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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Wyätt Gwyön who wrote (48216)12/27/2005 11:02:28 PM
From: regli  Read Replies (1) of 110194
 
Henry Liu did a interesting essay on this subject:

atimes.com

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Greater profit margins enjoyed by the importing economy raise apparent productivity because sales per employee increase from the factory floor toward delivery to the consumer. Thus the productivity growth in the US has been achieved by having cheap labor doing the producing overseas. Also, the closer final assembly is to retail outlets, the higher its apparent productivity. Through proximity to customers, sellers can gain advantage in the assembly of imported major parts to respond to changing customer orders. Thus US assemblers who outsource their parts can win final sales away from offshore integrated manufacturers who make the same parts and assemble them abroad. Japanese car makers have learned this lesson and are now assembling parts made offshore in the US for the US market.

In the high-tech arena, time to market of design innovation is critical. By deferring cost through the use of employee stock options, a local in the importing country can use its high stock valuation driven by creative accounting, and low production costs and low currency valuation and interest rates in the exporter economy to raise low-cost funds globally to subsidize production costs of the final product further. The content of the products will increasingly come from low-wage, low-margin exporting economies, and the outsourcing assembler's manufacturing involvement may be little beyond snapping outsourced parts in place, advertised ad nauseam as a US brand. Dell is a classic example, as is Disney's licensing empire of made-in-China toys.
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The transition to offshore production is the source of the productivity boom in the United States. While published government figures of the productivity index show a rise of nearly 70 percent since 1974, the actual rise is between zero and 10 percent in many sectors if the effect of imports is removed from the calculation. The lower values are consistent with the real-life experience of members of the blue-collar working class and the white-collar middle class who have to work longer hours to service their debts. Neither the recovery nor the recent correction of the exchange rate of the dollar will restore manufacturing jobs in the US, unless the US is prepared to see its GDP drop by 25 percent. This is why Gregory Mankiw, chairman of the White House Council of Economic Advisers, said last week that outsourcing is a plus for the economy in the long run.
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