I don't know exactly how manufactured products are counted.
This would be a good place for you to start if you really want to get into a serious discussion with me about the US economy.
If GM assembles a car in USA and gets most of its parts from other countries, does the car that leave the factory be counted in the manufactured goods count
In the GDP the finished good is counted minus the imported parts. Only the value added portion is included in the GDP and inflation is backed out. This same process is at work in housing and is one of the reasons I cited for why housing has less impact on the GDP today than it did in the 1950s.
In any case, the manufacturing process can be replicated in another part of the world. The Solectron facilities in Taiwan may even be better than the plants in USA, if the Taiwanese plants is more recent.
Yes, it can be replicated if capital is available. It is not unusual for manufacturing facilities to be more advanced abroad. Once a process is known, results repeatable and the return on investment is predictable factories can be built anywhere there is a reliable workforce with ample raw materials. One would expect a large amount of competition for this type of manufacturing once these things are known, which would, of course, drive down the profit margin of such an enterprise, so one is almost forced to find the lowest cost producer wherever they may be. It is before these things are known that the highest profits reside, but also the highest risk of failure.
Manufacturing is not the full story.
Certainly not in the US where we have an economy which is increasingly service oriented.
The chinese jacket arriving in the US for $25 sells at the retail level for $100-$200 depending on the store.
Retail starts at 1000 percent markup in the US (some as high as 2000%) and goes down to 5-10% markup. Back in the 50s this markup was a lot stickier than it is now, where 90% mark downs in even the best stores are routine.
So $75 of american service is required to sell the jacket.
Maybe in some little trendy boutique on the Upper East side but certainly not in Target.
The same jacket can be sold for $30 to a chinese middle class person.
So what you are saying is that profit margins in China are appallingly low in retail.
So in selling, US worker needs $75 to sell $25 worth of manufactured goods. And a Chinese spends $5 to sell $25 worth of manufactured goods to a chinese. Who is more efficient?
Only in the least efficient retail outlet or where wealthy customers require or desire an enormous amount of service. Sales and general administrative expense for the last Target P&L is 22% of gross revs. for Wal-Mart it was 17.7%. Your Chinese guy at 20% comes out a little high in comparison to Wal-Mart but beats Target. The mistake you are making, a common economic mistake, is to think that a jacket sold in a kiosk in China and one sold in the US is the same product.
Another example - US companies need to spend $300 to acquire on wireless customer, Chinese companies $30. That is why there are more cell phone users in China, in spite of the same $100 price tag of the phone.
What is the ratio of selling expense to revenues for a customer in the US as opposed to one in China? In other words, what is the value of the US cell phone customer as opposed to a Chinese customer? Back when I was wanting cable internet, I was calling the cable company to try to get cable run up to my rural location. I have a very long driveway, so it was quite expensive for them to hook me up as opposed to someone who lived in the city. I remember questioning the Comcast guy, asking him how it was they would eat that expense since I offered to pay it. He said, they know once that pipe is in there they have a flow of money upstream to them from you and it is fairly predictable, you have a high value to them.
That is why there are more cell phone users in China, in spite of the same $100 price tag of the phone.
No it isn't. The reason there are more cell phone users is because they never had the entrenched landline phone systems we had. It made little economic sense to install landlines in a place which never had them at great expense when much cheaper cell service could be rolled out incrementally at a fraction of the total cost that the US spent back in the Great Society days to insure every American had access to phone service. I would say it is still true that the majority of the world's population still has yet to make a phone call, but when they do, it is almost a lock that the first one will be on a cellular phone.
Are you mixing cause and effect?
No.
What is driving this? The advertising, keeping up with Joneses, quest for perfection, or easy credit?
Do you think the demand for organ transplant in the US has been effected by any of the above? Cat scans? MRIs? Hip replacements? Did you buy your computer because you wanted to keep up with the Joneses or because you like the guy who said, "Your getting a Dell, Dude." or do you actually use it to do something that you can't do without it? How about the demand for organic vegetables, do you think your status is improved when the neighbors see you coming out of Whole Foods?
Don't knock credit, credit is what keeps you from having to put another nickel in the meter when you want to turn the heat up in your house. Credit increases economic efficiency. The poorest countries in the world are ones which have no secure system of credit which allows strangers to transact over distance. Countries without credit only allow individuals who know each other to transact which greatly reduces their ability to trade their goods to the highest bidder.
It still needs a certain skilled and educated labor pool, which did not exist in sufficient quantities 25 years ago, but now does.
An idiot running a smart machine can beat out a PHD using a manual process.
I disagree. A large Indian or Chinese company can now raise enough money through International markets.
Capital isn't just money. Capital can be experience and existing infrastructure.
But notice I wrote, Capital is relatively more expensive for them than people are, when I say relatively, what I'm referring to is comparative advantage. They have a comparative advantage over the US in high head count industries. One can always pursue capital intensive industries, but the highest efficiency is gained by pursuing that industry where you have a comparative or absolute advantage.
I think geographical location is important. Industry specific geographical eco-systems can last for centuries.
The advantage in Silicon Valley has little to do with geography although everyone will tell you how great the weather is outside (where they rarely get to do because they are inside working 24/7) on the next big idea. It has to do with an economic and social system in place which holds out great rewards for risk taking and doesn't unduly punish failure. Any research and development into new promising fields that may or may not pan out in profits involves a great deal of failure for the few things that make the jump to a real life product. Two ways to kill such an environment are to unduly punish failure (put people in jail for business failure) and actively reduce risk taking or the rewards for success. Imagine your first day in science class where the professor announces, we will only conduct successful experiments, anyone who conducts a failed experiment will be thrown out of the class. This is not unlike the way command control governments have conducted research. You can't make leaps in technology without mountains of failed tries.
The only way to get people to continually bang their head against the wall of progress is to hold out huge rewards for success. This is what Capitalist countries have all over Socialist countries. China is becoming more competitive because they are becoming more Capitalist, we are losing outr competitiveness because we are becoming increasingly Socialist.
Socialists always try to reduce the pain of failure by spreading it out over the population. At first this simply creates a moral hazard but subsequently they wind up trying to put limits on business activities that have a high risk of failure because it is now not only an individual or group of individuals who will suffer, but society as a whole. This has the perverse effect of reducing the standard of living for everyone. |
