A “Manufacturing Renaissance” in the US: Good News?

The Boston Consulting Group (BCG) recently issued a press release trumpeting the results of an analysis they had performed. It opened with this statement:

“Reinvestment During the Next Five Years Could Usher in a ‘Manufacturing Renaissance’ as the U.S. Becomes a Low-Cost Country Among Developed Nations....”

The cause of this “renaissance” was attributed to their conclusion that

“With Chinese wages rising at about 17 percent per year and the value of the yuan continuing to increase, the gap between U.S. and Chinese wages is narrowing rapidly. Meanwhile, flexible work rules and a host of government incentives are making many states—including Mississippi, South Carolina, and Alabama—increasingly competitive as low-cost bases for supplying the U.S. market.”

“After adjustments are made to account for American workers’ relatively higher productivity, wage rates in Chinese cities such as Shanghai and Tianjin are expected to be about only 30 percent cheaper than rates in low-cost U.S. states. And since wage rates account for 20 to 30 percent of a product’s total cost, manufacturing in China will be only 10 to 15 percent cheaper than in the U.S.—even before inventory and shipping costs are considered. After those costs are factored in, the total cost advantage will drop to single digits or be erased entirely....”

Increased manufacturing in the US. Sounds like good news. The prospect of more jobs is always good news. Right?

Harold Meyerson commented on this analysis in a Washington Post article. He contributed this statement.

“Germany still profitably produces its high-end products at home, with labor costs that are some 50 percent higher than those in the United States. The South is where Germany goes when it wants to build its products on the cheap — a halfway house, as it were, between China and the high-value-added economy of Northern Europe.”

“As the Boston Group’s Sirkin effuses, ‘We’re on pace to become the low-cost manufacturing platform’ for consumers in the developing world.”

While rising costs in China probably will produce an increase in domestic manufacturing as the cost differential diminishes—a good thing—there is a dark side to the projections and predictions contained in the BCG report.

What the BCG statement means is that within the community of nations the US as a whole can be considered a “developed” country, but our Southern states are equivalent to a “developing” country. One of the attributes of a developing country is that it attracts firms who intend to save money by not treating the local workers as well as they would treat their own workers back home. This applies to US companies from other parts of the country as well as international companies.

It is difficult to draw comfort from the fact that we have managed to maintain such a degree of inequality within our borders that one region is considered ripe for “colonization” by Europeans. And it is not an encouraging sign that China’s workers grow wealthier, but ours don’t.

There is not a lot of good news here.