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Chinese Manufacturing vs US Innovation

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Long article in the New York Times this morning on Apple($AAPL), American jobs, corporate greed and the global economy. After reading it, you lose hope. You shouldn’t. Steve Jobs said it correctly when he was quoted, “This country is insanely great.”

The article has a lot of good information in it. But, like most newspaper articles what’s left unreported or unsaid might be more compelling than what made the newspaper. You also have to remember that in his state of the Union address, Obama is going to rant on China. It’s an easy straw man to puncture when so many American’s are hurting. No surprise Obama’s mouthpiece, the NYT, is helping set the table.

To humanize the story, the reporter picks one engineer that gets caught in a bad spot. He loses his job with Apple and winds up making $10/hr to check busted iPhones. There are some things we don’t know. What is his engineering degree in? The reporter never asks the engineer the question (or at least never reports the answer if they did), “You were laid off from Apple. Apple sits in the most incredibly productive ecosystem in the world. Why didn’t you go work for a start up?” Literally thousands of Silicon Valley companies were created since he was let go in 2002. Don’t get me wrong, I feel for the guy, and have a lot of empathy for him. No one knows better about being engineered out of a job than a pit trader. I don’t think the reporter asked the right questions for a story about the future of the American job market.

The description about the manufacturing ecosystem that exists in Shenzen, China is pretty amazing. There are other places like that around the world that have amazing ecosystems. Silicon Valley has the most incredible start up ecosystem that everyone would love to replicate. For almost a century, Detroit had a highly efficient vehicle manufacturing ecosystem. It wasn’t only cheap labor that killed it. There were many factors that brought the auto companies down. The ecosystem of farming in the middle United States is a highly interconnected web and responsive to the market.

The unspoken concept that the author never gets to is that automation is eating traditional manufacturing jobs. People are going to be forced to reinvent themselves over and over. Saying the words “highly skilled” is leading people astray. We should be saying “adaptable skills”. Teaching yourself to be “Highly skilled” induces you to pursue one in demand skill. Instead of learning how to think, you just try and attain credentials. The problem with that is that you are assuming too much career risk because if that skill becomes useless due to technological advancement, you are on the street. What and how are you learning what you learn today that can be adapted over time so that you can put yourself into useful positions?

When framed that way, the way one looks at education changes significantly. It pays to be able to critically think. Not only that, but you will have to be able to pivot relatively quickly. Some engineering degrees are valuable, because they can do the nuts and bolts things necessary to make things happen.

For example, there is a rush to learn how to program today. Programming is an incredibly useful skill today. But, only to a point. As long as you can learn new ways to code, new ways to apply new languages to different types of systems, you will be valuable. But, if you can only learn one way to code, eventually that becomes obsolete and you are no different than anyone else.

Can the US compete with China? Sure it can, but not within the parameters of the article. No one in the US is going to work for $17 bucks a day and live in a dormitory. But in China that is a higher standard of living than where they came from. Over time, as the Chinese get richer, those metrics will change. It’s not as if the Chinese aren’t human. Their tastes and mores will change over time. We are competing with China. America is the most innovative, adaptable society ever known to man.

Take this problem:

Another critical advantage for Apple was that China provided engineers at a scale the United States could not match. Apple’s executives had estimated that about 8,700 industrial engineers were needed to oversee and guide the 200,000 assembly-line workers eventually involved in manufacturing iPhones. The company’s analysts had forecast it would take as long as nine months to find that many qualified engineers in the United States.

In China, it took 15 days.

Someday, a computer program will be able to oversee most of those 200,000 assembly line workers. Right now, the opportunity costs of developing that program, testing it out, tinkering with it, and establishing it are way more expensive than simply taking 15 days and doing it in China. What’s true today might not be true tomorrow. Even China is losing jobs to Vietnam because there are different economies of scale in that country.

Here is another point from the article that if looked at in one way makes you depressed. Looked at another way gives you hope.

Manufacturing glass for the iPhone revived a Corning factory in Kentucky, and today, much of the glass in iPhones is still made there. After the iPhone became a success, Corning received a flood of orders from other companies hoping to imitate Apple’s designs. Its strengthened glass sales have grown to more than $700 million a year, and it has hired or continued employing about 1,000 Americans to support the emerging market.

Corning had to establish plants overseas because the ecosystem was there. They needed to be close to demand for supply chain management. They still have hired people in the US to support that ecosystem. Now, where do you think that Corning is investing their money to discover the next generation or next iteration of glass? I guarantee you it’s not in China. That ecosystem doesn’t exist there.

Which is a more valuable ecosystem? The Chinese manufacturing one or the creative next generation one? I know where I would put my money.

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