Business Is Booming

http://www.prospect.org/cs/articles?article=business_is_booming

by wyclif • 15 years ago

49 34 15 years ago

zdw• 15 years ago

Fundamentally, the businesses (outside of technology focused firms) are nothing more than middlemen that add little value.

I'm waiting for Foxconn or similar to start making their own commodity items and selling them directly - you can, for example, already buy SFF computers with the Foxconn label on them.

It's just a matter of time for the profit engines that US corporations have created to be cloned and have the entire profit center go overseas.

nickpinkston3• 15 years ago

The businesses that "add little value" are envied in China because they have access to demand, and he who owns demand is key. The Chinese are making it a priority to advance their marketing, design, etc. abilities to compete in the West's consumer culture. While you may not like marketing, it brings in the money - and in our consumerist economy that's our GDP...

I'd like to see Foxconn try to replace Apple - hell even Dell. Lenovo had to buy their business from IBM to get the marketing / brand support to be successful beyond their manufacturing capabilities.

It's hard to market from a culture from the outside. VW made their German designers live with US families - which is when they figured out why we want cup holders so badly ;-)

jdthomas• 15 years ago

Foxconn (and similar) do design a lot of products already, they just are acting as an ODM and not slapping their own name on them. I suspect, though, they are happy with this arrangement as it allows them to make many more products in any segment than a single brand would get away with.

davnola• 15 years ago

> According to a survey this summer from the National Employment Law Project, only a third of the jobs lost in 2008-2009 were in industries paying less than $15 an hour, but fully three-quarters of the job growth in 2010 came in these same low-wage industries. Among the industries that grew in 2010, the top three occupations were retail sales clerks, cashiers, and food preparers with a median hourly wage of less than $10.

So? It takes longer to hire higher waged staff. Hiring higher waged staff is ceteris paribus more of a risk so you'd expect it to pick up later in the recovery.

yummyfajitas5• 15 years ago

The author of this article has internalized some Keynesian assumptions so deeply that he doesn't realize the story he is writing directly falsifies one of them. A major assumption of Keynesian economics is that employment scales with production. Thus, if you stimulate aggregate demand, you will increase production, and thereby increase employment. This hasn't happened - aggregate demand and production have recovered, but employment has not.

The fact is, our economy is a lot more complicated than it used to be. Workers are not interchangeable cogs and expanding profits does not necessarily involve expanding employment. Stimulating demand in retail will not raise the employment of construction workers or realtors. Many employees produce nothing directly, but merely improve the value of capital [1] - increased profits don't demand hiring more employees, and reduced profits don't demand firing them.

Until economics catches up with the times, all we will get are silly ideas like "invest in infrastructure" and "stimulate demand". Really, you think jobs are moving to India because of their infrastructure? Lets get real here. I've done a little work for someone who created about 30 jobs in Pune. He drives for 2-4 hours on crappy roads to get from his house in Bombay to the office, only to discover that the power is out and no work can be done today. You think he'll come back to the US if you widen a few highways?

[1] I'm a good example. My labor is directly worth nothing - all of my companies profits are directly attributable to capital (a trading system + money in the brokerage account). My employment is an investment - I have a significant probability of increasing the value of that capital.

Lost_BiomedE• 15 years ago

Investing in infrastructure isn't silly if it is a large project that only government could afford, addresses a current or near future problem, and has favorable return on investment.

Widening highways and filling potholes has been more about giving states a short-term bailout under the name of stimulating the economy.

yummyfajitas5• 15 years ago

I'm not saying all infrastructure projects are a bad idea. I'm just pointing out that the thesis of the author is silly. Jobs are being created in India rather than in the US, and better infrastructure won't bring those jobs back.

In the US, a single bridge collapse is a national outrage, and a sign of "crumbling infrastructure". India has had at least one major collapse per year for the past 5 years:

http://www.theglobeandmail.com/sports/more-sports/bridge-col... http://news.smh.com.au/breaking-news-world/india-bridge-coll... http://articles.cnn.com/2008-10-19/world/india.bridge_1_metr... http://www.rupya.com/archives/2007/09/10/hyderabad-bridge-co... http://www.indiadaily.org/entry/bridge-collapse-contractors-...

The NYC subways are crowded at rush hour. Here are Indian trains:

http://www.google.com/images?q=india+train&um=1&ie=U...

Suffice it to say, jobs are being created in India rather than here in spite of infrastructure. If infrastructure mattered, the jobs would already be here. US infrastructure is top class - roughly the same as in all other first world countries (Japan, France, UK, etc), and is orders of magnitude better than that of India or China (no week-long traffic jams, for instance).

(Not trying to single out India, I just know more about India than China, the Philippines, or other popular outsourcing sites.)

nickpinkston3• 15 years ago

Well, yes and no on the relevance of Keynesian / neo-K policy. It's true that the current pot-hole filling projects are just ways for congressmen to get money for their district while claiming they're stimulating the economy.

However, there are certainly projects out there with high multiplier affects. For instance, in PA the "Ben Franklin Partnership", who invest in early stage startups, claims a 5x multiplier of economic value over its funding. This is the type of infrastructure spending I could get behind.

Certainly, a lot of our human capital needs investment as well. Anyone who claims this isn't a partially structural recession is living in a fantasy land or is blatantly supporting the status quo. School reform as a long-term plan and some type of incentive for retraining the existing workforce would seem to have a high multiplier affect as well.

FWIW

SamReidHughes• 15 years ago

> However, there are certainly projects out there with high multiplier affects. For instance, in PA the "Ben Franklin Partnership", who invest in early stage startups, claims a 5x multiplier of economic value over its funding. This is the type of infrastructure spending I could get behind.

This is one of those cases where people like to take credit for economic multiplication that would have happened anyway (the biggest culprit of this is NASA). It doesn't take a government project to fund early stage startups. How many would have been successful anyway? How many were not successful, because they stayed in Pennsylvania, instead of moving elsewhere?

muhfuhkuh3• 15 years ago

"The fact is, our economy is a lot more complicated than it used to be."

Or, our economy is actually just not the top of the heap anymore, and probably never will be unless Asia suddenly slides off and sinks into the Pacific. If it weren't for anomalously successful companies like Apple or Wal-Mart, multi-nationals will eventual write-down the US market as dying and move everything overseas. If KFC can make more money in China than here, we're not really going to recover and be their #1 market again, unless we just open the immigration floodgates (even then, that adds 100 million TOTAL Mexicans, which is a drop in the bucket in comparison). GM sells more cars in China than in the US. You think that's ever going to "pivot" back to us, no matter if we build infrastructure or let it crumble?

It's simpler than you think. Multi-nationals will continue to benefit from the stable political structure and docile and manipulable populace, executives from said companies will continue to live here with its favorable individual tax and seasonal climate (not everyone can stomach the heat in Singapore no matter how tax advantageous it may be) and liquid assets can be increasingly secreted away in wherever pleases them (Caymans, Switzerland, etc.). The only thing that actually changed is that their money makes the world flat.

This is the end of the empire, whether by brute force (Chinese market and labor force) or by increasing political and military irrelevance. We used to own all the money and guns. Now everyone's got guns and everyone's getting money. Now we're just 300 million people pointing fingers at each other.

It's not complicated; there just isn't going to be any solution that we want to hear.

ido• 15 years ago

    unless we just open the immigration floodgates 
    (even then, that adds 100 million TOTAL 
    Mexicans, which is a drop in the bucket in 
    comparison).

Why do you assume immigration would be restricted to Mexicans?

cageface• 15 years ago

The U.S. may no longer dominate but with 300 million people and tremendous resources we're not heading to the bottom of the heap either. Our standard of living is going to move back closer in line with the rest of the world, which is fine.

davidmathers3• 15 years ago

aggregate demand has recovered

Wow. Ok, I lean left and you lean right so obviously we're going to differ on some things. But, conceptually, you'd think those things would all be values-related things. In this case what you're saying conflicts with my mental model of the world. The basic "reality" that I live in.

I don't have a point to make, just expressing how weird it is to me to see someone write that.

yummyfajitas5• 15 years ago

I stand by the reality of my statement.

Here is data on production: http://research.stlouisfed.org/fred2/series/GDP http://research.stlouisfed.org/fred2/series/INDPRO

Here is employment: http://research.stlouisfed.org/fred2/series/PAYEMS

See the disconnect?

Lets focus specifically on Durable Goods, since we have a decent measure of their demand (not just their production). The recovery here is incomplete, but it's we are about halfway from trough to peak.

Durable goods demand: http://research.stlouisfed.org/fred2/series/DGORDER

Durable goods production: http://research.stlouisfed.org/fred2/series/IPDCONGD

Durable goods employment: http://research.stlouisfed.org/fred2/series/DMANEMP

It doesn't surprise me that what I'm saying conflicts with your model of the world. It conflicts with my old model, and nukes my favorite possible solution (tax cuts) as well. But the data is the data, and all we can do is try to build new models which fit it.

The economy has changed, and our old models don't work very well anymore. We need new models.

pessimizer2• 15 years ago

What evidence do you have that demand has recovered?

yummyfajitas5• 15 years ago

Production has recovered, as have profits. Goods are being produced, services being performed, and consumers are buying.

See my response to davidmathers for links to specific timeseries.

fedd• 15 years ago

in capitalism, if you own, you don't have to work with hands. the nation in general owns plants abroad, so everything okay :) in general :)

(just don't stop to spend on military, or the ownership right could be questioned)

fredBuddemeyer• 15 years ago

its usually observers that keep such nationalistic score cards; participants just see people and markets.

bryanlarsen• 15 years ago

Look on the bright side: if it is American companies who are making these huge profits overseas, then there is some chance of the jobs being created in America, whether forced to by government or voluntarily. Foreign companies making huge profits outside of America are not going to spend money or hire people in the U.S.

muhfuhkuh3• 15 years ago

"there is some chance of the jobs being created in America"

Wow, so we have to pin our hopes on a chance that American companies will throw us a couple pity jobs in America _maybe_?

We need a term describing the labor equivalent of "regulatory capture"; something that describes our collective misguided hope that corporations will somehow give us back "our jobs".

I think everyone should just try to start a business. Seriously, everyone who is out of work or underutilized in some job they are completely overqualified for should just start any kind of hare-brained scheme or hustle or side-somethingorother. Move if you have to, to some tax-advantaged or microscopic cost-of-living state. Anything has to be better than {un|under}employment or working under the thumb of an employer who not only knows but (perhaps) relishes in the workload they can continue to offload on you because they know you can't leave in this environment.

To heck with getting "our country back", we need our individual (and collective) dignity back.

csomar• 15 years ago

At Apple, the ratio of Foxconn employees at work on Apple products to U.S.-based Apple employees is 10-to-1: 250,000 Foxconn workers to 25,000 Apple workers. The same ratio exists at Dell.

Huh, bullsh*t. I don't know what the average Apple worker gets paid but I'm assuming that most of them are developers (or related), so it's in the $100K/year. What about their Chinese counter part? I don't have any data but based on my country which has better wages in average it should be in the $10K/year ballpark if not less.

And it's quite a lot different, the USA developer buys a nice car in his first year, while the poor Chinese worker may never figure out how to get an old one.

davidmathers3• 15 years ago

The amount of logical and economic fail in this article is overwhelming. The Atlantic version was better, probably because it didn't have an axe to grind: http://news.ycombinator.com/item?id=2072200

Disclaimer: I lean socialist but not nationalist which means I'm biased against the basic premises of the article. But it's not the premises that fail, it's the reasoning.

thisisananth2• 15 years ago

The article talks that Germany is able to export even after giving full wages in the workers. How is it possible?

rdouble• 15 years ago

Germany exports expensive stuff.

thisisananth2• 15 years ago

The article talks that Germany is able to export even after giving full wages in the workers. How is it that their products are competitive for exports even after paying good salaries compared to China or India?

obxerve• 15 years ago

Different product class and/or different product altogether. Think BMW or Merc and many other good quality brands that are well marketed. Different buyers. And yes there are a lot of rich buyers outside US.

known• 15 years ago

I think America is becoming a nation of products/services resellers

Business Is Booming

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