How to engineer a thriving middle class.

UPDATED (below).  The issue of American middle class jobs disappearing to Asia is frequently bandied about these days. The soundbite version of the conventional wisdom runs along the lines of “Labor is soooooo much cheaper in China.”  And that is undoubtedly true, for reasons that include thousands of workers willing to live in on-site company dormitories and work 12 hour shifts six days a week, all for the low, low price of $17 a day.  You know:  Newt Gingrich’s grand vision for America.

But this is only part of the story, and a diminishing part at that. For the tech sector in particular, the cost of labor is minimal “compared with the expense of buying parts and managing supply chains that bring together components and services from hundreds of companies.”  In addition, the labor calculus appears to be shifting as wages rise in Asia.  But something else has been showing up more and more in the reporting on this picture, and it has not been receiving nearly the focus it deserves:

The rapid expansion of science and engineering capabilities in China and its neighbors pose a more formidable economic challenge to the United States, according to the group, with Asia rapidly boosting the number of engineering doctorates it produces and research dollars it spends.

Simply put, the U.S. does not have a vast work force with the science and engineering skills needed to staff hi-tech manufacturing jobs.  The problem itself points directly to its own solution, hiding right there in plain sight, and we’ll get to that in a minute.  First a few factoids.  Since 2000:

• The number of doctoral degrees in engineering awarded in China has more than doubled, and now far exceeds the number awarded in the United States.

• The number of research workers for U.S.-based multinationals working overseas has more than doubled.

• The number of high-tech manufacturing jobs in the United States has declined by 687,000, or 28 percent between 2000 and 2010.

Although the long decline of manufacturing employment in the United States is often attributed to the cheaper wages in developing countries, China and developing countries in Asia have in recent years sought to lure more sophisticated manufacturing operations — and better jobs — by expanding their engineering prowess through government investment in education and research.

And therein lies the solution, so simple even a wingnut can understand it: government investment in engineering education and research.  Of course, conservatives hate the very idea of “government investment” in anything, almost as much as they hate immigrants — legal or otherwise — who are “taking” American jobs.  And speaking of immigration:

Microsoft Corporation has filed 33934 labor condition applications for H1B visa and 10918 labor certifications for green card since 2001, ranked 1 among all visa sponsors.

Microsoft has been trying to fill 44,852 jobs right here in the U.S., but the fact is that there are too few Americans with the skills needed to fill them.  So we have an iconic American company sponsoring thousands upon thousands of H1B visas and green cards.  The positions that Microsoft is looking to fill include Software Development Engineers, Senior Software Development Engineers, Premier Field Engineers, Support Engineers, Computer Software Engineers (Applications), Computer Software Engineers (Systems), Computer Hardware Engineers, Lead Software Development Engineers, Senior Support Escalation Engineers, Senior Support Engineers, Lead Software Development Engineers.  These are not exactly migrant farm workers we are talking about here:  the average salary being paid by Microsoft to these foreign workers is upward of $90k.

The New York Times recently ran a piece entitled How the U.S. Lost Out on iPhone Work.  In it, Charles Duhigg and Keith Bradsher trace the story of Apple’s iPhone to illustrate many of the larger moving parts that have come together and locked in place over the last few decades to virtually guarantee that outsourced jobs in the tech sector are not coming back to the United States any time soon.  The article is long and well worth reading in its entirety.  But because my beloved tens of loyal readers may be pressed for time today, I want to excise and highlight a few key parts of the article that highlight the problem.

From page 2:

Though Americans are among the most educated workers in the world, the nation has stopped training enough people in the mid-level skills that factories need, executives say.

To thrive, companies argue they need to move work where it can generate enough profits to keep paying for innovation.

In part, Asia was attractive because the semiskilled workers there were cheaper. But that wasn’t driving Apple. For technology companies, the cost of labor is minimal compared with the expense of buying parts and managing supply chains that bring together components and services from hundreds of companies.

From page 3:

For years, cellphone makers had avoided using glass because it required precision in cutting and grinding that was extremely difficult to achieve. Apple had already selected an American company, Corning Inc., to manufacture large panes of strengthened glass. But figuring out how to cut those panes into millions of iPhone screens required finding an empty cutting plant, hundreds of pieces of glass to use in experiments and an army of midlevel engineers. It would cost a fortune simply to prepare.

Then a bid for the work arrived from a Chinese factory.

When an Apple team visited, the Chinese plant’s owners were already constructing a new wing. “This is in case you give us the contract,” the manager said, according to a former Apple executive. The Chinese government had agreed to underwrite costs for numerous industries, and those subsidies had trickled down to the glass-cutting factory. It had a warehouse filled with glass samples available to Apple, free of charge.  The owners made engineers available at almost no cost.

The Chinese plant got the job.

From page 4:

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.

Companies like Apple “say the challenge in setting up U.S. plants is finding a technical work force,” said Martin Schmidt, associate provost at the Massachusetts Institute of Technology. In particular, companies say they need engineers with more than high school, but not necessarily a bachelor’s degree. Americans at that skill level are hard to find, executives contend. “They’re good jobs, but the country doesn’t have enough to feed the demand,” Mr. Schmidt said.

It is hard to estimate how much more it would cost to build iPhones in the United States. However, various academics and manufacturing analysts estimate that because labor is such a small part of technology manufacturing, paying American wages would add up to $65 to each iPhone’s expense. Since Apple’s profits are often hundreds of dollars per phone, building domestically, in theory, would still give the company a healthy reward.

But such calculations are, in many respects, meaningless because building the iPhone in the United States would demand much more than hiring Americans — it would require transforming the national and global economies. Apple executives believe there simply aren’t enough American workers with the skills the company needs or factories with sufficient speed and flexibility.

From page 5:

Corning was founded in America 161 years ago and its headquarters are still in upstate New York. Theoretically, [Corning, which makes the iPhone glass] could manufacture all its glass domestically. But it would “require a total overhaul in how the industry is structured,” [Corning’s vice chairman and chief financial officer James B.] Flaws said. “The consumer electronics business has become an Asian business. As an American, I worry about that, but there’s nothing I can do to stop it. Asia has become what the U.S. was for the last 40 years.”

But in the last two decades, something more fundamental has changed, economists say. Midwage jobs started disappearing. Particularly among Americans without college degrees, today’s new jobs are disproportionately in service occupations — at restaurants or call centers, or as hospital attendants or temporary workers — that offer fewer opportunities for reaching the middle class.

6:

“We shouldn’t be criticized for using Chinese workers,” a current Apple executive said. “The U.S. has stopped producing people with the skills we need.”

And last but not least, 7:

“I’m not worried about the country’s long-term future,”  [Steve] Jobs told [some d00d named Barack] Obama, according to one observer. “This country is insanely great. What I’m worried about is that we don’t talk enough about solutions.”

In the last decade, technological leaps in solar and wind energy, semiconductor fabrication and display technologies have created thousands of jobs. But while many of those industries started in America, much of the employment has occurred abroad. Companies have closed major facilities in the United States to reopen in China. By way of explanation, executives say they are competing with Apple for shareholders. If they cannot rival Apple’s growth and profit margins, they won’t survive.

“New middle-class jobs will eventually emerge,” said Lawrence Katz, a Harvard economist. “But will someone in his 40s have the skills for them? Or will he be bypassed for a new graduate and never find his way back into the middle class?”

With government investment in an engineering education, that hypothetical 40-year old could very well have those skills.  Smart investment in education more than pays for itself in the long run by spurring economic growth, encouraging private sector investment, spawning better jobs, and yielding enormous dividends in taxes paid back over the lives of these working Americans — to say nothing of the compounded benefits resulting from a solid, prospering middle class.  As it stands now, though, that hypothetical new graduate isn’t likely to have those skills either.

To its credit, the Obama administration recently announced a public-private program called the Advanced Manufacturing Partnership to (a) cement U.S. leadership in innovative technologies, and (b) ultimately spur new manufacturing jobs.  While it may very well succeed in accomplishing the former, it is misguided in the extreme in addressing the latter.  In announcing the new initiative, President Obama argued that just as the government helped the private sector develop the microwave, jet engine and the Internet, the Advanced Manufacturing Partnership could solidify U.S. status as the world’s most technologically advanced economy for decades.  And that sounds great, but it misses the point:  if and when the program yields all sorts of amazing tech innovations and discoveries on a par with microwaves, jet engines and the Internet, where exactly will all the engineers come from, the thousands upon thousands of them needed to develop and manufacture the technology?  Wherever it is, it sure as hell won’t be the U.S. — not without a concurrent, serious investment in educating our own work force in science and engineering.

“If we want a robust, growing economy, we need a robust, growing manufacturing sector,” Obama said.

Yes.  And?

But the government will spend just $500 million on the endeavor, some of it already appropriated, in a sign of how difficult it is to use the public purse to stimulate economic growth.  Deficit reduction talks are looking at trillions of dollars in spending cuts.

Did you get that memo?  I haven’t seen it yet, but apparently deficit reduction is The Most Ever Important Problem Ever Facing Our Nation Ever™.  If we truly desire a return to economic prosperity for middle class Americans, clearly we need to… cut trillions in spending right away!  Actually, it’s even worse than that: conservatives even undermine the little science education we do invest in with their ceaseless attempts to teach creationism in public school biology classes.

Why anyone champions conservative policies as a solution to any real problem facing the vast majority of Americans today is incomprehensible to me.  But you already knew that.

* * * * *

UPDATE:  Robert Reich has more at Salon:

Global corporations — wherever they’re based — will create good jobs for Americans only if Americans are productive enough to summon them. Problem is, a large and growing portion of our workforce isn’t equipped to be productive.

Put simply, American workers are hobbled by deteriorating schools, unaffordable college tuitions, decaying infrastructure and declining basic R&D. All of this is putting us on a glide path toward even lousier jobs and lower wages.

Get it? The strategic responsibility for making Americans more globally competitive can’t be centered in the private sector because the private sector is rapidly going global, and it’s designed to make profits rather than good jobs. The core responsibility has to be in government because government is supposed to be looking out for the public, and investing in public schools, colleges, infrastructure and basic R&D.

Without bold government action on behalf of our workforce, good American jobs will continue to disappear.

2 thoughts on “How to engineer a thriving middle class.

  1. Most of my engineering classmates in the 70′s were sons and daughters from lower middle class homes. Many of us were the first generation to attend college. Our families pushed us towards “useful” degrees that could land us good jobs in engineering or nursing/ healthcare. Unfortunately, lower middle class families find it tough to afford he high cost of a college education. We need more government investment in engineering degree programs and incubators for technology start ups. The example in the article of the Chinese glass cutting plant is alarming. Know-how dies when we lay off workers and ship production lines overseas. When we let this happen, it’s probably lost for good.

  2. Full employment is the best possible deficit reduction plan there is. The CBO recently did a study that said if we can lower unemployment to 6.9% (not a terribly low number) we would reduce the deficit by a third. That is impressive and a testament to what creating jobs in droves would do for the country. Obama will hopefully live up to the rhetoric of the latest State Of The Union speech and get his FDR on! We need a modern day WPA, a Green New Deal if you will. We’ve got a ridiculous amount of infrastructure that needs to be built or rebuilt there is really no excuse. You can drive thru the suburbs just outside of Washington DC and there is gated community after gated community containing the 20-30 room mansions with 10 room servants quarters attached that belong to defense contractor companies executives and CEO’s. I believe the defense budget needs to be partially (or mostly even) turned into the infrastructure budget.

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