U.S. Manufacturing Renaissance

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U.S. Manufacturing Renaissance

Using figures from the U.S. Bureau of Labor Statistics, the Boston Consulting Group now estimates that the average wage for Chinese workers will be 17 percent of the average American worker’s wage by 2015.  In 2000, that figure was 3 percent.1 

 

On the surface, 17 percent still seems low enough to entice American firms to locate manufacturing plants in China.  But when other factors are considered along with this rise in Chinese labor costs, choosing U.S. locations is beginning to make more sense. 

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One of these factors is an American characteristic that has been discounted many times before:  ingenuity.  American ingenuity is leading to an increase in productivity, which is helping revive U.S. manufacturing.

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For perspective, it’s helpful to understand how the U.S. arrived at the point where a comeback was necessary — in other words, why we declined prior to the currently unfolding “renaissance.” 

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To begin with, we got lulled into a false sense of security that we would retain the paramount position we held following World War II, when the U.S. was the only major industrialized nation that was not decimated by the war. 

By the early 1950s, we produced around 40 percent of the manufactured goods in the world.  Eventually, we began to feel the effects of global competition from a reconstructed Europe and then Japan.  In industries ranging from TVs and steel, to cars and computer chips, the United States began to lose market share. 

In the 1970s and ‘80s, cheap labor in South Korea, Taiwan, and other Asian countries attracted manufacturers of labor-intensive goods, such as apparel and toys. 

However, by not getting in the way of creative destruction, we let our best companies adapt.  As a result, the ones that refused to adapt went out of business.

But, by the ‘90s, many American companies in high-value industries, such as microprocessors, aerospace, networking equipment, software, and pharmaceuticals, became so much more competitive and productive than before that they were able to thrive.  And these were the markets where U.S. manufacturers still dominated. 

But, as the decade wore on, the public demanded lower prices, and U.S. labor demanded higher wages.  Something had to give, and it did.  Corporations discovered China.

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In 2000, China entered the World Trade Organization and made available its virtually limitless cheap labor, its growing ranks of engineers, its fixed currency, and its generous government incentives, including inexpensive land, free infrastructure, and financial incentives...

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