Many people in the U.S. resent China, because they see it taking over manufacturing, which we feel we should dominate forever. But China probably felt that way about Britain when it took over the lead, and Britain obviously felt that way about the U.S. when we did. Nations tend to take the lead in manufacturing when they have the understanding of the pertinent technology, access to cheap but intelligent and motivated labor and low-cost resources, and the desire at all levels from workers to heads of government. China has all of that in large quantities. And perhaps more people in China are satisfied with the opportunities in manufacturing as opposed to the fantasy of making big money quickly through finance or entrepreneurship.
Since the U.S. likes to believe that it deserves being the best at everything, it is easy to feel that China must be cheating if it successfully competes with us. But by whose rules? Traditionally the Chinese have not believed as strongly as we do that individuals have ownership of intellectual property. Despite their success in manufacturing, they are still a poor country, albeit with a long and impressive history and a huge population. Their capitalism is state run, and we believe they should be a democracy. But even the last issue of The Economist is worrying about capitalism in the “developed” world being a bit out of control. And India (which has a comparable population) is more of a democracy than China, but has traditionally had trouble agreeing as a nation. If we were China, would we act differently than it is acting?
China will undoubtedly follow the path of all countries who have had a dramatic rise in manufacturing ability (Japan and Germany after World War II) and reach a point in which wages rise with increasing national wealth and success, motivation declines because of the “good life”, and Chinese companies begin building factories in the U.S. as Japanese and European companies do. It is already outsourcing to many other countries. It will probably continue to improve at manufacturing, and producing higher quality indigenous products, and we should do the same, rather than waste our effort trying to slow it down.
As far as outsourcing, it is somewhat a function of tax structure and labor cost, but also it occurs because it is possible to get better service and work in other countries. Apple likes Foxconn because they respond instantly to changes from Cupertino, and because they dependably produce very high quality products. Their labor costs are low, but this is not the main consideration, because what they earn is a minor portion of the cost of an i-Phone. I was recently talking to a friend and ex student who is a manager at Tesla and trying hard to source in the U.S. He finally found a vendor in Ohio who could do a good job of casting a complicated part, but they unfortunately could not machine it within requirements. So he resorted to a Taiwanese company (he too is worried about China) that rapidly gave him what he needed. If you look at what China has done in areas such as aerospace and is doing in industries ranging from heavy construction to alternate energy, it is becoming very good in many aspects of technology. And as I keep saying, good wins.
It is true that outsourcing is affected by tax structure. Companies now often can win financially by manufacturing overseas, and the result is the loss of potential jobs at home. But tariffs lose. As nations such as India have found out, they do initially protect industries, but over time the industries tend to lose their ability to compete globally. As to the Renminbi being too low in value, it will rise, but in the meantime, it works for China and how do we know that the dollar is not overvalued? In any case, we probably would not respond favorably if the European Union tried to get us to change the dollar’s value to discourage people from importing so many U.S. products. And “cheap “ imported products have certainly benefited consumers. I am reminded of a New Yorker Cartoon of a few years ago, which portrayed a shoe-store display window with a sign saying something like “Athletic Shoes Made Entirely in the U.S.A.—$240 per pair”.
As a final possible clue to China’s success in manufacturing, last time I looked, eight out of nine top government leaders in China could claim to be engineers or scientists. As an engineer, I think engineers and scientists are good people to have around when manufacturing is concerned. And as you probably know, China claims to be producing some 600,000 engineers per year, as opposed to our 70,000. Arguments have been made that they lie, and anyway these are not of the quality of U.S. engineers, and are in fact often what we would call technicians or graduates from two-year programs. But we are talking manufacturing here. Technicians with engineering knowledge are more than useful, as are people with two-year degrees. The Chinese engineering students studying in the U.S. are of course not typical, but they are generally outstanding.
And we also tend to judge engineers through the value systems of people who are involved in university education. I am a member of the faculty of one of the top ranked U.S. engineering schools, and I could easily find you experts on our faculty on such topics as nanotechnology, quantum computing, biotech, and analytical decision making. And most of them love research and supervising Ph.D. students. But I am not sure I could find you anyone whose expertise includes designing a factory, or even a production line.
I am presently trying to give a little help to an old friend at Stanford, Professor David Beach, to help him raise the visibility and support level of his long-established and outstanding program, which is called the Product Realization Lab (school words) and is all about integrated design and manufacturing, with perhaps an emphasis on manufacturing. It is a struggle. In most of our highly ranked engineering schools, science rules, not manufacturing.
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