Written by Nick Wroblewski   

I was thinking the other day about the current state of the manufacturing economy, or lack there of, in the United States. The thoughts came about while discussing large American corporations that export United States manufacturing jobs overseas and then avoid taxes using transfer pricing. It is really hitting the United States in the "pocketbook" at both ends. Honestly, we can't really prevent them from hiring overseas, and we could probably offer some incentives to hire here.

We could talk all day about what the government could do to help solve this issue, for example, by reforming the tax code (we should). But I would prefer to talk about something else. I am a man of the people and prefer action to come from within, not from the government. Let's talk about something that comes before you pay for that product at the cash register; before the money gets transferred out of their bank; before it's shipped to the Bahamas or an Irish banking center and avoids a tax. I would prefer to talk about your choice of buying the product itself, and the effects it may have, including affecting where these corporations choose to have their products manufactured. But first, my version of the back story.

Most students of economics the past 60 years have been taught that globalization is a good thing because it allows capital to find the most efficient means of production, ie. the countries with a comparative advantage. So if a country can produce a product better, cheaper, or faster, or preferably all three, then it can end up being the worldwide producer of that good. The prime example would be China, where their government specifically set about building an infrastructure to support manufacturing in the 1980's and 1990's. Then, on January 1, 1994, the Chinese devalued their currency, the Yuan, by 50%, artificially pegging it at an extremely low rate against the U.S. dollar. This instantly meant that all of their products were cheap for the U.S. consumer. Finally combine that with the fact that they were encouraging the migration of millions and millions of rural Chinese to urban manufacturing areas to work in factories. They were trying to build the perfect manufacturing economy. In many ways they have succeeded.

So, if American companies could have their products made in China at half the price, and then sell it at a big box store such as Walmart, they could increase profits tremendously. [Side note: in the last 2 decades, China gained almost 12 million manufacturing jobs and we lost almost 6 million manufacturing jobs.] So, in addition to the U.S. manufacturing jobs that were lost to China (partly because of the artificially low currency peg), we also lost the mom and pop shops that were pounded into oblivion by Walmart and other "one stop shops." That was an employment "double whammy." Of course their jobs were replaced with $10-an-hour service jobs stocking shelves at those big box shops, so it all evens out right? Probably not. China is one example, but it is just a microcosm of our last 20 years, exporting jobs all over the world. We probably didn't notice because the internet bubble and then the housing bubble blinded us with a false sense of success.

We didn't feel the pain of the lost manufacturing jobs because of the euphoric housing and internet bubbles, and because we could buy anything we wanted for cheaper than we ever thought possible because it was made in these countries that could produce it quickly and cheaply. Of course, we've learned that this shift in manufacturing wasn't without flaws. The craftsmanship is gone from these big box store goods. Hell, even the safety could be gone, if dangerous lead paint on toys is any indicator. Anyways, where was I? Oh right... So now back to the point I want to talk about. Your decision on which product to buy.

The issue could be in your hands. Should you purchase a cheap, but possibly dangerous, poorly-made product, made by factory workers in questionable conditions? Or purchase a slightly more expensive, well-crafted product made by a local toy maker that will incidentally last 5 times as long, and keep your neighbor employed. Lets examine these slowly.

Cost: The cost of a toy produced in a developing country is hard to beat. It is the one area that it can POTENTIALLY win. The reason it can only POTENTIALLY win, is you often have to evaluate the cost of many purchases. For example, if you are forced to buy an article of furniture from a low cost plant and it is made from fiber board and breaks every 8 months, and you have to buy 4 over the course of 6 or 7 years, can you really say that it is cheap? Compare that with the piece of furniture built by your local Norm Abrams that costs a little more per piece, but that last 20 years? Of course not. In comparison, the "cheap" one costs much more in the long run. So cost is NOT a benefit if viewed from a long term perspective.

Safety: The products that are produced overseas are not all dangerous, or even mostly dangerous. They are actually mostly fine, but do you want that one product that slipped out the factory door with toxic ingredients on it? Of course not. Now is there any guarantee that a local toy maker wouldn't do the same? Not exactly, but considering how onerous most companies complain our safety regulating agencies are, I feel pretty safe that our products are almost too safe compared to the cheaply made ones. In the alternative, you can also argue that a local producer would not want to hurt his local friends/neighbors/customers with a shoddy product if she could help it because there would be a personal and sales backlash.

Quality: This relates to the cost aspect discussed above. Using higher quality "ingredients" to make the product, and spending more time crafting it, while costing more, often leads to a superior quality. Take the neighborhood carpenter example from the cost discussion. He uses plywood and makes sure the dove tail joints fit perfectly. This lasts far longer than a particle-board piece of furniture. In fact, it may be passed down a few generations. So quality, while not better 100% of the time, is often better, and is often worth paying more for.

Employment: While it's nice to know that you are employing a poor worker in another country to make your product, it also is worth noting the poor conditions that these workers spend their days in. True, it's probably more than they could make as a farmer or in any other trade over there, but is their life decent? There was news recently about dozens of workers at a factory that makes iPods that got up on the roof and threatened a mass suicide in order to receive better working conditions. That doesn't sound that great to me. Maybe we should think about the jobs that were lost by our neighbors the last couple decades or so. These were nice jobs that didn't pay phenomenally, but that could keep a family in the middle class. Maybe we should think about which of those groups you'd rather employ.

My point in comparing those aspects is to point out that often the cheaper item at the big box store is not better. So what is your incentive to buy a "cheaper" good from a foreign country? If you make a conscious effort to buy local or even Made In America, while still looking out for quality, you MAY have the effect of providing jobs in your area and benefiting personally as well. Here's how: If there is a sustainable grass roots effort to let exporting corporations know that people are preferring U.S. made products over foreign made, and it starts to dent their pocketbook, they may actually choose to make those goods back in the U.S. again. I know this is the old union slogan "Buy American," but I'm saying "Buy quality American goods even if they are a little more expensive." Yeah, it's pretty close, but I don't want you to forsake quality. Just do your research and look for the best made product in your area. The government doesn't need to get involved. The only people that need to do anything about this are you and I. If there can be a sustained effort to buy (and make) high quality goods in this country, we can force corporations to relocate jobs here, IF THEY WANT OUR MONEY. And you know they want our money.


By Nick Wroblewski, Esq.