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Hello. And now for some comments.

New beginnings

For those that know me personally, you're probably aware that I've been working on a major project that's going live in Jan 2011. It's great fun, but fairly all-encompassing and kinda getting in the way of other things in my life like family / exercise / eating / sleeping. So to try retain some semblance of order in my world, I've put site updates here to bed until the end of January 2011. If you're a subscriber I'll be back in touch then; if you follow me on Twitter I will be keeping that at least a little active. I'm also still posting pretty regular pics on my photo blog at Blogus Picturas.

In the meantime, thanks for stopping by and I look forward to connecting with you again shortly - Todd.

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Image © Todd Wheatland - Blogus Picturas

It's not a race, but...

At the heart of shifting work production to another location is a concept known as 'labor arbitrage.'  Basically, that it's cheaper to employ someone somewhere else. Workers in the new country are pulled into opportunities greater than what they previously had, and redundant workers in the home country are rapidly re-absorbed by a flexible labor market - hopefully up-skilled along the way.

Just as the reality for both new and displaced workers lacks the starry romanticism of such a simple model, there is another reality at play here.  A country's relative attractiveness as a source of cheap labor is not a fixed thing.  The cost savings for relocated work are not forever, but what comes next?

In recent months there's been a lot of coverage of the rising labor unrest in China, and the resulting - and often dramatic - increases in salaries for manufacturing roles in the factories in the south of the country that have benefited so much from labor arbitrage.

Here's a great graphic from the Economist Intelligence Unit which puts that increase into some perspective relative to south-east Asian competitors for low-skilled manufacturing work.

Vietnam - currently the 'cheapest' on the list - employs over 1.7million people in the textile industry, at a starting salary of about $84 a month. Little wonder they're reigniting the 'China Plus One' talk for spreading risk in manufacturing and sourcing locations.

The official word from China is that the time has come for salaries to increase, a position that has been taken proactively to the foreign owners of manufacturing facilities on the mainland.  What's less clear is what's next.

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Image © Todd Wheatland - Blogus Picturas

Creating jobs - before it's too late

I read an exceptional article this week.

Andy Grove, one of the most famous and successful businessmen of the post-war era (CEO of Intel for 18 years; Time magazine’s man of the year, too many awards to mention), penned a thought-provoking challenge to traditional globalization thinking. 

At the core of Grove’s malaise is that the much-referred-to engine of US jobs growth – the start-up company – does not in fact generate a broad range of technical jobs.

Some interesting points from the article:
-       There is a rough 1:10 law with US technology companies, meaning their China (manufacturing) workforces are about 10 times larger than their US employee base.  Apple has 25,000 in the US; 250,000 in China.  Similar numbers for Dell, Seagate Technology, etc.
-       The ability to export low-value jobs and retain the majority of the profits in-country may be true – but what about the long-term societal impact?  In his words: “…what kind of a society are we going to have if it consists of highly paid people doing high-value-added work -- and masses of unemployed?”

For me, Grove’s most unique point is regarding the connection between ‘low-value’ jobs and future industry innovation and domination.  He puts it far more eloquently than me: “…abandoning today’s “commodity” manufacturing can lock you out of tomorrow’s emerging industry. Our fundamental economic beliefs, which we have elevated from a conviction based on observation to an unquestioned truism, is that the free market is the best economic system -- the freer, the better. Our generation has seen the decisive victory of free-market principles over planned economies. So we stick with this belief, largely oblivious to emerging evidence that while free markets beat planned economies, there may be room for a modification that is even better.”

Remember - this isn’t in Socialist Worker’s Weekly, it’s the coverstory of a leading magazine, written by one of the sages of the modern business age.  A very well-written article, full of moments to make you pause. 

Full article here

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Image © Todd Wheatland - Blogus Picturas

No Free Tickets

A couple of weeks ago Gary Becker – a Nobel-prize winning economist –made a speech at the Institute of Economic Affairs in London, proposing a pretty radical solution to the rich world’s immigration woes.

His core proposition is, there is currently no price that matches supply and demand of work visas.  Vet out criminals and terrorists, and visas can be assigned to those willing to pay the most for them.  In theory, someone who has the most to gain from immigrating (say, a younger person, with more years to recoup the expense; a well-educated person whose income is most likely to significantly increase) would be willing to pay the most. 

The US currently receives about 1million legal immigrants a year.  Charging them $50,000 each for the right to immigrate would provide an additional $50 billion to the government coffers.  Not enough to save the banking industry, but about enough to bail-out AIG or GM.  And probably enough to make people take notice, especially in the current times.

Any radical position on immigration policy is going to attract a lot of criticism, and many people have been poking holes in the idea.  There are serious question marks and potential undesirable outcomes.  Does it really provide a better market mechanism than a points-based system (as already used in Australia, NZ, Canada)?  What skills alignment is there (ie wealthy retirees may like the idea of sitting out their years in Florida, but how does that benefit the US workforce)?  What about talented people who are not able to front up the cash?  Becker suggests a government-loan scheme, or even a form of indentured servitude to employers until loans are paid off. 

Regardless of the applicability of the scheme, I think it's healthy that there can be some intelligent public debate around such an emotional issue.  Here's to Mr Becker for putting his neck on the line.

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Image © Kazuhiko Yoshino