In June of this year, William A. Levinson published a book entitled Reshore Production Now: How to Rebuild Manufacturing and Restore High Wages, High Profits, and National Prosperity in the USA. The author contends that a manufacturing resurgence in the United States will not only increase the standard of living enormously but generate taxable economic activity that will help pay down rather than increase the Federal debt. Higher productivity also delivers a greater supply of goods to accompany higher wages and thus works against inflation. This can prevent looming recessions and disruptions.
I had a chance to speak with William this month, and during our conversation, I had the chance to ask him two crucial questions. I'm posting them here with William's answers following the questions:
What aspects of reshoring do manufacturers not fully understand?
Accounting metrics often ignore the total cost of purchase or ownership of a product or service, and focus instead on only the immediate price. Harrington Emerson's Twelve Principles of Efficiency depicted the latter as near common sense, or focus on only the immediate bottom line, in contrast to supernal common sense which seeks to account for all costs. These include but are not limited to the carriage of inventory—one of the Toyota production system's Seven Wastes—in transit, the incompatibility of container ship-sized quantities with just-in-time production systems, the additional lead time associated with transportation, the fact that inventory gives defects a place to hide and additional exposure to force majeure supply chain interruptions. An earthquake that idles a vital offshore supplier factory, a ship that gets stuck in the Suez Canal, or a strike by longshore workers can all paralyze a supply chain. While domestic supply chains also are vulnerable to force majeure, they are also a lot shorter so there is much less exposure.
Many manufacturers and also retailers are also dependent on products from the People's Republic of China (PRC), whose recent activities have proven it to be a dangerous, untrustworthy, and unreliable supply chain partner. The PRC has a long track record of selling us counterfeit semiconductor devices, substandard active pharmaceutical intermediates (APIs), contaminated heparin, melamine-tainted foods, and most recently counterfeit N95 respirators that may have exposed their users to Covid-19. Cheap becomes expensive for domestic sellers who find themselves at the wrong ends of product liability lawsuits because their offshore suppliers, who are often beyond the reach of our judicial systems, cut corners. The PRC also threatened to cut off supplies of vital products, including medications needed to treat Covid-19, and it is now openly threatening nearby countries like Japan, Taiwan (a major exporter of semiconductors), and Australia with military force. The United States was able to respond quickly to wartime losses of access to, for example, natural rubber during the Second World War and we ought to be up to the job of making ourselves independent of the PRC today.
Why are many company leaders reticent to rebuild manufacturing in the US?
The dysfunctional focus on labor costs drove the exportation of valuable American manufacturing jobs even though American industrial pioneers like Frederick Winslow Taylor, Harrington Emerson, and Henry Ford proved with real-world results that wages become largely irrelevant if management makes the job sufficiently productive. Emerson's Twelve Principles of Efficiency suggests that the idea of a contest of efficiency against inefficiency originated in Prussia where Helmuth von Moltke had to "do more with less" against France in 1870, as France had more soldiers, better rifles, and a superior economy. Japan adopted these principles and used them to win wars against China and Russia, both of whose populations outnumbered them. Japan applied the same organizational principles to its industries, and to the effect that American industrialists were alarmed at the prospect of having to compete against them. Americans such as Taylor, Ford, and Frank Bunker Gilbreth—who cited explicitly the application of military motion efficiency principles to civilian occupations—responded with what we now call lean manufacturing as later adopted by Toyota.
The dysfunctional focus on labor costs drove the exportation of valuable American manufacturing jobs even though American industrial pioneers like Frederick Winslow Taylor, Harrington Emerson, and Henry Ford proved with real-world results that wages become largely irrelevant if management makes the job sufficiently productive. Emerson's Twelve Principles of Efficiency suggests that the idea of a contest of efficiency against inefficiency originated in Prussia where Helmuth von Moltke had to "do more with less" against France in 1870, as France had more soldiers and a superior economy. The Japanese adopted these principles and used them to win wars against China and Russia, both of whose populations outnumbered them. Japan applied the same organizational principles to its industries, and to the effect that American industrialists were alarmed at the prospect of having to compete against them. Americans such as Taylor, Ford, and Frank Bunker Gilbreth—who cited explicitly the application of military motion efficiency principles to civilian occupations—responded with what we now call lean manufacturing as later adopted by Toyota.
Emerson, Taylor, Ford, and others also pointed out the short-sightedness of choosing cheap labor over efficiency. Ford's My Life and Work urges executives, "to overcome by management what other people try to overcome by wage reduction." Emerson's Twelve Principles of Efficiency adds, "It is unfortunate that the employer shies at the suggestion of a 10 percent advance and pays scant if any attention to a 50 percent inefficiency, two-thirds of which is his own fault." Taylor's Principles of Scientific Efficiency talked about the need to hire "high-priced men"—we would say high-priced workers today—who would follow instructions such as those typical of what we now call standard work. Taylor and Ford both added that, when workers realize that the benefits of productivity improvements will show up in their pay envelopes, they will look for ways to make their jobs more efficient. When employers pay as little as possible, the workforce will respond accordingly by doing only what it is told, and probably only when a supervisor is watching. Low wages also give management little incentive to, as Ford put it, "put more brains into the business" to make the jobs sufficiently productive to pay high wages.
What do you think of Willam A. Levinson's perspective on manufacturing in the USA? Do you think manufacturers can be more profitable in the long run by relocating factories and production back to the USA?
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