Tired from too much productivity gain?
Kevin Parker, editorial director -- Manufacturing Business Technology, 8/1/2004 6:00:00 AM
Once outsourcing became a subject of national political debate, free traders launched a fierce media counterattack, happily affirming that IT-based productivity gain is the largest cause of manufacturing job loss.
In an article in the May/June issue of Foreign Affairs, "The Outsourcing Bogeyman" by Daniel W. Drezner—citing an Alliance Capital Management study of global manufacturing trends from 1995 to 2002— says the following:
"The United States saw an 11 percent decrease in manufacturing employment over the course of those seven years; meanwhile, China saw a 15 percent decrease and Brazil a 20 percent decrease. Globally, the figure for manufacturing jobs lost was identical to the U.S. figure—11 percent. The fact that global manufacturing output increased by 30 percent in that same period confirms that technology, not trade, is the primary cause for the decrease in factory jobs."
Why then, in the midst of an inconsistent recovery in technology spending have the quarterly earnings reports from business applications vendors continued to disappoint? If further productivity gain is possible, why isn't it gotten?
Jim Heaton of KVQuest says, "The last great hardware upgrade was in 1999, pre-Y2K, and most computer equipment is on a five-year depreciation cycle. That may be driving hardware sales this year, and it could cause a big bubble in hardware spending in November and December.
"Second, someone pointed out that specific to the 2nd quarter this year, Microsoft booked significant deferred revenue. This may be associated with the fact that effective June 30, if you're not part of Microsoft's "software assurance" program, in the future you'll pay full price for any product upgrades. That may have sucked a lot of oxygen out of the software market.
"My hunch is that before the capital spending tax incentive expires December 31, companies will spend to upgrade servers, routers, and networks, and especially move to Microsoft XP Service Pack 2. This upgrade is the security lockdown of the desktop."
Or maybe there's just a collective psychology that's looking for a break from unremitting productivity gain so as to give our fellow workers and us a chance to catch our breath before again putting our shoulder to the wheel.
In any case, hysteria concerning China seems a bit hasty if you think that 15 years ago Japan was supposed to take over the world. Another article in Foreign Affairs, this time the July/August issue, entitled "The Myth Behind China's Miracle," points to some of the political barriers that might prevent China from becoming a super-sized Japan.
China's economy is dominated by inefficient state-owned ventures and foreign-funded enterprises. It still lacks the "horizontal" means of association vital to entrepreneurship, while remaining highly dependent on "vertical" relationships, i.e., government authorities. China remains dependent on foreign technology, and our economic relationship is conducted largely on U.S. terms.
No matter who wins the election, U.S. policy toward China will change little in the next few years.
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