…Manufacturing is being outsourced to China.
That's a commonly believed myth...
IT and software are being outsourced to India.
Sure India gets outsourcing contracts, but to an even greater extent than with manufacturing IT and software grows each year in the US….
Manufacturing going to China is NOT a myth. IT outsourcing to India and other low wage places IS a big problem if you care about the US.
Sometime, absolute "real" dollars are important. Sometimes share is important. Sometimes growth rates are important. Sometimes all in combination are important. Margin is always important.
Knowing what is important and when is the difference between success and failure, between wisdom and willful ignorance.
Yes, the real dollar value of manufacturing has gone up. BFD. Its share of the national accounts has gone down.
Gross-Domestic-Product-by-Industry Accounts
Value Added by Industry as a Percentage of Gross Domestic Product
[Percent]
Release date: January 29, 2008
1950 1960 1970 1980 1990 2000 2006
1 Gross domestic product 100 100 100 100 100 100 100
2 Private industries 89.2 86.8 84.8 86.2 86.1 87.7 87.6
12 Manufacturing 27.0 25.3 22.7 20.0 16.3 14.5 11.7
13 Durable goods 14.8 14.8 13.4 12.0 9.4 8.8 6.7
25 Nondurable goods 12.2 10.6 9.3 8.0 7.0 5.7 5.1
bea.gov
Free trade is enormously beneficial when countries have mutually-exclusive competitive advantage. Free trade is potentially destructive when one country or multiple countries have absolute advantage. Economists are finally getting around to this with Country Similarity Theory, i.e., Most trade in manufactured goods should be between countries with similar per capita incomes…
Most people’s frame of reference is post war Japanese industrialization. We weathered that storm right? Sure we did, but the situation was NOT comparable. First, even though Japan was devastated by WWII, pre-war it was an industrialized society. Per capita incomes were not orders of magnitude different than the US. Second, Japan is a country with approx 100 million people. The US is approximately 3x as large. Consequently, we could still grow, though not at our former rate, essentially foregoing part of our prospective national wealth increase to bring per capita incomes in Japan up to our level. Because of the differential in size favoring the US, we could do so relatively painlessly.
China and India are totally different. They collectively represent 2.4 billion people or 8x the size of the US. Per capita income is $5,300 and $2,700 for China and India respectively. The worldwide economy cannot grow much faster than the perpetuity growth rate which is between 3-5%. Yet these two are growing at least 9-12% as compared to our 2-3% - or less. If they were smaller than us it the differential could easily be accommodated.
Please imagine the following: you have 3 glasses on a table. One is tall and narrow say 12 inches high. The other two though the same height, are much wider and each have a volume 8x the narrow glass. The water level of the narrow glass is 6 inches. The water level of the wide glasses is 1 inch. We now start adding a total volume of water equal to 3% of the total in all three. But to represent that they are growing faster, we have to pour water out of the narrow glass to add to the wide glasses.
This is already too long to develop the difference between “income” and “wealth”, but part of that transfer doesn't show up in the gdp statistics, which are more akin to an income statement. These essentially are balance sheet, or wealth transfers. When you build a car company, or a toy manufacturer in China, or a software shop in India, who captures the Going Concern or Enterprise Value? Who doesn't? Regardless, just like water seeks its own level, the transfer from the narrow to the wide won’t stop until the per capita incomes are relatively equal. If the two glasses in the example were equally tall but with less volume (oh say Vietnam and Singapore) you wouldn’t even notice. We had this discussion once before and you couldn’t address why US median HH income was effectively stagnant, especially in light of tremendous increases in dual income households.
Size matters. Growth rates matter. Share matters. Absolute advantage matters.
I wish all the best to the developing nations of the world, but I care about my country and my children first. |
