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Work and prosperity
29 January 2013

Insourcing: At last, a positive economic trend!

Over the last couple of decades, the impact of Chinese manufacturing on factory jobs in the west has been roughly equivalent to the impact of Chinese medicine on the rhinoceros population in Africa. 

Of course, there’s nothing new about the movement of manufacturing from advanced to emerging  economies, but, as Charles Fishman explains in a hugely insightful piece for the Atlantic, the outsourcing boom that started in the 1990s was of an entirely different order:

  • “You can see this shift in America’s jobs data. Manufacturing jobs peaked in 1979 at 19.6 million. They drifted down slowly for the next 20 years—over that span, the impact of offshoring and the steady adoption of labor-saving technologies was nearly offset by rising demand and the continual introduction of new goods made in America. But since 2000, these jobs have fallen precipitously. The country lost factory jobs seven times faster between 2000 and 2010 than it did between 1980 and 2000.”

In short, lower skilled jobs were going east in ever greater numbers, but without enough higher skilled jobs to replace them.

Given the vast pay differential between China and the west  – “even as recently as 2000, a typical Chinese factor worker made 52 cents an hour” – one might view outsourcing as inevitable and irreversible. 

And yet the underlying factors that drove manufacturing to the east are changing fast:

  • “Oil prices are three times what they were in 2000, making cargo-ship fuel much more expensive now than it was then.
  • “The natural-gas boom in the U.S. has dramatically lowered the cost for running something as energy-intensive as a factory here at home. (Natural gas now costs four times as much in Asia as it does in the U.S.)”
  • “In dollars, wages in China are some five times what they were in 2000—and they are expected to keep rising 18 percent a year.”

Outsourcing is giving way to a new phenomenon: ‘insourcing’ – the return of manufacturing from east to west. 

Furthermore, it’s not just a matter of energy prices, transport costs or pay differentials. Something much more fundamental is going on – a recognition that, in many cases, outsourcing was a mistake in the first place:

  • “In the first blush of cheap manufacturing, it’s easy to overlook the slow loss of your own skills, the gradual homogenization of your products, the corrosion of quality and decline of innovation. And it’s easy to assume that globally distributed production will hum along more smoothly than it often does in practice.”

In other words, it would seem that a properly trained, well-motivated workforce isn’t just an overhead, like the gas bill, but an organic repository of knowledge and experience, without which the process of product development and improvement cannot be sustained.

Real conservatives understand how important a living tradition is to a healthy society. We shouldn't be surprised if a similar principle applies within the workplace.


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