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May 2012, Week 1

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Mon, 7 May 2012 20:02:33 -0400
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After decades of outsourcing, manufacturing jobs coming home to US 

By Michael Moran

GlobalPost 

http://www.globalpost.com/dispatch/news/regions/americas/united-states/120504/american-manufacturing-jobs-returning-outsourcing-reshoring

NEW YORK, New York -- Beginning in the 1970s America's
high-paying manufacturing jobs in the steel, textile,
electronics and automotive industries relocated first
south to Latin America and then east to Asia.

In what some dubbed "a global race to the bottom,"
labor rights have dwindled all along the way and the
American middle class, long sustained by those
manufacturing jobs, finds itself gutted. Now the fate
of what is left of the American middle class is at the
center of a presidential election and forcing a
reexamination of the impact of the global decline of
labor rights.

But after years of pain for America's manufacturing
sector and its workers, some economists and analysts
are wondering if the tide may be turning.

Call it "re-shoring" or "rebalancing" or just
"revenge," but the dynamics of global labor,
transportation and productivity costs that eviscerated
American manufacturing over the past decade have begun
to shift again.

Over the past few years, some key American
manufacturers have either brought jobs back to the US
from Asia and Latin America, or have made important
decisions not to relocate them in the first place.

For several years now, the anecdotal data has been
tantalizing:

Caterpillar is building a $120 million plant to make
giant earthmovers in Victoria, Texas, including some
models that were previously built in Japan and shipped
back to North American customers. The Japan plant is
now free to devote more capacity to the booming Asian
market.

Master Lock, in Milwaukee, landed a visit from
President Barack Obama in February after its decision
to bring 300 jobs back from China.

General Electric reversed a decision to build a new
"green" refrigerator plant in Asia and decided instead
to invest $93 million in refurbishing a plant in
Bloomington, Indiana, saving 700 jobs. The company
followed up in 2010 by investing $80 million in a water
heater plant in Louisville, Kentucky, preventing
another 400 jobs from heading east.

Not to be outdone, GE competitor Whirlpool decided to
break ground on a new $200 million plant in Cleveland,
Tennessee rather than send the 1,500 jobs overseas. The
facility is part of a four-year, $1 billion American
investment campaign [4].

Dow Chemical, the cash register company NCR, Sauder
Woodworking and the machine tool firm GF AgieCharmilles
have all brought overseas production back to the US
market in the past three years.

Most economists -- even those inclined to sympathize
with the Obama administration's economic policies --
scoffed in 2010 when, in his State of the Union
address, the president vowed to double US exports in
five years -- creating 2 million jobs in the process.

It's not that this wasn't possible in the eyes of
economists. It just wasn't likely, they thought, that
the global conditions and political climate in the
United States would allow it.

The "zero effect" -- the distorting phenomenon of
measuring growth starting at an unnaturally low point --
kept a damper on enthusiasm even as export figures
soared in 2010-2011.

Many experts assumed that the favorable trends
supporting that growth had little to do with long-term
shifts. Instead, most felt the numbers reflected a
coincidental confluence of events: sky-high oil prices
that drove the costs of shipping upwards, a
mega-recession that undermined American labor's
negotiating leverage, Federal Reserve "quantitative
easing" that kept the dollar cheap and pumped up US
exports, and freak events like the euro zone meltdown
and the Japanese earthquake/tsunami that took major
players off the economic chessboard.

But the data has started to cause reassessments.
Monthly net exports have grown from $140 billion to
$180 billion since the start of 2010.  Indeed, energy
exports (mostly refined gasoline, jet fuel and natural
gas) have suddenly grown into the single most valuable
product sent abroad by American manufacturers, the
first time in 60 years the US has been a net exporter
of any of these items.

A new revolution

So what's behind this strange counterintuitive trend?
For some economists, this represents the start of the
"third industrial revolution," the dawn of the new
high-tech, value-added era of manufacturing that
follows the first two global revolutions: England in
the mid-1800s, and the one sparked by Henry Ford's mass
production innovations in the 1920s in Detroit.

"The factory of the past was based on cranking out
zillions of identical products," writes The Economist
in a special report on the new trend published in April
[6]. "Now a product can be made on a computer and
'printed' on a 3D printer, which creates a solid object
by building up successive layers of material. ... the
cost of producing much smaller batches of a wider
variety, with each product tailored precisely to each
customer's whims, is falling."

Manufacturers have discovered the value of bringing
production closer to the point of sale, where their
employees can engage more directly with customers and
adapt quickly to changes in the market. And for all the
changes in the global economy, the point of sale, by
and large, will still tend to be in the world's largest
consumer economy.

For America, this could be the start of something good,
according to the Boston Consulting Group. In 2011, BCG
reported that, due to a number of changing economic
realities -- including rising salaries and economic
expectations among Chinese workers, new labor,
environmental and safety regulations abroad, the higher
cost of energy required to ship products halfway around
the world, and the US market and the uncertainties of
political risk in these places -- the cost benefits of
producing in Asia no longer automatically outweigh the
risks.

Indeed, the BCG report predicts a "renaissance for US
manufacturing" citing the fact that labor costs in the
United States and China are expected to converge around
2015.

"Executives who are planning a new factory in China to
make exports for sale in the US should take a hard look
at the total costs," says BCG's Harold L. Sirkin, an
author of the report. "They're increasingly likely to
get a good wage deal and substantial incentives in the
US so the cost advantage of China might not be large
enough to bother and that's before taking into account
the added expense, time, and complexity of logistics."


Skeptics continue to question whether this is
sustainable. Not in the political realm, of course; it
is anathema for any politician to suggest that America
should content itself to life as a "post-industrial
society," in part because so few can explain how to
employ 300 million people in such a place.

"Even if we didn't have to compete with lower-wage
workers overseas, we'd still have fewer factory jobs
because the old assembly line has been replaced by
numerically-controlled machine tools and robotics.
Manufacturing is going high-tech," writes Robert Reich,
a University of California at Berkeley professor who
served as Bill Clinton's labor secretary. "Bringing
back American manufacturing isn't the real challenge,
anyway. It's creating good jobs for the majority of
Americans who lack four-year college degrees."

BCG, which launched a cottage industry with its 2011
report on manufacturing, believes this line of argument
misses the changes underway in the global economy. On
April 20 its economists released a survey of the
largest American manufacturing firms. The results: one
third of all US manufacturing executives of companies
with sales above $1 billion per year now say they are
planning or considering "reshoring"; in effect,
bringing home manufacturing plants that were sent to
China and other low labor cost countries during the
1990s and first decade of this century.

The top factors for bringing these jobs home cited by
these executives surveyed by BCG: Higher labor costs in
Asia (57 percent), ease of doing business (29 percent),
and proximity to customers (28 percent).

For the American worker, this will be rare good news.
But the jobs that are returning will look nothing like
those that left. Rote assembly lines, low value-added
manufacturing like textiles, furniture and heavy
smelting operations like the steel industry may never
again be profitable in the way they were after World
War II, when the US economy was the last bastion of
capitalism not destroyed by war.

But history shows that workers adapt to change when the
incentives are present. Displaced hunters became
farmers; displaced farmers became artisans; displaced
artisans learned the skills of the factory; and
displaced factory workers can learn the techniques of
the 21st century.

____________________________________________

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