Saturday, December 9, 2017
The Quality of Quantity
"Quantity has a quality of its own" is a statement attributed to Joseph Stalin which summarized the Soviet Union's approach to victory against the technologically superior Germans during WWII. It was achieved through overwhelming numbers both in terms of industrial output and the willingness to throw bodies at the problem regardless of cost. The Russian made Mosin Nagant rifle manufactured during the war years that was symbolic of that philosophy. It was rough. The metal work was imprecise and loose, the bolt was hard to operate and it was not as accurate as other rifles from the era I've shot. However, it was cheap and it worked well enough that millions of Germans could attest to its effectiveness if they weren't dead.
Whether the masses in the US currently realize it or not we are in an economic war and to date it hasn't been going well. Over the years foreign competitors have used a Quality of Quantity strategy to defeat US producers by flooding the market with low price, low quality products that, while inferior, are enough to seduce people with low incomes or folks just looking for a 'bargain'. Enough shoppers in the US fell for it to allow foreign products to gain a beach head, from which they invaded markets for bigger ticket items like appliances and cars. This strategy works because at the bottom of the market products are less able to differentiate themselves and profit margins are generally smaller. Foreign firms could compete easily here because prior to their arrival in the market prices were about as low as domestic producers could get them without breaking laws. The newcomers could compete here because they were willing to "throw bodies at the problem" by cutting corners on workplace safety and environmental protections. They were also able to make products that looked passable even though they were made of lower quality raw materials and produced to a lower quality standard.
The long term effect of this strategy has been a retreat of US producers from the low end of the market, if they are able to hold on at all. This has the effect of skewing shoppers perception of the price difference between US and Chinese made goods. The bottom of the line, entry level product is now cheaper than ever. The US made products that have survived are usually higher end, where quality and reputation still matter. It's an apple to oranges comparison. Jeans, a formerly American symbol, are a good example. The bottom end, made in Bangladesh jeans sold at Walmart go for $12. A pair of 100% US made jeans costs $54. Does that mean foreign jeans always cost four times less? Nope, a pair of Levi's runs at about $40. Only 25% less.
This type of incorrect comparison leads to false, defeatist arguments claiming US industry is gone for good. In actuality, the difference between comparable goods is smaller than we are led to think meaning that QoQ attacks can be defeated in several ways.
The first way is to reduce the difference in cost between foreign and US manufactured jeans. This could be accomplished by simply enforcing uniform standards. If Chinese Widget Co No. 2 wants to sell a product in the US, or if Traitors, Inc wants to move their US production overseas, they should have to pay the same minimum wages to their employees regardless of country and meet the same regulatory standards for safety, health and environment. If that happens their competitive advantage goes away. If the competition is unwilling to play fair, a tariff, in an amount equal to what foreign producers are saving by holding themselves to lower standards must be imposed. That solution seems pretty simple but so called free trade agreements have worked in the opposite direction, making it easier to bring in goods (bads?) made under looser standards from outside our borders and undercut domestic industry. Applying equal standards is a top down strategy that works best on a national level. Unfortunately, as evidenced by the ravaged towns and cities all over our landscape, our leaders have embraced gloabalization, blatantly lying about how it is making us all more prosperous. In reality, it enriches a few at the top while workers in both the importing and exporting countries suffer. For decades before the election of president Trump, even questioning free trade and globalization was taboo. I have mixed feelings on the man but I was thrilled when he withdrew the US from the TransPacific partnership "free" trade agreement since it would have obligated the US to play on a field tilted against it. The impending tax cut may also help, but it really depends on how it is implemented and at this point I have some doubts. That story is still developing and I will write more when I know more.
Before there can be a top down solution people need to unite around the cause and work from the bottom up. The masses have been lulled into complacency and distracted by advertising and cultural conditioning. Most people don't think about where the things they buy come from. That needs to change and it's where you and I can make the biggest difference. We need to create awareness of the problem. First, we all need to walk our talk because nobody wants to follow a hypocrite. There are countless opportunities to bring up the subject of supporting American manufacturing in daily life. When someone at the office is talking about what a great deal they got at the store, ask where it was made. You don't need to lecture or shame them. Just asking forces them to think about their decision. You can use social media to show off a nice US made purchase once in awhile. You don't have to shame people who buy Chinese, just emphasize that you like to buy high quality things and feel good supporting your economy. We want to set a positive example since when people feel like they are being judged they become defensive. We want people to want to be like us. When enough people buy into our lifestyle then political change will happen organically because people who share our values will be in the majority.