Some of my thoughts. Your milage may vary. Thanks for reading.
Protectionism is not the answer
Published on March 20, 2004 By DesignGuy In Business
One of the cries you hear a lot of today is that the US is outsourcing all of it's manufacturing and computer programming to foreign countries. The cry is loudest at the moment in the Information Technology field as more and more jobs are sent to places such as India and China. This is leading to a new wave of protectionism rhetoric and in some cases legislation to enforce protectionism.

I would say that the idea of protectionism is dangerous and quite frankly stupid. The reason that America is hurting at the moment is because of complacency and a sense of entitlement. It used to be that for white collar workers there was a certain sense of security. You could go to work for a company and expect to work there until you retired. This lead to complacency since white collar workers were frequently not laid-off like the blue collar workers were. This in turn has lead to a sense of entitlement in the form of "I've done my job, it is up to the company to take care of me." That statement is wrong in 2 ways.

First off, those days of security for white collar workers are gone. Today we've already seen much of our manufacturing capabilities transferred to foreign countries. What is different now is that we aren't losing just the low paying blue collar work, we are losing the higher paying white collar jobs too. I contend this is a good thing, the rest of the world is starting to catch up and might possibly begin to enjoy a similar standard of living to what we've had. This is the wake-up alarm that we've been hitting the snooze button on for several years.

In the second place, business exists to maximize profit for the investors in the company. How can a person running an organization look at shareholders and say they are doing their best to protect and increase their investments if they don't lower costs while maintaining or improving the quality of the product? The short answer is they can't.

So, what can we do if protectionism is so stupid? I'm glad you asked.

America needs to get back to doing what we have always done best. We need to innovate and create new opportunities. I am convinced (with little evidence unfortunately - hence "opinion") that there is still a lot of venture capital that is being sat on because of the dot-com bust of a few years ago. Venture capitalists are sitting there waiting for the next big thing to invest in. What they should be doing is what they used to do - invest a bit in a lot of things instead of a lot in a few things. We are talking about BILLIONS of dollars that aren't being used effectively right now.

The truth is, there is no next big thing waiting in the wings at the moment. What there is though is the opportunity to improve on what has been built so far. In software there is a lot of opportunity to tighten integration between products, to improve user interfaces and to make software (ERP, CRM, B2B, you name it) work the way it was sold but not necessarily implemented for big businesses. On the engineering side there are lots of opportunities in R&D just waiting for funding - everything from improved fuel cells to new and better manufacturing methods and new materials. In short, it is time to improve the mousetraps instead of waiting for better ones to come along.

Until the venture capitalists catch on white collar workers can take their fate into their own hands. Focus on smaller opportunities. Open your own consulting firm and make your own opportunity or take short term contract jobs. It is hard work, and if you've worked for a company for 20 years (like I have) it can be a strange and possibly scary new world to enter, but the reward potential is only there if you try.

One of the other ways that white collar workers can find new opportunity is to write your legislators and insist on supporting the new NASA initiatives of going to the moon and then Mars. Investing in technology is a good thing for everybody. It isn't taking money from social programs. On the contrary, it creates high paying jobs that improve the tax base and allow for spending on social and other programs. Those same jobs also create more opportunity for the service and tourism industries since there is money that can be spent. You can't support social programs if everybody is enrolled in them.

Good luck if you fall into the categories above and have been displaced. Quit whining and make your own opportunity. I'll be out there competing with you very soon, too.

.

Comments
on Mar 21, 2004
An excellent blog, I just wish I could share your enthusiasm. Buffet, a billionaire, siad much the same thing about investment capital; he's sitting on $38 billion doing nothing. I fear that they are waiting for even more proftable ventures overseas.
on Mar 21, 2004
A good, thought-provoking post. Thank you. But let me raise a few questions, if I may.

1) Other countries practice protectionist policies. For example, Japan used to pose strict tariiffs relating to importation. Sweden's airlines were government financed. China currently practices policies that are unfair by any standard. Aren't a certain number of protectionist laws needed to "level the playing field?" If Country A taxes the importation of US goods, don't we have to counter that? The US trade imbalance is scary.

2) As much as I favor space research (and I do! see my posts on the future of lunar exploration.) it is unlikely that this will produce a large number of new jobs in the near future.

I sometimes wonder if macro-economics shouldn't be a requirement for all CEO's. Some of them seem to pursue policies that, while generating huge profits in the short-term, devastate regions and are injurious to the economy as a whole. Wal-Mart is the perfect example. Because of their enormous wealth, they are exempt from standard labor practices in China (not to mention the more than 200 pending lawsuits in the US) and seem hell-bent on ruining the US economy. Since their largest competitor, K-Mart, went bankrupt, they function in a competitive vacuum. I would hate to see the "Wal-Martization" of IT jobs.
on Mar 21, 2004
To stevendedalus:
Thanks for commenting. Again, it's just my opinion, but I think the VC people are really just waiting for the "next big thing" - and they aren't willing to accept returns of less than $100 million. The dot-com bust scared a lot of people, especially since prior to the bust it was not that hard to find something to invest in and get the returns they wanted.

I don't really think it matters to the VC folks where they invest - whether it is domestic or overseas - but it does matter to them that they get the returns they want. And (this is a really broad statement) most of the great innovation of the last 100 years has begun in the United States. Innovation is where America has always excelled. I'm hoping the VC's realize soon that their money could be doing more by taking some of the risk that they used to and that a smaller margin is better than no margin at all.
on Mar 21, 2004
To Larry K:
Excellent questions (and the problem with a general blog). I agree, there is some amount of protectionism that is required. Fair trade has got to be fair and the trade imbalances are all due to foreign policy decisions from what I can tell. Everybody likes the US when they need money even if they resent the US for being able to supply the cash and goods at the time. That being said though there are things that are important to national security and national defense that will always have to be done at home, and we need to make sure that we'll still have the educated people required to do those tasks.

The problem with aerospace in general is that it is a boom or bust business. When a project is starting there is a lot of work and a lot of jobs. Once design is complete and the first article is built most of the jobs go away. The space shuttle program has been very strange because of it's longevity. Most aerospace projects run for 6 to 10 years max and here we have a program that is 31 years old now. I'll have to blog about this one day.

Walmart did to K-Mart what K-Mart did to Woolworths and a lot of other stores (of course, K-Mart did a lot to speed up the process for Walmart all on their own, too). They come into an area, offer a wide variety of name brand products for a good price and watch the competition die. Once that happens, the number of choices on the shelves dwindles down to 2 or 3 if you're lucky, the prices aren't quite as good, and you have one store making $300k where you might have had 10 mom-and-pops stores making $30k each before (just for argument's sake). In a laissez-faire economic system it becomes survival of the fittest. Unfortunately, the fittest are the ones with the most buying power like the Walmarts.

I've got to stop now or start another blog! Thanks for the comments.
on Mar 29, 2004
"The reason that America is hurting at the moment is because of complacency and a sense of entitlement."

"What is different now is that we aren't losing just the low paying blue collar work, we are losing the higher paying white collar jobs too. I contend this is a good thing, the rest of the world is starting to catch up and might possibly begin to enjoy a similar standard of living to what we've had."

The gig and net loss is not in the pay, it's in the loss of intellect. An un-skilled workforce cannot respond in National defense. This understanding of the reason for diferent Nations is clear in your post. How is losing a skilled worker job in a nation that has freedoms our parents fought and died to secure - the very distinguishing characteristic of what being American was - to a slave in China who labors at point of threat to his family, beneficial to America? Please explain again.

Furthermore, study shows that the loss of American jobs is not benefitting the slaves of dictatorships, only enabling dictatorships to be more oppressive. Go read how people who made $4.00 a day are now being replaced by people who work for $3.00 a day. We are doing a disservice to ALL slaves to enable the oppression of their governments.

Not all the jobs are lost due to our 'complacency' either. Consider how the dictators also have no environmental protection of their own resources that we have enough vision and care to possess in America. The number of worker injuries and deaths is not decreasing under 'outsourcing' in dictatorships, they just have no venue of justice to rectify it.

If outsourcing is so good, then let's lay off ALL Americans, give their jobs to dictatorships, and we'll be much better off - or so the shareholders would tell us. THINK my friend, don't mouth propoganda that is for dupes. Such nonsense is beneath any member of our military, now dying fighting for freedom in a dictatorship Nation.