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August 15, 2006
Why is Manufacturing Leaving the US? ... And What Can Be Done To Stop the Trend
Why is Manufacturing
Leaving the US?
And What Can Be Done To Stop the Trend
Many say the end of manufacturing in the US is the natural and inevitable result of a global economy. They say manufacturing, which is heavily labor dependent, will seek the cheapest labor.
But this is NOT the whole story. Most manufacturing is as capital dependent as it is labor dependent. And with more automation every day, labor costs are less of a factor than they once were. Instead, I propose that 3 other factors are just as important:
• The Cost of Expensive Regulations
• Too Little Investment in Improvement
• Equipment Unreliability
First, the US regulatory burden, especially unnecessarily expensive environmental regulations, are almost non-existent in third world countries.
Second, US manufacturers, in an attempt to cut costs, have failed to invest in problem solving technology like advanced root cause analysis. Thus problems that could have been solved to cut costs happen over & over again while manufacturers implement ineffective, wasteful fixes.
Third, the cost of unreliable equipment at facilities is an unrecognized source of expense that magnifies labor costs. If manufacturers had more reliable equipment, productivity would improve (people wouldn't waste time waiting around for frequent repairs).
The solution for two of these problems isn't difficult or expensive. The second and third problems can be solved by using TapRooT® and Equifactor®. Call Ken Reed at SI (865-539-2139) or e-mail him by using this web site.
Posted by Mark at August 15, 2006 08:03 AM
Comments
Two things you didn't mention that are important in the decision of where to locate a manufacturing plant:
1) Legal environment
2) Taxes
The legal environment in the US is both a blessing and a curse.
The blessing is that business property is fairly safe from being randomly taken by the government (not true in some other countries).
The curse is that liability (insurance) and workers comp costs are fairly high because of the very litigious nature of the American court system. Tort reform could help but it is doubtful (US Congress is run by lawyers).
The income tax system is very negative for manufacturing. It taxes profits - even those made overseas - and American manufacturerers have to pay duties and VAT in addition when their products are exported to countries with VAT.
This amounts to double of triple taxation for American companies competing overseas.
To be competitive, the US needs to repeal the Corporate Income Tax and replace it with a VAT. This could only happen in a comprehensive tax reform that also replaced the Personal Income Tax with a VAT as well.
Americans need to understand that the vast middle class making average wages ($40,000 - $150,000) have to PAY for the government that they elect. There aren't enough "super rich" to pay for the government even if you took all their money. And they would just move their money outside the US if you tried.
Corporate taxes are passed along to the consumer - who is the vast middle class.
Thus the size of government is the only variable in what you pay in taxes. The rest of the tax decisions just amount to HOW to collect your money (VAT - Income Tax - Property Tax - Inflation - ...). In general, politicians like to make the tax invisible so that those taxed don't complain as government gets more expensive.
Just some thoughts about why we aren't as competitive as we could be.
Posted by: AMF at August 15, 2006 10:18 AM
Well it seems to me that companies have been raping the good ole U.S.A. for years. Looks like they've squeezed the orange too much. When nothings left you go elsewhere where theirs plenty of oranges.
Posted by: Tom at August 15, 2006 06:35 PM