In an article in the December issue of The Atlantic titled “The Insourcing Boom,” Charles Fishman explores “the startling, sustainable, just-getting-started return of industry to the United States.” Much of the article features GE’s recent insourcing: “After years of offshore production, General Electric is moving much of its far-flung appliance-manufacturing operations back home. It is not alone.” Here are some excerpts:
Many offshoring decisions were based on a single preoccupation—cheap labor. The labor was so cheap, in fact, that it covered a multitude of sins in other areas. The approach to bringing jobs back has been much more thoughtful. Jobs are coming back not for a single, simple reason, but for many intertwined reasons—which means they won’t slip away again when one element of the business, or the economy, changes.
Here are the five reasons given in the article for the reshoring trend of manufacturing output and production coming back to the US:
1. Oil prices are three times what they were in 2000, making cargo-ship fuel much more expensive now than it was then.
2. 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.)
3. 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.
4. American unions are changing their priorities. Appliance Park’s union was so fractious in the ’70s and ’80s that the place was known as “Strike City.” That same union agreed to a two-tier wage scale in 2005—and today, 70 percent of the jobs there are on the lower tier, which starts at just over $13.50 an hour, almost $8 less than what the starting wage used to be.
5. U.S. labor productivity has continued its long march upward, meaning that labor costs have become a smaller and smaller proportion of the total cost of finished goods. You simply can’t save much money chasing wages anymore.
MP: It’s a long article, but well worth reading the whole thing. The insourcing/reshoring trend is a promising development and it’s just getting started. Here’s a related CD blog post, featuring an article that I wrote for the National Chamber Foundation, “Manufacturing in Our Favor: A Global Reallocation of Manufacturing.”