Michael Hiles

How to Sell $1,000,000 Worth Of Ebooks Per Month

Is Capitalism Evil?

Why Capital Doesn’t Care What Flag You’re Waving

So my post about manufacturing jobs not coming back to the USA elicited some interesting responses, not the least of which was a tweet back from a guy, Ed Farkas (@manufjobs) who linked me to an article he’s published on his blog. 

I am certain that Ed is a nice guy, and I know that he really means well. But I cannot agree with his positions.

First of all, Ed contends that manufacturing is coming back to the USA, and that’s a good thing, right? Well, the thing that’s driving any manufacturing back to the USA at present is a function of two things - the devaluation of the US dollar, and the lowering of the economic standards of living for the manufacturing labor class.

Neither of those are a good thing in my book.

On his blog, Ed states,

“I say it is impossible for a sane person to sincerely believe that there is good in the relationship with China.  I further say that the pro-China people all have an ulterior motive.  In other words, the pro-China people are 100% corrupt.”

Ed has this thing about China… he’s unhappy with people who he contends are afraid of annoying China. Maybe he’s a Korean or Vietnam war vet who has some latent emotional thing about his experience… I don’t know and I’m going to give him the benefit of the doubt on anything like that. But I do have plenty of his statements that indicate a hard case of American nationalism. He goes on to contend that anyone who doesn’t apply nationalism to fundamental, free-market capitalism meets his definition of being corrupt. He also slings a lot of rhetoric, saying things like:

There is another category of people who probably have no ulterior motives but base themselves on simplistic statements and labels, as a substitute for opening the mind, looking at what is REALLY happening TODAY, and doing some thinking and understanding.

Examples:

+  People who say that restrictions on international trade caused the Great Depression and other depressions.  These people use the empty scare word “protectionism”.  This word means nothing and is a substitute for thinking and understanding.

+  People who say that manufacturing cost is too high in America and unions caused our present problems.  If there was any truth in these statements 50 years ago, there is no truth in them now.  Again these statements are a substitute for thinking and understanding.

+  People who say that Americans don’t want to work.   Comment:  No one has data to support this statement.  There are 25 million people unemployed.  No one can say that all these people don’t want to work.

Well, the evidence is clear the effect that the Smoot-Hawley Tariff Act had on prolonging the Great Depression. So his statement about the Great Depression being CAUSED by trade restrictions isn’t true. The Great Depression was prolonged by the tariff, which was put into place after farmers and other lobbying groups petitioned Congress to remove incentives for foreign trade by increasing taxes on import/export activities. This caused foreign nations to reciprocate by launching their own tariffs against American goods. This wicked thing called “unintended consequences” is the ever-present result of artificial manipulation of free market trade and capital flow.

Ed also claims that manufacturing costs in the US isn’t high anymore, and that unions no longer represent any real impact on the market economy. He also tosses in liberal use of hyperbole and emotional slants with statements like “these statements are a substitute for thinking and understanding”. In other words, if you disagree with Ed, you’re not on par with his intellectual prowess… common from the engineering folks.

Here’s the rub - capital doesn’t give a rat’s ass about your nationality. It doesn’t care about your patriotism and tribal alignment. The liquid flow of capital will seek the most efficient route in a free-market economy. It’s the persistent idea of tribalism and government bureaucracy that stems from imaginary lines in the sand that creates this nationalistic drum beat, the adherents marching in perfect unison like the military platoon on parade.

Capital is unconcerned with your imaginary notions of that one should really only trade within one’s own tribe… or even the existence of a tribe at all.

This is the unfortunate reality, and it’s a reality that’s not relegated to well-meaning, but misguided folks like Ed. Certainly, I agree with Ed that the USA has enemies. The whole discussion about tribal thinking isn’t just Ed… it’s the nations who want to invade and conquer other nations and people across the globe.

But unless Ed has some way to lower the cost of living and wages in the United States to a parity with these emerging economies, the reality of domestic overhead costs will continue to push private enterprise offshore. His statement about manufacturing costs and unions is simply wrong. We’re competing with people who can live on $5 USD per day. Nobody is going to pay the prices that will be required for an American-produced drinking cup or plastic fork.

An example of this is in the textile and clothing industry. The company American Apparel… great company, I love them personally. They put out a great product, domestically produced right in the USA. I bought from them extensively when I owned a screenprinting production company before selling it to another investor. But I can tell you right now - as much as I loved their product, I lost money on any job I ran with their product. At retail price on their website, a plain, basic white t-shirt poly-blend retails at $18-20.

$20 for what amounts to an undershirt?

Sure, they’ve done a bang-up job of leveraging their pro-American approach within their marketing. But it’s simply not reality that the average Joe and his wife are going to skip the t-shirt aisle at K-Mart and say, “HONEY WE MUST PAY TEN TIMES THE COST IN PREMIUM TO SUPPORT AMERICAN MANUFACTURING!!” It’s a niche marketing play at best, and their stock price on the American Exchange reflects that fact. After a reverse public merger a couple years back, the ticker is floating at around what?? A dollar per share?? Not exactly the encouraging hocky stick of market expansion opportunity there.

So Ed contends that what MIGHT have been the case 50 years ago is not the case today… and I call B.S.

Capital is capital is capital. It will seek the most efficient route. It will find the most profitable route. It doesn’t care what skin color you have. It doesn’t care what flag you have pinned to your uniform. None of the fundamentals have changed. A transaction is based on a value proposition. I will buy something from you because the value that I think I am getting is higher than the money I am giving to you for those goods or services. If all I want is a white t-shirt to absorb the sweat from my armpits so my dress shirt doesn’t show dark spots - then guess what? I am not going to pay $20 for a sweat rag, I will pay $5 for a package of three.

If I want the emotional feel-goodism that comes along with some idea that I am “helping the American economy” by buying an expensive alternative, then I have simply engaged in Thorstein Veblen’s conspicuous consumption - the same idea that drives the sales of Prius electric cars. It’s not about actually saving the environment. The increased demand on utility companies for electric cars will more than offset any imagined emissions savings from the vehicle. These companies burn COAL to generate power. The incineration of long chain hydrocarbons simply gets kicked upstream, out of the view of the naive Prius driver. After all, they’re just wanting the social status that comes along with having an electric car. It’s all about feeling good.

I’m a marketing guy - I know all about making people feel good in order to compel them to buy things… including my friend Ed Farkas. Ed doesn’t make enough money as a chemical engineer to be consistent and pure in his ideology. His home is filled with goods that are produced from other nations. It’s simply a fact of life in this era.

So then Ed states that people really want to work. Sure, people want to work. They want to work at a job where they show up, punch a button on a machine, and get paid $40 per hour with plenty of union perks. What they DON’T want is to have to think. They don’t want to have to learn new skills. They don’t want to have to adapt to the shifts in markets. I am certain that people who manufactured wash boards didn’t want to have to learn new skills after the automatic washing machine sort of ruined the market for their product.

But guess what? The market changes. Innovation happens. People must adapt. They must learn new skills to remain relevant. If you cannot provide value, you cannot function in a free-market economy.

This happened to me in my own career. When I was a kid, I learned programming. I was a coder to the core. I loved computer programming… logic… application engineering. It was such a promising future! I was headed for a solid, steady career as a programmer until… well until this internet thing came along. The internet enabled instantanous communication with people who could provide my skill set for a fraction of what I needed to survive. I can’t compete with people who earn $4 per day - and guess what? I didn’t have NOR DID I WANT a union to come along and somehow artificially shift the playing field. I understood VALUE… and I realized that I had to adapt. So I got into the internet itself. I learned how to architect internet applications that solved business needs - and now I am the one hiring the cheap offshore labor to build my applications. I changed my career. I shifted my value proposition to meet the market conditions.

Information, capital flow, logistics, innovation… these all conspire to erode the imaginary lines in the sand. The only thing that keeps capital from seeking the most efficient route is bureaucracy… governments. Maybe those ideas need to evolve along with the rest of the world. Tribalism isn’t really feasible anymore.

Ed, I am not picking on you on a personal basis. I am certain that you’re an incredibly nice man. Your thoughts reflect the same sentiments of a lot of other folks who wish to return to an industrial economy - my own parents even. But the reality is this simply isn’t going to happen.

It SHOULDN’T happen.