Thursday, June 2, 2011

Don't Look Back

Your today is our tomorrow Chinese CEO to American Businessman

Recently, the Boston Consulting Group proudly announced that the US will see a return of manufacturing jobs.

"With Chinese wages rising at about 17 percent per year and the value of the yuan continuing to increase, the gap between U.S. and Chinese wages is narrowing rapidly. Meanwhile, flexible work rules and a host of government incentives are making many States increasingly competitive as low-cost bases for supplying the U.S. market." BCG

Set aside that India, South Africa and a host of other lesser developed nations are ready to offer up low cost labor and that China's domestic demand for products justifies continued rapid expansion of their manufacturing base. Assume that BCG is right - is it what the US needs?

Only a hundred years ago, the US was losing agricultural jobs at a rapid rate. Like agriculture, the loss of manufacturing jobs was not a loss in total output. The US produces more food and manufactures more stuff with far fewer people.

We've entered an age where the largest value creation comes not from working the ground, nor from producing widgets. The lion's share of the value is captured by intellectual property.

Apple, Google, Facebook, Merck, Intel...sure, they all have operating costs, fixed assets and produce stuff (or virtual stuff), but their real value is in their intellectual property.

So while BCG celebrates that the States are luring manufacturing jobs back with tax incentives, land giveaways and cash, I wonder why go backwards. Invest that money where it will have a forward impact.

"The United States is now sixth place in R&D investment as a percentage of GDP, falling behind nations like Japan, South Korea, and Israel. R&D investments in emerging economies like China, Brazil and India are expanding at rates far higher than the United States. China, for instance, will increase its share of global R&D from 11% in 2009 to 13%in 2011. According to Battelle's analysis, these trends are 'slowly altering the dominance that the U.S. has maintained for the past 40 years.'" Breakthrough Institute

I can understand the difficult situations and intense pressures that force States' politicians to focus on manufacturing jobs. But why would the US ever choose to lose its edge in R&D? could BE different.

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