Thursday, October 05, 2006

The Service-Based Economy

While digging through some old files to figure out what to pitch & what to keep, I ran across the following article originally written by the editor of Manufacturing Engineering magazine in 2003:

Wake Up, Brie Eaters!

Brian J. Hogan, Editor

Not long ago, Ingersoll Milling Machine closed its doors. Another great US machine-tool company bites the dust, and its closure isn't worth an inch of copy in the typical American newspaper. What has happened, and continues to happen, to the US machine tool industry is symptomatic of something much broader - a general failure on the part of this country's political leadership to understand the value of American industrial society.

Keeping a machine tool industry, and a manufacturing culture, alive and well is basically a political decision. Germany has made that decision, as have Japan, Italy,Taiwan, and Switzerland. China clearly understands the importance of machine tools, and the manufacturing enterprise.

In contrast, the people who form much of our political leadership are the kind of liberal-arts-loving snobs who think engineering colleges are trade schools, and physics/math/chem/biology majors are boring nerds. When people of this sort wind up running big companies, they view the engineers who work for them as servants, and their factory-floor workers as interchangeable serfs. When they go into politics, they spend their time pacifying the latest trendy group of victims. To this layer of self-satisfied individuals, neither the machine tool industry nor the manufacturing enterprise matters. These brie-munching, wine-sipping characters will sit lumpishly and watch the destruction of the technical foundations of the US, understanding nothing, and doing nothing.

The prosperity of the US rests upon the real wealth generated by a short list of activities: extractive industries, agriculture, and manufacturing. Every other line of work takes the money earned in these fields and shuffles it around & distributes it. Your local lawyer does not generate wealth, and neither does ye olde stockbroker.

Technology supports the economy of this nation-state, but our politics are dominated by people whose technical expertise doesn't extend beyond using a television remote. This situation is dangerous. The brie eaters have got to wake up and support what is left of the US machine tool industry. In fact, they've got to encourage the revival of that industry, and move to strengthen US manufacturing, or the entity we call the United States will be in the soup.

None of this means I'm attacking offshore builders or offshore manufacturers for goodness sake, those companies bring superb technology and wonderful products into the US, and their equipment is keeping US manufacturing alive. I'm complaining about our so-called leaders and legislators who are indifferent to manufacturing. They don't understand or refuse to understand that machine tools really are, as the Japanese say, Mother Machines. Politicians who ignore the condition of the machine tool industry are fools.

While the above example uses the machine tool industry as an example of a declining industrial base, there are many other industries that are just as affected. I can think of the automotive industry right off the bat. Just this past week, in view of declining sales and manufacturing reductions, parts supplier Detroit Axle is now starting to offer buyouts to its Union employees. GM, Ford, and Delphi (just to name a few) have all offered buyouts as part of their restructuring plans. This declining ability to make parts and products will eventually weaken this country.

The point is that I remember my high school economics class making the arguement that the real worth of a country is its industrial capability to manufacture goods. These goods have an intrinsic worth which is the sum of materials and time used to make them. Now we are entering into what is known now as a "service-based" economy.

This economy is the ability to shuffle money around based on time and talent. On the surface, it just doesn't seem to be too bad - we sell our services to overseas companies, and they sell us our material goods. Doesn't sound too bad, does it?

One of the problems is that intellectual property is such a tricky thing to keep proprietary. Once something has been done, then it can usually be reverse engineered by those companies or countries without the ethics or legislation to prohibit these actions. Think of pirated DVDs for sale in China (and beyond) and I think you get the general idea.

Another problem is that if your country buys its machinery or goods from another country and it breaks down, then how are you going to get replacement parts or the widget fixed? If that supplier doesn't have an office or supply depot in your country, it could take months to get a replacement part or a service person to come & fix it. I have seen this very situation more often than what I care to admit.

Government's position in this process is two-fold: The first is to promote policies that encourage manufacturing companies to set up shop and remain in the United States. These policies could range from tax incentives to development loans or grants. These policies are used by foreign countries to companies to provide them not only an incentive to stay within their borders, but to bolster their economies as well. For them, it's a win-win situation, especially if it allows them to compete on the world stage.

The second is to make sure that companies compete on a "level playing field". NAFTA, CAFTA, and granting foreign countries favorable trading partner status does nothing to secure jobs and factories in this country. When the economies of third world countries have a standard of living far below that of the United States, the advantage goes to them as wages are hugely disproportionate. I have posted several articles on this topic, and the upshot is that their economies & standards of living will not rise to meet ours, but ours will fall to meet theirs.

The governor of Michigan has gotten a lot of heat in campaign ads, and rightly so. Michigan has lost so many manufacturing jobs it is pathetic. The economic plan is a disaster, and no relief is in sight.

But it doesn't matter what part of the country you live in, this should be a nationwide concern. If the jobs go elsewhere, what else is next?

So in this midterm election, make sure you know where the candidates of your choice stand on this issue. You have just a little over 30 days to find out before the election.

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