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[Music]
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Hal thank you so much for joining us
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today a pleasure to be with you
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mle so would love to talk to you about
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uh your research in the area of the
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Renaissance of uh American
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manufacturing uh but before we get into
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that I wanted to ask you about the
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conventional view the conventional view
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is that Manufacturing in the US is on a
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long-term decline services are going up
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what's wrong with that picture well it's
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just not true uh that the fundamental uh
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perspective that people have on
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manufacturing is changing and and we've
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seen this prediction of us
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manufacturing's death many many times uh
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if you go back to the 1970s when I was
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here at wardon um we're reading articles
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all the time about how Japan Inc was
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going to take over the world uh they're
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going to bring over televisions cars
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radios and they were going to
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manufacture just about
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everything at that point in time parents
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were literally sending their kids to
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school to learn Japanese because that
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was going to be the new language of the
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world you know Japan which had lost the
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war in 1945 by 1975 was going to
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dominate the world again uh and of
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course what we've seen is that didn't
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happen that didn't happen because the US
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responds as an economy
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we saw it again in the 1980s when and
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'90s when uh the Asian tigers were going
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to dominate the world uh the lowcost
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production facilities in Korea and
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Taiwan and Hong Kong uh and Singapore
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were going to dominate uh manufacturing
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uh there was a going to be a huge cost
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advantage and US manufacturing was going
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to go away but of course everybody knows
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that didn't happen
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either and in the current situation
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starting in 2001 with China's entering
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the WTO the conventional wisdom is the
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same that China was going to roll up us
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manufacturing and that we were basically
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going to become the farmers and bankers
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of the world and that was what was left
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uh but of course in many ways as we're
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starting to see now that hasn't happened
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and it's not going to happen it's
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because the US economy responds
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tremendously well to threats we have a
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system where our people want to work uh
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and they find ways to do this we have a
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system in which our companies are forced
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to get more productive uh because it's
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do or die there is state-owned companies
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in this country uh we don't subsidize
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companies in many ways in this country
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and therefore it's the free market at
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work and it does some amazing things so
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between
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1972 we and and 2010 we manufactured 2.5
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times as much manufactured goods um at
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that over that period we do that with
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30% less labor which is an amazing
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increase in productivity our society has
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gotten incredibly productive we use our
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resources very efficiently and that
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makes all the difference
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and that's what's going to cause the
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change uh as we start to move from
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offshoring to China to insourcing around
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the
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world the uh come back to the point
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about ins sourcing in a bit uh but let's
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talk about your point about productivity
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first um uh as as you said we are able
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to produce as productivity goes up we
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able to produce more with fewer people
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but at the same time there are some
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recent reports that manufacturing jobs
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in the US have actually gone up 300,000
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new manufactur uring jobs in the past
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two years what's driving this trend it's
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basic economics it's now becoming more
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effective to produce in the US than is
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to Bruce in a lot of different countries
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between the shift in the dollar and the
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incredibly rapid rise in wages in China
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uh people are starting to do this now in
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a report we predicted that this would
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not happen until 2015 uh we're surprised
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in a very good way because we're
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starting to see it happen in 2010 2011
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and
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2012 um now we think this is just the
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tip of the iceberg that we're that we're
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going to see a whole lot more because
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the economics continue to shift in favor
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of the US the fundamentals are the tide
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has turned as it did with Japan as it
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did with the Asian tigers we're seeing a
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repeat of this with China uh what are
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some of the factors that have driven the
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Turning of the tide what it's very
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simple economics it's the things I
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learned in my uh intro economics class
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of warten just applied for uh just
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applied for overall business uh it is
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wages are rising very quickly in China
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somewhere on the order of 15 to 20% a
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year and maybe even higher um wages uh
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the R&B of course uh which is still a
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controlled currency is rising at 4% a
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year uh and uh many economists believe
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if it was left to float it would be
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double its in value but even with the 4%
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it makes a difference and China while
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it's getting very productive and it's
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increasing productivity at 8% a year
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that's being swamped by the wage
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increases in the shift in the R&B and so
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when it was uh in in 2001 when China
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entered the WTO you could get uh workers
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for 58 cents an hour it was a very
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simple decision for most companies to
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Offshore to China wages have risen a lot
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uh there's all sorts of other issues
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that uh are that people call the
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intangibles that go there uh things like
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uh you don't want to just compare
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manufacturing cost to manufacturing cost
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because you have to ship it from China
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and uh in 2001 oil prices were in the
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$230 a barrel now it's around $100 a
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barrel so Transportation costs have gone
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up people are understanding the risks of
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intellect ual property theft and valuing
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them in their equations and then there
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just the fundamentals of being far away
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from the customer it's hard to
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manufacture when you're 6,000 miles away
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and you have to interact with people who
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don't speak your language natively and
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so companies are starting to realize
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that there are a whole bunch of costs
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and our predictions are that by 2015 the
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the manufactured cost in China will be
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about 10% lower than the manufactured
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cost in the US for a whole lot of goods
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that doesn't mean all the goods it's not
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it's not for clothing and shoes but it's
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for wide range of goods about 70% of the
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goods that we with that we the United
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States imports from China and because of
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that uh we're going to see a shift
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because that 10% is going to be eaten
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down by things like the transportation
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costs and the other risks and it'll just
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make more sense to produce in the US and
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companies are starting to turn on to
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this uh speaking about uh the wage cost
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increase in China uh at least a few
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years ago it was widely believed that
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even though in some Urban centers or a
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strong Manufacturing centers like
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sanzhen uh the wage costs are going up
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that there was a large rural uh
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Workforce in China that would continue
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to migrate uh and that would keep the
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the ultimately bring uh wage cost down
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in China there was a common view uh do
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you still see that happening or are
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there changes that have taken place that
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takes that away wages are rising very
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rapidly and China actually was extremely
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smart in how it set up its economy uh it
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was brilliant um and in fact I would
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have to call it like the reverse Perfect
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Storm everything was done right uh they
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set up these clusters of companies so
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that you can you know if you're in
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making shoes and you're we would be
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located in one city if you're making
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Electronics you may be located in a
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different city and then what they put in
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those clusters was everything the
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businesses needed to produce for export
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so there were universities that would
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produce Engineers that were trained
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specifically in your kind of business
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there are worker training centers where
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they train workers for production in
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your kind of business they set up
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incredible ports and amazing um ability
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to produce you know high quality ports
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that they could export from and all the
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infrastructure that's necessary to get
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it from the ports in these clusters
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which were of course designed for export
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and therefore all along the coastline
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wages Rose a lot there a lot of uh uh of
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the rural people moved into the cities
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but now it's getting pretty crowded when
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you go further out into China there are
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some disadvantages of production the
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infrastructure isn't the same as you see
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on the coast which is what one of the
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reasons that China has been so
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productive so the workforce in the rural
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areas aren't as productive uh and the
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transportation times get long and you've
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already starting with a long
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Transportation time to export to the us
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so that that raises a lot of issues as
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well as to how long you want your supply
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chain what are some of the other factors
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that you think are are are making it
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possible for us companies to become more
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competitive in manufacturing well I
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think that we continue to focus on
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productivity of our Workforce uh we are
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growing productivity quite nicely uh not
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at 8% year but at a substantial rate um
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and and US companies are beginning to
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realize there's some problems with
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producing far away that there are actual
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costs to that I remember one CEO when he
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worked out the economics said the best
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thing it was for him was that his wife
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wouldn't bother him at 2 o'clock in the
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morning because he was on the phone and
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he didn't have to fly 6,000 mil to go
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see his Factory uh and that's a
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intangible but it's real and it points
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out you know the value of being close
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when wages were 58 cents an hour when
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China entered the WTO uh it was a very
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simple decision to go to China cuz they
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were so low but those wages have gone up
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dramatically and they continue to go up
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dramatically and now it's not such a
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simple decision uh and companies are
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beginning to rethink it and we expect
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over the next few years there'll be a
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lot of rethinking because manufacturing
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the US is becoming very
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competitive uh are could you uh give any
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examples of companies that are you know
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driving this Renaissance in
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manufacturing and what are some of the
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kinds of jobs that are coming back well
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there there's a lot of companies that
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are doing it again I think we're still
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in the early stages you see big
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companies like National Cash Register
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NCR uh that was manufacturing their ATMs
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in China for the US is now Manufacturing
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in Columbus Georgia you see Ford uh
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adding jobs into uh its plants I think
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they committed to 12,000 jobs uh and you
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see companies like U uh General Electric
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uh adding uh capacity uh to produce
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water heaters in their Louisville
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Kentucky plant and it's also smaller
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company so Farooq uh systems which makes
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hair dryers has moved to I think 1500
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jobs back from China to the US uh you
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see uh Coleman the manufacturer of water
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coolers starting to build water coolers
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in the US and I can go on and on and on
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with a list um and every day we seem to
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find more and more companies that have
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made the decision because they're
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realizing the total cost of
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manufacturing in China with the wages
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being higher and all the other
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intangible issues are starting to make
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it just far more economic for more more
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logical to do this now some people may
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think that means factories will close in
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China and that's not going to happen
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that's not going to happen because of
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the way the Chinese economy is
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structured China's growing 8 10 12% a
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year China actually needs to build more
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factories just to support the domestic
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demand so it's not about companies
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making decisions to close a plant in
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China ironically it's the fact that the
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Chinese economy is growing so rapidly
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that makes a possible for us companies
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to very quickly build plants in the US
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because they need to put another plant
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in their system and they can just
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convert their domestic Chinese their
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plant that they used to ship from uh
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China to the the stuff they used to ship
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from China to the US to domestic
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consumption in China and then just build
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the plant in the United States so
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ironically China's success is what's
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causing this manufacturing Renaissance
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that's very very interesting now as we
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know the IMF predicted some time ago by
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2016 China will overtake the us as the
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world's largest economy uh in purchasing
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power parity terms uh
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do you see that having a significant
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impact on this trend or do you think uh
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uh the rise of manufacturing would
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continue regardless of which economy is
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larger I mean the US is still a very big
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economy and and you know even if China
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is is bigger in purchasing parody in
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absolute terms the US will be bigger for
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even longer period of time but I don't
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think it it matters whether the US is
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bigger or China is bigger uh they're
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both huge economies uh and both
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significant portions of the total world
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GDP uh and so they both will have scale
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and the ability to produce and I think
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that's what's really
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required as as I'm listening to you H I
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was very counterintuitive kind of ideas
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how did you figure this all out so this
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came to me from a a a wide set of areas
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uh the first thing that uh we I figured
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out was in discussions with some of my
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colleagues in China was they were
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talking about the wage increases in
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China being 15 to 20% a year and that
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made no sense to me didn't make it it
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didn't feel right but we looked into it
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of course they were right uh wages are
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rising at 15 to 20% a year um it came to
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me uh when my wife said the US doesn't
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manufacture anything anymore my wife has
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a also a degree from the University of
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Pennsylvania and a PhD molecular
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genetics so she's a very smart woman but
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she um looked at the conventional wisdom
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and it's easy to believe that if you
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look at things like clothing and shoes
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but the US manufactures 75% of
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everything that it consumes and that's a
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pretty high number uh considering what
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the conventional wisdom is that we don't
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make anything anymore and it came to me
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sitting in a board meeting one of my
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clients in which they have around 80% of
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their Manufacturing in China and they
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needed to do build build a new plant so
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they decided they would make it 85% of
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their manufacturing would be in China
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and I just raised the
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question what is it that do you really
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want to have all that Manufacturing in
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China aren't their Alternatives and so
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we looked at lots of other countries we
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looked at Vietnam we looked at Indonesia
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uh we looked at many different countries
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and for a lar I put in a plant in in the
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unit southern part of the United States
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just to see if it would work and we did
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the math in 2010 of course it didn't
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work because the wages have haven't sort
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of reached their full potential uh in
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China of rising but we then did the math
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and said what does it look like in 2015
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because plants are going to last for 20
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30 40 50 years so deciding now on
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today's economics doesn't make a lot of
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sense so we just said let's pick 2015
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what does it look like and we did the
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math and the difference was less than
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10% at the manufacturing Gates of a US
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plant or of a Chinese Plant and then the
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decision was to say let's understand
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what the transportation costs and all
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the intangibles when they looked at it
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they said you know it does make more
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sense to produce in the United
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States that that's really interesting
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now coming back to your earlier point
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about being trying to be close to where
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your customers are uh it's also a
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reality that consumption is growing very
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rapidly in the Emerging Markets uh
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from that perspective uh do you think
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that uh it makes sense for companies not
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just to set up manufacturing the us but
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also to where those emerging customers
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are and and have Manufacturing in
00:14:41
different parts of the world yeah I I I
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think what we're talking about is more
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localized manufacturing if you're going
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to consume the product or you're going
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to sell the product in the US you want
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to produce more of it in the US if
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you're going to produce if you're going
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to sell the product in China or an
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Emerging Market you probably want to
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produce there because some of the
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factors that make the difference are the
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transportation costs and if you're
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selling in China it's probably better to
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have your plant in China because you're
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closer to the customer for the same
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reason the US would be the case or
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Europe would be the case to do that it's
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just the economics of China and the US
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are getting a lot closer well that
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hasn't happened in Europe yet which
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Industries do you think are the best
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positioned to benefit from the
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manufacturing Renaissance so it's things
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like computers and electronics um it's
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Furniture right which is becoming a you
00:15:27
know obviously a lot of wood produced in
00:15:29
the US so it's a great thing uh it's
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things like Plastics and rubber and
00:15:33
Machinery uh its appliances and
00:15:35
electronic equipment uh there's about
00:15:37
70% of what we import from China uh that
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is in the area that we call the Tipping
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Zone that are the kinds of products that
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you need to think carefully about where
00:15:47
you put your next Plant because the US
00:15:49
might be a very good place to put it for
00:15:52
us consumption right uh I wonder if we
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could speak a little bit about the
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public policy implications uh what can
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the government do to accelerate this
00:16:02
trend of manufacturing jobs coming back
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sure well the government can play an
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important role uh hopefully we can get
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the the Democrats and the Republicans
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and Congress to actually unite around
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creating more jobs for Americans um
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because it will require legislation to
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do this and uh if they decide to
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continue to fight a war amongst
00:16:20
themselves and not look after the
00:16:21
American people that's going to be a
00:16:23
problem but assuming that happens you
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know we can accelerate the trend that we
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predicted by several years which means a
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whole lot more jobs sooner and a whole
00:16:31
lot more strengthen the American economy
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and it's going to take several things
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obviously there's tax policy
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implications uh we may want to look at
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you know all those funds that the that
00:16:40
us companies aren't repatriating to the
00:16:42
US uh and potentially you know give
00:16:44
those in in essence let them take bring
00:16:46
them back as a in a in in a non-t
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taxable or low tax form if they create
00:16:50
new jobs in manufacturing plants to tie
00:16:53
them over to that point in 2015 where
00:16:54
the numbers start to cross over uh we
00:16:57
can look at you know trying to make sure
00:16:59
the playing field is leveled for us
00:17:01
manufacturing it isn't right now um and
00:17:04
there you know are clearly predatory
00:17:05
practices that take place we're seeing a
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step up in the government from anti
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anti- dumping and other sorts of things
00:17:11
which is there there's a lot of things
00:17:13
that can be done including you know
00:17:15
increas in training um you know we can
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think about uh both uh subsidization of
00:17:20
training for new workers because if you
00:17:22
build a new manufacturing plant you have
00:17:23
to train the workers that goes on in
00:17:25
China we could do that in the US and we
00:17:27
could think about actually expanding our
00:17:29
educational system um we all you know
00:17:32
tell our children and it's the right
00:17:33
thing to do that you should get a
00:17:34
college education um but you know you
00:17:37
can also learn a trade in a college
00:17:39
education I believe at Borton I not only
00:17:41
got a great liberal arts education but I
00:17:43
also got learned a very important trade
00:17:45
that stood me well in life uh but we can
00:17:48
think about a vocational version of that
00:17:49
in which you have a four-year college
00:17:51
that you know as as I did at Warden I
00:17:53
did basically two years of liberal arts
00:17:54
and two years of business uh that was
00:17:56
the way the program works uh we can do
00:17:58
do the same thing but it could be two
00:18:00
years of liberal arts and two years of
00:18:01
Plumbing or welding or other skills that
00:18:03
would be appropriate for the new
00:18:05
manufacturing era that we're entering
00:18:07
does the US need a a new industrial
00:18:10
policy do you think I think what the US
00:18:12
needs is a job policy um we can talk
00:18:14
about industrial policy and that's
00:18:16
something that we may want to focus on
00:18:18
but there are there's a jobs policy and
00:18:20
we should be thinking about where uh
00:18:22
where we want to place our bets in terms
00:18:24
of jobs uh the kinds of things that we
00:18:26
want to do the industries that we want
00:18:28
to make sure Industries for the future
00:18:30
to make sure that the US is not locked
00:18:31
out of those um clearly green energy is
00:18:34
an issue it has its ups and downs uh but
00:18:37
fundamentally at some point in time the
00:18:38
world's got to move to Green energy
00:18:40
because we're going to run out of fossil
00:18:41
fuels we've continued to find more but
00:18:44
uh it gets more and more expensive and
00:18:45
that means green energy will be
00:18:46
important whether it's in two years or 5
00:18:48
years or 10 years or 20 years uh we
00:18:50
don't want to be left out of Industries
00:18:52
like
00:18:53
that uh I remember from our past
00:18:56
conversations that you've done a great
00:18:58
of work on uh
00:19:01
globalization uh can you help uh situate
00:19:05
this uh what's going on within the
00:19:07
broader trend of where do you see the
00:19:09
global economy itself evolving to and
00:19:11
what are some of the long-term
00:19:12
implications of the manufacturing Gren s
00:19:15
we're seeing in the US well I've spent a
00:19:16
lot of time as you as you know um
00:19:19
thinking about globalization and how the
00:19:20
world's evolving and I think this is
00:19:21
just another piece in the puzzle that
00:19:23
that uh fell on my doorstep so the
00:19:26
initial wave of globalization uh was uh
00:19:30
in Western companies looking at the
00:19:33
lowcost markets setting up manufacturing
00:19:35
or Outsourcing manufacturing eventually
00:19:37
to companies in those markets to produce
00:19:39
and to sell the product back into the
00:19:41
the Western markets or the developed
00:19:43
World
00:19:43
Markets um the second wave was this
00:19:47
growth of what we called the challengers
00:19:49
uh companies that were saying hey I can
00:19:51
manufacture this stuff but I don't want
00:19:53
to be just doing it and putting your
00:19:54
name on it I want to manufacture it and
00:19:57
have my name on it I want to be the big
00:19:59
player I don't want to be just a
00:20:01
supplier uh I want to get the big
00:20:03
margins and I want to have my own brand
00:20:05
uh and that was the second wave and we
00:20:06
saw many Global Challengers emerge and
00:20:09
do incredibly well but what's taking
00:20:11
place is the next step in economics
00:20:13
because economics as I learned here at
00:20:15
Warden are all about the evolution of
00:20:17
them they're never permanent they change
00:20:19
all the time and what's taking place is
00:20:21
with the wage rising in China and all
00:20:23
the other uh wage all the other costs
00:20:25
that are rising overall in China um the
00:20:28
e ecomics are now shifting back towards
00:20:30
the logic of us production and that's
00:20:32
the third wave of globalization we're
00:20:34
reaching a new equilibrium at least with
00:20:36
China it's not happened yet with a lot
00:20:37
of the other countries and it may over
00:20:39
time we'll see how it plays out but
00:20:41
we're seeing a new equilibrium of
00:20:42
globalization which would be more of a
00:20:44
steady state until there's some
00:20:46
perturbation that would change that but
00:20:48
we're seeing the fundamentals of the
00:20:50
economics equilibrating between the US
00:20:51
and China now as that happens we're
00:20:54
seeing some second order effects too
00:20:56
because the system that we have here in
00:20:58
the US is very different than the
00:20:59
European system the European system for
00:21:02
most of the countries have very high
00:21:03
exit barriers and of course High exit
00:21:06
barriers mean that you're more reluctant
00:21:08
to build a new plant because once you
00:21:10
have a plant there the costs to get out
00:21:11
are are very low will in the US we could
00:21:14
debate Which social system is better but
00:21:16
in the US the facts are just different
00:21:17
it's a lot easier to get out of being in
00:21:19
a plant if you don't need it and so the
00:21:22
fundamentals are starting to shift and
00:21:24
what we see is European companies not
00:21:26
just us companies looking at produc ing
00:21:28
in the US first for domestic consumption
00:21:31
and we see the car companies have been
00:21:32
doing this for a long time but other
00:21:34
companies are thinking about it as well
00:21:36
as Japanese companies who are are doing
00:21:37
the same thing uh but also to think
00:21:40
about the us as an export platform so
00:21:43
one company zans uh set up a a a power
00:21:46
turbine uh plant in I believe it's in
00:21:49
Georgia uh where they make Power
00:21:51
turbines uh and they've just signed an
00:21:53
order with Saudi Arabia to ship from
00:21:56
Georgia six major power tur
00:21:59
um quite an interesting thing that we
00:22:01
see uh we see announcements by some of
00:22:03
the Japanese automakers as thinking
00:22:05
about the us as an export platform now
00:22:08
that's why jobs are going to be rising
00:22:09
in the US and that's the real sign that
00:22:11
what we're talking about in the shift in
00:22:13
economics is really happening because
00:22:16
people are putting their money down
00:22:18
making some very important decisions and
00:22:20
realizing that the US has a very high
00:22:22
highly productive Workforce a very
00:22:24
flexible Workforce uh and the ability to
00:22:27
be a very lowcost manufacturing platform
00:22:30
for some very important
00:22:32
industries which areas in the US do you
00:22:34
think will benefit most from this well
00:22:36
we used to think it would be the
00:22:38
southern part of the us for the most
00:22:39
part um but actually our thinking has
00:22:42
evolved on that um as we begin to
00:22:45
understand the wage differential is a
00:22:46
lot lower than we might have thought
00:22:47
because the averages are misleading um
00:22:50
we got to look at wages for the startup
00:22:52
of new plants not for uh existing plants
00:22:55
and so uh our new thinking is that it's
00:22:57
going to happen in most States and
00:22:58
interestingly enough we're seeing things
00:23:00
in places that we never thought we'd see
00:23:02
we're seeing plants of this nature open
00:23:04
in places like Ohio we're seeing it in
00:23:06
California we're seeing it in the rest
00:23:08
of the Pacific Northwest it's very
00:23:10
interesting it isn't it isn't an issue
00:23:13
of um right to work states It's actually
00:23:16
an issue of where it makes sense to
00:23:17
produce great hell thanks so much for
00:23:20
speaking with us today you're
00:23:25
[Music]
00:23:27
welcome
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[Music]
