Contextualizing America’s Screwdriver

 

SuzhouThis post addresses the second entry in Dr. Berlinski’s list of noteworthy news items posted yesterday, August 31, 2015. The full list can be found here.

Allow me to introduce you to my keyboard. My keyboard is a Logitech K330. It was built in Suzhou, a city in China about the size of Chicago. Suzhou was founded over 2,500 years ago and has been an important center of Chinese culture since before Christ. With elegant pagodas overlooking beautiful bridges spanning peaceful canals, Suzhou’s is often called the Venice of the East.

But despite its rich history and unique beauty, modern Suzhou is known for only one thing: rock-bottom labor prices. If you are looking for a corrupt local government ready to facilitate the mass hiring of unskilled labor for a fraction of the American minimum wage, look no further than lovely, rotten, historic, polluted, elegant, miserable Suzhou.

Of course, Suzhou is just where my keyboard was built. It wasn’t engineered in Suzhou. Nothing is engineered in Suzhou. My keyboard was engineered in an office park in Newark, California. Newark is one of the peripheral areas of Silicon Valley. Median household income in Newark is around $100,000, and the future is nothing but bright.

But Logitech corporate headquarters isn’t in California; it’s in Switzerland. Logitech was founded by two computer science students, one Swiss and one Italian. In the early days of Logitech, they did all the design work in Europe, but they quickly realized that if they wanted to attract talent, they had to move their main design headquarters to California. Switzerland is a great place to own a business, but if you want to be in the tech game, you have to go where the action is, and the action is all in America.

A similar story could be told about half the things in my office: designed in the US for either an American or European company, but built a world away in a cut-rate Chinese factory. Even the literal shirt on my back — a gray polo, since you’re asking — was designed in Texas, but stitched outside Hong Kong.

This dynamic has become so common in global commerce that any day now China’s economy will move past America’s to become the largest in the world. This has spawned so much hand-wringing in America that pundits have started filing wrist injury claims on Fox’s workers’ comp policy. “Will this mean the end of American hegemony?” “If China has a bigger economy that the US, does that make America less important than China?” Of course not. And to see why, you need look no further than my keyboard. Yes, it was built in China. But it could have been built anywhere. For this brief moment in history, the ancient and beautiful city of Suzhou has a cocktail of corruption and poverty that allows a Swiss company to make a bigger buck by screwing its keyboards together in Suzhou than anywhere else in the world. But if labor costs rise in Suzhou, as they inevitably do when an economy grows, the same economic forces that moved Logitech production to China will move it out again.

There is nothing special about Suzhou. Contrast this with Logitech’s decision to move its design headquarters to Silicon Valley. This wasn’t a cost-saving move. No one moves anything to Northern California because it’s cheaper. The move to California was a necessity. Logitech needed what only Silicon Valley could provide. Cost be damned.

To Logitech, Suzhou’s workers are fungible; Silicon Valley’s workers are indispensible. This contrast between Chinese and American labor is exaggerated in the tech industry; there is no Silicon Valley for gray cotton polo shirts. But the pattern repeats across the global economy because America has something China does not. America cannot be bothered to teach inner-city kids to read and write, but 36 of the top 50 research universities in the world are in the United States and Canada. China has just one. These top American universities are reinforced by hundreds of schools with lesser reputations that nonetheless do great work and thousands of corporate research facilities developing the technologies that will drive the global economy of tomorrow.

Those two European students who founded Logitech? They met at Stanford. Indispensability is power; fungibility is weakness. So long as China is making keyboards for Logitech while America is making Logitechs, we have nothing to fear from the Chinese.

Author’s Note: This was written before I read Rob Long’s post about Silicon Valley and New York real estate. I’m moving to Suzhou.

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  1. Rodin Member
    Rodin
    @Rodin

    Very interesting take on the global economy and the US’ position in it. In a peaceful and reasoning world the global market system can sort out where various goods can be conceived, designed, manufactured and consumed. Everyone can find their niche. Technology can promote specialization where even foodstuffs can be grown and shipped from thousands of miles away.

    And then there is the un-peaceful and unthinking world. Where specialization leads to shortages and starvation, and only the community gardener (protected by an AK-47) survives.

    The USA’s trend toward incenting everyone to either become a white collar worker or entertainer makes us very vulnerable to the chaos that ensues if our energy supply is disrupted or strangled by utopian do-gooders. The reality is that we are “energy privileged” and there are forces seeking to make us pay for that.

    • #1
  2. Mendel Inactive
    Mendel
    @Mendel

    Great (first?) post!

    The draw of the US to talented researchers and product developers is undeniable. When I worked in research in Germany, the government was throwing money hand over fist at researchers (both public and private) to stay there instead of migrating to America, yet it still wasn’t working.

    This is something we should be proud of. But we should also be honest that many of the areas that draw such talent are typical lefty regions (Boston, Bay Area, etc.) with a few exceptions. Call it the American paradox.

    • #2
  3. Addiction Is A Choice Member
    Addiction Is A Choice
    @AddictionIsAChoice

    I’m moving to Cambridge!

    Yes, great post, Hank Joseph!

    • #3
  4. Concretevol Thatcher
    Concretevol
    @Concretevol

    Very interesting post.  I will refrain from commenting on the old adage “never trust someone with two first names”.  :)

    • #4
  5. Hank Joseph Inactive
    Hank Joseph
    @GarretHobart

    Dear Editor:

    You and I don’t share a common taste in paragraph breaks, do we?  Thanks for the promotion and for the more elegant grouping of my thoughts.

    SY,

    Hank

    • #5
  6. Hank Joseph Inactive
    Hank Joseph
    @GarretHobart

    Rodin:In a peaceful and reasoning world the global market system can sort out where various goods can be conceived, designed, manufactured and consumed. Everyone can find their niche. …

    Indeed.  But we live in a world that is only intermittently peaceful and rarely reasons, so power dynamics always wend their way back into economics where a good economist would like to assume them away.  When the lion lies down with the lamb, it will prefer wool to mutton.  Until then, the lion chooses how the lamb “produces”.

    The USA’s trend toward incenting everyone to either become a white collar worker or entertainer makes us very vulnerable to the chaos that ensues if our energy supply is disrupted or strangled by utopian do-gooders. The reality is that we are “energy privileged” and there are forces seeking to make us pay for that.

    I agree, I agree.  In the interest of keeping the piece short, I deleted a lengthy section having to do with a second critical difference between the US and China:  our robust internal market.  Incenting innovation tends also to boost the interconnectedness of the global economies, where policies that favor economic activities that are inherently internal  —  much of which is blue collar  —  tend to decrease our reliance on the world.

    As you said, in a peaceful and reasoning world, whether activity is oriented within or without makes no difference.  But in the world we live in, I find arguments for policies that reinforce strictly domestic commerce more convincing that perhaps a good conservative should.

    • #6
  7. Z in MT Member
    Z in MT
    @ZinMT

    Good post.

    However, to engage further; Not everyone has the talent to design keyboards (or even T-shirts). So going forward in our economic policy things will need to adjust to provide people at the lower end of the economic scale work opportunities commensurate with the their abilities and talents. I firmly believe that a vocation is a necessity for humans. This means that just giving people welfare is not a solution.

    I think the rise of the restaurant and food industry in the last 20 years is prime example of the types of things that will need to happen to ease the economic disruptions of the loss of manufacturing.

    • #7
  8. Songwriter Inactive
    Songwriter
    @user_19450

    HJ – You wrote : “Indispensability is power; fungibility is weakness.”

    That can pretty well be said of a lot of job descriptions – including musicians.  If you wanna stay in demand, bring something unique to your work.

    • #8
  9. Hank Joseph Inactive
    Hank Joseph
    @GarretHobart

    Mendel:This is something we should be proud of. But we should also be honest that many of the areas that draw such talent are typical lefty regions (Boston, Bay Area, etc.) with a few exceptions. Call it the American paradox.

    It’s a valid point, to be sure.  Many of the corners of America that boast truly robust research cultures are also bastions of staggering liberalism.

    Partly, this might be because when we import minds, we import foreign politics.  But at the risk of straying from conservative orthodoxy for a second straight comment, I am open to the possibility that the spirit of innovation is more comfortable in a liberal setting than in a conservative one.

    Many innovators I have known  —  including those that work for some of the most voraciously capitalist corporations  —  have a whiff of the altruist about them.  They are aware of the business applications of their work, but they don’t think of what they do as a business task, any more so that the first-chair cellist at the symphony thinks of his work as a commodity sold ticket by ticket.

    This abstraction from harsh reality and the bubble it creates around the innovator may require at least a bit of the inherently liberal capacity for … convenient delusion.  And when enough of the conveniently deluded congregate in the same place, you get Berkeley.

    • #9
  10. Ed G. Member
    Ed G.
    @EdG

    Hank Joseph:[…..]

    Indispensability is power; fungibility is weakness. So long as China is making keyboards for Logitech while America is making Logitechs, we have nothing to fear from the Chinese.

    Once upon a time Detroit (or pick any rust belt industrial center) used to be indispensable too, while Asia was only capable of cheap knockoffs. I’m not just talking about production capability either, but design innovation. Things change; we get fat and stagnant while other places get hungry and bold. Can’t happen to Silicon Valley? I wouldn’t bet on that.

    I can’t shake the feeling that our ability to make Logitechs is somehow linked to and dependent on our former ability to make the keyboards too. Can design and production remain separated for too long? I mean, why would I keep letting the lion’s share of the profits go to some guy in America when designing a polo shirt isn’t really that complicated?

    Also, let’s be certain of those assessments of indispensability and fungibility. The idea that high tech manufacturing is itself a dumb machine that can operate just anywhere strikes me as not entirely accurate. Even if it starts out that way, that big dumb machine can’t help but learn about what it’s manufacturing and start to become indispensable.

    • #10
  11. Hank Joseph Inactive
    Hank Joseph
    @GarretHobart

    Addiction Is A Choice:I’m moving to Cambridge!

    Yes, great post, Hank Joseph!

    Take me with you.

    I ducked England in my post, but  comparatively tiny Britain has six of the top 50 research universities in the world, where Continental Europe has only three.  There is a post — or a book — to be written about the role of research not merely in America, but in the broader Anglosphere and how research strength relates to not just American power today, but the might of the British Empire in days gone by.

    • #11
  12. Hank Joseph Inactive
    Hank Joseph
    @GarretHobart

    Concretevol:Very interesting post. I will refrain from commenting on the old adage “never trust someone with two first names”. :)

    If you refrain from commenting on my trustworthiness, I promise not to root for Alabama.

    • #12
  13. Mendel Inactive
    Mendel
    @Mendel

    Ed G.:

    Once upon a time Detroit (or pick any rust belt industrial center) used to be indispensable too, while Asia was only capable of cheap knockoffs. I’m not just talking about production capability either, but design innovation. Things change; we get fat and stagnant while other places get hungry and bold. Can’t happen to Silicon Valley? I wouldn’t bet on that.

    There’s no doubt that Silicon Valley will someday start to decline and revert back to its past life of fruit orchards. The question is, will the next germ center of innovation and international attraction spring up somewhere else on American soil, or will it take root abroad? Of course, none of us know what form the next big “wave” will have, so it’s almost impossible to plan for, but maintaining the American characteristics of risk taking and forgiving failures might help ensure we remain the hub of “global advancement” for a while yet to come.

    • #13
  14. Hank Joseph Inactive
    Hank Joseph
    @GarretHobart

    Z in MT:However, to engage further; Not everyone has the talent to design keyboards (or even T-shirts). So going forward in our economic policy things will need to adjust to provide people at the lower end of the economic scale work opportunities commensurate with the their abilities and talents. I firmly believe that a vocation is a necessity for humans. This means that just giving people welfare is not a solution.

    An excellent point that ties back in to what Rodin said above.  Yet another reason I am tempted  —  merely tempted, mind you  —  by heretical arguments for strengthening the domestic economy at the expense of free trade.

    But allow me to add that an innovative society is not the same as a society of innovators.  No one knows from whose mind will spring the next idea, but we all play a critical role in building and maintaining the society where that next idea will thrive.  I may never have a meaningful thought in my life, but if I help provide the context in which someone else thinks deep thoughts, I have played a critical role in ideas I, myself, never had.

    • #14
  15. Hank Joseph Inactive
    Hank Joseph
    @GarretHobart

    Songwriter:If you wanna stay in demand, bring something unique to your work.

    Amen.  But building on what Z said, we need to make sure than ours is a society where I take as much pride in your uniqueness as you do, because I play a role in it and am aware of the role I play.

    • #15
  16. Ed G. Member
    Ed G.
    @EdG

    Mendel:

    Ed G.:

    Once upon a time Detroit (or pick any rust belt industrial center) used to be indispensable too, while Asia was only capable of cheap knockoffs. I’m not just talking about production capability either, but design innovation. Things change; we get fat and stagnant while other places get hungry and bold. Can’t happen to Silicon Valley? I wouldn’t bet on that.

    There’s no doubt that Silicon Valley will someday start to decline and revert back to its past life of fruit orchards. The question is, will the next germ center of innovation and international attraction spring up somewhere else on American soil, or will it take root abroad? Of course, none of us know what form the next big “wave” will have, so it’s almost impossible to plan for, but maintaining the American characteristics of risk taking and forgiving failures might help ensure we remain the hub of “global advancement” for a while yet to come.


    Don’t get me wrong: I absolutely want the world’s best and brightest to want to come here.

    • #16
  17. Hank Joseph Inactive
    Hank Joseph
    @GarretHobart

    Ed G.:

    I can’t shake the feeling that our ability to make Logitechs is somehow linked to and dependent on our former ability to make the keyboards too. Can design and production remain separated for too long? …  Even if it starts out that way, that big dumb machine can’t help but learn about what it’s manufacturing and start to become indispensable.

    You’re right, of course.  And that, in my opinion, is the great cultural challenge ahead of us.  In the same way Japan overwhelmed a complacent US auto industry, China has the ability to do the same to countless sectors where we take our dominance for granted.  Just because we have nothing to fear from today’s Chinese worker doesn’t mean we have nothing to fear from tomorrow’s.

    We need to locate our advantages and press them while we still have them.

    • #17
  18. Hank Joseph Inactive
    Hank Joseph
    @GarretHobart

    Mendel:

    There’s no doubt that Silicon Valley will someday start to decline and revert back to its past life of fruit orchards. The question is, will the next germ center of innovation and international attraction spring up somewhere else on American soil, or will it take root abroad? Of course, none of us know what form the next big “wave” will have, so it’s almost impossible to plan for, but maintaining the American characteristics of risk taking and forgiving failures might help ensure we remain the hub of “global advancement” for a while yet to come.

    Precisely, Mendel!

    When do we get a presidential candidate who can make that case convincingly to the people?  How do we get cultural leaders  —  I’m talking about your colleagues here, Mr. Long  —  prepared to reinforce these values, rather than tear them down?

    • #18
  19. The Cloaked Gaijin Member
    The Cloaked Gaijin
    @TheCloakedGaijin

    Hank Joseph:There is nothing special about Suzhou. Contrast this with Logitech’s decision to move its design headquarters to Silicon Valley.

    Here’s a labor cost chart I posted an another article.

    I don’t think the United States should worry so much about upsetting China, except perhaps from a military standpoint.  Other countries have low labor costs and haven’t shown “a 300 percent increase in abuse and persecution against (its country’s) Christians since 2013.”

    Project1

    • #19
  20. Hank Joseph Inactive
    Hank Joseph
    @GarretHobart

    That looks like a fantastic chart, but I’m struggling to read it.  Can you tell me where you got it?

    • #20
  21. The Cloaked Gaijin Member
    The Cloaked Gaijin
    @TheCloakedGaijin

    Hank Joseph:That looks like a fantastic chart, but I’m struggling to read it. Can you tell me where you got it?

    http://www.bloomberg.com/news/articles/2015-04-29/china-is-set-to-lose-manufacturing-crown

    P.S.  Why are you moving to Suzhou?  You don’t have to say, of course, but I am interested.  I live in a part of the country where no one ever moves anywhere.

    There was a kid from my high school who moved to China to work for BearingPoint, a multinational management and technology consulting firm headquartered in Amsterdam.  The Netherlands seems to have a rich history too.  Ann Coulter’s new book claims that the United States was almost exclusively created by immigrants from Britain and the Netherlands.

    I was recently reading Thomas Sowell explain how watch-making skills, probably the supercomputers of ancient times, were developed by Huguenots who took their skills to England and Switzerland to escape religious persecution.  Today economic freedom persecution often seems to be the problem of the day.

    • #21
  22. PHCheese Inactive
    PHCheese
    @PHCheese

    Hank, one problem. More and more of the students of those 36 universities are made up of of Chinese. Some stay but many go back.

    • #22
  23. Joseph Eagar Member
    Joseph Eagar
    @JosephEagar

    As someone who lives and works in Silicon Valley, I find it ironic to see the people here held up as ideal American workers.  If every worker in America were as selfish, irresponsible, and narcissistic as Bay Area professionals there would be no America; we’d be Central Europe writ large.

    • #23
  24. Z in MT Member
    Z in MT
    @ZinMT

    Think of Silicon Valley as Detroit 50 years ago. Silicon Valley has a huge amount of human capital that allows for large scale innovation to happen rapidly. Nowhere else in the US can you start a software or electronics company and hire 500+ engineers in less than a year without completely depleting the labor pool. However, because of the high capital in the area it is used inefficiently, and leads to terrible public policy. Eventually the inefficiency of capital in Silicon Valley will catch up with it, like it did in Detroit.

    • #24
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