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It’s 1929 again
November 28, 2008 10:47 PM   Subscribe

Can China Adjust to the US Adjustment? Prof. Michael Pettis of Beijing University on the macroeconomic parallels between the present crisis and that of the 1930s, with China playing the role today that the US played back then.
posted by Abiezer (23 comments total) 11 users marked this as a favorite

I'm not qualified to say whether he's right or not, but it seems a cogent case and I know we love our economic doom-saying.
posted by Abiezer at 10:49 PM on November 28, 2008

it hurts my brain when so many threads get pulled together like that.

hes totally right. the world is suffering from oversupply, financed by the very people who are supplying it! i have to say, cheers to china for pulling that one off: selling America all the rope needed to hang itself.

i kept looking for some emphasis on huge government spending to temporarily lower unemployment and boost demand but it was never delved into. wasn't that keynes' big thing?
posted by Glibpaxman at 11:07 PM on November 28, 2008

I'm not qualified to say whether he's right or not, but it seems a cogent case and I know we love our economic doom-saying.

It's not really doomsaying, unless you live in China.

hes totally right. the world is suffering from oversupply, financed by the very people who are supplying it! i have to say, cheers to china for pulling that one off: selling America all the rope needed to hang itself.

That's not a correct analysis at all. It's more like china built a ton of rope factories and now their clients are all hanged. Or something. The point is, they have a ton of production capacity and no one to sell stuff too. Factories are closing all of china and there are now unemployment riots.

When the economy goes bad in the U.S, we vote in a new government. But what happens in China?
posted by delmoi at 11:24 PM on November 28, 2008

Republican says, "I voted for God, guns, and gay-hate, and all I got was the end of the American Century."
posted by orthogonality at 11:24 PM on November 28, 2008 [3 favorites]

At the start of this year, the Chinese started investigating investing directly in foreign concerns, having realised that there's only so much US paper one can own before it becomes pointless. I recall there was a lot of concern in Aus when there was speculation that perhaps BHP would be a good buy for them. Concurrently, there's all this concern about China's growing influence in Africa. So, it seems to me that if China has a problem with a capital-account surplus, they could effectively buy large parts of Africa. Direct investment in Africa isn't as hands-off and uncontroversial, and probably won't have the same cyclical effects, as buying every American a (Chinese-made) plasma tv, but it looks the music's stopped on that particular circle-jerk. It might have to be a longer-term play, but then that's what China's good at.

So, am I just making this up?
posted by pompomtom at 12:23 AM on November 29, 2008

His entire point is based on the global nature of the crisis, so it seems silly to refute it based on "I'm all right, Jack" just because you're American. You vote in a new government which finds itself in precisely the same macroeconomic environment.
For China, the beauty of authoritarian corporatism is that popular misery, while destabilising and worrisome, doesn't automatically mean regime change, particularly for a regime so practised and skilled in control. They've had close on three decades of "mass incidents" in the post-reform era and none have come close to dislodging the government. Couple that with the low expectations of your average poor Chinese citizen and I see no reason why the Party couldn't hang on while it continued its efforts to raise domestic consumption or explored solutions like pompomtom suggests.
posted by Abiezer at 12:36 AM on November 29, 2008 [1 favorite]

The first part of his analyis is a remarkably cogent description of what happened, but he makes a huge leap when he somehow implies that China FORCED us to consume. We weren't forced, we wanted to.

In 1997, the Federal Reserve really started to seriously intervene in the markets, first engineering the bailout of Long Term Capital Management, and then basically giving Wall Street whatever it wanted. Any time there were problems in the system, it injected capital. Things were going so swimmingly, after all. That was the start of the bubble.

It was excess optimism on our part, aided and abetted by the fake liquidity of derivatives, backed by Alan Greenspan, who made absolutely sure that derivatives didn't blow up, that their fundamental assumption of perfect liquidity at all times was maintained. This was a toxic and terrible illusion.

We pyramided up level after level of new financial derivatives, things that looked like cash and traded like cash. With the Fed's implicit liquidity guarantee, they essentially BECAME cash. And in our new 'wealth', we wanted to consume, consume, consume, and China was happy to step up to the plate.

They didn't force this on us. We did it all by ourselves. If it hadn't been China, it would have been someone else.

Remember, the world's reserve currency (at least for now) is the dollar; it's the Fed's actions that are nearly always the driving force in monetary issues. China wouldn't have been able to sop up all that currency if we weren't willing to print it and send it overseas. No matter how much they took, we just "printed" more. They recycled a lot of it, but not all; had we not constantly added more cash to the system, we'd have been forced into a recession until we contained our consumption. The Fed's fiat money hijacked the signal that money is supposed to send; when you're consuming too much, there's less money available, and the economy slows until things come back into balance. The Fed could see our massive trade imbalance. They didn't just ignore it; they actively short-circuited the warning klaxons.

China's likely to suffer pretty badly in a demand collapse, but at least they have the ability to produce things for their own internal use. We're going to be in a lot worse shape than they are. We're in debt up to our eyebrows, and our manufacturing has mostly evaporated.

Bubbles are always terrible for everyone involved. That's why it's so important not to have them. The Federal Reserve under Alan Greenspan was criminally negligent. As I've said before, if he had visited your house personally, taken half of everything you own, piled it on the lawn, and set it on fire, he would have done less damage to you than he did.

Economics is slow, and thus you don't know it yet, though you're starting to.
posted by Malor at 1:40 AM on November 29, 2008 [2 favorites]

So, Malor, China can't force you (generic 'you') to consume, but Greenspan could? How does that work? (please desnarkify that on the client-side... it's a real question!)

I keep thinking through this whole crisis in terms of fundamentals - that the US doesn't seem to produce much apart from weapons and t-bills, and eventually everybody noticed - and I presume I'm missing something. Perhaps it is (checks spelling) seigneurage, but it seems that that'd be a mitigating factor... an extra price that the lenders are going to end up wearing (and a bunch of free TVs for Americans).
posted by pompomtom at 2:43 AM on November 29, 2008

Easy money means easy lending. Easy lending meant lowered standards, which meant high demand for houses. So house prices went up, first steadily, then quickly, then like rockets. People stopped saving because they were "saving" so much in their house values. They took out big equity lines of credit -- why not, since the house is going up 100k a year -- and blew the cash on big screen TVs and Hummers. If you make the money available, people will spend it.

The foreign companies stepped up to fill the demand, they didn't create it. Once we had, say, DVDs, people wanted them, but many couldn't afford the players. China was able to make goods cheaper than anyone else, filling demand for similar goods at lower price points, but they didn't create the demand. Mostly, that was Japanese and American companies. When was the last time you noticed a brand-new Chinese product type or category? Also note that demand creators, new products, are always from companies, not from governments or central banks.

Mostly, demand drives supply. Invention creates demand for new goods, but demand always drives supply. If that weren't true, you wouldn't ever get into a supply overhang, like China's looking at now. If supply created demand, then flooding our shores with goods would automatically sell them, and that's obviously not happening.

Just because I make Crappy Widget XXXL doesn't mean I'll sell it. It has to fill a need -- it has to satisfy demand. You can probably sell a few of ANYTHING, but making a viable business supplying a good that fills no demand seems unlikely.

Fundamentals is indeed a good place to start thinking about this stuff. We've built a massively complex system on a very bad foundation, and we'll need to rip out an awful lot of it to ever get healthy again.
posted by Malor at 5:45 AM on November 29, 2008 [1 favorite]

Malor: In 1997, the Federal Reserve really started to seriously intervene in the markets, first engineering the bailout of Long Term Capital Management, and then basically giving Wall Street whatever it wanted. Any time there were problems in the system, it injected capital. Things were going so swimmingly, after all. That was the start of the bubble.

Pettis: One of the main lessons policy-makers learned from the crisis was the risk of a currency mismatch between external obligations and domestic assets – too much dollar debt and not enough dollar reserves. To protect themselves from a repeat of the disastrous 1997 crisis many Asian policymakers engineered current account surpluses by managing trade policy and the value of their currencies. As a necessary consequence they began amassing large foreign currency reserves.

This resulted in what some have called a global capital flow “paradox” – the fact that in recent years developing countries have been large and growing net exporters of capital to rich countries. This is a paradox because, historically, capital-poor developing countries have generally been net importers of capital. By accumulating foreign currency reserves they are often net exporters of official capital, but for most of the last fifty years official capital exports on average were significantly less than net private capital imports.

So there was an intervention, but Malor, being an American, believes the intervention was American, and Pettis, being a Chinese academic, believes that the intervention was Asian.

Somewhere, here, there is a lesson: every trade has two sides. Malor assumes those inscrutable Chinese had no clue that they were unwittingly wracking up massive currency reserves. This is exactly what the anthropologists call ethnocentrism: only people 'like me' matter and have agency. It gets you to the kind of 'self-involved' analysis offered by Malor pretty quickly: if 'we Americans' are the only agents capable of calculation, than all the world's evils must be due to 'us.'

Pettis tells the story from the side of the economies that got screwed in 1997, and identifies their cautious motivations for buying dollars in their desire to avoid the kind of squeeze play they saw then. In doing so, Pettis mostly ignores the American incentives for expanding demand and falling savings rates, but only after showing that "For most of last fifty years the US current account has fallen within a range of plus or minus 1% of GDP."

In other words, he sets out to explain an aberration in US consumption/production only after identifying what 'normal' means. Then he elucidates the two exceptions: 86-87, and 97-present. One was due to Japanese trade policy, and the second is due to Chinese trade policy. This strikes me as an interesting corrective to the common boom-bust cycle of self-congratulation and self-flagellation of American commentators, and potentially more accurate than any one-sided analysis.
posted by anotherpanacea at 5:58 AM on November 29, 2008 [4 favorites]

Ah interesting read - many thanks for linking.

One caution in general about China - much of the financial data coming out of that country is suspect. Between 2003 and 2006 I ran a division at one of the ratings agencies, with China one of our bigger growth areas. To rate any financial instrument you've got to see data, and even at the better run banks the quality and consistency of financial reporting left much to be desired. It was worse, far, far worse with respect to their obligors, the folks they were lending to and whom were providing data to the banks in support of their loan applications.

China just doesn't have the same type of regulatory framework that has existed for decades and is taken for granted in the developed nations. Because of this lots of data coming out of China gets revised, and lot more frequently than Western data does. In fact, their numbers are all over the place - this is something that isn't widely reported nor known outside a banking circles.

A rare example - in 2007 The World Bank announced that previously well regarded estimates had overstated China's GDP by some 40%. That's a very, very large margin of error. Now admittedly this correction was done largely for technical reasons (PPP had been misestimated in prior years), but the relative opaqueness of Chinese financial reporting and difficulty in understanding precisely what is going on in that country is reinforced by these actions. We always, 100% of the time, had to put our own people on the ground in China just to get the basic story straight.

Another few other interesting asides - The United States was still the top manufacturing nation before the credit crunch, accounting for some 20% of global output; China was solid second place at 13.2% (US data current as of August 2008). China overtook Japan as the number two manufacturer in 2007 and before the recent global slowdown in demand was poised to overtake The United States by Q4 2009. Needless to say, it will be very interesting to see how the global slowdown changes all of this.

Just for completeness, the top 15 manufacturing nations in terms of overall output were (2007 data sourced from Global Insight):
1 US
2 China
3 Japan
4 Germany
5 France
6 UK
7 South Korea
8 Italy
9 Brazil
10 Canada
11 Russia
12 India
13 Spain
14 Mexico
15 Indonesia
Even if China does surpass the United States in terms of overall manufacturing output, there are specialist areas where America is expected to maintain a lead [.pdf] - these include Aircraft and Precision Equipment to name but two.

Another aside I find rather interesting - China has actually lost MORE manufacturing jobs than America. Lots of the Chinese ramp up in manufacturing was driven by large amounts of cheap human labour. A buddy owns a couple of plants in one of the manufacturing areas, and it was far, far cheaper for them to use human labour than install robots.

But once quality control was recognised as key to maintaining the Chinese export driven economy, factory owners rapidly began automating. However in China workers suffer the brunt of these upgrades and are forced out of work.

Yeh curious about the Smoot Hawley argument; well, we know that decoupling never happened. Indeed Chinese markets are slowing, drastically. Domestic demand just doesn't exist in China so the people themselves can't purchase manufactured goods targeted to Western consumers, at least not in quantities sufficient to drive their own economy forward. We know that Global Trade was on the G20's agenda during their recent meetings, so I don't see most nations closing their borders and engaging in protectionism, at least not on a large scale.

I do, however, have a view on how this is currently being played out, based on personal experience.

I've posted before that I've got a small business here in London importing MP3 players. We focus on shuffle clones, selling product that has twice as much flash memory as Apple's players, but for half the price. It's a good selling pitch, and they sell very well as they are absolutely identical in every way, but we do more colours than Apple. We get a lot of club kids purchasing them as fashion accessories to wear, sometimes not even to use as an iPod!

Anyway, maybe one year ago I noticed lots of scrambling for business from suppliers I'd approached for quotes. Previously I'd ask for a volume quote and sometimes not get an answer. They just had too much damn business to negotiate.

But that wasn't a problem, it took me about four years to get a handful of suppliers capable of delivering standard, high quality product (one of our biggest problems there was finding suppliers that wouldn't ship stuff with an Apple logo, four years ago we lost 10K players to HRM Customs!!) so I had others I could turn to.

In any case, all of a sudden there was this mad scramble for business. We suspected there were problems in China long before reading about it in FT or The Wall Street Journal, just because of the way my suppliers were behaving.

Fast forward a year, and the same iPod that cost me £6 quantity 500 January 2007 now costs me a little under £3, same quantity. And these guys are desperate to deal! Previously the only way to get a price reduction was to ramp up, and I'd be buying 10K players to get to close to the three pound price point (I'd immediately sell about 9K of them to other people in the UK as I didn't want to tie up my working capital like that).

Now there is almost no resistance if I ask for a discount, but not cash. For example, one of my suppliers recently started tossing in Mains Adaptors with the iPods she's sending me. This was in response to me asking for a reduction. No cash deal, but product. And that's ok, as these adaptors would normally sell for about six to ten pounds, so now we toss them in for free, just to sweeten the attraction of our players (half the cost of Apples, twice as much memory and a free mains adaptor).

At some point we're going to have to pass along price reductions to customers, but we'll wait for that imperative to come from Apple; then we'll still maintain our "twice as much memory, half the price" slogan. But in any case, thanks to deflationary actions by our Chinese suppliers - purely scrambling to get our business - we've got the margin.

So I don't see China turning to protectionism much, if at all, because domestic demand isn't there. The folks on the ground that I'm dealing with know this better than we do, that's why they are so damn desperate to cut deals. Also indicative - the link delmoi provided showing unemployment riots.

We'll probably continue to see prices on Chinese manufactured good decline adding to deflationary pressures.

However it does seem that The Great Unwinding is slowing; we're seeing the decline of asset prices in some markets (e.g., Bullion) slowing.

A very, very large number of hedge funds have gone under which seemed to drive assets prices down sharply, across the board. We expect the turmoil in the alternative investment space to continue until Q2 2009, but mitigating over time.

End of year is going to be a very interesting time in the markets.
posted by Mutant at 6:31 AM on November 29, 2008 [18 favorites]

Wow, panacea, you went off in some very weird directions in that post. Your claims about what I said are bullshit. Your words have little or nothing to do with my message.

The Fed didn't need any Chinese help to print money. It worked out that the Chinese holding their currency down against ours imported our inflation, and let us play games with our currency far longer than we should have been able to, but our actions were single-source. We can print as many dollars as we want, just like the Chinese can print yuan. We printed first; they matched us to hold their currency peg. So did Japan.

Their currency printing allowed us to consume far longer than we should have, but we had a bubble and partial crash before they really even got into the game; in 2001, their reserves weren't that large yet.

Sans Japanese and Chinese intervention, we would have seen very strong inflation in the mid 2000s; we might not have had our double bubble of debt and real estate. Japan would have stayed in their stagflation from THEIR bubble and bailout attempts, and China would have grown slower. Their actions gave us more rope to hang ourselves with, and very probably themselves too, by it's not like they snuck over here and pressed "print" on the dollar machines.

We got ourselves into our own mess, and we'd have crashed just fine without them. The Chinese choice to marry its economy to ours made our problems much worse, and probably theirs too, but they peg their currency to ours, not the other way around.

Like it or not, the US is still the center of the world economy. That's probably starting to change, but at present, other countries react to our choices. Bretton Woods lives on; it's a lurching zombie these days, and perhaps will finally expire before much longer. But, at present, just like for the last sixty years, we're the ones in the driver's seat, and other countries adjust as best they can to our stupidity. If they helped us be idiots, that doesn't change the fact that we were idiots.
posted by Malor at 6:53 AM on November 29, 2008

Wow, panacea, you went off in some very weird directions in that post. Your claims about what I said are bullshit.

our actions were single-source. We can print as many dollars as we want, just like the Chinese can print yuan. We printed first; they matched us to hold their currency peg.

Okay, 'lor. If you say so. Except, of course, that we didn't just print money. We bought things with dollars and the Chinese chose to spend those dollars on Treasury bills rather than print yuan to keep up or let exchange rates float. Every trade has two sides, and you apparently haven't even tried to identify the actions on the Chinese side, let alone understand the motivations.
posted by anotherpanacea at 8:02 AM on November 29, 2008

Yeh, in response to an email: it's widely known that data originating from most Chinese institutions is shaky and I can explain this without including corruption (which happens everywhere so let's leave it out of this and accept my apologies - that wasn't the main thrust of my argument).

Most of the managers (very skilled and fine managers by the way, doing a very, very good job in that hyper competitive market) run their businesses according to their own, somewhat idiosyncratic tools and techniques.

In other words, even at the largest companies you'll find managers who haven't been to business school and, as a result, would struggle to complete a cash flow forecast or discounted cash flow analysis according to any reasonably accepted principles.

That's not to say they won't know where their business is now or where it's going - not at all, they are sharp and know well - its just that when Western companies try to do biz there we've got lots of problems because, as good as their English is (or the Chinese of the staff we'd put on the ground there), we don't speak the same language when it comes to business.

Most of the time this doesn't really matter, a startlingly large percentage (by Western standards) of firms there finance themselves either by informal sources (i.e., family, personal savings, private investors, etc) or from retained earnings.

However when they need to take their businesses up to the next level or get whacked by an exogenous demand spike (e.g., we saw a lot of this in the run up to the Olympics) they urgently need to acquire capital via formal channels. This leaves two sources the markets or the banks, and each requires a level of documentation and internal data / reporting that many of the family run businesses find difficult to provide.

At least in a cleansed and rigorous manner. So they do what many entrepreneurial people do in these situations - just fill in the damn forms and send them on their way! And once this questionable data enters the system small error compounds larger error and so on, and ultimately we've got a 40% adjustment here and a 40% adjustments there - in other words, real money.

So yeh, we rarely got good data unless we put our own people into a Chinese bank to help with the analysis and cleansing. I certainly didn't mean to imply that some of those banks aren't top notch - there are certainly some world class Chinese banks (not naming names here), but other banks aren't so good. And all have to deal with some (and at times lots of) crappy data coming from their customers for reasons previously mentioned.

Finally, much of our activities weren't focused on the bank - they were doing a great job with what they had, had solid process and procedures in place - rather, we were gaining introductions from the banks to the SMEs and other enterprises who were beginning to approach the capital markets. We could help the SMEs as well as the banks, trying to insure that a higher quality of data entered the system. Needless to say, we ran lots and lots of seminars and training there, all of which helped both parties; we better understood their businesses, the challenges they faced, and the owners had a clearer idea of what the banks and ultimately the capital markets were asking for. Win / win in other words.

That said, even before the credit crunch and global slowdown that market was going to need another decade of regulatory reform to approximate Western levels of scrutiny and rigour.

I bet there's lots more corner cutting going on now as regulatory activities, even in the best of times, always are pushed into the back seat it seems. Just look at how much crap went on in the US and UK markets, for example.
posted by Mutant at 8:52 AM on November 29, 2008 [2 favorites]

Heh, looks like China is going to try to pick up some bankers on the cheap after the finiancial meltdown:
Officials from Shanghai, China's financial hub, will travel to the United States and Europe next month on a recruiting mission, potentially offering jobs to fund managers, policy analysts and others left jobless by the financial crisis.

Wu Jianrong, deputy director of the Shanghai Financial Service Office, told the official Xinhua news agency on Friday that the delegation would go to London, Chicago and New York in search of employees.
There only looking for 170 so far. How many actual high-end bankers have been laid off, I wonder? I'd heard numbers like 50,000 Citibank employees were getting laid off.
posted by delmoi at 11:38 AM on November 29, 2008

selling America all the rope needed to hang itself.

It's a murder suicide.
posted by Crotalus at 3:59 PM on November 29, 2008

It's not really doomsaying, unless you live in China.

The poster is a Chinese resident.
posted by Wolof at 4:50 PM on November 29, 2008

Interesting bit:
The World Bank forecasts that China’s current account surplus will RISE not fall in 2009, going from an estimated $385 billion to $425 billion. How is that possible if real imports are forecast to grow faster than real exports? Easy – the terms of trade moved in China’s favor. The price of the raw materials China imports will fall faster than the value of China’s exports. China’s oil and iron bill will fall dramatically.
posted by delmoi at 6:59 PM on November 29, 2008

Hey excellent link delmoi . Another interesting excerpt from that paper details how the complexion of China's exports is changing -- "growth in “light manufacturing” (toys, shoes and textiles) has slowed. But electronics and machinery exports are still doing very well", summarising this as "..labor intensive export sectors have slowed more than capital intensive export sectors" .

Also good that Setser notes the disparity in press coverage, how all attention focuses on light manufacturing but other sectors are ignored. This seems lost on many people, and who reach fallacious conclusions which then tend to get repeated.

Specifically, all too often we see misstatements in the mainstream media that "America doesn't manufacture anything anymore" or "America doesn't have any manufacturing base", proclamations that people read and repeat. But, as the data shows us, this is patently false; The United States is still the worlds largest manufacturer, across the board.

Last August Boston Consulting ran a poll for the FT where they asked typical Americans where they thought The United States ranked in the global league tables for manufacturing; their consensus? Well, the man in the street (erroneously) thought America was the world's 20th largest manufacturer, not the largest, a position America has held for over a century.

Of course the trend - and predictions - of the longer term picture for the fate of American manufacturing wasn't positive, at least until The Credit Crunch.

Previously it was forecast that China would overtake The United States as the largest single manufacturing nation by 2009. Now, it seems, things have changed and it's not clear if America will be dethroned.

Now we're seeing a sharp influx of manufacturing capability into The United States, many new plants are being constructed in America rather than abroad. There are lots of reasons for this, including but not limited to
I recently read an interesting paper, Thriving in a Global Economy: The Truth about U.S. Manufacturing and Trade [ .pdf ] which had a great introductory line
Reports of the death of U.S. manufacturing have been greatly exaggerated.
So yeh, in spite of what one reads in the daily newspaper (or here on Metafilter it would seem), not only is American manufacturing alive and well, The United States is still dominant and in fact may continue to hold this position for some time to come.
posted by Mutant at 2:51 AM on November 30, 2008 [1 favorite]

Great post. There is a similar article over at the New Republic.
posted by caddis at 8:44 AM on November 30, 2008

"No matter how much they took, we just "printed" more. They recycled a lot of it, but not all; had we not constantly added more cash to the system, we'd have been forced into a recession until we contained our consumption. The Fed's fiat money hijacked the signal that money is supposed to send; when you're consuming too much, there's less money available, and the economy slows until things come back into balance. The Fed could see our massive trade imbalance. They didn't just ignore it; they actively short-circuited the warning klaxons.

Yes, we constantly added cash to the system. That's, uh, what a money multiplier does, and the only way to get around it is to forbid any profits from lending transactions (or really, on any transactions). The only way that consuming too much=less money available is when you're using actual goods as the exchange mechanism, which means eliminating actual banknotes in a return to precious coins. And even then, there's always (for the foreseeable future) more to share, and you've got the added disadvantage of being at the mercy of a commodity market.

It's just that, again, I feel like you're missing fundamental economic principles that make your critique less worth heeding. And I think the points from anotherpanacea deserve more discussion than just shouting "Bullshit!" It was in the mutual interest of China and America to maintain a trade imbalance, and pegging it all to rapacious Americans is simplistic.

"Infrastructure: Clearly a plant in America benefits from a Developed Nation infrastructure. Having worked in The Developing World, I can tell you that things happen there which we'd never accept in The United States - power cuts, for example. These events have to be factored into any business plan as a cost; if your (expensive) plant doesn't have electricity and isn't running, it don't matter how cheap everything else is."

A group of us were out at dinner with DaShiv's brother, who's just back from Taiwan, and we found it pretty funny, the disjunction between what we considered acceptable factory conditions and what he did. He worked in a plant that made LCD screens, and there were robots there that would use forked prongs to lift huge sheets of glass and maneuver them around the line. Occasionally, they'd become disoriented, and rotate outwards, stabbing people with their prongs. We thought "stabbing robots" sounded horrible and absurdly dystopic; he saw it as a normal part of business. He also talked about huge trenches cut in the concrete floors, which people would routinely fall in, including one fatality. "But," he said, "the company was not liable. It was the contractor's duty to provide proper signage." In fact, all of the fatalities seemed easily dismissed as a contractor's fault, with no corrective measures apparently required from his company.
posted by klangklangston at 1:14 PM on November 30, 2008

While I agree with Mutant's points about American primacy in manufacturing, I disagree with the conclusion that manufacturing has a meaningful long term future in the USA.
The figure I have seen show the US as producing 20% of global manufacturing output, with China at 13%. Obviously, the first is shrinking and the second growing. If you read closely, even in the current economic climate, China is still growing at 7%+ annualised, although it is often sloppily reported as "Chinese manufacuring declined from 11% to 8%". Potentially the biggest risk is from over-production in China leading to deflation, it really has been growing that fast (although I am still betting on high inflation in the medium term).
Looking at other OECD countries, we can see a general decline in manufacturing as a percentage of GDP, although with exceptions in some high value and value added manufacturing.
The UK, Australia, France and Italy have all had their manufacturing industries decimated by lower cost asian substitutes, and this is as it should be, as the lower cost economies substitute lower labour costs to produce largely similar products.
Unless there is a repeat of Smoot-HAwley style tariffs (which would be a repeat disaster) I can't see American manufacturing making a resurgence. Frankly, while best management practice does suggest a workforce with a higher standard of living (education/healthcare/pay/holidays etc.) produces better work, and quite probably more profitable work in the longer term, manufacturers can save big dollars *today* by off-shoring.
On the brighter side for those involved in developed world manufacture, it takes a long time for the economic inertia to shift. Italy has been a second rate producer (I'm thinking especially of the thousands of family owned factories making switches and plastic tubs and buttons) for a couple of decades now, but while profits are down, the point where they are out of business seems a long time coming.
An accompanying trend is the off-shoring of small manufacture, where the management and admin stays on, but the workers on the floor are out-sourced to Asia. IMHO this is typically the most successful, as the knowledge that has made the business successful over time is largely retained, as opposed to a business boot-strapping with a completely out-sourced workforce.
posted by bystander at 3:21 AM on December 1, 2008

Is the US is playing the role of 1930 China, does that mean I get to eat my daughter? I'm afraid that if she gets any older she'll lose that baby fat and get tough. Especialy if the economic downturn means we'll have to switch her off her all-American Taco Bell and Sesame Street diet and onto one of cold rice and beans and she'll have to go to work lint picking down at the sweat shop.
posted by Pollomacho at 4:54 AM on December 1, 2008

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