Forbes: Why Amazon Can't Make A Kindle In the USA

[Larry]

Slashdot posted a paragraph mentioning this link, among others.

Take the story of Dell Computer [DELL] and its Taiwanese electronics manufacturer. The story is told in the brilliant book by Clayton Christensen, Jerome Grossman and Jason Hwang, The Innovator’s Prescription :

ASUSTeK started out making the simple circuit boards within a Dell computer. Then ASUSTeK came to Dell with an interesting value proposition: ‘We’ve been doing a good job making these little boards. Why don’t you let us make the motherboard for you? Circuit manufacturing isn’t your core competence anyway and we could do it for 20% less.’

Dell accepted the proposal because from a perspective of making money, it made sense: Dell’s revenues were unaffected and its profits improved significantly. On successive occasions, ASUSTeK came back and took over the motherboard, the assembly of the computer, the management of the supply chain and the design of the computer. In each case Dell accepted the proposal because from a perspective of making money, it made sense: Dell’s revenues were unaffected and its profits improved significantly. However the next time, ASUSTeK came back, it wasn’t to talk to Dell. It was to talk to Best Buy and other retailers to tell them that they could offer them their own brand or any brand PC for 20% lower cost. As The Innovator’s Prescription concludes:

Bingo. One company gone, another has taken its place. There’s no stupidity in the story. The managers in both companies did exactly what business school professors and the best management consultants would tell them to do—improve profitability by focuson on those activities that are profitable and by getting out of activities that are less profitable.

Haven't finished the whole thing, myself. And, yeah, it's basically a guy crying about how important it is that we're outsourcing our manufacturing base.

But, still, thought it might be worth discussion.

[Elessar78]

Decades of outsourcing manufacturing have left US industry without the means to invent the next generation of high-tech products that are key to rebuilding its economy

Meh, this hardly true. The US is the leader in manufacturing. Not rhetoric, fact. Plus the trend of outsourcing is reversing. Companies have already discovered that when everything is said and done, the cost of outsourcing doesn't outweigh the headaches that come with it. Shipping times are longer, there are customs issues, language barriers, quality control is difficult to, well, control.

[PeterMP]

Your link mentioned A123. I think they are being a bit deceptive. A123 is here because the expertise are HERE. It is the out growth of the work done at MIT. The guy's lab that it is being done is Taiwanese by birth, but he's lived here the vast majority of his life.

http://web.mit.edu/invent/iow/ychiang.html

[Ancalagon the Black]

Meh, this hardly true. The US is the leader in manufacturing. Not rhetoric, fact. Plus the trend of outsourcing is reversing. Companies have already discovered that when everything is said and done, the cost of outsourcing doesn't outweigh the headaches that come with it. Shipping times are longer, there are customs issues, language barriers, quality control is difficult to, well, control.

I think this is exactly the type of thinking that the author cautions against - looking at the numbers and cherry-picking some trends without peeking under the surface.

The USA leads in manufacturing on a dollar basis but has permanently outsourced many key manufacturing sectors. These aren't coming back without massive investment.

[PeterMP]

I think this is exactly the type of thinking that the author cautions against - looking at the numbers and cherry-picking some trends without peeking under the surface.

The USA leads in manufacturing on a dollar basis but has permanently outsourced many key manufacturing sectors. These aren't coming back without massive investment.

They aren't coming back w/o a substantial decrease in the standard of living of the American worker or gains in effeciency that can't easily and quickly be transferred elsewhere after they are established in the US.

You can put a ton of money into it, and it won't matter.

[boofMcboof]

They aren't coming back w/o a substantial decrease in the standard of living of the American worker or gains in effeciency that can't easily and quickly be transferred elsewhere after they are established in the US.

You can put a ton of money into it, and it won't matter.

That is only one way of re-establishing US manufacturing. Another would be to lower the cost of labor by revamping the tax structure through the removal of taxes off of production and consumption (income taxes and sales taxes) and placing them back on property taxes, capital gains and all forms of rentier income. By removing the massive financial overhead that people and businesses face it would free up capital and allow for a lower cost of labor in the US.

http://michael-hudson.com/2009/02/a-tax-program-for-u-s-economic-recovery/

[PeterMP]

That is only one way of re-establishing US manufacturing. Another would be to lower the cost of labor by revamping the tax structure through the removal of taxes off of production and consumption (income taxes and sales taxes) and placing them back on property taxes, capital gains and all forms of rentier income. By removing the massive financial overhead that people and businesses face it would free up capital and allow for a lower cost of labor in the US.

http://michael-hudson.com/2009/02/a-tax-program-for-u-s-economic-recovery/

Companies and people don't pay property taxes and make capital gains and rentier income?

Maybe I'm tired, but I don't see how shifting the tax burden to other areas really is going to do anything. If raise my property taxes and eliminate my income taxes, in order to mantain the same standard of living, I'm still going to have to make the same amount more than the average Chinese person.

Now, fixing our tax system might help (and it is something we should do, but not enough to bring the jobs that are gone back. No matter how effecient our tax system is, it isn't going to make up for the gap in income and the costs associated with bringing the jobs back (in the absence of other incentives (e.g. a decline in American wages).

[Ancalagon the Black]

They aren't coming back w/o a substantial decrease in the standard of living of the American worker or gains in effeciency that can't easily and quickly be transferred elsewhere after they are established in the US.

Or a substantial increase in the standard of living of the Asian worker. Which is a distinct possibility.

Nontransferable (or slowly transferable) gains in efficiency might come from better management techniques, which would be a combination of cultural factors and education.

[boofMcboof]

Companies and people don't pay property taxes and make capital gains and rentier income?

Maybe I'm tired, but I don't see how shifting the tax burden to other areas really is going to do anything. If raise my property taxes and eliminate my income taxes, in order to mantain the same standard of living, I'm still going to have to make the same amount more than the average Chinese person.

Now, fixing our tax system might help (and it is something we should do, but not enough to bring the jobs that are gone back. No matter how effecient our tax system is, it isn't going to make up for the gap in income and the costs associated with bringing the jobs back (in the absence of other incentives (e.g. a decline in American wages).

The short version: First consider that our current tax system is very regressive. Income polarization is obvious and current policies clearly favor the financial, insurance and real estate sector. The shift in tax burdens would be highly progressive and targets what I call old money, money that generates income though debt servicing, fees, rents, or what Michael Hudson and other economists, free lunch. This is the non productive, parasitic, part of the economy. The wealth generated is compounding and seeks out to extract more from the public through more fees, debt servicing and tolls from now privatized utilities and infrastructure. This is pure economic overhead placed on business and the public leaving less money to spend on goods and services.

From the link, in regards to property/land tax:

The financial sector translates its economic power into the political power to cut back real estate taxes. What has really been fueling the rise in property prices in this country has been the fact that real estate has been untaxed. What the tax collector relinquishes is now free to be capitalized into debt service on higher loans to bid up real estate prices. In 1930 about 75% of state and local finances came from the property tax. Last year it was down to 16%, so that’s from 3/4ths down to 1/6. Cities have shifted the property tax onto wages and salaries – income and sales taxes that increase the price of business. Taxes used to fall on property and hence were progressive, but now have turned regressive. The result is that “tax deflation” now reinforces debt deflation. This threatens to aggravate the depression we’re entering.

The venture-capital model that you’re talking about applies to enterprises that create new goods and services, especially products that weren’t produced before. But in real estate what you have is not so much a profit as “economic rent” and the free lunch of land-price gains that John Stuart Mill said landlords make in their sleep. The rental value of their property is determined by economic conditions and by local infrastructure spending to raise the rent-of-location, not by their own efforts and enterprise. Land and natural resources therefore should be the basis of taxation, because a real estate tax keeps down house prices and makes them more affordable. Homeowners may imagine that they are benefiting when property is un-taxed. But this simply leaves more rental income available to be pledged to the banks and capitalized into larger mortgage loans. So people end up paying the same amount of income to carry property as they did when real estate taxes where higher, but now they pay the banker instead of the tax collector. In fact, not only do they have to pay the same amount – but in the form of mortgage interest instead of taxes –they still have to carry the tax burden. This tax burden now takes the form of income tax and sales taxes. So you double the sum of taxes plus debt charges.

Hearing that you're a socialist, I'm surprised that you've never read Michael Hudson as he's defended Marx in a lot of his writings.

[mjah]

Or a substantial increase in the standard of living of the Asian worker. Which is a distinct possibility.

Either this, or massive realizations that the outsourced model somehow seriously damages entire tech industries (e.g. lithium-polymer battery design/manufacture), strike me as the only feasible -- if unlikely -- paths to a restoration of lost American tech-manufacturing jobs.

I don't think China, India, Korea, Japan, etc. will see jobs returning to the US as a solution to anything though. As they comprise progressively larger pieces of the market for consumer industries, their influence will only grow. Their desire to maintain their advantageous manufacturing positions will grow too. Getting next-generation tech industries "back" from there will be a hell of a fight. Given adequate production quality from all combatants, how do you beat Asia on price for the foreseeable future? Somehow I don't see government incentives getting the job done.

IMO, barring massive war that ends badly for them, only a full-fledged rise of many hundreds of millions of Asian consumers into the comparatively decadent middle class lifestyle will drive these entrenched tech industries out of developed Asia. And then it will be only price rather than expertise or quality that drives them out. At that point, with so many local consumers there, why will they come back to the US instead of moving to underdeveloped parts of Asia?

Or will our future American standard of living look to them, the way China's now looks to us? Hope not.

[PeterMP]

Or a substantial increase in the standard of living of the Asian worker. Which is a distinct possibility.

Nontransferable (or slowly transferable) gains in efficiency might come from better management techniques, which would be a combination of cultural factors and education.

An increase of the standard of living of Asian workers is really also a decrease in the standard of living of Americans.

Just look at what has happened w/ oil prices as one example.

---------- Post added August-23rd-2011 at 12:05 PM ----------

Hearing that you're a socialist, I'm surprised that you've never read Michael Hudson as he's defended Marx in a lot of his writings.

Just last week, I was called a liberal for the first time, now I'm a socialist? Maybe in a month, I can be a full fledged communist.

I'm not sure what I think of this. I think 1930 is an odd year to measure your statistics with. Smells of cherry picking to me.

In addition, considering that the bottom pays on income taxes and we have a massive debt, I'm not sure this is going to really cause a real world decrease in prices and/or earnings for the bottom.

[Larry]

Or a substantial increase in the standard of living of the Asian worker. Which is a distinct possibility.

Nontransferable (or slowly transferable) gains in efficiency might come from better management techniques, which would be a combination of cultural factors and education.

Actually, I have to observe that I, personally, am experiencing a bit of a discontinuity with my mental image of China.

There's this image that it's a nation of slaves, being exploited by their capitalist oppressors (with the assistance of their communist oppressors). Leigions of starving children, toiling away on the industrial machinery that they're chained to, 24x7, for 10 cents an hour.

And, I'll admit that this image is reinforced by stories like the one about the Foxconn plant, where workers aren't allowed to leave the building, ever. When their work shift ends, they go to the barracks that's inside the factory, where they can sleep in the bunk which was also used by the second-shift worker who is now beginning his shift. If he has spare time, then he's permitted to visit the recreation area on the roof of the factory. They recently had to put a fence around the roof of the factory, because too many workers were committing suicide by jumping off the roof of the building.

OTOH, I also have to look at things like Disney building their second Chinese theme park, in Shanghai.

Now, Disney isn't building a park there because they think they're going to use cheap labor to produce something that they can sell for hundreds of dollars, in the US. Yeah, I'm absolutely certain that they studied the cost of labor VERY carefully before deciding to build a park there. But part (a big part) of their decision to build there was their belief that there will be customers. Millions and millions of Chinese who have the time off, and the disposable income, (and the desire), to afford a Disney vacation.

You can't sell Disney vacations to slaves who make 10 cents an hour. Nor can you make a profit from a country that has 3 billion slaves and 300 bajillionaires. To make money from a Disney park, you have to have millions and millions of customers. Enough to keep tens of thousands (hundreds of thousands?) of people in the park, week after week after week.

Seems to me that the mere fact that Disney is building a park there (let alone their second) says that Disney at least thinks that China has, or will have in the next year or two, one heck of an upper middle class. (And is willing to bet billions on their belief.)

---------- Post added August-23rd-2011 at 12:34 PM ----------

Just last week, I was called a liberal for the first time, now I'm a socialist?

You and Warren Buffett.

[mjah]

Actually, I have to observe that I, personally, am experiencing a bit of a discontinuity with my mental image of China.

I think we all are. Perceptions change slowly, generally speaking, making it impossible for us -- collectively -- to truly keep up with the level China has reached. That's my theory anyway.

I just had lunch 30 minutes ago with a guy who travels to China quite a bit for highly technical business and has watched their growth up close. It's one thing to read (and possibly dismiss) third-person anecdotes about how entire cities are built up from nothing there, but it's quite another to hear a highly intelligent visitor's first-person experiences with the way their major cities are exploding as well.

His take on China: If you visited a populated area of the country more than two years ago, then your perceptions are probably already highly suspect if not downright inaccurate.

The rate of infrastructure is almost inconceivable. Three years ago he noted that massive highway projects were being completed weekly. Most sat empty for lack of users. The major problem: not enough cars, meaning not just the cars themselves but rather the middle class drivers who didn't yet exist in the regions where the highways were built.

The "not enough cars" problem has been solved. In fact, it "solved" itself. The very same sparkling new highways are now absolutely jammed with cars now, thanks to tens of millions of additional drivers with incomes to support vehicle ownership.

Apart from those who visit constantly, live there, or study it professionally, I don't think any of us really appreciate where China is today.

[Larry]

I also have to pbserve, though, regarding the changing nature of China:

If you think it sucks that Big Business has decided that they don't need America to build their widgets any more, they can build them elsewhere?

Just wait till Big Business decides that they don't need America to buy their widgets, either.

[isle-hawg]

UGGH yeah let's keep buying our stuff from China cause its cheaper. No impact whatsoever until YOU are replaced with a worker in China (or India) and OBTW you (as each of us Americans do) owe them thousands for the debt we borrow from them to purchase their goods - not to mention our good friends in the middle east who we fight their wars for and purchase their oil....

[Prosperity]

Or a substantial increase in the standard of living of the Asian worker. Which is a distinct possibility.

Nontransferable (or slowly transferable) gains in efficiency might come from better management techniques, which would be a combination of cultural factors and education.

China has what, like 2 billion people? Couldn't they have 400 million people w/ the same standard of living as Americans and still have 1.6 billion serfs ready to man the factories?

[youngestson]

Slashdot posted a paragraph mentioning this link, among others.

Haven't finished the whole thing, myself. And, yeah, it's basically a guy crying about how important it is that we're outsourcing our manufacturing base.

But, still, thought it might be worth discussion.

Okay... so they loose in the long run but would not change it if they could? Doesn't that just make them very short sighted???:confused:

[dchogs]

I think we all are. Perceptions change slowly, generally speaking, making it impossible for us -- collectively -- to truly keep up with the level China has reached. That's my theory anyway.

I just had lunch 30 minutes ago with a guy who travels to China quite a bit for highly technical business and has watched their growth up close. It's one thing to read (and possibly dismiss) third-person anecdotes about how entire cities are built up from nothing there, but it's quite another to hear a highly intelligent visitor's first-person experiences with the way their major cities are exploding as well.

His take on China: If you visited a populated area of the country more than two years ago, then your perceptions are probably already highly suspect if not downright inaccurate.

The rate of infrastructure is almost inconceivable. Three years ago he noted that massive highway projects were being completed weekly. Most sat empty for lack of users. The major problem: not enough cars, meaning not just the cars themselves but rather the middle class drivers who didn't yet exist in the regions where the highways were built.

The "not enough cars" problem has been solved. In fact, it "solved" itself. The very same sparkling new highways are now absolutely jammed with cars now, thanks to tens of millions of additional drivers with incomes to support vehicle ownership.

Apart from those who visit constantly, live there, or study it professionally, I don't think any of us really appreciate where China is today.

It really is amazing. I go to china at least once a year, sometimes twice. The differences are amazing. A friend of mine worked for a school with a massive complex that was built in months by hordes of workers using rudimentary tools in horrible conditions. His stories are amazing... Literally watched the buildings rise before his eyes.

Ever hear of Chengdu? Nope, me either. A second tier city in western China. 14 million people in a city the same general size as DC. Blows my mind. The rise of mega-farms is driving family farmers into the cities like lemmings. They have to make up jobs for people... They have people sweeping the streets with hand brooms with traffics zooming by, and the traffic is just a fraction more organized than a demolition derby. At least one of those ladies dies a day according to my friend.

[Ancalagon the Black]

An increase of the standard of living of Asian workers is really also a decrease in the standard of living of Americans... Just look at what has happened w/ oil prices as one example.

Yes and no. The scarcity of overall resources will drive down the standard of living of those who consume a larger share of those resources, but this may be partially balanced by the fact that the Asian workers' overall ability to consume - and, potentially, buy stuff from Americans - would increase. You'd rather your trading partner be very wealthy than very poor.

With the oil example, we will reach a level at which oil (or any nonrenewable resource) will be more costly to extract and produce than an alternative. Once we reach that tipping point, we shift to the alternative. We'll never run out of oil, and oil prices cannot spiral upwards indefinitely. (I know you were using oil only as an example to illustrate a wider point, btw.)

China has what, like 2 billion people? Couldn't they have 400 million people w/ the same standard of living as Americans and still have 1.6 billion serfs ready to man the factories?

I think still under 1.5 billion people, but I get your point. However, if a substantial, wealthy Chinese middle class were created, they might want more stuff we produce. Like corn or software.

[PeterMP]

Yes and no. The scarcity of overall resources will drive down the standard of living of those who consume a larger share of those resources, but this may be partially balanced by the fact that the Asian workers' overall ability to consume - and, potentially, buy stuff from Americans - would increase. You'd rather your trading partner be very wealthy than very poor.

With the oil example, we will reach a level at which oil (or any nonrenewable resource) will be more costly to extract and produce than an alternative. Once we reach that tipping point, we shift to the alternative. We'll never run out of oil, and oil prices cannot spiral upwards indefinitely. (I know you were using oil only as an example to illustrate a wider point, btw.

Short term and with respect to ONLY the standard of living in your country, would you rather be wealthier than your major trading partners or equal wealth?

[Larry]

Short term and with respect to ONLY the standard of living in your country, would you rather be wealthier than your major trading partners or equal wealth?

Kinda depends on what you're trading.

If you're a salesman for Boeing, then you kind of need customers with money.

OTOH, if you're buying oil or similar commodities, then I assume you'd rather be dealing with North Korea.

[Prosperity]

Yes and no. The scarcity of overall resources will drive down the standard of living of those who consume a larger share of those resources, but this may be partially balanced by the fact that the Asian workers' overall ability to consume - and, potentially, buy stuff from Americans - would increase. You'd rather your trading partner be very wealthy than very poor.

With the oil example, we will reach a level at which oil (or any nonrenewable resource) will be more costly to extract and produce than an alternative. Once we reach that tipping point, we shift to the alternative. We'll never run out of oil, and oil prices cannot spiral upwards indefinitely. (I know you were using oil only as an example to illustrate a wider point, btw.)

I think still under 1.5 billion people, but I get your point. However, if a substantial, wealthy Chinese middle class were created, they might want more stuff we produce. Like corn or software.

Off topic, but when'd you move to San Francisco, I live there now (though in VA at the moment), we should catch some skins games if you have time. Predicto too...

As for the topic at hand... the problem w/ our knowledge based economy is that it just doesn't require as many workers. Software and finance companies don't need huge numbers of workers. It seems like the transition from industrial to information leaves huge swaths of our work force w/ little role in society. It may make economic sense for a few people to make enough value, and to use that new wealth to support teams of service industry workers, but is it really socially beneficial to have such a society? One where a few create all the value and where the masses are basically tracked into a life of serving the elites? I think the information economy may be partially responsible for our ever increasing income gap, and our path to a full blown plutocracy. I think Japan has a similar problem... plenty of wealth, and an educated workforce but just not enough white collar jobs to go around... that's partially the reason why kids over there are so psycho about school... if they can get a foot into the door of the white collar world they are set, but if they don't then they are firmly in the service track, with little to no hope of social mobility. We may not be there yet, but w/ our millions of college graduates and (basically) universal college education we may be setting up a lot of our population for a nasty little surprise in the future...

[Ancalagon the Black]

Short term and with respect to ONLY the standard of living in your country, would you rather be wealthier than your major trading partners or equal wealth?

Well generally I would prefer to be wealthier than poorer in most situations. But isn't this begging the question? Wealth is not a zero-sum game (well, it is if we assume finite materials and energy...that's not the case, is it? ).

---------- Post added August-25th-2011 at 10:29 AM ----------

Off topic, but when'd you move to San Francisco, I live there now (though in VA at the moment), we should catch some skins games if you have time. Predicto too...

Yes! Just ordered NFL Sunday ticket so i'm hoping to have a few Skins sessions. Although my living room is tiny.

As for the topic at hand... the problem w/ our knowledge based economy is that it just doesn't require as many workers.

Yes. I'm concerned. We can only have so many software designers, UX managers and VPs of Marketing. That said, technology has improved the standard of living for everyone - think of our access to music, low-cost shipped goods and even our friends compared with a decade ago. Even shelter is cheaper than it was in 2005. (Now if only those nasty food, oil and health-care prices could come down in real terms...)