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The Biggest Disruptors Affecting Business Today – Part 2
Disruptor 2: Shifting Economic Power and Manufacturing
As more and more countries join the new global economy, the Unites States will be forced to go through some very bumpy growing pains in order to play catch up. Quite simply, our employees here make the highest salaries in the world while American manufacturers have spent years moving operations to Mexico or overseas.
So where does that leave us when companies can get six full-time employees in India for the price of one here in the United States?
It means we will be going through a depression while once impoverished countries overseas develop a manufacturing based economy…and begin to prosper.
But some of you are asking, “Brad, doesn’t the falling dollar make our goods more attractive? ” Yes, that used to be the case. Today we manufacture very little in the United States except construction equipment (that gets shipped to China) and war machines. Companies like GM, Dell and Harley assemble their products here, but they are constantly balancing how many parts are shipped in from overseas to keep the “Made in America” stamp. “Assembled in America” is what it should say.
Time to face the raw truth-the factory floors have moved to the BRIC nations-Brazil, Russia, India and China…anyplace were a factory can be built and workers paid for less than a million dollars. This is going to shift union dominance here in the US, while creating the need for unions in countries that have very little regard for human rights.
In my first part of this series I covered how technology has lowered the cost of manufacturing, but another huge influence-and the main reason for outsourcing-is economies of scale…so huge in fact that many American companies have physically moved overseas in order to partake of lower building costs, lower employee expenses and no taxation. The United States is simply not competitive with the rest of the world’s pricing.
It’s economies of scale. Just look at the BRIC nations that have joined forces and formed a tight knit economy…where the United States is excluded.
With factories being built in 3rd World Countries for pennies on the dollar, the future looks very bright for manufacturing in newly emerging countries. It is cheaper to build a fully automated manufacturing plant in Brazil and ship products to the United States than to build them here or ship them to countries where their dollar is falling as well.
It is becoming harder and harder to sustain an $80,000 a year riveter here in the United States with medical and dental coverage when automobile manufacturers can hire ten riveters halfway around the world for the same price…and still sell a car for top dollar.
It is a simple paradigm: Find a way to build things at the lowest cost possible, then sell the finished product to a prosperous market. It’s about how much profit can you generate after manufacturing costs. There is just no way Detroit can compete with Brazil or India.
What has happened is we’ve simply out-priced ourselves from the global marketplace.
To compete in a global marketplace many of our brands have moved simply to be competitive. Hard to sell a $2500 car in India when it costs five times that to build it here on US soil. These newly industrialized nations and their governments are offering companies whatever they want to set up shop including free construction and no taxation. Now companies that started in the United States can move to another country so they can afford to sell our own stuff back to us.
In economies where $20 can buy one weeks worth of groceries, $50 Power Point presentations from freelance administrative assistants, $6,000 a year tech employees and 90% less construction costs make these countries incredibly appealing to executives used to the higher salaries and union pressure prevalent in the West.
Yet, the global economy is straining against its own might as once impoverished countries, once eagerly waiting in the wings, hungrily step into the arena of worldwide commerce, only to find it collapsing under the corruption of fiat currencies, malinvestments like derivatives and perpetual war. Wobbly and unsure of themselves like a baby taking her first steps, many will be skipping the Industrial Revolution altogether and go straight to the Technological Age of computers. But will they be able to handle the emotional shift?
These are countries that only 20 years ago did not have a sustainable electrical grid system. or a public sewage system. Imagine going from the 1800s to the year 2010 in less than 25 years and you get the picture. Many older workers in these companies cannot keep up financially as inflation is pounding them and making their retirement savings worthless. Survival depends on their young tech minded children taking jobs in the city to support them.
If historians are paying attention at all, and I hope they are, they would realize quickly that while the United States is floundering economically we will be able to watch the rest of the world catch up to us while at the same time observing these countries mimicking our own Industrial Age history back at us. Basically, this global economic meltdown will be giving newly industrialized countries the chance to catch up economically, technologically while building a competitive infrastructure. Economies of scale may become a thing of the past as the economic landscape slowly evens out.
In the already developed industrialized nations of the West, we took over 100 years to deal with and emotionally adapt to the Industrial Age and then accept the faster pace of the Information Age. Many of these emerging economies will be skipping the Industrial Age altogether in their eagerness to be a part of Western prosperity. But will these countries be able to handle the changes and responsibilities that come from too much growth too soon?
Globalization is not so much about giving other countries a shot at prosperity and once closed markets privy to the EU, but about a new era of competitive chaos where everyone from anywhere competes for everything – all at once. It’s about newly emerging countries demanding accessibility to European Union styled systems of prosperity and economic stability. If they are declined, these emerging markets now have the power to form a self sustaining cartel of their own. When this happens, it will be the West begging for a seat at the dinner table.
Why can’t we all just get along?
So what will the American economy be based on in the future? Time will tell, but being the only economic super power at the table along with Europe and Japan is a thing of the past. Many countries will simply not have a population capable of buying anything…whether it is manufactured in China or not. Hard to buy a car when you can’t find a decent job.
The World Bank expects a 1.7% drop in global GDP – the first decline in industrial production since World War II – a clear sign the recession is global.
Up until 2005, the average German was working only a 35-hour week, paid for a 13-month year while taking 6 weeks vacation in the summer. The German government along with the labor union party changed the official workweek to 40 hours and within less than 2 years, Germany, with a population of 83 million, and a land mass the size of Kentucky, became the number one exporter in the world in 2007 while The United States slipped to number two. The shift in economic dominance has begun.
It’s about numbers folks: India is the largest democracy in the world at 1 billion people and China has an army currently at 250 million troops and a population of 1.3 billion people. The entire global population is around 6.4 billion and growing and China and India have the lions share.
In the major cities of the East such as Hong Kong, Shanghai and Tokyo, the standards and systems are similar to the major cities of the West. But, outside of these cities, the countryside is 30 to 50, sometimes 100 years behind us. If they skip the Industrial Revolution we enjoyed for one hundred years, it won’t take very long or much effort on their part to catch up and even surpass Europe, Japan and the United States in GDP.
Now let’s do the math – here in the United States our population is somewhere around 300 million and our army hovers around 3 million (we had 20 million troops during WWII. Despite technological advancements, we are grossly understaffed). Also U.S. output per person is not very efficient and with the sheer population numbers alone, in the billions – with very little effort, Brazil, Russia, India and China will surpass our Western industrialized nations in GDP. All they need to do is finish building their infrastructure, completing their own industrial age.
We will either need a new way to measure GDP, or we will have to return to a manufacturing based economy. I know we are in a New Economic Order and all bets about what an economy is are off, BUT…
…throughout history, whoever has the manufacturing base, calls the shots in the global economy.
Since the United States doesn’t really have a manufacturing based economy anymore, (we do make war machines, construction equipment, and electronic devices for the rest of the world), we will now become whatever the rest of the world needs us to be. Being the consumer for the world’s goods can no longer be our job…after all it is unsustainable for us to just keep spending. You have to be in a prosperous economy to be considered a consumer based economy and our prosperity is slipping away (I’ll be talking about that in Part 3).
The decline of our dollar may actually be a good thing as companies, tourists and speculators bring their investment capital to our shores. Imagine that, given enough time, America will become the place for cheap goods and labor, but it will also mean more foreigners can buy just about everything we have at much cheaper prices than are out there now.
And Americans will no longer own America.
Imagine making $120,000 a year and being incapable of making ends meet…and you get the picture. I’ll be talking about inflation and Keynesian Economics in Part 3. Now there is nothing to be afraid of…I for one embrace a global world were we have access to other countries and cultures…what I do have a problem with is this: Americans were NEVER prepared for a Global World! Our America first xenophobia and isolation has been used against us for too long. We should be leading this transition and showing the world how it is done….embracing other cultures and races, showing them how our way of life is what changed the planet..instead, we are about to be the outsider at a feast we paid for. It is time to face the truth…
Those permanently losing Industrial Age jobs are not being retrained for the 4 million jobs being created for the Information Age-simply put, there is a misalignment of skill sets.
Someone has to step up to the plate and be a leader who gets economics, manufacturing and our model of Independence, Freedom and Sovereignty. Without it, we will become a third world country soon. After all, the Industrial Revolution could not have taken place without us declaring independence from 6000 years of dominance by tyrannical monarchies. It was our factories that built the furniture, the machines, the goods, the produce and the cloth for countries that were newly independent…and able to afford our goods. Without a global middle class, the Industrial Age would have never happened.
Thank you for reading,