Tuesday, May 3, 2016

Respectability and the economy

Making things with your hands is not respectable.  People who manufacture are looked upon as lower middle class at best.  If you truly want to be part of the cool crowd, go to college, get a degree in engineering and work for a research company or maybe an architectural firm.  You could even design cars for an automotive company as long as you wear a suit and tie to work.  Have fun paying off the school debt.

The United States middle class is considered to be a shrinking segment of the population who are, as defined by Google, the social group between the upper and working classes, including professional and business workers and their families.

Stan Shih, founder of Acer, had a concept called the Stan Shih Smile Curve.  He evaluated the various components of a product cycle in terms of economic value and put together a curve to show the highest and lowest values added to a particular event.  For instance, the romantic virtues including Conceptualization, Research and Development and Branding all have high added value.  Sales and marketing also have high value.  The lowest added value events are primarily in manufacturing.  Here’s a reference to a picture of Stan’s smiling curve

Basically, the curve tells us that manufacturing a product adds very little value to it.  We’re all about the branding and the marketing these days.  The trouble is, we seem to have forgotten that if we don’t produce anything, all that grand inventing and marketing leaves us with nothing to actually sell.  Sometimes Gofundme accounts look a lot like that.
The United States has seen tremendous invention and some of the greatest marketing programs in the world.  We buy stuff.  We create more stuff to buy.  We are innovators.  And we make less of it all every single day.  Making it is not just at the lowest point in the Stan Shih Smile Curve.  Making stuff is not glamorous or cool or even respectable. Since it doesn’t come up to Middle Class,  we send the manufacturing job overseas to the poor countries where they can pay a worker a dollar a day to make stuff that we can buy.

The problem is, if you cut off the manufacturing part of the curve, you are left with a pair of parentheses ( ) with nothing between them.  The cost of manufacturing goes away and comes back as a wholesale price.  The money to pay for the product left with the manufacturing.  There are less people building and making an income and so less people have money to spend on the fabulous products promoted by incredible sales campaigns. 

We are creating a closed economy.  We’re sending money overseas to maintain the factories and then we’re paying an overseas company to sell our produced inventions back to us.  The money that would have stayed in our own economy and been used to buy the products now has to be borrowed from somewhere, usually through credit cards.  The parentheses are actually more like a drain hole.  The money doesn’t come back to us ever.  It gets used in other economies.

For most factory production, it is too late to make a change.  We won’t be moving anything back home in the near future.  It certainly would be a good idea, though, to reconsider exporting any more of our factory work.  Of course, that’s another topic.  I owe another blog this month anyway.