had the point of view that quality couldn’t be improved in the company, and then was asked by the CEO, who acknowledged his almost perfect presentation, to argue against his position. The result was Six Sigma. Another contrarian viewpoint from yours is why does Intel insist on building a large percentage of their chips in the United States? How many jobs in the United States, including supply chain effects, result from Intel having U.S. based manufacturing jobs? And finally, is Intel doing this because it is charitable, or are they doing it for other reasons because they are shrewd at business?”

Granted, I might have overstepped politeness here and I was surprised that this did get posted. I credit Worstall for allowing it. I went further, however, and posted and shared this article on Facebook. Nick Sampson commented on Worstall’s article:

“Well, personally, Gray, I feel that Mr. Worstall highly underestimates the power of the Apple brand and therefore establishes an argument based on hypotheticals rather than proven examples of prior situations relative to bringing jobs back to the U.S. With that being said, Mr. Worstall is representing what many business leaders believe. However, I feel that he is a bit naïve about the power of a business that acts on good will instead of higher profit margins. I believe American consumers would rally behind a move like this. In the eyes of the American people, Apple would look almost, well, heroic. And that action, leading by example, willing to take a hit for doing the right thing, would make Apple immortal in the American business frontier.”

This is really a provocative view by Sampson.

Supposedly, the number of jobs that Apple contracts out of the country today is somewhere around 700,000. One might argue that one reason this number is so high is because of all the manual labor that goes into the assembly of their products. However, it would likely be attractive for Apple to have all of the parts, supplies, design, and materials, close to a major market, like the United States, located in an industry cluster, which after you add up all of it, employs 700,000 or more people. Imagine if all the other large electronic manufacturing companies did the same thing? What would our economy look like then? And as Wally Hopp suggested in his keynote presentation, there would be other industry clusters scattered around the world, likely located near educational and vocational training centers, and close to major consumer markets.  

But in order for such a thing to happen in this country, there still is a significant barrier. That barrier is our statutory corporate tax rate of 39%. Switzerland’s corporate tax rate is 21%. The high tax rate creates an undesirable environment to have any corporate entity here. We not only need to be pro-manufacturing but pro-business and rally behind this banner in order to protect our livelihoods.

Nobody else seems to be stepping up, so we must. You might start like I did at Forbes and read blogs. Be vocal and be heard. You might get the IPC on it. Or in some way start a movement by calling your friends in the industry. Talk to a business school or university near you. Try to get media play. Now is the time to become more vocal, to become more of an advocate, for the manufacturing jobs we have all come to love. And if we are motivated and work together we always figure out a way to get what we want, and to get what we need for the good of all of us, especially the vitally important middle class.

Reference:

1. University of Michigan Ross School of Business.

Gray McQuarrie is president of Grayrock & Associates, a team dedicated to building collaborative environments that make companies maximally effective.  McQuarrie is the primary inventor of the patent, Compensation Model and Registration Simulation Apparatus for Manufacturing PCBs. He has worked for AlliedSignal, Shipley, Monsanto and others. Contact McQuarrie at gray@grayrock.net.