Two things have occurred on February 25, 2011 that motivate me to write this piece. The first is something I ran into personally and the second is something I was told about but did not see or hear in person. What I ran into was an article in the Wall Street Journal written by Mark J. Perry under the title “The Truth About U.S. Manufacturing” which, in my opinion, is an incomplete presentation of reality. What I was told was that someone who says he served as US ambassador to Saudi Arabia got on television that day and said a few things which I know are false. Worse, what was said appears to have been a deliberate fabrication aimed at serving an end so vile, it borders on the criminal. Otherwise, the thread that connects the two happenings is that they relate to the subjects of education, industrial strategy and industry. For the two happenings to have occurred on the same day gives us (who are interested in these subjects) a golden opportunity to discuss these matters from opposite angles which is something that will prove to be enlightening.
What makes Mark Perry's presentation weak is that he relies on the dollar value of the manufactured goods to make the following point about America: “...the empirical evidence tells of a ... country that remains by far the world's largest manufacturer.” Yes, comparing the dollar value of the output of countries is how things are done ordinarily – like he did when he used the UN data. But this is precisely where professors of economics such as himself should employ critical thinking and mention, at least in passing, the negative side of the method. But he shows no inclination to doing so in the article. Instead, he goes on to mention that the American manufacturing output (including mining and utilities) has reached the value of 2.155 trillion dollars which he says is 45% higher than that of China.
And so we look at the numbers in more detail to verify that claim. America's manufacturing being generated by 12 million workers means that each worker produces about 180,000 dollars worth of goods per year as he points out. Now, given that there are on average 2,000 working hours in a year, it means that each worker produces about 90 dollars worth of goods per hour. This is a lot even if everyone is in the business of producing million dollar toilet seats for the military, but they better be producing this much in America since some of the industrial workers, if not the majority of them, cost their employers 40 dollars an hour or more. Thus, when we look at the subject matter in its entirety through this lens, we see more than the bankruptcy in Mr. Perry's approach; we see how and why America has priced itself out of the world markets in the industries that have gone bankrupt with the promise of more bankruptcies to come. To put it in cruel terms, bankruptcy in thinking has led to the bankruptcy of American industries.
For Mark Perry to say that America's manufacturing output is 45% higher than that of China is for him to say that he values China's manufacturing output at 1.486 trillion dollars. This is fine as long as he speaks only in terms of dollars and yuans. But to go from here and deduce that the same proportion exists in the amount of physical goods produced by the two countries, he would have to show that the average Chinese manufacturing worker makes 45% less than his American counterpart. That is, the Chinese worker would have to earn an average of 27.59 dollars an hour for the comparison to make sense and be valid. But we know that this is false. In fact, we know that in China, the workers make less than one tenth that amount when things are measured by the current rate of exchange. And this means that if all the goods produced in China were produced in America, they would be given the value of 15 trillion dollars which is larger than the entire American GDP. Obviously then, there is something wrong with this method of comparison and it should be discarded lest it lead to more bankruptcies in America. And professors of economics should lead the way in rejecting these useless methods, not participate in the generation of more bankrupt thinking.
Another mistake Mr. Perry makes is that he suggests American manufacturing ought to emulate the evolution of US agriculture. To this end, he makes this argument: “The U.S. produces more agricultural output today – with only 2.6% of our work force involved in farming – than we did 100 years ago, when farming jobs represented almost 40% of the labor force.” But this approach is so imbued with distortions it is completely worthless. What is wrong with it is that the author looks at the number of people who are directly employed in farming while neglecting those who indirectly participate in the process of growing food. The truth is that backing the farmers in the field is an army of workers that makes the farm implements used by the farmers; another army that refines the fuels used by the implements; another army that produces the fertilizers which help the plants grow; another army that produces the insecticides which protect the plants from their natural enemies; yet another army that produces the electricity which is used everywhere else -- and so on and so forth. In addition to all this, there are 12 million people who are illegally in America, many of whom work in farming without showing in the statistics. And then, there is the fact that huge subsidies are paid to farmers without which they could not stay in the business.
The reality is that today's farmer does not produce (40/2.6) 15.38 times as much as his counterpart of 100 years ago by working alone; he produces this much because there are as many as 23 other people helping him do it. And this is why it takes close to a 50% participation in the workforce to put food on the tables of the nation as opposed to the 32% participation that it used to be in the old days. And this is also the reason why the average breadwinner today cannot alone feed a family containing as many as 3 children whereas they used to feed 10 children or more just a few generations ago.
All in all, despite its good fortune, America does not have an evolution in farming that begs to be emulated; it has a story that leaves much to be desired. Yet, the following is what Mark Perry says about it: “...yesterday's farmhands and plant workers can become today's computer engineers, medical doctors and financial managers.” Did he say financial managers? Don't these people ever learn from the calamities they inflict on their countries and on the world? What will it take to wake them up?
If Mr. Perry had bothered to look more deeply at the evolution he is fond of, he would have seen that America is still a power to be reckoned with in manufacturing because it has a comparative advantage in several areas that were given to it by nature, by circumstance and by luck. If not careful, some of these advantages can be squandered and made to disappear in no time at all which would leave America in a situation much worse than it is today. The following four examples show where America still has an advantage and where it may become vulnerable as time passes.
First, every country that has a natural resource in abundance automatically has an advantage when it comes to processing this resource. America is blessed with a moderate climate, an abundance of water and a good arable land, all of which make it a giant in agriculture despite the mismanagement. When this is coupled with the fact that food is closely tied to the culture of a nation, you can see why America has an advantage in food processing that the competition will find hard to beat. Second, every country has a comparative advantage in construction (not to be confused with the manufacture of building material) because construction is an industry that is done locally and can neither be imported or exported. Third, because America has a strong food industry and a strong construction industry, it still has a respectable manufacturing base in farm machinery and in construction equipment. Fourth, because of history, America still has a massive military industrial complex that keeps alive the related heavy industries and a big petrochemical setup. What helps in this area as well is the fact that the automobile was first popularized in America which today maintains the country's love affair with the car. In turn, this keeps the oil refineries and the related petrochemicals in business.
Looking at these advantages, we can see that except for the agro-food and construction industries from which it will be hard to dislodge America, the country could still lose the competition in the remaining industries the way that it lost the competition in the textile, electronic, home appliance, furniture, toy and other industries. Clearly then, a new direction in thinking is required, and we can get an idea what this might be when we look at the other happening which occurred on February 25, 2011, and we come to understand what it's about.
The man who claimed to have been a US ambassador to Saudi Arabia said that the problem with the Saudi economy is that it has a bad system of education. He added that the Saudi system was modeled after the Egyptian system which itself was devised by the Muslim Brotherhood. If it is true that someone said this – and I have no reason to doubt it – then I must tell you that this man is a low life sick criminal who should be in jail or in a mental institution because he is inventing things to serve a cause he knows is a lost cause. What he is doing is inject in the American discourse the kind of noise that will help destroy America in the same slow manner that we see America's economy wilt before our eyes. Now that Mr. Mubarak is no longer in power to be used as excuse by those who want to attack Egypt and hurt America, the sickos of this world are developing the excuse of the Brotherhood to continue doing what they have been doing for decades. We see, in fact, that the same old disease is still with us; it is just mutating into a different form.
Let us now move to a saner discussion. What the Chinese did that the Arabs did not do is restrict by law the growth of their population when they instituted a policy of one child per family. This has forced the Chinese population to save its money which is what contributed to the high rate of growth in the GDP. Going like this for 30 years or more made it possible for China to catch up to the Egyptian per capita income, something it did last year and then surpassed it this year. In the meantime, the Egyptian economy has done well despite being overshadowed by the stellar performance of the Chinese. It is now experiencing some pain but this is a growing pain that every economy goes through when it embarks on a policy of rapid industrialization. The main problem is that such economies develop a shortage of skilled labor during the period of transition. If the country does not take in immigrants (as do the immigrant welcoming countries when faced with the same problem) it takes other measures that may not relieve the pain right away but will be good for the country in the long run.
What these countries do is open vocational and technical schools where they start teaching the kids the skills they will need in the industrial economy that is shaping up. This is a good thing in itself but think of the time that is required for this approach to work. You will need 2 or 3 years to teach the kid a trade and will need another 5 years to give him or her 5 years of experience. Compare this with the method of taking in immigrants who already have a skill at the tip of their fingers and 5 or 10 years of experience under their belts. There is a big difference here, and this is what the Arab countries whose population already grows at a high rate and do not need immigrants, are struggling with. No one doubts that things will work out in the long run when those kids will have come out of the trade schools by the tens of thousands and have acquired some experience. And all that the Arab countries can do in the meantime is muddle through in the best way that they can. This is what is happening in the Arab world at this time, not what is frothed at the mouth by the sick running dogs that work for the treasonous organizations betraying America on behalf of the little fart of a country half a world away.
As far as Egypt is concerned, the planners there are mindful of the fact that another problem facing the country at this point is the mass migration of people from the farm to the city. These people are not of an age that they can be trained to acquire a journeyman's skill and be good at it. Therefore, what needs to be done to take care of them is to encourage the start of low tech, labor intensive industries that can employ them after a short period of training. This is the best solution that can be found to an immediate problem but what is salutary about it in the long run is that those industries will still be here and still employing people when the world will have realized that it is a bad idea to do what Mark Perry is suggesting, mainly that: “...yesterday's farmhands and plant workers can become today's computer engineers, medical doctors and financial managers.”
Please, make no more financial managers because one calamity a century is one too many, and we already had one this century. It is better to have young people off the streets producing goods in low tech factories such as textile, electronics, home appliances, furniture, toys and other items than have them on the street causing mischief or worse out of boredom while their elders sit in prestigious offices scheming to make this year the few million dollars in bonuses that will exceed what they made last year.
As for the sicko who came out of nowhere and blamed Saudi Arabia's difficulties on Egypt's system of education, this shows that the organizations which tried in the past to drive the wedge between America and Egypt using the Mubarak excuse are exploiting the new situation to hurt Egypt even if they must hurt America in the process. Consequently, my advice is that instead of wasting air time or publishing space by inviting the mental cases whose interest is to put old venom in new bottles, the American audio-visual and print media should invite the people who have something to say about economic and industrial development not in a context that is laden with politics and useless noise but one that is amenable to practical ideas.