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the US isn't particularly friendly to capital intensive businesses. Specific factories will get local tax breaks, but you'd never see something like that for ai

by jfoutz 15y ago

the US isn't particularly friendly to capital intensive businesses. Specific factories will get local tax breaks, but you'd never see something like that for airlines. I wish i could remember the reference, Fred Smith (the fedex guy) laid out a really clear argument why. The effect is, you just don't see that many long-bet kind of investments. What's intel's threshold to pay of a new factory? 9 months? I think stuff like they mention in the article - biotech, nanomaterials, etc - will be fantastically more expensive here in the US. we don't have the structure for that kind of risk.

flybrand 15y ago
In textiles we see the opposite. Large capex businesses are still here in the US since depreciation is such a big portion of your cost component (think big battery separator, diaper or wipe production lines - 3 football fields long 24x7x365). These big lines have almost no labor component (maybe 1-2 operators / shift) so paying a premium on labor is worth it to reduce the shipping costs. It is all of the heavy labor activities that are in China now. They didn't just leave the US, they left everywhere that had high labor costs, and even now they are flowing to SE Asia out of China. With low labor costs, and with labor a significant component of cost, it made sense for these jobs to go right away (especially if their fibers are agricultural in origin and now harvested globally too).
- jfoutz 15y ago
  Well, i'm not saying there's never capital investment - i'm saying the us tax structure favors keeping that investment as small as possible. From what little i recall of berkshire hathaway's history, textile automation has been getting far more powerful and cheaper for like the last 150 years. lot's of textile companies went out of business from betting the farm on an expensive new machine, and not staying competitive 5 years out - because the new machines are that much better. So with biotech or something, you have all this extra hassle. Super tight environmental control. Special heating and cooling for different resources. Special containment for the lubrication of the machines, so the aerosolized grease won't touch the stuff you're working on - all kinds of crap. basically, all the complexity you have to deal with, plus a million extra constraints. found the old link: http://online.wsj.com/article/SB122488966230768509.html http://online.wsj.com/article/SB122488966230768509.html Fred Smith's argument is it's easier to make money with debt than it is by actually making stuff. US business is forced to optimize around the cheapest possible automation. Maybe that's a good thing, robots keep getting cheaper. Maybe it's a bad thing, it's really hard to get the massive capitalization for these fancy future industries.
  - mkramlich 15y ago
    you should read about Tragedy of the Commons and externalities.

by jfoutz 15y ago

flybrand 15y ago

In textiles we see the opposite. Large capex businesses are still here in the US since depreciation is such a big portion of your cost component (think big battery separator, diaper or wipe production lines - 3 football fields long 24x7x365). These big lines have almost no labor component (maybe 1-2 operators / shift) so paying a premium on labor is worth it to reduce the shipping costs. It is all of the heavy labor activities that are in China now. They didn't just leave the US, they left everywhere that had high labor costs, and even now they are flowing to SE Asia out of China. With low labor costs, and with labor a significant component of cost, it made sense for these jobs to go right away (especially if their fibers are agricultural in origin and now harvested globally too).

jfoutz 15y ago
Well, i'm not saying there's never capital investment - i'm saying the us tax structure favors keeping that investment as small as possible. From what little i recall of berkshire hathaway's history, textile automation has been getting far more powerful and cheaper for like the last 150 years. lot's of textile companies went out of business from betting the farm on an expensive new machine, and not staying competitive 5 years out - because the new machines are that much better. So with biotech or something, you have all this extra hassle. Super tight environmental control. Special heating and cooling for different resources. Special containment for the lubrication of the machines, so the aerosolized grease won't touch the stuff you're working on - all kinds of crap. basically, all the complexity you have to deal with, plus a million extra constraints. found the old link: http://online.wsj.com/article/SB122488966230768509.html http://online.wsj.com/article/SB122488966230768509.html Fred Smith's argument is it's easier to make money with debt than it is by actually making stuff. US business is forced to optimize around the cheapest possible automation. Maybe that's a good thing, robots keep getting cheaper. Maybe it's a bad thing, it's really hard to get the massive capitalization for these fancy future industries.
- mkramlich 15y ago
  you should read about Tragedy of the Commons and externalities.