‘A Tale of Two Factories’

By October 11, 2006General

Here’s an excellent piece that’s been making the rounds, ran in Fortune last month, written by Alex Taylor. It compares two Tenneco plants, one in Shanghai and one in Litchfield, Michigan. In Shanghai, the workers earn about $1.56 per hour. In Michigan, about $30 per hour, with benefits. But, says Taylor:

“At Tenneco’s plant in Shanghai, labor represents just 1% of production costs; at its Michigan plant the figure is 12%. It is Michigan, however, that wins hands-down in terms of profit, reporting gross operating margins that are a third higher. The death of U.S. manufacturing has been greatly exaggerated.”

Exaggerated indeed. If you only watched Lou Dobbs, you’d think we were going to hell in a handbasket and that we couldn’t compete, since other countries pay their workers far less than we do. But the fact is, as we’ve pointed out in this space many times before, we haven’t competed on the basis of wages in this country — ever. And, wages are not the sole — or even major — determinant of a country’s competitiveness. If it were, Haiti would be an economic force. It is not. Lots of things make up a country’s competitiveness, including their banking system, condition of infrastructure (including roads, ports, and broadband), and the education and skill level of their workers, among other factors.

The bigger problem, of course, is our 32% non-wage cost disadvantage that we have with our competitors in things like legal costs, taxes and energy costs. That’s what we need to fix. Despite these many government-imposed burdens, we still manage to be the the best manufacturers in the world.

Join the discussion One Comment

  • Jenn says:

    Really, I think our biggest problem is our insatiable desire for cheap goods. Quality doesn’t matter, its just more more more.