After Outsourcing Boom, An 'Insourcing' Comeback?
CELESTE HEADLEE, HOST:
This is TELL ME MORE from NPR News. I'm Celeste Headlee. Michel Martin is a bit under the weather. Coming up, many people are taking down their Christmas lights and throwing out their trees now, but one religious group is just getting ready for the holidays. We'll hear about Orthodox Christian Christmas just ahead in Faith Matters.
But first, the latest job numbers are out and the Department of Labor says the economy added 155,000 jobs in the month of December. That means the unemployment rate held steady at 7.8 percent. But when you break that number apart, you get a more complicated picture.
And one sector is surprising experts by its steady but modest growth. It's a sector some people actually wrote off just a few years ago - the manufacturing sector. It added 25,000 new jobs last month and the total number of factory jobs increased by 180,000 last year. That's again according to the Bureau of Labor Statistics.
So is this a trend? Sudeep Reddy can answer that for us. He's an economics reporter for the Wall Street Journal. And also joining us, Charles Fishman. He wrote a piece called "The Insourcing Boom" for the Atlantic. He writes that companies are bringing manufacturing back to the U.S. from places like China and Mexico. Charles and Sudeep, welcome.
SUDEEP REDDY: Hi, Celeste.
CHARLES FISHMAN: Thanks for having us.
HEADLEE: Sudeep, let's get right to these jobs numbers first. Did anything stand out for you?
REDDY: This looked like we closed out 2012 much the same way we were experiencing the rest of the year and 2011. We gained about two million jobs across the economy in 2012, the same as we gained in 2011. This is a relatively slow pace. It's frustrating that we're still at this slow pace but it still at least job creation.
HEADLEE: It's still steady.
REDDY: Right. When you consider the number of problems we've had and the risk from the fiscal cliff and all the other things hanging over the horizon, it's at least something. But if you were to continue at this pace of about 150,000 jobs a month of job creation, then it will be the year 2020 before you get back to five percent unemployment.
HEADLEE: Oh, let's not talk about that.
REDDY: So we need to see much, much faster job growth.
HEADLEE: Absolutely. But let's talk specifically about the manufacturing sector, which is something you've written about recently. You know, maybe there's a revival there. Maybe we shouldn't be calling it the Rust Belt anymore.
REDDY: We certainly are seeing a bounce back in manufacturing from the recession. We saw that was actually one of the areas that cut the first and the fastest in the 2008 - 2009 downturn. And we've seen it picking up fairly steadily for the past two years - past three years, really. And that's a very good sign.
It's still fast enough. If you were to look at the total numbers we have about 12 million manufacturing jobs today, which is about nine percent of all jobs. That's still below where we were when we started in the recession in December of 2007.
REDDY: So we still have a long way to go. And if you look at the past three decades, in 1980 we had 18 million manufacturing jobs which was about 20 percent of all jobs. So we're still down in terms of where we were as a share of the economy. But at least we're not losing more right now, which is an important issue.
HEADLEE: And we're gaining some. And Charles Fishman, in your piece for the Atlantic you actually talked about what could be contributing at least part of those jobs. And that's something called insourcing. What is that?
FISHMAN: Well, insourcing is the return of making things in the U.S. that were made in China, or Mexico or somewhere outside the U.S., you know, in the last two years or five years or 20 years. So part of the reason manufacturing jobs are ticking up is just the normal economic cycle; that is, we're spending a little more.
People are feeling a little more confident. So factories have to make more stuff. But buried in those numbers and buried in that cyclic upturn, it looks like some really smart companies are understanding that they don't save very much money, if any money at all, making things overseas.
And they put themselves at a disadvantage in terms of the time it takes to get products to market and the costs of simply getting them here, which is of course part of why they don't save as much money as they might have originally thought.
HEADLEE: And you've actually focused on General Electric and their enormous appliance park in Louisville, Kentucky. Part of it is because GE is really investing heavily in insourcing hundreds of millions of dollars. If it costs that much to bring this manufacturing back to the U.S., how could that possibly save them money?
FISHMAN: Well, it's a great - you zeroed right in on one of the most telling indicators. GE appliances is the largest appliance maker in the country and 80 percent of their business is still in the U.S. for name brand and especially high end appliances. And they are spending $800 million to bring their assembly lines back to the U.S.
So when people say is this real, the first thing I say is Jeff Immelt doesn't spend almost a billion dollars to see whether things are going to work out over the next couple years.
HEADLEE: Right. He specifically said this isn't charity.
HEADLEE: This is going to be better for us.
FISHMAN: This is not patriotism. This is the company that moved headquarters for medical devices from Milwaukee to Beijing. So they're not shy about doing what they think is right. And that's an indication that what they've discovered is - actually, one of the wonderful stories I stumbled on is this water heater that they were making in China and selling for $1,500 per water heater - a high efficiency, low energy use water heater - they actually redesigned it a little bit and they're making it in Louisville.
And they saved so much money by bringing it back to the U.S. that they're selling it for $300 less - $1,200 instead of $1,500. So what they've discovered is that the factory is its own kind of research and development lab. That if you actually pay attention to how you make stuff, you learn a lot. You can save a lot of money.
HEADLEE: Right. If you know how to make it, it might help you design it. If you're just joining us, we're talking about jobs and this so-called insourcing boom. You just heard Charles Fishman. He wrote about this for the Atlantic. We're also speaking with Wall Street Journal reporter Sudeep Reddy.
And Sudeep, just so people can kind of appreciate - even though this doesn't apply to all companies, right? Clothing companies aren't going to be bringing those jobs back. But this is a huge change. I mean, remember it was just 2008 when John McCain went to Detroit and said those jobs are gone forever. Right? I mean, this is a pretty huge kind of shift of attitude.
REDDY: It's a huge change because you have businesses thinking we can actually make things in the United States again. We spent the last two decades fretting about this problem and now there's finally some hope that we might at least have an upturn in this industry that perhaps maintains jobs but gives us some source of improvement in relatively good higher wage jobs in the future.
Because if you look at it, we are the birthplace of a lot of these technologies. We still have some...
HEADLEE: The birthplace of the factory line.
HEADLEE: Henry Ford.
REDDY: We still have some of the most productive workers in the world. And if you look at the history of technological innovation in the U.S. it's been faster in the U.S. than it has in any other country in the world over our entire history of mankind.
And so you have some hope that maybe the birthplace can provide some potential in the future, too.
HEADLEE: Well, Charles, I want to play a clip here from someone that you spoke with for your story. Thomas Mayor is a senior executive adviser with Booz and Company and at the peak of the outsourcing rush he worked with companies that were moving a lot of their production to China. Take a listen.
(SOUNDBITE OF STATEMENT)
THOMAS MAYOR: A big piece of the rationale from the start was merely to get a foothold in the Chinese market. But if you pressed them on their savings by sourcing from China for North America, they can't come up with any savings. They're beginning to move the jobs back to the U.S. They say if we were doing this for the U.S. market we should never have gone to China in the first place.
HEADLEE: And one of the things that you point out, Charles, is that it just - the labor costs aren't necessarily cheaper anymore.
FISHMAN: Well, let's be careful. The labor costs in China are still probably a quarter to a fifth what they are per hour, per worker in the U.S., but the labor costs in China are five times what they were just 10 years ago. So they have gone up by a factor of five in just 10 years.
And the interesting - one of the interesting things is labor is less and less of the cost of making a product. As workers get more productive, as factories get more modern, the actual cost of the person who's putting the product together is a smaller percentage of the cost of the product. So you're saving - and you throw in the transportation, and you throw all kinds of logistical issues. You're trying to save 20 percent of 20 percent, and it just doesn't come to enough to justify all the effort. And then you factor in the hidden costs.
I wanted to mention one thing that was really interesting in Louisville. Lots of suppliers of GE are either expanding or opening factories in the sort of 50, 60-mile radius of Appliance Park again in order to supply parts for these dishwashers, refrigerators, washers and driers. And that's - you know, the multiplier effect works negatively when you close a factory and all the suppliers and all the, you know, restaurants and everything else goes out of business, and now we're seeing exactly the opposite. Many small factories are opening and gearing up around Appliance Park to feed the much bigger GE machine.
HEADLEE: And this is what we heard a lot about, again, in the negative side, Sudeep, when auto plants, for example, were going dark, the pizza shops that closed down, the dry cleaners that closed down. How much of a real impact could insourcing have on our employment rate?
REDDY: It's huge if you actually create the base for manufacturing in any area. You look at the entire country, and there are all these stories about manufacturing ghost towns just littering the landscape. And if you can actually revive communities around manufacturing, it gives them hope. It maintains businesses that are already there. It allows businesses to come in and grow off of that, and that's what creates the foundation for something much larger down the road, and maybe maintain some of the skills that you need in our workers to move on to better technologies when you think about the new technology that's on the horizon, the life sciences, all the areas where we talk about the U.S. having to be smarter and faster and better than the rest of the world. Maybe we don't exactly lose those skill sets and give us some hope for the future.
HEADLEE: All right. That's Sudeep Reddy. He's an economics reporter for the Wall Street Journal. He joined us from our Washington studios. Charles Fishman is a journalist, author of "The Big Thirst: The Secret Life and Turbulent Future of Water." He wrote about the insourcing boom for The Atlantic in a great piece that I suggest you go read. He joined us by phone from Miami.
Thanks to both of you.
REDDY: Thank you.
FISHMAN: Thanks for having us.
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