Why Employers Want
to Pay Great Wages: Market Share
“It’s absurd to talk of ‘America’s competitiveness’ when tied to outsourcing. The technology, innovations and craftsmanship are all things that make up our ‘competitive edge.’ To ship all this to the competition neutralizes each of these advantages.
These massive transfers represent more then loss of America’s greatest resource. Outsourcing has critically damage the finely tuned eco-systems behind our economic firepower. Each industry represents a unique formulation - decades in the making. It’s built upon an ecology-like balance of R&D, human capital development, commercial infrastructure and technological evolution. These moving parts come together as a social organism. Each spawns a new generation of entrepreneurs and products - often better then its predecessor. To miss the first is to miss the successive generations of them as well. This entire process is all given away in the name of saving on labor costs.
The most startling revelation is likely going to be the most fun. We will expose the myth behind the high cost of US labor. Automation has reduced labor costs to an average of just 5% to 10% the products retail price. Reducing these costs by 50% to 70% only offers single digit savings. Single digits is the difference between US and China labor costs.
Example: An average hourly rate of $15 for a Wal-Mart employee would add just 1% to our purchase price.
Ask people the price difference if the $700 I-Pad was manufactured by the US rather then China. Guest-imations run a low average of $1,000 to an appalling high of $2,500. People are stunned to discover it’s just $65. That’s it. (NYTimes- below) That’s (nine) 9% the retail price. And that’s on Apple’s 47% profit margin - so no effect on pricing.
Let’s say China’s labor costs was $35. The savings is just 5% the retail price. 5% on 50 million phones adds up quickly, however, its incidental to i-Phones market share. That market share is where the ‘big’ money is made. It’s worth tens of billion as compared to the millions on this 5% difference in labor costs. We are handing-over all this technology and know-how to save 5%. What happens once China starts to compete with us for market share? The cost will be far more then a mere 5%. This personifies the miscalculation of corporate outsourcing.”
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Market-fare vs. Profits
Raghu-nomics provides a broader approach to the issue of ‘fair wages.’ This will do wonders in resetting corporate spending priorities for them.
‘Show them the money’ to be gained from higher wages and employers will spend it. US corporations are sitting on cash reserves heading towards $2 trillion. Spend this on domestic investment is all we need to turn this economy around. Tax cuts of the last 10 years worked. Companies made record profits as predicted by the low tax formula. The next step: ‘reinvest.’ If profits are the bottom line, no need to spend more. They have all the profits needed to keep investors happy. Why ‘risk’ more? We introduce a new objective. It’s ‘beyond the bottom line.’ It’s of the global economy and it comes with an entirely different set of demands. These new ‘Imperatives’ will have companies reconsider reinvesting options once more.
Market-Fare vs. Profit
In one word: Market-fare. This maybe better known as China. Foreign backed corporate players represent a greater budgetary concern then profits alone. The US auto industry stands as a case in point. They showed profits for decades but did so against a shrinking market share to the invasion of foreign brands. Detroit went broke as their share imploded. In short, profits are no longer good enough to make it in a global economy. A growing number of industries demand market share.
Let’s say Detroit held its 80% market share in the USA. They had this back in the ‘60’s and ‘70’s. The employee wages/benefits would have been an incidental ‘cost’ to this kind of sales volume. Instead, the US auto industry was ‘out-designed, out serviced and out quality-produced.’ Pricing and costs where second and third to these innovation gaffs.
Detroit: Problem of Innovation, Not Wages
A $10,000 vehicle would run about $1,500 per car in labor costs (back in the late 90’s). Detroit did not have a ‘$1,500 problem.’ They had a quality, service, design and innovation problem. The same focus paid to quality and innovation is part of the same conventions as those of well paid workers: Toyota, Google, and Mercedes. All the market-share lost to foreign ‘economic aggression’ was Detroit’s problem. Employee wages was pennies on the margins by compare.
Lost Markets = Lost Power
This lost market share is proving true of a number of industries. Lost market share is more then just lost opportunities. It’s to find ourselves in global retreat with fading political access, evaporating soft power influence and reduced cultural impact upon the world. These elements of influence are the primary levers of power of an interconnected world. America is losing on all fronts. Who is MOST impacted by this dwindling access and influence? It’s America’s top corporate players. They are losing billions in new opportunities and running side by side is all the leverage that goes along with it. This is the price being paid by America’s billionaires. A few percentage points of higher profits off their workers against the billions in market share lost with each dollar taken from their employees.
Now compare all of these PENALTIES TO the ‘PENNIES’ otherwise ‘saved’ on labor. Going after labor cost is off-target for a company or nation (or billionaire) geared to take on the international market place. Operations obsessing over labor cost are often those of desperate vision. Examples would be the US auto industry outsourcing to Mexico and abroad in step to its market decline. We see the same again with home appliance and entertainment manufacturers.
The cost of labor has no compare to the global appetite for innovation. We have Google, Mercedes and other booming companies geared around innovation over low wages. Their pay is geared to harness the very best of peole rather then squeezing the very desperate. The hiring practice often encapsulates the business model from which a company works. Good wage companies are often the innovative companies. Why? The same mind-set geared for innovation is the same one on the prowl for great minds to tap and good talent.
New Imperatives over Profits
Today’s markets are being reduced to an ‘all or nothing’ game of survival. Manpower is often a deciding factor and if managed properly, can be and should be. Apple no longer works for profits, but fights for market share. Blackberry had great profits for decades and still generated billions in revenue just a year ago. But, its market share collapsed. It stands at 1% and still falling. Any profits would be second to this market collapse. The reverse is also true. If their market share was just 1%, but rapidly expanding, the net worth would be calculated in multiples – even if there were no profits. Commerce is increasingly about market share over profits. We suggest that the talent behind innovations is the same talent bred by good wages. The 21st Century gives us a new set of imperatives over profits. It’s talent. Only the right talent can meet the Imperatives of a 21st Century:
· seize and
· hold new markets
· product development,
· innovation and
Labor costs are far down the line to these New Imperatives. And so you see the best foreign brands as Toyota opening up shop here in the USA. The price of American labor is second and third to their success - if not an actual part of it.
GI Joe of Market-fare
Labor costs are the wrong target - if not a harmful one. There’s a number of reasons for this. Here’s the primary. The American work force is the nations counter force to foreign competition. They’re like soldiers. Soldiers and technology decide battlefield triumphs. There’s a new battlefield. It’s not colonies taken by military might like our old world of the colonial days. Colonies have now been replaced by markets. They are won by innovations and protected by better and faster market responsiveness. The soldier of these market battles is your employee. It’s not the CEO, nor the marketing executive. It’s your work ‘force.’ They are the GI Joe of market-fare. We have failed to make this connection and so we are undermining our greatest resource for tapping the global economy.
Worker exploitation, economic manipulations and political corruption have been orchestrated to gift the ‘1%’ an ever larger share of US assets. This seems a victory for them, but we point to something they should find of greater value – if not urgency. We hold that each dollar taken from our fellow worker reduces the global reach of our American companies. America’s power coincidentally actually followed its pay rate. We see a similar trend of other countries too.
These low wage policies are penalizing billionaires on the backend. Lost global access is mirrored in step with lost worker empowerment. This dynamic was never in play as it is today. This issue stands center to our economic survival. Why? Raghu-nomics answers this and the way forward to fixing it.
We present a new paradigm that draws a direct connection between wages and market share. Once better understood, companies will look to offer better wages. Innovators are the key to unlock the opportunities of today’s world. The best pool for such innovators is right there in your ‘work force.’ The age of ‘takers vs. makers’ is being replaced by a world of ‘innovators vs. slave labor.’
This is covered in our coming booklet: 10 Easy Steps to Great American Jobs. The 1st Step is Market Share vs. Labor Cost. The Second is resetting old paradigms. Here are some examples:
Market Share versus Low Labor Cost
America coddled commerce with a protected market place for US companies to build upon. The only intrusion to corporate America was employee wages, gov’t taxes and state regulations. This was reinforced with the conservative vs. liberal political paradigm that aligned ideology against a real world experience. Reduced labor cost ‘really did’ translate into higher profits. Those profits ‘really were’ the measure of success. And that success ‘really was’ followed by the next wave of hiring. Hence, the obsession of the last 60 years against these issues of taxes and wages.
Low Wage Formula Out of Date
This is the bedrock for nearly all US business modeling. Most every company and CEO is trained and judged by – how much can you save on labor cost, taxes and regulation shortcuts. Our systems political ‘representation’ is built upon this brand of ‘private’ manipulation by corporate America. It has all the trappings of ‘corruption,’ but in its heyday, it delivered great jobs for the public good and a booming economy for the country. ‘What was good for GM, (really) was good for America.’ This established its political counter part of the ‘conservative movement:’ low wages, reduced taxes & less regulation. This is conservative’s motto of capitalism. Time to up-grade this woefully outdated model.
The country’s corporate protections of 40 years ago buffered American monopolies. This allowed US producers a superior commercial infrastructure to launch products at home and abroad. Other countries could not compete against such infrastructure -especially once multiplied by America’s political power. In this closed economy; dropping taxes, wages and regulations could be counted on to jump start business and the economy. This no longer holds true. The tax cuts and falling wages of the last decade prove the point. Though corporate profits our up, our economy is little better for it. ‘What’s good for GM’ no longer translates over to America at large.
New Prerequisites: Empowered Personnel
The global economy has turned this old model upside down. America’s industrial challenge is no longer found in cutting labor cost, but had through innovation. ‘Markets’ are no longer gained through pricing, but quality products. Its here we have to begin the process. Quality products are found with this new set of prerequisites:
· commercial infrastructure,
· entrepreneurial proficiency and
· market responsiveness.
All of these are bred upon:
· manufacturing platforms,
· quality craftsmanship and
· a technology sector backed by a well equipped labor force.
Low wages hollows-out each of these areas for the simple reason that all of them our little more then personnel related functions. The low wage and outsourcing miscalculation is that personnel and their functions can somehow be subdivided out as separate entities. They are not and they can’t be.
The function itself is the bedrock of the company. Where ever you locate that ‘function,’ the place, like its employees, becomes the foundation of the company’s own center-of-gravity. We see this most vividly with outsourcing. Outsourcing clear-cuts all the foundational supports of America’s ‘performance infrastructure.’ It has transferred it over to China. Hence, China has now become the industrial might that use to be America. The world’s commercial center-of-gravity has now shifted over to China.
‘Form follows function.’ China has all the functions of America’s business while the US is losing theirs quickly. Hence, China is forming the basis of business for the world in place of America. This is America’s doing via outsourcing.
It’s absurd to talk of ‘America’s competitiveness’ when tied to outsourcing. The technology, innovations and craftsmanship are all things that make up our ‘competitive edge.’ To ship all this over to the competition neutralizes each of these advantages. The lost advantages are spilling over from national hardship and into ill-equipped US companies faced against their Chinese counterparts. CEO’s thought they were outsourcing labor. Odd they couldn’t see they were actually outsourcing the entire company.
It’s a fairly sinister downward spiral. Out-sourcing shipped billions worth of our technology abroad. It decimated decades of knowledge-reserves now dispersed with our human capital. Technology and know-how is the fairy-dust of America’s economic magic. Once lost, so goes our center-of-gravity for business development and all the trimmings of prosperity that goes along with it. This is the ‘real’ story behind America’s flagging economy.
Alas. All is not lost. This narrative simply introduces a new set of standards, formulas and imperatives. Tap these and we will prosper once more.
Old world capitalism is founded upon an outdated model of low cost labor. Today arises an alternate world counter to the old. It presents:
· innovation over low cost,
· skilled labor over low wages and
· market responsiveness over marketing.
Outsourcings led to massive transfers of commercial infrastructure. This represented more then the lost of America’s greatest resource to the competition. Outsourcing critically damaged the finely tuned eco-systems behind this economic engine. Each industry represents a distinct formulation - decades in the making. It’s built upon an ecology-like balance of R&D, human capital development, commercial infrastructure and technological evolution. These moving parts come together as a divergent social organism. Each spawns a new generation of entrepreneurs and products - often better then their predecessor. To lose the first is to miss the successive generations thereafter. This entire process has been butchered and given away in slabs – all in the name of saving on labor costs.
This commercial hemorrhaging is above and beyond the social cost of communities left devastated throughout towns and cities from across the country. Democrats cried foul but still missed the point. ‘It’s the commercial infrastructure stupid.’ Talking to the issues of ‘fairness’ inadvertently added legitimacy to the ‘conservatives’ call for corporate efficiency. Both parties missed it. It’s about the harm to our commercial infrastructure.
There maybe one loss that is greater still. It’s our national integrity. Therein weaves the fabric of our American spirit where entrepreneurial magic is born; the fire behind our competitiveness is fueled; the strength of industrial muscle is nourished, the accountability of gov’t is grounded and the million bonds of a grass roots people becomes true democracy. Outsourcing and low wages rips away at this fabric of the American spirit.
Our tax codes should account for the horrific losses of these corporate give-a-ways. The tax-deductions for outsourcing should be replaced with tax-dues against the social cost of selling out these American resources to other countries.
We see the market share lost to foreign brands, but the real damage is in lost global markets. US companies are facing-off against their own manufacturers from China, India and South America. Those manufactures now have all the specialties that were unique to American brands alone. And often, they hold these advantages we no longer carry.
Outsourcing has built thousands of foreign competitors. Corporate America now faces the full fire power of this competition. Their weapons are little more then the technology and expertise these CEOs handed to them. Here is the true price we pay with each new contract to outsource our country.
The response: blaming ‘lazy Americans’ and ‘spoiled’ unions. The actual culprit: America’s lost commercial infrastructure. Irony fails to convey the injustice to our valiant workers. Nor does it expose the backwardness of today’s economic models that so poorly misdiagnosing this obvious problem.
Outsourcing did save ‘millions’ in labor cost, but the price is paid in market infrastructure. Gone with it is the natural market share it rewards its owner. The millions saved on wages helped fluff quarterly profit reports but they hide the loss of market share. ‘Penny wise and pound foolish’ now translates into millions saved, for the billions (in market share) lost.
Generations of CEO’s handed our foreign competitors ALL the secrets of America’s commercial might. They paid them to take it from us. Today, China is replacing those same CEO’s and their investors too. China is becoming the new commercial hub and doing so at our expense. This is not due to China’s low wages, but all the Western know-how and technology we gave them.
Technology shipped there in the name of low wages has an American comparable. It’s the modern equivalent of the American Indians handing over all their lands to the settlers for mere trinkets that was worth pennies. Millions saved on labor for billions in our own technology. And so goes all the new markets and products they will create for our competitors. Like the American Indians, it looks as this could all be lost to us for ever more. Such is the price for the trinket of cheap labor.
The growth of America’s foreign competition follows in large part along our own trends for outsourcing jobs. It started in the late 70’s, found momentum in the 80s before the 90’s finally collapsed any remaining gap. The only thing left for us to compete with was in reduced wage, taxes and currency values. The ideological premise of low-wage ‘capitalism’ became a self-fulfilling prophecy.
The corporate philosophy of the last 50 years has been working from the wrong economic model. Raghu-nomics offers ways to reset this economic distortion for a better interface with the global economy. Its covered in our ’10 Steps to Great American Jobs.’
Raghu-nomics goes on to demonstrate the penalties to low wage companies. This slave labor template is destructive to America’s commercial performance. Low wages maybe less destructive then outsourcing, but both undermine our global competitiveness. It’s more then the wrong economic prescription. It’s the exact opposite of it. Here’s some simple examples.
How hard you work is second to how much success you have. The labor model by which you work is often the defining factor. Take the example of Communism. It showed that hard work fails the individual as much as it does the state – at least when compared to private sector reward and innovations.
Another example would be in the child labor of third world countries. Their labor is a net negative. It stunts the child’s own potential much as it does their nations. Therefore, we don’t ask our kids to work harder, but only they study more, play hard and build upon a childhood experience of nurture. This foundation offers the much more rewarding long term value of empowered adult worker. Demanding the Communist to work for less or pushing that child ever harder to meet some factory production only makes things worse for us all. It hurts them, our communities and the integrity of the nation. The same is true of today’s low wage workers too. And it’s true for much the same reasons.
Low wage impairs the long term performance for worker and country a like. Good pay does the opposite. There’s the example of Mr Ford. He offered the 5 day work week and enough money to buy one. This gave workers 2 days to drive his car. A host of others identified the larger functions harnessed in better wages. It was always built upon a vision beyond the cost of labor.
The Industrial Revolution is another great example. The North preferred the factory workers of freemen above the slave-labor field hand of the South. The versatility imbibed by a ‘freemen’ presented greater capacity then possible by those ravaged by slavery’s crushing effects to the human spirit. Interesting to note that the Industrial Revolution coincided with the ending days of slavery. This was true of both the US and Britton. With slavery gone, equipment was a more cost effective choice against the higher cost of non-slave labor. It was the end of slaveries ‘free-labor’ that gave us the big jump from man to machine.
Few things demonstrate the principle better then the North and South of the Civil War era. Same country, same people and same work ethic. The divide in principle was over slavery, but slavery was the deciding factor to there two very different economies. There was the manufacturing economy of the Northern States against their cotton-pickin counter-part in the South. While comparables could be drawn to show economic parities between the two, the technology difference was startling.
The beast-of-burden model of the slave trade was replaced with the productions of the factory hand. In the end, machinery proved the greater savings and service as compared to slave labor. Go figure. Doomsayers predicting economic collapse should slave labor be outlawed. Sound familiar? We here the same again today about ‘living wages.’ Just the opposite happened. The cotton industry in the end did take a fall, but it was replaced with better ones. We hold that higher wages is the greatest driving force to next generation technology. Outsourcing stumped this technological evolution in the USA, but will save that point for another day.
Our worker bee then evolved into the ‘stand-ins’ for WWI and II, much like they were for retailers, office workers and many factories. It represented greater wages then either slave labor or those of the industrial revolution and yet, the work was generally much easier. Unfair? In this era, it was about sheer numbers more then talents. People were hired in volume to fill seats and pull levers more then some daunting personal capacity for a specialty task.
Skills and talents took over in the decades following and generally did so in step with the march of technology. Much of this was in direct response to the New Deal with all the benefits being offered by the gov’t from school and healthcare, to housing and infrastructure. This also matched one of histories greatest wage hikes. Once again, the rising cost of labor coincided with the next technology boom. The Industrial Revolution was geared towards work related equipment. The 50’s and 60’s moved technology out into the domestic front wherein the average ‘Joe,’ now had money to spend on it and so companies steamed ahead with new products to tap this new gold rush.
We jump to Pres. Reagan for our next generation of worker bee. Reagan’s policies of deregulation and lowered taxes favored outsourcing. Here’s how. Higher taxes puts a tight deadline on companies to ‘reinvest’ or else gov’t takes it. You have one year to do so or you lose it to the tax man. ‘Use it or lose it.’ The urgency to reinvest faded with falling tax rates. You find this true of all low tax countries such as Russia. No urgency to reinvest without the Dec. 31st Deadline. Off-shore production allowed US employers to save on the margins that would have been paid in taxes or reinvestment. Outsourcing was in full swing by the time of the Clinton years.
We have regressed since to become a modern hybrid. This worker is geared to handle more technology with a gradual slide into a slave-labor ethic. Work is done with out question and comes with the unspoken to drop the best of our ideals, put on hold any expectation of security and promotion and know we are likely to ever be paid our worth.
Today’s slave-labor model is geared to weigh employees with an ever expending list of ‘jobs’ but often for less then the pay that use to be paid for just one of those functions. While this appears to ‘increase production,’ it cannibalizes upon our ‘performance infrastructure’ wherein the long term capacity is degraded like those of child labor countries.
We now work below our means. We do so with subsidies from partners, parents, savings or credit. Most no longer make a living wage. This new worker is part robot, part superhuman. They are the terminator. They serve a multitude of tasks. The requirements are as much manual as tech and often are done for several jobs at once. Most of us work part time. Some of us just get to do it at the same company.
This brings us to the doorstep of our next evolutionary jump. We present you the superpowers of creativity combined with the expertise of the cutting edge engineer. The best of engineers replaces the efficiency of a machine with the eye and skill to improve performance, up-grade structure and expend function in feel, purpose and reach. No machine can match this feat. Creativity is its fuel; expertise its foundation. This maybe best exemplified with Bill Gates and Steve Jobs. They were the bottom of the vocational ladder as teen kids who went on to found entire industries. This brand of entrepreneurial drive layered with the sense for cutting innovation is finding its way down the corporate ranks. This new generation comes with an artists attitude, atop an inherent tech savvy and an entrepreneurial drive that they (or one of their peers) maybe the next Steve Jobs. These strengths multiply form, function and chemistry of the work place, product line and corporate culture. Cutting edge companies like Google or FaceBook offer a peek of tomorrows best company worker model. They are a place that transposes work into play and play into work. They appear to work longer when in fact these employees are just playing harder.
This replaces much of the functions of the old worker / manager paradigm for it is performance based model. It’s not measured by production, but innovation - of which production is but a small part. The weight of authority (like much of the other conventions of status) are left behind. This allows a stronger inter-personal versatility between the different moving parts. This empowers each with a broader reach - for much of the bureaucratic divisions have been greatly paired back. The pay-off shows up in areas like faster turnaround times in a host of things from service, production, product development and quality control.
This new agent serves a larger role then covered in the old manager/worker team. They should have pay that corresponds to this greater function. So its not that we pay employees better wages, but rather, we create a new standard of performance with wages to match. Great wages will build upon this trend the fastest.
As a final bonus, the in-work performance is only the beginning value to be tapped through better wages. The employees community role is the new frontier to be tapped. Cashing in on their contributions to the community through home and play is where the a whole new world of value lies undiscovered. Great paying jobs create great performing communities. Tying in this side of the companies impact completes the circle of work, to family, to community, country and back to the company. Allowing companies to share in the fruits to the community developments from good wages offers a whole new layer of long term rewards.
We present the ‘artist engineer’ as the next evolutionary jump. We will have moved from brawn, to body, to dexterity and finally into the best of peoples creative powers of body, mind and spirit that connects family and community and taps them as parts of the same circle of life and success as a community and country. Its’ the merging of capitalism and communism for they always were of the same people. The FATE Tax is an example of this wherein the employer has generous tax bonuses for each of the communal social services they cover in place of gov’t. The 10 Step program is not so much a vision as it is a blueprint for tapping the best of 21st Century. It demands innovation, market responsiveness and the service flexible required of global diversity. These greater demands require greater capacity. This is only possible by connecting the greater potentials lying there with our work force. Good wages is a critical component of that.
The artist Engineer is the counterpart and answer to China’s massive wave of graduating engineers – among a host of other advantages. The Creative Engineer is # 5 of our ‘10 Steps To Great American Jobs.’ The examples are stirring, obvious and convincing. I look forward to sharing those with you some day.
We go on to provide a series of new tax models that further this process. We have the FAIR Tax, the Inflation Tax, BARATA Tax and the DOS Tax, among others. That is Step # 6. There would be Tax Credits for the number of years employeed (3% per year upto 5 years). The employer gets tax bonuses for each of the employer’s children (%5) plus additional ones for the kids grades and a large one for college acceptance with a big bonus for the kids graduation. We simply identified all the benefits of great paying jobs to family and community. It’s those benefits that justify the tax breaks to companies. We provide the company those tax-breaks with each benchmark reached. This can equal significantly more then the companies entire profits. In short, it offers all the social benefits of the Democrats by offering greater tax breaks then the Republicans.
We also cover new industries that offer ‘trillions’ in new prospects that can be tapped immediately. They make up Steps # 8 and #10. This is all headed by a powerful program to build market demand for American Made. It’s called the American Shopping Party: ASP. Step #4.
The most startling revelation may prove the greatest impact. It may radically recalibrate the entire political landscape. We expose the myth behind the high cost of US labor. This will help mend much of our political divide between business and labor. Here’s it a nutshell:
Automation has reduced labor costs to an average of just 10% a products retail price. Reducing these costs by 50% shaves off a small 4% to 8% from the retail price. Yes, 5% is the average savings on a host of products. Why all the hoopla over labor costs?
Wal-Mart makes a fabulous example. Raising the average hourly rate from $10 to $15 an hour would add about 1% to our purchase price. Yes, the Big, Big, fight between Wal-Mart and labor is a mere 1%. This is not about ‘business’ but ‘principle.’
For this 1% difference, Wal-Mart is left to stand guard against entire groups of employees and whole regions of the country. Is it worth this measly 1%? This is bred from ideology more then some economic necessity. And so it is with a great many others. This is covered below.
Ask people the price difference on that $700 I-Pad. How much would it cost if made here rather then China? People have a low average of about $1,000 to an appalling high of $2,500. That $2,500 quote is from those who despise unions. No matter, all are left stunned. It’s just $65. That’s it. $65 is the total cost of having the i-Pad made here in the USA. It comes to just 9% the retail price. And that’s on Apple’s 47% profit margin. (NYTimes- below)
Let’s say China’s labor cost was $35. The savings is 5%. No impact to the retail price. 5% on 50 million phones does add up quickly, but that’s incidental to i-Phones market share. That market share is where the ‘big’ money is made. It’s worth tens of billions as compared to this 5% difference. We are handing-over all the best of our commercial infrastructure in the name of saving 5%. Why?
What happens once China starts to compete with us? The lost in market share will be far greater then a mere 5%. That’s what we have today. This personifies the miscalculation of corporate outsourcing. Outsourcing is to cannibalize the very best of corporate America to feed its own competition. They do all this to pennies on labor. Why?
This cost advantage would be entirely erased once China’s currency subsidies were removed. So, why, why, why all the flurry to outsource to China? Ah, the trillion dollar question. The answer is rather obvious – and simple. The ‘real’ reason given by Apple: (drum roll)
Apple visited China to ‘consider moving’ manufacturing there. Upon arriving, the Chinese were finishing up the factory ‘incase’ Apple decided to relocate. They were lining up 250,000 employees with room and board ready to go in just days. This was matched with 8,000 engineers. That would take ‘8 months’ to assemble in the USA. The factory was located by essential manufacturing partners. And there was full transportation infrastructure to boot. Wages, taxes and regulation were fifth and tenth to these far more important factors.
How to counter these vast ‘Supply Train’ advantage? We covered this in other articles (listed below). Supply Train is the #1 reason why companies move to China. Supply Train is Step #3 in our ‘10 Steps to Great American Jobs.’ It follows just after ‘Market Share over Profits’ and ‘Change Ideology.’ We have to solve this Supply Train issue. It’s the number one reason for outsourcing to China. We show how easy and quickly this can be done. Again, its obvious and you see how easy to do once you know the answer.
But this still does not explain corporate America’s intensive aversion to paying US labor cost. Even if it comes to just pennies. It’s all part of the political ideology. It’s Socialism vs. Capitalism. The nature of this paradigm creates a communal dichotomy. In so doing, it perpetuates its own political survival as a two party system. This liberal vs. conservative conflict was born of traditions from centuries past when labor comprised 30% to 60% of a products cost. Back then, there was indeed a legitimate issue over labor costs.
Technology dwarfs these differences. It gives both sides a new generation of value. (We uncover these.) Our two party system with left with dwindling relevancy? Our nations own differences are quite small outside this political divide. The have gone on to make hostages of our partnerships in business and labor, youth and senior, rich and poor, man and women. As a people, we have little conflict outside this ideological drama.
It is the nature of Capitalism vs. Socialism. Capitalism can be prone towards labor suppression over profits much as socialism can focus more on redistribution rather then safety nets. This dichotomy creates this inherent need for struggle against their political counter-part. That is the story of Washington today. The grid lock is the final breakdown of that broken two party system.
Raghu-nomics changes all this. It’s simple. Just highlight the demands of the global economy. Market-share is the name of the game. This converts labor into partners and converts profits into innovation. No more sitting on $2 trillion in profits. Spend it on new innovations via upgrades to your workforce and work place. This will give us new global markets. The global village leaves us playing our part to the same circle of life and success. In such a world, business profits are for empowering our labor force while employees work to boost their company’s market advantage.
Raghu-nomics goes on to cover other areas as well. Some can be found in articles already released to our website or posted on Examiner.com. (Links below.) Hopefully, time and resource will allow me to complete this undertaking sooner then later. Until then, thank you for getting me to cover one more chapter of this important topic.
(This article was taken from correspondence)
Aloha from Hawaii
Yours, the verbose,
PS. Here are some of the articles that you may find of interest.
The NYTimes article about Apple Manufacturing in China:
‘How the U.S. Lost Out on iPhone Work’
Our video. You should find it stunning.
Incentives for companies to pay great wages.
Why Pay Low Wages
American biz model is wrong. Here’s why.
The solutions on how.