What American Company Will The Chinese Destroy Next?

If the regulations in the US were reasonable, we'd be able to compete. I don't think it's the Chinese fault, it's more of Washington DC fault.

General Motors, the banks, the oil industry. Medical care. What American industry will Oh Bomb Us destroy next?

Christopher A. Young Learn more about Jesus

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The Chinese are innovators in this area not followers:

And how do you compete with companies that pay an average wage of $3,885/year?

And how is General Motors "destroyed"?

You automate so the cost of labor is not significant. And provide incentives for your work force to work efficiently.

=20 Dan

One way is to do it in a country where a bowl of noodles costs $0.10 :-)

-- Cheers,

John B.

You can only run so fast...

I once read that only about 6% of the time spend assembling a car (Japan) was manual labor time - the rest was done by robots. That was perhaps fifteen years ago, wonder what the numbers are today.

There is a problem with this: direct labor typically is 10-12% of manufacturing cost. China's labor productivity is on the order of 15% of ours. So labor costs, all else being equal, don't begin to explain the difference in finished-product manufacturing cost.

A 50% improvement in our productivity -- a couple of decades' worth -- would therefore cut 5-6% off the cost of manufacturing a car. It's like chasing your tail.

I have written some lengthy articles about this in the past. The issue is complex and the answer lies mostly in compounded labor costs in the supply chain and in non-labor costs that can't be recovered from trade in materials and intermediate products. I'm not going to get into that now, because of the article you linked to:

I can't believe you read that article. It's about cutting manufacturing cost by paying workers less -- slashing many of them from $57/hr. to $20/hr., including benefits, and using more of the cheap workers.

Cripes. That's the Race to the Bottom that Alan Tonelson always writes about.

Read the article Dan linked to. It will make your skin crawl.

I don't believe that. Chinese labor productivity job-for-job is probably significantly higher than the US.

Sure, if you define productivity as the value added by a job, you'll get relatively high numbers in the US, but that's not what most of us mean by "productivity". Give a Chinese worker the same machinery and training and they'll produce as good quality, faster, at maybe 1/5 the labor cost.

This is significant, because Chinese businesses are rapidly investing in automation, mostly to increase quality but also to deal with increasing labor costs.

Absolutely not. Look it up. The US has the third highest labor productivity in the world (S. Korea, Taiwan, and the Czech Republic [??] are higher). China isn't even close to other developed countries, let alone the US.

Here is the US versus other developed countries, not including China:

ftp://ftp.bls.gov/pub/suppl/prod4.prodsuppt01.txt

China's productivity *growth* rates are pubilshed all over the place, but actual productivity *levels* are harder to come by for several reasons. However, here is the Asian Productivity Organization's (Tokyo) figure for 2006. Apply the published growth rates, and you come up in the neighborhood of 15%:

"Included in the long tail were China and India, with productivity levels that were 9.4 per cent and 6.4 per cent of the US level, respectively."

56, below Table 8)

Remember our old friend Hamei? He runs a small plant in China. He says he needs about 10 Chinese workers to do what one US worker can do. Allow a measure for frustration and cynicism on his part.

This has been the case forever. China's productivity is growing fast, but it's still pathetic. Those numbers do NOT include rural non-manufacturing workers. They are for urban and rural manufacturing workers only.

"Productivity," just in case we're not communicating, means dollar value of output per hour of labor input.

I don't know who "most of us" is, but the business and economic definition of labor productivity is value of output per hour of labor input. It's a function priarily of a country's or a company's degree of automation. What you're describing is "unit labor cost."

Of course. "Spending on plant, machinery, buildings and infrastructure accounted for about 48% of China?s GDP in 2011," says _The Economist_.

But whatever fuels their improved cost-per-part, Dan's claim that automation in the US is a solution is dead wrong. It's necessary, but it won't make us more competitive.

Any ideas? I've beaten my brains out over that question for around 10 years now. All ideas are welcome.

===========================

FYI

From car plants to microchip foundries, China's industrial sector increasingly runs by machine.

According to Nomura, 28 percent of factory machines in China use numerical controls - one measure of automation. That may be far lower than Japan's 83 percent, but China is growing far faster than Japan did at a comparable stage of development, says Ge Wenjie, a machinery analyst with Nomura.

One of the biggest could be Foxconn Technology Group, maker of products for tech giant Apple, which is talking of plans to put a million robots in its factories.

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The problem is that when capital is free to move between countries, there is no national comparative advantage, only national absolute advantage.

There is also the question of national defense and domestic employment. It is pointless to tell people "get a job" if there are no jobs...

And I know a guy who moved his factory there who claims that the productivity (as measured by the number of workers needed for a given factory output) is about 20% higher. That was surprising to me, actually.

Right, accounting productivity, not job-for-job comparison. Put an equally trained American working in Chinese conditions (machinery, raw materials, etc). and they'll not produce much different, and vice versa. Some say the Chinese are less spoiled and work longer hours etc., but I think work ethic might be a bit higher in the US.

I don't think so:-

Not everything is economical to automate. The problem with offshoring the labor-intensive stuff (which increases the 'productivity' of US labor) is that eventually those guys are going to want to do that high profit stuff too, and often it's just a matter of paying the money to suppliers to get the equipment, and hiring the right marketing folks.

I don't have any great ideas-- I think the eventual outcome of current policies will be some levelling of costs worldwide, but I don't think radical changes such as protectionism will help at all- they'll hurt. The Yuan has appreciated significantly against the USD, for example, and their trade is more-or-less balanced. Japan seems to be more of a concern to US manufacturers- and they're hiding behind China by doing final assembly in China (but most of the value of a lot of "China made" electronics originates in Japan, S. Korea and Taiwan, and the money flows back to them. A further depreciation of the USD would help a LOT, maybe 30% or 40%, but right now everyone wants to depreciate their currencies and the US can't get away with it.

Huh? BLS says exactly what I said, in slightly different words that mean the same thing. Read it again:

"Labor productivity is the ratio of the output of goods and services to the labor hours devoted to the production of that output."

"...unit labor costs = total labor compensation / real output"

Yeah, well, those ideas have been talked about, but they either can't be done, or if they could, they'd produce really ugly consequences -- for ourselves.

As for waiting out an "eventual outcome," yes, but in the long run, we're all dead.

The risk now is that the US may be suffering a permanent, structural setback because of the length of this slow-growth period. This point, like most of them, is complex. But it means that our growth, when it comes, will start from a lower threshhold and will never regain the levels we should have achieved.

Blame your favorite fall guy.

Part of the article was about a different way of kitting the parts for a car. An the rest is essentially hiring a company to kit the parts for you instead of using your high paid help. In this case the kitting of the parts is being done in the factory and possibly by GM employees. But kitting parts takes less skill than assembling, so ought to have lower labor costs. It is not a race to the bottom as you portray it. It is finding ways to use less skilled labor.

=20 Dan

This has been standard Lean Manufacturing practice for close to 20 years. That GM was slow on the uptake gives us some insight into why they tanked.

At $20/hour total compensation, instead of $57. Great. Pay workers less. That's really good for the economy, eh? At 30-35% for benefits, that leaves around $13.50/hour gross pay.

Bye-bye, middle class.

It's a race to the bottom, paying workers less to accomplish the same job.

That's not at all like getting more productivity out of the same workers.

I am wrong, but you have no answers?

Well automating is the answer at least in some industries. Nucor is highly automated and they also provide incentives for employees to produce. I forget the exact number but Nucors labor cost is something like $20 a ton of steel. So Nucors labor costs are not significant compared to other costs. And makes Nucor competitive with Chinese steel companies.

=20 Dan

Why does it make your skin crawl. Mass production has always been about breaking down jobs so they can be done by less skilled employees.

=20 Dan

You're wrong because you had your facts wrong. I have no answers because I have no answers.

Sure. Now, look at the economy as a whole, and tell us what the effect would be of cutting direct labor by, say, 2/3. The eddect will be to cut direct-labor costs by something like 7% (which is not nearly enough to make a dent in China trade; as China experts have pointed out for over a decade, they easily can adjust costs downward to deal with that). But you've increased capital costs while doing it, eating up a large percentage of your gains from automating.

I haven't seen figures since the early part of the last decade, but that number typically was 1/2 to 3/4 of your labor savings. So now your automation has cut total production cost by perhaps 3%.

Whoopie. And you've taken on debt to do it.

Nucor is an oddball -- a very successful oddball. They made their money by implementing modern electric-arc furnaces for secondary steel production (remelting scrap), investing with a lot of guts and foresight.

Coming up from the secondary to the primary steel market, they had ready-made markets, lots of capital access, and a huge transportation-cost advantage, since basic steel is a heavy, low-value commodity, over the Chinese primary steel producers.

The old-line US primary steel producers were like General Motors: winding down from a declining industry, with shaky finances and antique management ideas. They never really got it together again.

Don't count on many Nucors. They won't save our economy.

Because almost the entire story, even the concluding table, is about how much they've managed to squeeze out of workers' incomes to be competitive. It sounds like something out of the 1920s.

That's one way to compete in a global market -- the race to the bottom.

In this case, most of what they've done is employ vendor's employees to avoid labor costs. Most of the story is just about hiring people for less.