Walmart’s Bringing Manufacturing Back To The US; But Not The Jobs


 

Walmart's Bringing Manufacturing Back To The US; But Not The Jobs

This is an interesting little story, about how Walmart is encouraging manufacturers to produce within the US for the company.  

Part of this is of course political pressure but a lot of it is about the greater responsiveness and shorter lead times that local manufacturing can provide. There’s also, of course, the influence of trade tariffs to deal with on imports from China. However, by far the most interesting part of the piece to me is the confirmation of what Steve Jobs said to President Obama: those jobs are never coming back.

Sure, some jobs are coming back but very few. The manufacturing, for the above reasons might be slowly coming back: but what has people manufacturing in the US is really that machines, technology, have advanced enough that some of the more labor intensive tasks can now be done by them rather than by people who need to be paid an hourly wage. Meaning that despite what various associations for manufacturing and various unions continually claim, we really have got to the point where mass manufacturing employment simply isn’t going to be a major feature of the US economy looking into the future.

The piece is in the Wall Street Journal:

Earlier this month, at a long-idle plant it acquired here in Hildebran, Peds began production of socks that are to be sold at Walmart stores, starting in March. So far, Peds has invested about $8.5 million in the plant, including the purchase of 90 blue-and-gray machines from Lonati SpA of Italy that resemble a bank of blinking computers lined up in six rows on a shiny wooden floor.

OK, super! Hurrah and all that, we are saved! And what was the thing that persuaded someone who had simply been designing and then marketing Chinese made socks back into their own manufacturing line?

More important to Mr. Penner is that offering a U.S.-made sock got him more shelf space from Wal-Mart, which is trying to reduce its heavy reliance on imports. Making the socks in North Carolina also allows Peds to avoid 14.6% import tariffs, cut shipping costs and respond faster to shifts in demand.

Walmart really, really, wants to be selling more US made stuff and is willing to offer preferential terms (believe me, an offer of shelf space from Walmart is a preferential term) in order to encourage the renaissance of said US based manufacturing.

Which is great, of course, but there’s not all that many jobs associated with this move:

The Lonati machines knit yarn into tubes and then add a toe seam, combining what were separate processes and helping Peds halve the number of production workers needed.

“You cut out a whole department” that used to sew the seams, said Mark Bess, a senior technician at the plant. “That’s what makes us competitive with China.”

The technology has been around for decades, but has improved markedly in the past few years, Mr. Penner said.

And these jobs aren’t all that well paid either. Entry level at the new plant is $10 to $11 an hour.

At which point we can start to examine the usual proposals for public policy by various people. It’s most certainly true that mass employment in manufacturing did help to make America rich. But there’s obviously a time and a season to these things. Even when there’s a deliberate campaign (such as Walmart is running) to increase US based production we still find that it’s the new machines (and with the rise of the robots this is only going to increase) that are doing most of the work, getting most of the jobs if you like. The jobs left over aren’t all that well paid, certainly they’re below what many now should should be that minimum wage of $15 an hour. And there just aren’t all that many of those jobs even as the manufacturing does come “home”.

So all of those calls for more of that manufacturing to come home aren’t going to make much difference either to incomes or employment. Certainly, yes, it used to be true that that mass manufacturing employment was the start of the blue collar middle class. It provided good wages and good jobs. But our world has changed: manufacturing is now a low employment and low wage sector. Which means that we’ve something of a puzzle to solve over those insistence’s that bringing manufacturing back is going to raise wages and increase employment markedly. For it isn’t – as we can see the wages just ain’t great and there’s not that many jobs any more – the machines do the work instead.

My opinion on this is that people are reading much too much into the past without looking at the historical circumstances and how they have changed. They’re noting the correlation with manufacturing, jobs and good wages of the 50’s and 60’s and not noting that it just doesn’t work this way any more. Mass employment and good wages are over in the services sector these days. You’ll make a much better living as a nurse than you will as a production line worker these days: nurses being rather harder to replace with machines.

But then I have to say that I’m not all that surprised by this nostalgia for the past, this ignoring of the current world’s realities. As I often note about my native UK, there’s almost no one left as conservative as the left and the progressives of today.

My latest book is “23 Things We Are Telling You About Capitalism” At Amazon. A critical (highly critical) re-appraisal of Ha Joon Chang’s “23 Things They Don’t Tell You About Capitalism”.

SOURCE: Forbes

2 Responses to Walmart’s Bringing Manufacturing Back To The US; But Not The Jobs

  1. Mr. Worsall’s description says he has opinions on a broad range of subjects. In this article, at least, he would have been better off seeking facts on the subject of reshoring. As is, his article is laced with inaccuracies.
    1. He suggests that manufacturing coming back to the U.S. is not bringing jobs. The facts: In the last 10 years, the rate of offshoring has dropped from about 150,000 manufacturing jobs per year to maybe 40,000. The rate of reshoring has risen from about zero to about 40,000. So after about 50 years of growing offshoring, in 5 or 10 years we have reached balance. The good news is that the U.S. trade deficit of about $600 billion/year represents 3 or 4 million mfg. jobs that will be reshored at current levels of productivity. Walmart’s commitment alone will bring back about 300,000 mfg. jobs.
    2. He fails to mention that there are now 60 production jobs at the company. Undoubtedly the reshoring also brought back engineering and other jobs.
    3. He suggests that the Italian knitting machines will replace workers. Yes, mainly Chinese workers. Certainly to some extent in the U.S. The challenge is for U.S. companies to develop superior knitting machines that can be made here.
    4. His lack of knowledge about manufacturing is made clear in his comparison of the wages of a nurse and a production line worker. Some production line workers are highly skilled and highly paid. The low skilled workers would be better compared to a hospital orderly. The average orderly salary in NC is $23,170, essentially identical to the $10 to $11 paid entry level workers at the sock factory. The nurse should be compared to a CAD/CAM programmer or toolmaker, professions with comparable levels of discipline and training and probably more promotional and entrepreneurial opportunities.
    5. The subjects of number of workers and skill level intersect. As technology rises and the number of workers declines, the average skill level and salary rise.
    6. Finally, if we do not bring back manufacturing, the key backbone of the economy, eventually the services sector that he glamourizes will collapse since there will not be enough wealth generated to support the successive layers of service providers.

  2. Sandy Montalbano says:

    The author does not mention the high skilled jobs that are being reshored such as skilled manufacturing technologists. These professionals, that have passed an apprenticeship, are extremely well trained, work in their area of training and earn an income at least comparable to university graduates.

    The reshoring efforts by Walmart are good for the U.S. economy, American manufacturing and job creation. Wal-Mart’s 10 year $250 billion initiative to supply it’s customers with more Made-in-USA goods is the biggest opportunity one company has provided to U.S. manufacturing.

    In the 10th year of Wal-Mart’s program, it will be buying $50 billion more U.S. products per year, generating, by our estimate, about 300,000 additional manufacturing jobs (by Boston Consulting Group’s estimate, 1,000,000 total jobs).

    The Reshoring Initiative Can Help

    In order to help companies decide objectively to reshore manufacturing back to the U.S. or offshore, the not-for-profit Reshoring Initiative’s free Total Cost of Ownership Estimator can help corporations calculate the real P&L impact of reshoring or offshoring.http://www.reshorenow.org/TCO_Estimator.cfm

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