Miles Shang home about

This is a response to the following article which I found on reddit:

Why Amazon Can’t Make A Kindle In the USA (Forbes)

The article opens with a quip about economists:

An economist is someone who knows the price of everything and the value of nothing.

Ah, yes. Don’t even get me started about economists. Personally, I like this quotation, by Paul Samuelson: > To prove that Wall Street is an early omen of movements still to come in GNP, commentators quote economic studies alleging that market downturns predicted four out of the last five recessions. That is an understatement. Wall Street indexes predicted nine out of the last five recessions! And its mistakes were beauties.

I have very little respect for the field of economics. The extent of my economics education has been a first-year college class in each of micro- and macroeconomics, which means that I am certainly not qualified to make that judgement. Nevertheless, it’s how I feel.

The article tells the sad story of Dell, whose production line was slowly contracted out to ASUSTeK piecemeal until one day, Dell suddenly realized that they didn’t matter any more, because their product was completely commoditized. The article also gives several other examples of high-tech manufacturing being sent overseas. The result of this offshoring is that today, the USA doesn’t even possess the capability to do lots of these cool things, like making the Amazon Kindle. A few economists aren’t worried because the dollar value proportion of Chinese-imported consumer goods with respect to all US consumer goods is still quite small, showing just how narrow the worldview of economics can be. That’s the article in a nutshell.

How did we get into this situation? The article mentions modern management theory and its focus on cutting costs in the short term with too little regard for creating value in the long run. As an aside, I want to elaborate on this for anybody who isn’t aware of the history of this management style. Much of this thinking goes back to Robert McNamara’s tenure at Ford, and before that to his time with the Air Force. Here is an excellent page about it. Basically, back in the day, Ford was run in a haphazard way, based on vague ideas and intuition. McNamara and company came along and implemented a rigorous statistics and numbers-based system to manage Ford. Everything was quantified and calculated. This produced immediate results. However, it was a somewhat short-sighted way of doing things. Long-term investments in research and equipment were not as emphasized as improving processes for immediate return. Because of its success, the methodology was passed down to future MBA students and thereby, management was turned into a science. Unfortunately, it turns out that this approach is too analytical. Some degree of intuition is required, especially when it comes to driving research in order to create future value. Eventually, Japanese companies took over a good chunk of the market with their innovative cars. Even more unfortunately, the McNamara way of thinking persisted, and persists to this day. This is what the Forbes article refers to as “traditional management”. The article insists that companies need to move towards “radical management” to foster “continuous innovation”. This just boils down to saying that we need to recognize the value of far-sighted business strategies. In any case, I highly recommend that you read the page that I linked to above. It’s a fascinating piece of history.

Before tackling the problem of America’s loss of high-tech capabilities, or deciding if it actually is a problem, we first have to accept that the US government is not sane. This is just a fact that we have to deal with. The current government is paralyzed to the extent that even very popular positions seem indefensible. One example would be letting the Bush (now Obama) tax cuts expire. Another would be the fabricated crisis of the debt ceiling negotiations. In any yes/no decision, there are actually three choices: yes, no, and can’t decide. The US government is stuck on “can’t decide”.

Given this condition, maybe it’s best not to worry so much… seriously. Given such a vague and distant threat, the government will never be convinced to actually do anything. But that’s okay, because the government doesn’t drive the economy anyways; America’s economy is driven by innovators. Those people are still around. Part 2 of the article (“Does It Really Matter That Amazon Can’t Manufacture A Kindle In the USA?”) points out that even though America’s saving grace appears to be the booming software industry, that industry is by no means untouchable. Keep in mind though, that the brilliant individuals working at Google, Facebook, and Apple will still be around even if those companies go away. They will find something to do and that something will be awesome.

I’m not a fan of economics, but I think it’s best to discuss this in terms of comparative advantages. Somehow, America has a comparative advantage in creativity. That was the whole point going of college. Whether or not this advantage will continue is a whole other discussion about education. Right now, nobody cares if America can’t come up with the expertise to put a lithium electric car battery together because America can come up with the iPad. Everybody wants an iPad.

Even if the situation isn’t as dire as the article portrays it, Part 2 does raise an important point with regards to the nature of future jobs:

For instance: once silicon-processing and thin-film deposition capabilities are gone, it’s hard to become a major player in solar panels. (Thus President Obama can go on talking about solving the jobs problem in the USA by investing in solar, but what his advisors don’t always grasp is that most of the jobs created will not be in the USA.)

For the past few decades, many developed countries have pictured themselves becoming service economies, perhaps as the accountants and bankers to the countries that produce oil and build furniture. This has in large part been accomplished, in addition to jobs based on that phenomenon that took the world by storm: computers. Now, the dream that politicians are selling us is clean, green jobs. However, we have to ask ourselves if we really have a competitive advantage in areas like solar panels, electric cars, and wind turbines. In fact, China already has a head start in those areas.

In the end, it’s hard to know what the jobs of tomorrow will be. I often hear that the future jobs of today’s kids don’t yet exist. Indeed, these future jobs may not be in high-tech manufacturing, but I feel confident that exciting new industries will emerge to replace anything that is lost to overseas competitors.