Thursday, July 12, 2012

Economic Recovery Means Learning to Export Unemployment

As the 2012 political debates turn inevitably uglier and important national issues become ever more politicized, it's important to ressurect the fact that the national interest does not recede merely becasue trill makes it less visible. -- Dennis Santiago, July 12, 2012.

Originally published October 27, 2011 in the Huffington Post:

One of the sad things about the state of the U.S. economic engine as it sits with the gearbox in neutral is that we seem unable to break so many bad habits.   For decades, we have exported jobs by outsourcing first manufacturing and then services gaining cheap goods by ultimately paying for them with the most precious trade good of all: quality of life.

We became addicted to a disposable economy based on strategic corporate principles like "a 100-percent replacement of the installed base every 10 years" and "just-in-time supply chains seeking the lowest mathematical cost of execution."    The engineering design principles for product development and maintenance have changed from the old hallmark of American-made durability to "buy it, use it, trash it," particularly in consumer goods where designed-in-obsolescence has been elevated to a business strategy.

The old joke about contracts being awarded to the lowest bidder has become our nightmare as it idles companies, their workers, the commercial real estate they sit on, the durable goods they invest in to manufacture things, and the secondary economic accelerators like housing, education and the rest of the infrastructure that defines the vision of the American way of life.

When I talk to bankers about this and ask them why they aren't lending to domestic commercial and industrial borrowers, they tell me they'd love to but there's no demand to borrow.  The bottom line is that U.S. businesses have so little faith in where the economy is headed right now that they don't want to take the risk of new debt.   And why should they if all that will happen is that their good efforts will get outsourced and come back as a cheap replica for half the price that lasts a third as long.  You math folk can work out how the lifetime value of the customer is boosted by that trick.   So the banks sit on excess deposits to lending ratios on their books, waiting for the day business owners believe it's time to put the engine back in gear again.   In the meantime, "Third World America."

This is a mess we made for ourselves, to be sure.  It was fueled by academic theories that valued the unfettered circulation of money far more than the preservation of culture and lifestyle.   And so sits one of the world's most important economies suffering from having mined out the hole of the disposable society to the point that it doesn't make a lot of sense to people anymore.  We spent our piggy banks on garbage, and it's bothering every one of us.  And not just in the United States.  Every other economy on the planet knows full well that since 1945, the world has needed a healthy and viable U.S. economy around which to organize and calibrate their socio-economic strategies.   We unhinge for an extended period of time, and it will have enormous complications for the human race.
But here's the thing.  What was done can be undone.  And personally, I think that the damage isn't that great.  My bet is that repatriating 5 percent of the U.S. manufacturing and services sectors will more than put the U.S. economy back on track, and that will have positive implications worldwide.
But how can it be done?   What American ingenuity can make this happen?  Here are a couple of ideas to ponder that will hopefully spark imagination and innovation.

It's time to shift gears away from the false god of disposability.  We should consider demanding changes in our engineering design and product-support strategy expectations.  What I mean by this is to retrain our industries and designers to emphasize aspects of products that focus on making products more durable and maintainable.  Or to put it another way, American-made quality again.   The jargon that goes along with this are things like "fault tolerance," "doubled mean times between failure," "designed for maintainability" and other techno-babble.   But what it ultimately does is change the balance on the products we use so that instead of buying and trashing three of them every seven years, more of them will be bought once and maintained for five years.   This restarts what used to be a healthy and viable repair-shop industry in this country that got blown away in the last couple of decades.

It's also a very green-conscious strategy, by the way.  The highest carbon emission cost for a manufactured good is the initial production event, so deliberately redesigning a fraction of our consumer products inventory to two carbon hits per decade, down from three to five per decade, is worth taking a look at.

And there's nothing that says cost and quality of production won't continue to improve even within such design guideline changes.   There's a whole new generation of technologies that, if applied creatively, can leverage one American worker to have the output equal to that of several overseas workers, possible even enough to equalize our folk to teams of other folk on a per capita GDP comparison basis.  That sentence means it will make economic sense for companies to choose to manufacture in the United States again.   Can you say improved aggregate quality of life?
Speaking of disruptive technologies that could change the foundations of many service industries away from outsourcing, I point out the parting gift of Steve Jobs.    His girlfriend SIRI may just be the solution we've all been waiting for instead of talking to some overseas call center that can't really help you, anyway.   And she's sassy.   The implications are tremendous.  I'd say tidal.  The question to me is: will we be able to reap it properly?

I'll close with a loud and clear challenge to academia.   One of the things the U.S economy desperately needs is for U.S. schools that teach engineering, business and public policy to begin to devote more research to this line of thinking.   A little disrupting the status quo from time to time is a good thing.  Earn your keep.  Push the edge in new directions.  Never mind occupying Wall Street; we need solutions for Main Street.

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