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This deindustrialization was driven by Wall Street. The important metric is return on invested capital. Manufacturing companies use a lot of capital for their

This deindustrialization was driven by Wall Street. The important metric is return on invested capital. Manufacturing companies use a lot of capital for their factories. Shut down the factory and outsource to China, and you have the same sales with a lot less capital, so the stock goes up. Great success. Maybe repeat by having your suppliers do more and more of the engineering. At a certain point, you are just a brand, with no actual engineering capability. You can't compete with the people who actually know how to make the things. Then you die. See Hewlett Packard. The US taxing companies on global income at high rates also has an effect. Say you have 50% of your sales outside the US. You pay taxes in the country where you sell the product. Then you have profits overseas. If you bring that cash back to the US, you pay the difference between the corporate rate in country X and the US, which can be a lot, say 15%. Might as well take that money and use it to pay for manufacturing at e.g. Foxconn. So it's 15% better to invest in manufacturing capacity outside the US. The poor health care system in the US drives up costs as well, twice what it is in other industrialized countries for worse outcome. Same for cost of housing because zoning laws won't allow building. Google was allowed to build offices in Mountain View but not residential property for the employees to live in. So everyone has to commute from somewhere else, and cost of rent is driven by how much misery you can handle. Failures in government policy make US workers much more expensive without creating any more value or improving the quality of life for the employees.

kiba 6y ago
Reminds me of the old joke about the ideal company is having one person to turn on a factory and then place a logo on it, while engineering and everything else is outsourced.
- TeMPOraL 6y ago
  It's like celebrities launching lines of cosmetics products - all they do is contribute a picture of their face, and then they rake in the money.
  - sharken 6y ago
    Sadly a very effective strategy until you develop critical thinking, some struggle their entire life to achieve it.
    - mrtksn 6y ago
      Critical thinking can suggest that the actual physical product lacks innovation or doesn't bring anything dramatically better on table but the branding does, therefore the branding people take the money.
  - SomeoneFromCA 6y ago
    Not exactly, they also signal that the style of the product will overall match the public image of the celebrity, which may actually save some time whey you are shopping, but most probably not worth it.
  - nagalpl 6y ago
    This is how software works, too, in some cases even open source, look at the Python ecosystem. Search for the actual authors or who is doing the work vs. who is going on stage in the Hyatt.
chadcmulligan 6y ago
> Maybe repeat by having your suppliers do more and more of the engineering. At a certain point, you are just a brand, with no actual engineering capability. Don't they teach this in business school? It just seems incredibly obvious to anyone with an engineering background.
- zrobotics 6y ago
  The thinking isn't that long-term, it's focused on the next 2-6 quarters. Plenty of people got rich off of plundering Hewlett-Packard; to the point there's no meat left on that carcass aside from garbage printers. Ironically enough, the test equipment division (what I would call the actual successors of the company) have been through 2 restructurings (HP->Agilent->Keysight). Almost as though having cutting-edge engineering & R&D will have the side-effect of making good products. Shame that costs money though.
  - chadcmulligan 6y ago
    I suppose HP were challenged externally and couldn't adapt, the money savers start moving in, which pumps it up temporarily and it becomes a vicious cycle.
  - m-ee 6y ago
    I'm not sure I'd describe Keysight as a success story of cutting edge R&D, I can't speak for the current Agilent as I'm not a chemist. They and other namesake test equipment brands seem to only focus on the ultra high end and the lower to even midrange models are frequently white labeled products from overseas competitors with a more polished UI. And they're not even always pushing their top end stuff further, their top end multimeter is virtually unchanged since 1990.
    - zrobotics 6y ago
      Oh, Keysight gear doesn't hold a candle to vintage Hewlett-Packard. However, I just wanted to argue that Keysight is closer to Bill & Dave's garage than the current HP incarnation. They have some OK gear, but too much of it seems overpriced; they are definitely letting the cheaper Chinese manufacturers catch up to them and seem to only want to rely on institutional contracts. I personally don't know anyone in the hobbyist electronics space that owns any Keysight gear, my only exposure has been in university labs. Bit of a shame, really.
tanilama 6y ago
Might be controversial to say, but why manufacturing cost is so high in US they making outsourcing so profitable? A Taiwanese silicon engineer salary, even the top band is probably only higher than the entry level of a web developer in SF. Something is definitely wrong
- square_usual 6y ago
  Web developers in SF are barely representative of web developers outside of SF, let alone factory workers in the US. That's a bad comparison.
  - tanilama 6y ago
    It is not IMO. Web developer in US can work freely in HoL area if they want to relocate.
- thu2111 6y ago
  High cost of labor as it's a rich country with an expensive currency, unions, and in some places, protective labor laws.
  - stevehawk 6y ago
    I think you're getting downvoted because you're not allowed to imply unions and protective labor laws drive up the cost of labor in this country.
    - thu2111 6y ago
      There are certainly a lot of people on this site who seem rather blind to the issue. Foxconn's million+ workers do theoretically have a union, but only since 2007, and with actually elected leaders only since 2013. At that time they still faced the issue that most workers didn't know they were meant to elect a union representative at all and the union committee leaders were all managers. What little workers rights exist come mostly due to pressure from Apple and American unions. And of course, as China is getting richer and the workers are starting to slowly come to resemble western workforces, companies are relocating to Vietnam.
hinkley 6y ago
This is how we lost a lot of redundancy in the rail system too. Why maintain three routes or two tracks per route when you can boost your gains for a small chance of going out of business?
arcticbull 6y ago
Deindustrialization is great, most industrial jobs are the worst. To the extent other countries want to take them on, it puts America at a huge advantage. Once robotization and full automation happen, there will be no reason to build in one place over another, and all the assembly work will return (as not having to expend energy moving final products from their assembly location to their final destinations will represent an advantage). The jobs never will though, nor do we actually want them to. This is why we need UBI. Seriously, why would we want, in the future, to pay people to smack metal with a hammer? Let's get the jobs elsewhere ASAP, unless you can tell me with a straight face the future will involve more humans in the manufacture of goods -- in which case we should be getting a head start. Nobody will say that though because it's crazy. Trying to add humans back to the manufacturing process, who don't need to be there, amounts to a regressive make-work project we're engaging in, intentionally adding inefficiency, instead of actually changing society and positioning ourselves for the inescapable future of humanity. In my opinion, America is squandering a huge lead by glamorizing crap jobs nobody actually needs to do, let alone wants. Like coal mining. What's next, a return to whale oil?
- awakeasleep 6y ago
  Yeah it'll be great once the countries that manufacture things starts producing multifunction robots that build their own supply chain and automatically revert to US control.
  - arcticbull 6y ago
    You don't need to do the assembly to design and take delivery of multifunction robots. Just ask ABB [1]. The IP, the design, and the schematics are the valuable part, the assembly is totally and utterly commodity. A 3D printer, a diffuser, etc, is equally effective in any country it happens to be located, and UPS is happy to meet you there for pickup. We've started to see this return already, with Foxconn and TSMC setting up factories in the US (with no people in them of course -- because why would they put people in them?). [1] https://new.abb.com/products/robotics https://new.abb.com/products/robotics
- m-ee 6y ago
zelly 6y ago
> You can't compete with the people who actually know how to make the things. Then you die. See Hewlett Packard. Innovation happens on the factory floor. Pretty soon the countries we outsourced to will come up with better designs too. The U.S. thesis for outsourcing is that the manufacturing countries are filled with braindead automatons who can't compete with our "Designed in California". That may have been true in the 20th century when the U.S. brain drained all the top talent, but now other nations are in a position to pay their engineers more than U.S. companies. The "Designed in California" cope can only last so long.
- cenal 6y ago
  Don’t worry. Trump and his ilk are also making it harder for talent to come here from other countries. Stupid policies are basically the new norm in the USA.
- pjmlp 6y ago
  As someone that has worked for several years in this area with some major Asian offshoring IT shops, I have seen that mentality myself, although from European point of view. People that reach for this kind of decisions occasionally seem to still have a colonialism point of view, like "they will do as told and we still stay in control", except that isn't how things work and eventually they stand on their own feet and are able to even outperform their "masters".
  - vanderZwan 6y ago
    > People that reach for this kind of decisions occasionally seem to still have a colonialism point of view, like "they will do as told and we still stay in control", except that isn't how things work and eventually they stand on their own feet and are able to even outperform their "masters". Oh man, the amount of Dutch "we're going to build a knowledge economy" news articles I've seen in the last decade that barely hide their colonial mindset is staggering, and the implied assumption that "we" are smarter than "them" is so blatantly racist that I'd almost feel offended if I didn't know that they'll reap what they sow with that attitude soon enough.
blueblisters 6y ago
Unless you're vertically integrated, manufacturing is incredibly difficult to make money from. The traditional South Asian/East Asian medium sized manufacturer is run by people who put in outsized efforts to the returns. The margins are razor thin in most units, and the competition cut-throat. The units simply won't make money if they're delegated to MBA types, because the true cost of managing the unit is much much higher. It's actually the perfect small/medium business endeavor in developing countries because of the labor cost arbitrage and economic opportunity. But a typical college educated American entrepreneur will not find it appealing, compared to starting a tech business or running a services business.
lenkite 6y ago
The corporate tax rate was lowered from 35% to 21% by the Trump administration to make it in line with the EU. (Though some EU nations have a corporate tax rates as low as 9-15%) Do companies have any excuse now regarding using taxation as an excuse to move manufacturing outside the US ?
- thu2111 6y ago
  The issue was not so much the tax rate but the double taxation, iirc. Lower tax rates help bit isn't solving the underlying issue.
  - mamon 6y ago
    There is no such thing as "double taxation", because tax rates are not additive, thanks to tax treaties. So, if the tax rate is 30% in US and 20% in EU and you've already paid EU tax, you only owe IRS the difference (10%) not full US rate. Since, thanks to Trump, US tax rate is now almost equal to European, then you pay almost no additional tax for bringing your profits back to US. The only remaining issue is additional accounting required, meaning you have to hire accountants both in EU and in States.
    - mcculley 6y ago
      When I hear about “double taxation” in the U.S. I think of the taxation of corporate profits combined with income taxes. For capital invested in stocks, I am taxed twice on any income derived.
      - jjoonathan 6y ago
        Once at 0% in Ireland and once at 15% for capital gains. Where can I sign up to have my income double taxed like this?
        mcculley 6y ago
        My understanding is that this is only possible for very profitable corporations. Can smaller entities get away with this?
simonh 6y ago
On the other hand those employees are a lot easier to fire at extremely short notice and virtually no cost than any other developed country, so there's that.
mandeepj 6y ago
> You can't compete with the people who actually know how to make the things. Then you die. See Hewlett Packard. Not if you are Apple

kiba 6y ago

Reminds me of the old joke about the ideal company is having one person to turn on a factory and then place a logo on it, while engineering and everything else is outsourced.

TeMPOraL 6y ago
It's like celebrities launching lines of cosmetics products - all they do is contribute a picture of their face, and then they rake in the money.
- sharken 6y ago
  Sadly a very effective strategy until you develop critical thinking, some struggle their entire life to achieve it.
  - mrtksn 6y ago
    Critical thinking can suggest that the actual physical product lacks innovation or doesn't bring anything dramatically better on table but the branding does, therefore the branding people take the money.
- SomeoneFromCA 6y ago
  Not exactly, they also signal that the style of the product will overall match the public image of the celebrity, which may actually save some time whey you are shopping, but most probably not worth it.
- nagalpl 6y ago
  This is how software works, too, in some cases even open source, look at the Python ecosystem. Search for the actual authors or who is doing the work vs. who is going on stage in the Hyatt.

chadcmulligan 6y ago

> Maybe repeat by having your suppliers do more and more of the engineering. At a certain point, you are just a brand, with no actual engineering capability. Don't they teach this in business school? It just seems incredibly obvious to anyone with an engineering background.

zrobotics 6y ago
The thinking isn't that long-term, it's focused on the next 2-6 quarters. Plenty of people got rich off of plundering Hewlett-Packard; to the point there's no meat left on that carcass aside from garbage printers. Ironically enough, the test equipment division (what I would call the actual successors of the company) have been through 2 restructurings (HP->Agilent->Keysight). Almost as though having cutting-edge engineering & R&D will have the side-effect of making good products. Shame that costs money though.
- chadcmulligan 6y ago
  I suppose HP were challenged externally and couldn't adapt, the money savers start moving in, which pumps it up temporarily and it becomes a vicious cycle.
- m-ee 6y ago
  I'm not sure I'd describe Keysight as a success story of cutting edge R&D, I can't speak for the current Agilent as I'm not a chemist. They and other namesake test equipment brands seem to only focus on the ultra high end and the lower to even midrange models are frequently white labeled products from overseas competitors with a more polished UI. And they're not even always pushing their top end stuff further, their top end multimeter is virtually unchanged since 1990.
  - zrobotics 6y ago
    Oh, Keysight gear doesn't hold a candle to vintage Hewlett-Packard. However, I just wanted to argue that Keysight is closer to Bill & Dave's garage than the current HP incarnation. They have some OK gear, but too much of it seems overpriced; they are definitely letting the cheaper Chinese manufacturers catch up to them and seem to only want to rely on institutional contracts. I personally don't know anyone in the hobbyist electronics space that owns any Keysight gear, my only exposure has been in university labs. Bit of a shame, really.

tanilama 6y ago

Might be controversial to say, but why manufacturing cost is so high in US they making outsourcing so profitable? A Taiwanese silicon engineer salary, even the top band is probably only higher than the entry level of a web developer in SF. Something is definitely wrong

square_usual 6y ago
Web developers in SF are barely representative of web developers outside of SF, let alone factory workers in the US. That's a bad comparison.
- tanilama 6y ago
  It is not IMO. Web developer in US can work freely in HoL area if they want to relocate.
thu2111 6y ago
High cost of labor as it's a rich country with an expensive currency, unions, and in some places, protective labor laws.
- stevehawk 6y ago
  I think you're getting downvoted because you're not allowed to imply unions and protective labor laws drive up the cost of labor in this country.
  - thu2111 6y ago
    There are certainly a lot of people on this site who seem rather blind to the issue. Foxconn's million+ workers do theoretically have a union, but only since 2007, and with actually elected leaders only since 2013. At that time they still faced the issue that most workers didn't know they were meant to elect a union representative at all and the union committee leaders were all managers. What little workers rights exist come mostly due to pressure from Apple and American unions. And of course, as China is getting richer and the workers are starting to slowly come to resemble western workforces, companies are relocating to Vietnam.

hinkley 6y ago

This is how we lost a lot of redundancy in the rail system too. Why maintain three routes or two tracks per route when you can boost your gains for a small chance of going out of business?

arcticbull 6y ago

Deindustrialization is great, most industrial jobs are the worst. To the extent other countries want to take them on, it puts America at a huge advantage. Once robotization and full automation happen, there will be no reason to build in one place over another, and all the assembly work will return (as not having to expend energy moving final products from their assembly location to their final destinations will represent an advantage). The jobs never will though, nor do we actually want them to. This is why we need UBI. Seriously, why would we want, in the future, to pay people to smack metal with a hammer? Let's get the jobs elsewhere ASAP, unless you can tell me with a straight face the future will involve more humans in the manufacture of goods -- in which case we should be getting a head start. Nobody will say that though because it's crazy. Trying to add humans back to the manufacturing process, who don't need to be there, amounts to a regressive make-work project we're engaging in, intentionally adding inefficiency, instead of actually changing society and positioning ourselves for the inescapable future of humanity. In my opinion, America is squandering a huge lead by glamorizing crap jobs nobody actually needs to do, let alone wants. Like coal mining. What's next, a return to whale oil?

awakeasleep 6y ago
Yeah it'll be great once the countries that manufacture things starts producing multifunction robots that build their own supply chain and automatically revert to US control.
- arcticbull 6y ago
  You don't need to do the assembly to design and take delivery of multifunction robots. Just ask ABB [1]. The IP, the design, and the schematics are the valuable part, the assembly is totally and utterly commodity. A 3D printer, a diffuser, etc, is equally effective in any country it happens to be located, and UPS is happy to meet you there for pickup. We've started to see this return already, with Foxconn and TSMC setting up factories in the US (with no people in them of course -- because why would they put people in them?). [1] https://new.abb.com/products/robotics https://new.abb.com/products/robotics
m-ee 6y ago

zelly 6y ago

> You can't compete with the people who actually know how to make the things. Then you die. See Hewlett Packard. Innovation happens on the factory floor. Pretty soon the countries we outsourced to will come up with better designs too. The U.S. thesis for outsourcing is that the manufacturing countries are filled with braindead automatons who can't compete with our "Designed in California". That may have been true in the 20th century when the U.S. brain drained all the top talent, but now other nations are in a position to pay their engineers more than U.S. companies. The "Designed in California" cope can only last so long.

cenal 6y ago
Don’t worry. Trump and his ilk are also making it harder for talent to come here from other countries. Stupid policies are basically the new norm in the USA.
pjmlp 6y ago
As someone that has worked for several years in this area with some major Asian offshoring IT shops, I have seen that mentality myself, although from European point of view. People that reach for this kind of decisions occasionally seem to still have a colonialism point of view, like "they will do as told and we still stay in control", except that isn't how things work and eventually they stand on their own feet and are able to even outperform their "masters".
- vanderZwan 6y ago
  > People that reach for this kind of decisions occasionally seem to still have a colonialism point of view, like "they will do as told and we still stay in control", except that isn't how things work and eventually they stand on their own feet and are able to even outperform their "masters". Oh man, the amount of Dutch "we're going to build a knowledge economy" news articles I've seen in the last decade that barely hide their colonial mindset is staggering, and the implied assumption that "we" are smarter than "them" is so blatantly racist that I'd almost feel offended if I didn't know that they'll reap what they sow with that attitude soon enough.

blueblisters 6y ago

Unless you're vertically integrated, manufacturing is incredibly difficult to make money from. The traditional South Asian/East Asian medium sized manufacturer is run by people who put in outsized efforts to the returns. The margins are razor thin in most units, and the competition cut-throat. The units simply won't make money if they're delegated to MBA types, because the true cost of managing the unit is much much higher. It's actually the perfect small/medium business endeavor in developing countries because of the labor cost arbitrage and economic opportunity. But a typical college educated American entrepreneur will not find it appealing, compared to starting a tech business or running a services business.

lenkite 6y ago

The corporate tax rate was lowered from 35% to 21% by the Trump administration to make it in line with the EU. (Though some EU nations have a corporate tax rates as low as 9-15%) Do companies have any excuse now regarding using taxation as an excuse to move manufacturing outside the US ?

thu2111 6y ago
The issue was not so much the tax rate but the double taxation, iirc. Lower tax rates help bit isn't solving the underlying issue.
- mamon 6y ago
  There is no such thing as "double taxation", because tax rates are not additive, thanks to tax treaties. So, if the tax rate is 30% in US and 20% in EU and you've already paid EU tax, you only owe IRS the difference (10%) not full US rate. Since, thanks to Trump, US tax rate is now almost equal to European, then you pay almost no additional tax for bringing your profits back to US. The only remaining issue is additional accounting required, meaning you have to hire accountants both in EU and in States.
  - mcculley 6y ago
    When I hear about “double taxation” in the U.S. I think of the taxation of corporate profits combined with income taxes. For capital invested in stocks, I am taxed twice on any income derived.
    - jjoonathan 6y ago
      Once at 0% in Ireland and once at 15% for capital gains. Where can I sign up to have my income double taxed like this?
      - mcculley 6y ago
        My understanding is that this is only possible for very profitable corporations. Can smaller entities get away with this?

simonh 6y ago

On the other hand those employees are a lot easier to fire at extremely short notice and virtually no cost than any other developed country, so there's that.

mandeepj 6y ago

> You can't compete with the people who actually know how to make the things. Then you die. See Hewlett Packard. Not if you are Apple