31 ms·

Advanced Economies Must Still Make Things

167 points by craigjb 11y ago

bsder 11y ago
Unfortunately, making things reduces your profit margin. You can't be a unicorn if you actually have to live on a profit margin.
- dilemma 11y ago
  Making software lets you project infinite scalability.
  - eb0la 11y ago
    In theory, yes. You can copy indefinitely the software but there's always some friction to market adoption and to circumvent that you need marketing, and sales people... which doesn't scale well unless you have a good recurring revenue base (sell once, collect forever. Like Oracle business model)
    - taneq 11y ago
      Oh it certainly lets you project infinite scalability in practice. Whether you can achieve it or not is a totally different question.
- adrianN 11y ago
  Because as we all know providing services has zero cost for the company and hence service companies don't have to live on a profit margin?
  - Sephr 11y ago
    Fundamentally, selling software for your users to run on their own devices is pretty close to zero cost. It's literally just the cost to get it to their device, and that's it (disregarding payment processors, support, etc.).
- DiabloD3 11y ago
  Although bsder was snarky as fuck when he wrote the above comment, I don't think he should be downvoted for it. I mean, frankly, I agree with the sentiment. A lot of unicorn fillies seriously try to base their model around doing as little as possible, as flashy as possible, with as little expense as possible. On paper, that is a great idea, everyone should do it, viva la venture capital, etc. In reality, it isn't shareholder value you need to provide: it is customer value. If you are not a valuable product or service to your customers, you have no shareholder value. A lot of silicon valley venture capitalists forget that very important distinction, and we are well on our way to Dot Bomb 2.0, repeating the late 90s clusterfuck that made a few billion dollars vanish overnight. To tie this into the "advanced economy" theme, an advanced economy doesn't inflate bubbles. America still inflates bubbles: we aren't as advanced as we think we are, but we are improving.
  - marincounty 11y ago
    I am horrid at predicting the future, but I'm seeing too many of these cute companies' commercials like Birchbox, Lollipop, cute.com, cute30employedfemale.com, cutesinglebadgirl.com, boredhubbyathome.com, buymycutechinesegabage.com, hayourvansarecutebuyyme.com, dinkswhobuythings.com,(this will perk up marketing majors.), etc. I see a big crash. So big, rents will drop in the Bay Area--big time! I guess homeless shelters/programs won't be controversial? I really cringe when I think about the future. (I'm kinda just kidding, but some of these companies just look like they are trying to spend what's left of the funding on advertising? Don't get me wrong EBay needs competition, and dating services need competition, but don't do it in a cute way? Just offer a good product. Low fees, and honesty. Get rid of the MBA's. Get rid of the Designers, at least the one's who are just copying a TED presentation?)
- throwaway_xx9 11y ago
  As one Chinese factory owner put it, "I can take my nickel of profit per item to the bank. You can't take your 15% ROI to the bank."
netcan 11y ago
"manufacturing is still important for the health of a country’s economy, because no other sector can generate nearly as many well-paying jobs" This is a tricky starting point. Economies have all sorts of side effects that are important. But ultimately, economies are supposed to produce stuff that people consume. We have plenty of pots and pans, furniture, cars, etc. The price of manufactured goods has been dropping for centuries and the quantity has been rising. As the article states, manufacturing is still growing. Wanting manufacturing to keep pace and maintain a proportion of the economy well... We don't need that much manufactured goods.
- bluetomcat 11y ago
  It's not about the scarcity of stuff (we have plenty), it's about keeping people employed. Large-scale factory work provides a long-term, stable occupation to a large amount of people. The volatility of the service sector lets people change jobs more frequently, which leads to increased unemployment and psychological problems.
- superbaconman 11y ago
  > We don't need that much manufactured goods. And I think we're needing less of them too. Everyone who opts to rent vs own is one less mower to sold, one less shed to be built, one less piece of "infrastructure" to maintain. We're all begging for shared public transport which will result in less vehicle production. The way we live fundamentally shapes our economy; I feel like we forget this sometimes.
js8 11y ago
Amen to that. In general, I think successful economies should strive to be pretty balanced sector-wise, for two reasons: 1. Like with outsourcing, if you have enough people to be experts in a given thing, it will probably cost you more to outsource than to keep local expertise, due to additional transaction cost (transport, culture barrier, outsourcer profits, corruption..). And nations typically have more than enough people to be experts in some basic economic production infrastructure. IMHO, it only pays off to outsource high-end stuff, like microprocessors, to other nations. It is also good for a nation to be expert/leader in some area like that. Switzerland is a good example of this. 2. There are network effects when you have mixed economy. How can you produce any good, say, agricultural machinery without agriculture? You may be the best machinist in the world, but without trying it out you don't know what problems you're solving. IMHO, this adds up very quickly. Similar with computing - you cannot solve manufacturing problems without having manufacturing industry in the same place you have the people who know computers. It may seem that in today's connected world it wouldn't matter, but I doubt it. You need to get people from different fields to know each other, to talk over lunch or beer about problems they have. I think (in the U.S. at least) there is also social stratification issue, which is partly resulting at people poking at startups (sometimes rightfully so) for stupidly catering to middle classes instead of solving real problems.
- clarkmoody 11y ago
  > successful economies should strive to be pretty balanced The economy is not a thing that can "strive" for anything. Rather, the economy is simply the collection of actions taken by people in the market. Let's ask, why are those economies successful in the first place? > stupidly catering to middle classes instead of solving real problems That's a bit condescending, don't you think?
  - js8 11y ago
    > The economy is not a thing that can "strive" for anything. Of course it can, it's a component of human society, and societies can "strive". > Rather, the economy is simply the collection of actions taken by people in the market. Just like actions of individual humans is "simply" result of actions taken by individual neurons. > Let's ask, why are those economies successful in the first place? Sure - Ha-Joon Chang was already mentioned, and I wholeheartedly recommend his books. From his perspective, "free trade" is just one possible economic strategy, that is useful on a certain level of economic development. > That's a bit condescending, don't you think? Sometimes deservedly so. If I believed in the rationality of the free market, I would be confused by huge valuations of advertising IT companies. Anyway, I am not really judging those people, I was just making remark that they are criticized. In fact, I am (almost) one of them, I work for large SW company that does IT support software for big corporations like banks. I would probably prefer to improve software for manufacturing, but the truth is, it just doesn't pay that well as this.
adrianN 11y ago
With the same argument, agriculture is important for advanced economies, because no other sector can generate as many jobs. Remember, not too long ago a large majority of the people were farmers. Eventually we'll have to move away from the notion that everybody needs a job that contributes to GDP.
- ekianjo 11y ago
  > Eventually we'll have to move away from the notion that everybody needs a job that contributes to GDP. The goal is not maximum employment, The goal is maximum production. Whether that involves more employees is a totally different topic.
  - Scarblac 11y ago
    The goal should be maximum happiness.
    - mryan 11y ago
      Employment and production are easy to measure. Happiness, less so.
      - Scarblac 11y ago
        That's a bit of an odd reason to change the whole goal, isn't it? So we track the kinds of things that we can measure and that we hope correlate with happiness, but we carefully check that they keep doing so. We shouldn't let one of them (like "maximize production") become the end goal itself!
        mryan 11y ago
        > That's a bit of an odd reason to change the whole goal, isn't it? Having a goal of 'maximising production' is the status quo - I am not proposing any changes. I agree with you that the world would be a better place if our economy was focussed on achieving maximum global happiness, I just wanted to point out why it is easier to focus on an objective, numeric value like production than a subjective feeling like happiness (Gross National Happiness notwithstanding).
bryanrasmussen 11y ago
the statement " no other sector can generate nearly as many well-paying jobs" would mean more if they showed loss of jobs due to automation and projected how future automation would effect the ability of manufacturing to produce so many well-paying jobs. Because maybe the argument is Advanced Economies must still make things for the next 15 years after which it's not really worthwhile.
leaveyou 11y ago
but, but how about intellectual property ?!? I thought patenting the round corners is the future ..
tim333 11y ago
>Take away manufacturing and you’re left with...selfies It's not true. Take for example Jersey, Luxembourg and the like. In those places there is insignificant manufacturing and the main business is banking. That's the whole thing about trade - one place can do one thing and one can do another.
- iamflimflam1 11y ago
  Jersey has the population of a small town, Luxembourg that of a small city.
- crdoconnor 11y ago
  Then if you take away their status as tax havens and they are left with nothing except a paltry tourist economy. Those economies are parasitic on larger economies that do make things.
- anexprogrammer 11y ago
  Yes, let's even look at London. Stupidly reliant on banking, billions defrauded via Libor fixing etc. What happens when there's a "credit crunch"[1]? Quantitative Easing! [2] The 50-60% of the economy not in banking, and not needing a loan at the moment, is talked into a recession by the twits in the media. The SaaS business in Manchester, Leeds or Newcastle didn't change, lose customers, or become more risky, but the banks won't lend because the whole banking sector became suspect, so they just lost their cashflow. Perhaps the problem is that the entire country wasn't working for the dishonest banks[3]? Presumably watching Wall Street and Liar's Poker every morning with the cornflakes? Yet the first thing retrenched in a recession is optional services - like loans, insurance. It's no longer possible to trade our way out of recessions like the UK, and much of the world, did postwar ("export or die"). We solved a postwar recession of far higher percentage of GDP via creation and trade. George Osborne has reduced the rate of increase of the debt a bit. We're left with the ineffectiveness, and downright fraudulence, of quantitative easing and austerity. If you're old enough to remember the 80s, you'll remember that was no better. With the added fun of 15% mortgage rates. No thanks. More metal bashing please. More encouragement of every sector that isn't in the square mile. A diverse, resilient, economy. [1] I love this euphemism (/s). The biggest fraud in human history and the media calls it the credit crunch. [2] Print money to give to the banks, to encourage them to lend, that they use to pad their bottom line. Repeat numerous times, as though it is effective. Toughen up capital requirements to further encourage use on the bank rather than advertised purpose. Sending cheques to each voter GW Bush style would be more effective getting money into the business economy. [3] Unlike retail, pharmaceutical, industrial and a dozen other sectors banking regulation was abolished wholesale.
quanticle 11y ago
Advanced economies must still make things, but there's no rule that says that those things have to be made by people. In inflation-adjusted dollar value terms, the value of US manufacturing has never been higher. In employment terms, it's never been lower. While there are those who blame outsourcing for that, the vast majority of manufacturing job losses have been due to automation, rather than competition from abroad. For example, look at this video of a MillTurn M60: https://www.youtube.com/watch?v=81UjjSH2iFw https://www.youtube.com/watch?v=81UjjSH2iFw. This one machine replaces an entire shop floor of lathes and mills... and all their operators, too.
- sokoloff 11y ago
  Yes, but someone is still loading the parts, changing and indexing the tool bits, doing inbound material inspection, final part inspection, packing, CNC programming, CNC maintenance, and other jobs associated. Sure, it's now 10 people instead of 50, but that's still better from a job creation standpoint than 1 (if we did all that work out of country and only did inbound inspection and logistics). Automation is installed for two primary reasons: [labor] cost or repeatability. I agree that it's not just outsourcing as a cause, but rather a natural response to ongoing cost reduction in manufacturing.
  - xyzzy123 11y ago
    Right but "fortunately" we can do that with marginal labour, which is more or less what we observe. The great thing about globalisation is that it does seem to be a standard of living equaliser. The bad part is that it's a long way to the bottom if you live in the west.
    - cubano 11y ago
      Exactly what type of labor isn't "marginal" then? Banking? Investment advice? Construction? Software development? Whom exactly decides whos work is marginal? Do "marginal" employees somehow deserve to be displaced by greedy upper management whom already make historically larger salaries as compared to them? I guess I simply do not like that term and the negative profile and connotations it implies.
dkopi 11y ago
I find the whole discussion of what "economies must" and what "economies should" baffling. Economies don't have wills of their own. Economies describe the voluntary economic activity of millions to billions of people. Economies end up doing what is profitable, and possible (given skills, capital investment, infrastructure). When someone says "Economies should" what they're actually saying is: "I wish the government would spend a lot of money or pass a lot of laws to force the economy in the direction I want".
- crdoconnor 11y ago
  >When someone says "Economies should" what they're actually saying is: "I wish the government would spend a lot of money or pass a lot of laws to force the economy in the direction I want". If you don't, somebody else will, and if you don't have political representation in that policymaking you're not going to end up a winner.
- icebraining 11y ago
  If you understand what people mean, why do you find it baffling? But in any case, it's not necessarily a prescription, it can be simply an observation, as in, "advances economies must make things [if they are to remain advanced]", no different than a biologist might say "species A must increase their reproduction rate [or go extinct]".
  - lr4444lr 11y ago
    I think what he's saying (and your example doesn't contradict) is that there exists a common fallacy of confusing individual firms' complex behaviors, like planning and executing a new manufacturing plant, with emergent behavior. Similarly a species doesn't increase its reproduction rate: it grows in numbers or it shrinks (to the point of extinction) based on individual specimens' reproductive behavior. The equivalent in economics here, I think, would be net exports. Though there is correlative power between the firm and the economy, the specimen and the species, the incentives and long-term/short-term outcomes might not be aligned, which has implications for policy.
- RobertoG 11y ago
jjar 11y ago
Great article, terrible site design. Seriously, who limits their content to a single 300px wide column when there are 3 other columns with only links to other parts of the site?
dmichulke 11y ago
It's kind of obvious that no one can live if we only have services and money printing. Someone must produce something (and preferably something with a high price / cost ratio), this applies to manufacturing as well as agriculture. The biggest news (and very sad at that) is that "making things" is so far away from the mainstream economic models that formerly common sense rules are worth a headline.
deleted 11y ago
[deleted]
haddr 11y ago
This has been known for some time (and proven with some good examples) but still is a shock to people who believed somewhere in '90 that the next stage in the economy is the shift to services instead of industry. I recommend this book from Ha-Joon Chang that has a nice chapter on that (a very pleasant read with references): http://www.amazon.com/Things-They-Dont-About-Capitalism/dp/1501266306 http://www.amazon.com/Things-They-Dont-About-Capitalism/dp/1...
- TheOtherHobbes 11y ago
  > still is a shock to people who believed somewhere in '90 that the next stage in the economy is the shift to services You should tell the UK's political class. Moving away from manufacturing to services has been been official dogma here since the very late 1970s. As a result we have an economy founded almost entirely on tax havens, speculation, sporadic renovation projects for rich people, and asset price bubbles, with a bit of marketing and corporate communications around the edges.
- stantona 11y ago
  +1. I highly recommend Ha-Joon-Chang's books, I've learned a lot about economics from him. He puts forward a strong argument that economic policy must be flexible, and shift with evolving times and technological changes. In other words, he's highly critical of ideologies, like f global free markets, or trickle down economics.
DrNuke 11y ago
Oversupply and stagnation were solved in the past by wars or new worlds' colonisation. Considering that Planet Earth is full and that we do not want a nuclear war, the best opportunity for mankind is Moon or Mars colonisation. Exploration has always been the distinctive trait of humans and still will be.
- novalis78 11y ago
  Another related question is how much demographics (less younger dynamic vs older comfortable individuals that resist change) has an impact on exploration.
  - ArkyBeagle 11y ago
    I don't think it does. The classic explorer was a "seventh son" in the age of primogenture. Or they were just plain crazy. The generation that got us to the moon wasn't that young even at the time. Gene Krantz would have been 30 in 1963. Since life expectancy was lower then and people didn't stay in school until they were 30, 30 was the start of middle age. Krantz, like my parents, was Silent Generation, and they had a different idea about technology in general. Please understand that "youth culture" was originally designed by Big Tobacco to sell cigarettes - spend more on ads for youth because they'll smoke your brand for 40 years. Then it was music/movies, then soda and shoes. Now it's phones. In these things, you are at a poker game. If you don't know who the sucker is at a poker game, you're it.
- kbart 11y ago
  We can still make non-nuclear wars, just keep bombing 3rd world countries to keep that huge military machine running. P.S. to all downvoters: I'm not suggesting or advocating that, just stating the sad truth.
  - pessimizer 11y ago
    Right? If we need a war, and we don't want a nuclear war, we can constantly attack countries without nuclear weapons, do proxy wars with Russia (maybe China in the future, if we could be so lucky) and arm both sides of civil wars. Also, we can sell weapons to countries who are constantly dealing with internal unrest (because they are dictatorships propped up by the sale of their natural resources.)
Dowwie 11y ago
noteworthy that the author is Vaclav Smil: http://www.wired.com/2013/11/vaclav-smil-wired/ http://www.wired.com/2013/11/vaclav-smil-wired/
fauigerzigerk 11y ago
There is not much if anything in this article to support the headline claim. I'm not saying it isn't true, but the article doesn't provide any evidence of that. Yes Toyota employs more people than Facebook. What does that tell us exactly? The film industry employs more people in the U.S than the auto industry. If the numbers in this article show anything, it is that the most advanced economies vary hugely when it comes to the size of the manufacturing sector. I think the case for a manufacturing sector that isn't 0% of the economy can absolutely be made, but this article doesn't even start making it.
jnordwick 11y ago
Why do we have to make things? Or why tangible things? Take for instance the financial sector. They make allocation decisions in essence and sell service around management, consulting, and financial engineering. A large chunk of our economy is based around resource allocation, not actually turning resources into products more efficiently than the last guy. As an economy progresses, it moves further and further away from things and towards ideas. We went from hunters and gatherers of food and clothing, to agriculture, to machining things, to primitive banking, all the way up to modern financing. At each step we became further and further removed from actually putting iron-to-iron and producing this. We become more involved in how to efficiently allocate resources for those that did produce. And that population of those that do produce continues to fall as automation comes along and we become better at making more with less. Finance has really put productive resources to amazing efficient use though capitalism. We will get to a point where almost nobody does machines or sits on an assembly line anymore, and their jobs will give way to a larger and larger pool of people who work in the meta-market, the mental-based market that really drive the physical-based market.
- marcosdumay 11y ago
  > A large chunk of our economy is based around resource allocation, not actually turning resources into products more efficiently than the last guy. Writing this should have made you pause. Really. May I ask where are you so proficiently allocating resources into? You are correct in that information products and services are wealth too, but that applies only for stuff people want. Real people. Everything else is not wealth by itself, including almost the entire banking system.
  - skolos 11y ago
    Soviet Union resource allocation was performed by central planning committee instead of markets. The result of that is known. With good financial system the resource allocation is same as capital allocation. Good capital allocation is not possible without transparent and liquid markets. Transparent and liquid market depends on its biggest players - institutional investors, banks and their regulators. Hence the banking system is huge wealth provider. Otherwise we would be living under communism now.
JDDunn9 11y ago
A few notes about the shift from manufacturing to a service based economy: - Services take a larger share of GDP by staying flat while prices of goods fall. You pay less for most manufactured goods than you did 20 years ago, while your haircut cost about the same. - Services are generally harder to export. You can ship a physical product, it's hard to export a haircut. - Goods can be stockpiled/scaled if needed, services cannot.
marco_salvatori 11y ago
I didn't feel this article was clearly thought out. If just manufacturing things, whatever things are, were important then possibly replacing (magically) the industrial sectors in the US with those from China would be a good thing. If that came about then of course the US would be much poorer, possibly as poor as China. Its also not sufficient to say manufacturing is a source of good paying jobs. Highly skilled manufacturing sectors provides good wages and benefits (say, semiconductor manufacturing), piece work in say the garment industry provides sub subsistence level wages. A better title would be - "it matters what an advanced economy produces". I used to work in manufacturing (all over the world) and here a few impressions based on my experience. In the factories, today, where people in advanced economies would want their children to work, there are more robots than people. The ratio of automation will increase over the next 10 years as the machines become smarter. In advanced countries it is more and more common for manufacturing facilities to require the skills of people with PhD's, Masters degrees and highly trained vocational workers to function. There are going to be very few jobs in 10 years for people who can just contribute muscle power. Even in the far east, manufacturing is going to be a sector of falling employment (like agriculture in the past) and at the same time of rising output (like agriculture). And lastly, here is a thought, based on my experience running a business. There is lots of competition out there in the world. One cant make a good living producing any "Thing". One has to find a product that is differentiated, valuable to others, and not easily reproduced by thousands of other businesses all over the world. And then one has to sell it. That's turns out to be a difficult job -- much more complicated than a slogan like "manufacturing".
EGreg 11y ago
I have predicted this for a long time (not just me, but a lot of people). The demand for human labor is going down on average, so wages are going down - and have been on a decline since the 70s. Capitalism relies on employers to value their employees for the money to trickle down and the system to work. Our grandfathers used to work for the same employer for decades and got a pension. Today, that loyalty is unheard of from either side. We have the rise of temps and the contractor economy and unemployed living with parents. Yes, the cost of mass produced consumer goods is going down. So the wage repression is mitigated. With the explosion of consumer credit in the 80s and 90s, the unsustainability of consumer spending was also masked. Now it has come to the fore, in exactly the areas where costs are not going down: rent and real estate. In every major city including NYC and SF, the costs of rent are sky high relative to wages. Wonder why? Look at the rest of the country and it's true too -- the rents are slightly lower but the wages are lower too. So the predictions are borne out... automation has reduced demand for human labor, reduced wages for the average worker (or they got laid off / became temps), reduced the prices of mass produced goods, but the cost of real estate keeps rising.
- wycx 11y ago
  Capitalism relies on employers to value their employees for the money to trickle down and the system to work. It is not capitalism but rather neoliberalism/monetarism that propels the trickle-down theory. The time period where grandfathers worked for the same employer and then got a pension coincided with the post-depression/WW2 period of Keyensianism when many western governments pursed full employment economies via fiscal policy. In the period from the early 1970s onwards when neoliberalism/monetarism has been dominant, we have seen falling real wages, the financialisation of the economy (including the consumer credit explosion you describe), governments restricting themselves to managing the economy only through the very blunt tool of monetary policy (i.e. interest rates via a central bank). I would argue that the symptoms we both identify are the result of neoliberal/monetarist policy rather than decreased demand for human labour. If governments still pursued full employment via fiscal policy things would be very different.
  - tanker 11y ago
FussyZeus 11y ago
> And yet manufacturing is still important for the health of a country’s economy, because no other sector can generate nearly as many well-paying jobs. Take Facebook, which at the end of last year had 12,691 employees, versus the 344,109 that Toyota had at the end of its fiscal year, in March 2015. Making things still matters. There are so many assumptions in this article but especially here. Author assumes people are required to make things, they are not. Author assumes factory jobs will pay well, they often don't, and there's no reason they will. And the employment disparity between IT companies and Manufacturing is showing that you can create a ton more wealth with a small number of IT people than a huge number of manufacturing people, which is why Wall Street values those companies higher these days.
dscpls 11y ago
This inference of "making implies jobs therefore make things" is just short sighted. Is making things really the _only_ option of making providing jobs?! It's not realistic when there's nothing more we need to make and consume!

167 points by craigjb 11y ago

bsder 11y ago

Unfortunately, making things reduces your profit margin. You can't be a unicorn if you actually have to live on a profit margin.

dilemma 11y ago
Making software lets you project infinite scalability.
- eb0la 11y ago
  In theory, yes. You can copy indefinitely the software but there's always some friction to market adoption and to circumvent that you need marketing, and sales people... which doesn't scale well unless you have a good recurring revenue base (sell once, collect forever. Like Oracle business model)
  - taneq 11y ago
    Oh it certainly lets you project infinite scalability in practice. Whether you can achieve it or not is a totally different question.
adrianN 11y ago
Because as we all know providing services has zero cost for the company and hence service companies don't have to live on a profit margin?
- Sephr 11y ago
  Fundamentally, selling software for your users to run on their own devices is pretty close to zero cost. It's literally just the cost to get it to their device, and that's it (disregarding payment processors, support, etc.).
DiabloD3 11y ago
Although bsder was snarky as fuck when he wrote the above comment, I don't think he should be downvoted for it. I mean, frankly, I agree with the sentiment. A lot of unicorn fillies seriously try to base their model around doing as little as possible, as flashy as possible, with as little expense as possible. On paper, that is a great idea, everyone should do it, viva la venture capital, etc. In reality, it isn't shareholder value you need to provide: it is customer value. If you are not a valuable product or service to your customers, you have no shareholder value. A lot of silicon valley venture capitalists forget that very important distinction, and we are well on our way to Dot Bomb 2.0, repeating the late 90s clusterfuck that made a few billion dollars vanish overnight. To tie this into the "advanced economy" theme, an advanced economy doesn't inflate bubbles. America still inflates bubbles: we aren't as advanced as we think we are, but we are improving.
- marincounty 11y ago
  I am horrid at predicting the future, but I'm seeing too many of these cute companies' commercials like Birchbox, Lollipop, cute.com, cute30employedfemale.com, cutesinglebadgirl.com, boredhubbyathome.com, buymycutechinesegabage.com, hayourvansarecutebuyyme.com, dinkswhobuythings.com,(this will perk up marketing majors.), etc. I see a big crash. So big, rents will drop in the Bay Area--big time! I guess homeless shelters/programs won't be controversial? I really cringe when I think about the future. (I'm kinda just kidding, but some of these companies just look like they are trying to spend what's left of the funding on advertising? Don't get me wrong EBay needs competition, and dating services need competition, but don't do it in a cute way? Just offer a good product. Low fees, and honesty. Get rid of the MBA's. Get rid of the Designers, at least the one's who are just copying a TED presentation?)
throwaway_xx9 11y ago
As one Chinese factory owner put it, "I can take my nickel of profit per item to the bank. You can't take your 15% ROI to the bank."

netcan 11y ago

"manufacturing is still important for the health of a country’s economy, because no other sector can generate nearly as many well-paying jobs" This is a tricky starting point. Economies have all sorts of side effects that are important. But ultimately, economies are supposed to produce stuff that people consume. We have plenty of pots and pans, furniture, cars, etc. The price of manufactured goods has been dropping for centuries and the quantity has been rising. As the article states, manufacturing is still growing. Wanting manufacturing to keep pace and maintain a proportion of the economy well... We don't need that much manufactured goods.

bluetomcat 11y ago
It's not about the scarcity of stuff (we have plenty), it's about keeping people employed. Large-scale factory work provides a long-term, stable occupation to a large amount of people. The volatility of the service sector lets people change jobs more frequently, which leads to increased unemployment and psychological problems.
superbaconman 11y ago
> We don't need that much manufactured goods. And I think we're needing less of them too. Everyone who opts to rent vs own is one less mower to sold, one less shed to be built, one less piece of "infrastructure" to maintain. We're all begging for shared public transport which will result in less vehicle production. The way we live fundamentally shapes our economy; I feel like we forget this sometimes.

js8 11y ago

Amen to that. In general, I think successful economies should strive to be pretty balanced sector-wise, for two reasons: 1. Like with outsourcing, if you have enough people to be experts in a given thing, it will probably cost you more to outsource than to keep local expertise, due to additional transaction cost (transport, culture barrier, outsourcer profits, corruption..). And nations typically have more than enough people to be experts in some basic economic production infrastructure. IMHO, it only pays off to outsource high-end stuff, like microprocessors, to other nations. It is also good for a nation to be expert/leader in some area like that. Switzerland is a good example of this. 2. There are network effects when you have mixed economy. How can you produce any good, say, agricultural machinery without agriculture? You may be the best machinist in the world, but without trying it out you don't know what problems you're solving. IMHO, this adds up very quickly. Similar with computing - you cannot solve manufacturing problems without having manufacturing industry in the same place you have the people who know computers. It may seem that in today's connected world it wouldn't matter, but I doubt it. You need to get people from different fields to know each other, to talk over lunch or beer about problems they have. I think (in the U.S. at least) there is also social stratification issue, which is partly resulting at people poking at startups (sometimes rightfully so) for stupidly catering to middle classes instead of solving real problems.

clarkmoody 11y ago
> successful economies should strive to be pretty balanced The economy is not a thing that can "strive" for anything. Rather, the economy is simply the collection of actions taken by people in the market. Let's ask, why are those economies successful in the first place? > stupidly catering to middle classes instead of solving real problems That's a bit condescending, don't you think?
- js8 11y ago
  > The economy is not a thing that can "strive" for anything. Of course it can, it's a component of human society, and societies can "strive". > Rather, the economy is simply the collection of actions taken by people in the market. Just like actions of individual humans is "simply" result of actions taken by individual neurons. > Let's ask, why are those economies successful in the first place? Sure - Ha-Joon Chang was already mentioned, and I wholeheartedly recommend his books. From his perspective, "free trade" is just one possible economic strategy, that is useful on a certain level of economic development. > That's a bit condescending, don't you think? Sometimes deservedly so. If I believed in the rationality of the free market, I would be confused by huge valuations of advertising IT companies. Anyway, I am not really judging those people, I was just making remark that they are criticized. In fact, I am (almost) one of them, I work for large SW company that does IT support software for big corporations like banks. I would probably prefer to improve software for manufacturing, but the truth is, it just doesn't pay that well as this.

adrianN 11y ago

With the same argument, agriculture is important for advanced economies, because no other sector can generate as many jobs. Remember, not too long ago a large majority of the people were farmers. Eventually we'll have to move away from the notion that everybody needs a job that contributes to GDP.

ekianjo 11y ago
> Eventually we'll have to move away from the notion that everybody needs a job that contributes to GDP. The goal is not maximum employment, The goal is maximum production. Whether that involves more employees is a totally different topic.
- Scarblac 11y ago
  The goal should be maximum happiness.
  - mryan 11y ago
    Employment and production are easy to measure. Happiness, less so.
    - Scarblac 11y ago
      That's a bit of an odd reason to change the whole goal, isn't it? So we track the kinds of things that we can measure and that we hope correlate with happiness, but we carefully check that they keep doing so. We shouldn't let one of them (like "maximize production") become the end goal itself!
      - mryan 11y ago
        > That's a bit of an odd reason to change the whole goal, isn't it? Having a goal of 'maximising production' is the status quo - I am not proposing any changes. I agree with you that the world would be a better place if our economy was focussed on achieving maximum global happiness, I just wanted to point out why it is easier to focus on an objective, numeric value like production than a subjective feeling like happiness (Gross National Happiness notwithstanding).

bryanrasmussen 11y ago

the statement " no other sector can generate nearly as many well-paying jobs" would mean more if they showed loss of jobs due to automation and projected how future automation would effect the ability of manufacturing to produce so many well-paying jobs. Because maybe the argument is Advanced Economies must still make things for the next 15 years after which it's not really worthwhile.

leaveyou 11y ago

but, but how about intellectual property ?!? I thought patenting the round corners is the future ..

tim333 11y ago

>Take away manufacturing and you’re left with...selfies It's not true. Take for example Jersey, Luxembourg and the like. In those places there is insignificant manufacturing and the main business is banking. That's the whole thing about trade - one place can do one thing and one can do another.

iamflimflam1 11y ago
Jersey has the population of a small town, Luxembourg that of a small city.
crdoconnor 11y ago
Then if you take away their status as tax havens and they are left with nothing except a paltry tourist economy. Those economies are parasitic on larger economies that do make things.
anexprogrammer 11y ago
Yes, let's even look at London. Stupidly reliant on banking, billions defrauded via Libor fixing etc. What happens when there's a "credit crunch"[1]? Quantitative Easing! [2] The 50-60% of the economy not in banking, and not needing a loan at the moment, is talked into a recession by the twits in the media. The SaaS business in Manchester, Leeds or Newcastle didn't change, lose customers, or become more risky, but the banks won't lend because the whole banking sector became suspect, so they just lost their cashflow. Perhaps the problem is that the entire country wasn't working for the dishonest banks[3]? Presumably watching Wall Street and Liar's Poker every morning with the cornflakes? Yet the first thing retrenched in a recession is optional services - like loans, insurance. It's no longer possible to trade our way out of recessions like the UK, and much of the world, did postwar ("export or die"). We solved a postwar recession of far higher percentage of GDP via creation and trade. George Osborne has reduced the rate of increase of the debt a bit. We're left with the ineffectiveness, and downright fraudulence, of quantitative easing and austerity. If you're old enough to remember the 80s, you'll remember that was no better. With the added fun of 15% mortgage rates. No thanks. More metal bashing please. More encouragement of every sector that isn't in the square mile. A diverse, resilient, economy. [1] I love this euphemism (/s). The biggest fraud in human history and the media calls it the credit crunch. [2] Print money to give to the banks, to encourage them to lend, that they use to pad their bottom line. Repeat numerous times, as though it is effective. Toughen up capital requirements to further encourage use on the bank rather than advertised purpose. Sending cheques to each voter GW Bush style would be more effective getting money into the business economy. [3] Unlike retail, pharmaceutical, industrial and a dozen other sectors banking regulation was abolished wholesale.

quanticle 11y ago

Advanced economies must still make things, but there's no rule that says that those things have to be made by people. In inflation-adjusted dollar value terms, the value of US manufacturing has never been higher. In employment terms, it's never been lower. While there are those who blame outsourcing for that, the vast majority of manufacturing job losses have been due to automation, rather than competition from abroad. For example, look at this video of a MillTurn M60: https://www.youtube.com/watch?v=81UjjSH2iFw https://www.youtube.com/watch?v=81UjjSH2iFw. This one machine replaces an entire shop floor of lathes and mills... and all their operators, too.

sokoloff 11y ago
Yes, but someone is still loading the parts, changing and indexing the tool bits, doing inbound material inspection, final part inspection, packing, CNC programming, CNC maintenance, and other jobs associated. Sure, it's now 10 people instead of 50, but that's still better from a job creation standpoint than 1 (if we did all that work out of country and only did inbound inspection and logistics). Automation is installed for two primary reasons: [labor] cost or repeatability. I agree that it's not just outsourcing as a cause, but rather a natural response to ongoing cost reduction in manufacturing.
- xyzzy123 11y ago
  Right but "fortunately" we can do that with marginal labour, which is more or less what we observe. The great thing about globalisation is that it does seem to be a standard of living equaliser. The bad part is that it's a long way to the bottom if you live in the west.
  - cubano 11y ago
    Exactly what type of labor isn't "marginal" then? Banking? Investment advice? Construction? Software development? Whom exactly decides whos work is marginal? Do "marginal" employees somehow deserve to be displaced by greedy upper management whom already make historically larger salaries as compared to them? I guess I simply do not like that term and the negative profile and connotations it implies.

dkopi 11y ago

I find the whole discussion of what "economies must" and what "economies should" baffling. Economies don't have wills of their own. Economies describe the voluntary economic activity of millions to billions of people. Economies end up doing what is profitable, and possible (given skills, capital investment, infrastructure). When someone says "Economies should" what they're actually saying is: "I wish the government would spend a lot of money or pass a lot of laws to force the economy in the direction I want".

crdoconnor 11y ago
>When someone says "Economies should" what they're actually saying is: "I wish the government would spend a lot of money or pass a lot of laws to force the economy in the direction I want". If you don't, somebody else will, and if you don't have political representation in that policymaking you're not going to end up a winner.
icebraining 11y ago
If you understand what people mean, why do you find it baffling? But in any case, it's not necessarily a prescription, it can be simply an observation, as in, "advances economies must make things [if they are to remain advanced]", no different than a biologist might say "species A must increase their reproduction rate [or go extinct]".
- lr4444lr 11y ago
  I think what he's saying (and your example doesn't contradict) is that there exists a common fallacy of confusing individual firms' complex behaviors, like planning and executing a new manufacturing plant, with emergent behavior. Similarly a species doesn't increase its reproduction rate: it grows in numbers or it shrinks (to the point of extinction) based on individual specimens' reproductive behavior. The equivalent in economics here, I think, would be net exports. Though there is correlative power between the firm and the economy, the specimen and the species, the incentives and long-term/short-term outcomes might not be aligned, which has implications for policy.
RobertoG 11y ago

jjar 11y ago

Great article, terrible site design. Seriously, who limits their content to a single 300px wide column when there are 3 other columns with only links to other parts of the site?

dmichulke 11y ago

It's kind of obvious that no one can live if we only have services and money printing. Someone must produce something (and preferably something with a high price / cost ratio), this applies to manufacturing as well as agriculture. The biggest news (and very sad at that) is that "making things" is so far away from the mainstream economic models that formerly common sense rules are worth a headline.

deleted 11y ago

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haddr 11y ago

This has been known for some time (and proven with some good examples) but still is a shock to people who believed somewhere in '90 that the next stage in the economy is the shift to services instead of industry. I recommend this book from Ha-Joon Chang that has a nice chapter on that (a very pleasant read with references): http://www.amazon.com/Things-They-Dont-About-Capitalism/dp/1501266306 http://www.amazon.com/Things-They-Dont-About-Capitalism/dp/1...

TheOtherHobbes 11y ago
> still is a shock to people who believed somewhere in '90 that the next stage in the economy is the shift to services You should tell the UK's political class. Moving away from manufacturing to services has been been official dogma here since the very late 1970s. As a result we have an economy founded almost entirely on tax havens, speculation, sporadic renovation projects for rich people, and asset price bubbles, with a bit of marketing and corporate communications around the edges.
stantona 11y ago
+1. I highly recommend Ha-Joon-Chang's books, I've learned a lot about economics from him. He puts forward a strong argument that economic policy must be flexible, and shift with evolving times and technological changes. In other words, he's highly critical of ideologies, like f global free markets, or trickle down economics.

DrNuke 11y ago

Oversupply and stagnation were solved in the past by wars or new worlds' colonisation. Considering that Planet Earth is full and that we do not want a nuclear war, the best opportunity for mankind is Moon or Mars colonisation. Exploration has always been the distinctive trait of humans and still will be.

novalis78 11y ago
Another related question is how much demographics (less younger dynamic vs older comfortable individuals that resist change) has an impact on exploration.
- ArkyBeagle 11y ago
  I don't think it does. The classic explorer was a "seventh son" in the age of primogenture. Or they were just plain crazy. The generation that got us to the moon wasn't that young even at the time. Gene Krantz would have been 30 in 1963. Since life expectancy was lower then and people didn't stay in school until they were 30, 30 was the start of middle age. Krantz, like my parents, was Silent Generation, and they had a different idea about technology in general. Please understand that "youth culture" was originally designed by Big Tobacco to sell cigarettes - spend more on ads for youth because they'll smoke your brand for 40 years. Then it was music/movies, then soda and shoes. Now it's phones. In these things, you are at a poker game. If you don't know who the sucker is at a poker game, you're it.
kbart 11y ago
We can still make non-nuclear wars, just keep bombing 3rd world countries to keep that huge military machine running. P.S. to all downvoters: I'm not suggesting or advocating that, just stating the sad truth.
- pessimizer 11y ago
  Right? If we need a war, and we don't want a nuclear war, we can constantly attack countries without nuclear weapons, do proxy wars with Russia (maybe China in the future, if we could be so lucky) and arm both sides of civil wars. Also, we can sell weapons to countries who are constantly dealing with internal unrest (because they are dictatorships propped up by the sale of their natural resources.)

Dowwie 11y ago

noteworthy that the author is Vaclav Smil: http://www.wired.com/2013/11/vaclav-smil-wired/ http://www.wired.com/2013/11/vaclav-smil-wired/

fauigerzigerk 11y ago

There is not much if anything in this article to support the headline claim. I'm not saying it isn't true, but the article doesn't provide any evidence of that. Yes Toyota employs more people than Facebook. What does that tell us exactly? The film industry employs more people in the U.S than the auto industry. If the numbers in this article show anything, it is that the most advanced economies vary hugely when it comes to the size of the manufacturing sector. I think the case for a manufacturing sector that isn't 0% of the economy can absolutely be made, but this article doesn't even start making it.

jnordwick 11y ago

Why do we have to make things? Or why tangible things? Take for instance the financial sector. They make allocation decisions in essence and sell service around management, consulting, and financial engineering. A large chunk of our economy is based around resource allocation, not actually turning resources into products more efficiently than the last guy. As an economy progresses, it moves further and further away from things and towards ideas. We went from hunters and gatherers of food and clothing, to agriculture, to machining things, to primitive banking, all the way up to modern financing. At each step we became further and further removed from actually putting iron-to-iron and producing this. We become more involved in how to efficiently allocate resources for those that did produce. And that population of those that do produce continues to fall as automation comes along and we become better at making more with less. Finance has really put productive resources to amazing efficient use though capitalism. We will get to a point where almost nobody does machines or sits on an assembly line anymore, and their jobs will give way to a larger and larger pool of people who work in the meta-market, the mental-based market that really drive the physical-based market.

marcosdumay 11y ago
> A large chunk of our economy is based around resource allocation, not actually turning resources into products more efficiently than the last guy. Writing this should have made you pause. Really. May I ask where are you so proficiently allocating resources into? You are correct in that information products and services are wealth too, but that applies only for stuff people want. Real people. Everything else is not wealth by itself, including almost the entire banking system.
- skolos 11y ago
  Soviet Union resource allocation was performed by central planning committee instead of markets. The result of that is known. With good financial system the resource allocation is same as capital allocation. Good capital allocation is not possible without transparent and liquid markets. Transparent and liquid market depends on its biggest players - institutional investors, banks and their regulators. Hence the banking system is huge wealth provider. Otherwise we would be living under communism now.

JDDunn9 11y ago

A few notes about the shift from manufacturing to a service based economy: - Services take a larger share of GDP by staying flat while prices of goods fall. You pay less for most manufactured goods than you did 20 years ago, while your haircut cost about the same. - Services are generally harder to export. You can ship a physical product, it's hard to export a haircut. - Goods can be stockpiled/scaled if needed, services cannot.

marco_salvatori 11y ago

I didn't feel this article was clearly thought out. If just manufacturing things, whatever things are, were important then possibly replacing (magically) the industrial sectors in the US with those from China would be a good thing. If that came about then of course the US would be much poorer, possibly as poor as China. Its also not sufficient to say manufacturing is a source of good paying jobs. Highly skilled manufacturing sectors provides good wages and benefits (say, semiconductor manufacturing), piece work in say the garment industry provides sub subsistence level wages. A better title would be - "it matters what an advanced economy produces". I used to work in manufacturing (all over the world) and here a few impressions based on my experience. In the factories, today, where people in advanced economies would want their children to work, there are more robots than people. The ratio of automation will increase over the next 10 years as the machines become smarter. In advanced countries it is more and more common for manufacturing facilities to require the skills of people with PhD's, Masters degrees and highly trained vocational workers to function. There are going to be very few jobs in 10 years for people who can just contribute muscle power. Even in the far east, manufacturing is going to be a sector of falling employment (like agriculture in the past) and at the same time of rising output (like agriculture). And lastly, here is a thought, based on my experience running a business. There is lots of competition out there in the world. One cant make a good living producing any "Thing". One has to find a product that is differentiated, valuable to others, and not easily reproduced by thousands of other businesses all over the world. And then one has to sell it. That's turns out to be a difficult job -- much more complicated than a slogan like "manufacturing".

EGreg 11y ago

I have predicted this for a long time (not just me, but a lot of people). The demand for human labor is going down on average, so wages are going down - and have been on a decline since the 70s. Capitalism relies on employers to value their employees for the money to trickle down and the system to work. Our grandfathers used to work for the same employer for decades and got a pension. Today, that loyalty is unheard of from either side. We have the rise of temps and the contractor economy and unemployed living with parents. Yes, the cost of mass produced consumer goods is going down. So the wage repression is mitigated. With the explosion of consumer credit in the 80s and 90s, the unsustainability of consumer spending was also masked. Now it has come to the fore, in exactly the areas where costs are not going down: rent and real estate. In every major city including NYC and SF, the costs of rent are sky high relative to wages. Wonder why? Look at the rest of the country and it's true too -- the rents are slightly lower but the wages are lower too. So the predictions are borne out... automation has reduced demand for human labor, reduced wages for the average worker (or they got laid off / became temps), reduced the prices of mass produced goods, but the cost of real estate keeps rising.

wycx 11y ago
Capitalism relies on employers to value their employees for the money to trickle down and the system to work. It is not capitalism but rather neoliberalism/monetarism that propels the trickle-down theory. The time period where grandfathers worked for the same employer and then got a pension coincided with the post-depression/WW2 period of Keyensianism when many western governments pursed full employment economies via fiscal policy. In the period from the early 1970s onwards when neoliberalism/monetarism has been dominant, we have seen falling real wages, the financialisation of the economy (including the consumer credit explosion you describe), governments restricting themselves to managing the economy only through the very blunt tool of monetary policy (i.e. interest rates via a central bank). I would argue that the symptoms we both identify are the result of neoliberal/monetarist policy rather than decreased demand for human labour. If governments still pursued full employment via fiscal policy things would be very different.
- tanker 11y ago

FussyZeus 11y ago

> And yet manufacturing is still important for the health of a country’s economy, because no other sector can generate nearly as many well-paying jobs. Take Facebook, which at the end of last year had 12,691 employees, versus the 344,109 that Toyota had at the end of its fiscal year, in March 2015. Making things still matters. There are so many assumptions in this article but especially here. Author assumes people are required to make things, they are not. Author assumes factory jobs will pay well, they often don't, and there's no reason they will. And the employment disparity between IT companies and Manufacturing is showing that you can create a ton more wealth with a small number of IT people than a huge number of manufacturing people, which is why Wall Street values those companies higher these days.

dscpls 11y ago

This inference of "making implies jobs therefore make things" is just short sighted. Is making things really the _only_ option of making providing jobs?! It's not realistic when there's nothing more we need to make and consume!