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The good news is that manufacturing jobs are on the increase in the US. Unfortunately, creating manufacturing jobs requires a lot more capital investment than service sector jobs which require greater levels of education. Area Development reports:
Industrial Manufacturer to Invest $1M in Spokane Manufacturing Facility, Backshoring 20 Jobs
We've all heard of "offshoring," where companies transfer work, and jobs, offshore to other countries such as China. This article speaks of "backshoring," where jobs which were formerly done overseas return to the United States - something we can all applaud.
Moving these jobs back to the US costs a great deal:
The total capital investment by the company is estimated to be over $1,000,000 in equipment and renovations, plus ongoing lease and utility costs. Annual tax revenue to the state of Washington for this new project will be over $450,000.
Each of the 20 jobs required a capital investment of $50,000. Manufacturing jobs permit high productivity with somewhat less educated workers. This makes it possible to achieve economic growth without a massive long-term investment in effective education.
There are many reasons why moving back to the US might be a good business strategy. As transportation costs rise with fuel costs, it becomes less profitable to move work offshore. The Japanese tsunami pointed out that a far-flung logistics chain is subject to more interruptions than when everything is made in a small area. American car plants had to shut down when they could no longer get critical parts from Japan, for example.
Foreign rules and regulations are another reason to move back. Indian rules and corrupt bureaucrats are so burdensome that most of Tata Motors's growth has taken place outside India. Those jobs wouldn't count as backshoring since the jobs were created in America and England in the first place, but they represent growth all the same.
Rising wages overseas are another reason to move back. The Economist reports:
"Sometime around 2015, manufacturers will be indifferent between locating in America or China for production for consumption in America," says Mr Sirkin. That calculation assumes that wage growth will continue at around 17% a year in China but remain relatively slow in America, and that productivity growth will continue on current trends in both countries. It also assumes a modest appreciation of the yuan against the dollar.
Given that it can take several years to build a factory and put it in operation, 2015 is not all that far off. Gary Pisano of Harvard Business School argues that this trend may persuade companies to keep jobs in the US that would otherwise move:
The announcement on May 10th by General Motors (GM) that it will invest $2 billion to add up to 4,000 jobs at 17 American plants supports Mr Pisano’s point. GM is probably not creating many new jobs but keeping in America jobs that it might otherwise have exported.
Spending $2 billion to create 4,000 jobs means that creating each job costs $500,000, or ten times as much as the Washington facility cited above.
It's particularly important that America stay friendly to manufacturing. Many service sector workers such as lawyers, teachers, software developers, and many others don't need all that much capital to work, but doing their jobs requires a great deal of training and experience. Decades of effort have shown that changing the American education system to train more people to be high-paid service workers simply isn't going to happen. If we're to create jobs, we'll have to rely on manufacturing which substituted mechanical capital for educational capital.
This isn't easy. Few people want factories built anywhere near their homes. In addition, the regulatory burdens are crushing - it can cost a small manufacturer $10,000 per year to comply with all the regulations. Given the huge sums that are needed to create manufacturing jobs and the years of operation required for the facility to pay its costs and return a profit, investors have to have confidence that the rules will stay stable before they'll invest.
The bad news is that regulations are growing in spite of Mr. Obama's promise to reduce "unnecessary regulations" - it took a presidential review to persuade the EPA that spilt milk didn't need to be handled like an oil slick. In "America's Mad License Raj," the Economist discusses the terrible threat to civilization posed by unlicensed interior designers:
IN 1941 Franklin Roosevelt added two new items to America’s ancestral freedoms of speech and worship: freedom from fear and freedom from want. Today’s politicians offer a far more generous menu: freedom from unlicensed hair-cutters, freedom from cowboy flower-arrangers and, most important of all, freedom from rogue interior designers. What is the point of enjoying freedom from fear or want, after all, if you cannot enjoy freedom from poorly co-ordinated colour schemes? [emphasis added]
In the 1950's, fewer than 5% of American workers needed licenses. Now, almost 38% need some sort of license or certification. This tends to crush small businesses:
Jestina Clayton is an African hair-braider with 23 years of experience. But the Utah Barber, Cosmetologist/Barber, Esthetician, Electrologist and Nail Technician Licensing Board told her that she cannot practise her craft unless she first obtains a licence—which means spending up to $18,000 on 2,000 hours of study, none of it devoted to African hair-braiding.
Assuming she can get a job, Ms. Clayton's training costs will have to be passed on to her customers. Forcing prices up is what licensing is all about, of course. When the Florida legislature tried to deregulate 20 occupations like hair-braiding and teaching ballroom dancing, people who already had licenses lobbied fiercely to keep the rules in place to keep potential competitors away.
We wonder which will grow fastest - American regulations or Chinese and Indian wages. If overseas costs grow faster than our costs, American manufacturing may survive.
If our regulators have their way, on their other hand, there'll be no American factories to regulate.