Monday 23 Jul 2018 | 10:03 | SYDNEY
Monday 23 Jul 2018 | 10:03 | SYDNEY

Reader riposte: Must America make things?

6 September 2011 06:30

Ross Buckley is a Professor of International Finance Law at the University of New South Wales:

Sam Roggeveen's blog asking 'Must America Make Things?' followed an earlier op-ed by Hugh White on the same question.

It is a question that has often come up over the years in my graduate classes. Services represent almost 80% of America's economy and students struggle with how a nation can remain wealthy when mostly it makes so little. This makes no intuitive sense to many of them.

My answer is to tell them the story of Lightning McQueen. He is the principal character in the Disney-Pixar movie, Cars, and in 2006 my son was crazy about him. In August of that year I tried to buy a stuffed Lightning McQueen toy here. After trying a few stores, I rang the supplier, and was told Lightnings had sold out nationally in two weeks, and it would be quite a while before more came in, but they had plenty of Luigis, a minor character in the movie.

A few weeks later I was in Hong Kong so thought the Disney store in the airport would be the answer to my need – but no, again, plenty of Luigis, no Lightnings. Then in October I had to travel to Toronto, and some phone calls established there were Lightning McQueens in a Disney store at a shopping mall some 35 minutes away from Osgoode Hall Law School. So there I was one afternoon, in a cab in which the suspension was shot, bouncing my way across Toronto, to buy a Lightning. When I finally got there, I bought two, and spent about $60 on two stuffed toys. Not sure why I bought two, except that one toy didn't seem to justify the effort.

So I ask students, which country would you rather be – China, that makes the toy and sells it for probably $2 to $3, or the US that does the creative work that nets them probably $10 or $12?

Apple is in the same position – it makes almost nothing tangible. The manufacture of iPhones, iPads and iPods is subcontracted out to manufacturers, mostly in Guangzhou. But this didn't stop it recently becoming the world's most valuable company by market capitalisation.

It makes sense to us that wealth derives from making things. Tangible objects seem to have a value more inherent and real than a song, some software code, or a movie character. But what makes intuitive sense doesn't make economic sense. Services will continue to represent an ever growing proportion of the US economy. This poses real adjustment problems for less skilled members of that society struggling to find jobs in this new era. But the answer to that is better public education, not trying to artificially bolster manufacturing industries. The best thing America could do to adapt to the new reality is to stop funding public schools through local property taxes, which is a recipe for the perpetuation of inequality, and to begin to throw real resources at education, especially for the socio-economically disadvantaged.

Hugh White's original op-ed argues that the highly profitable new industries (finance, technology, pharmaceuticals etc) don't generate enough jobs to sustain America's standard of living. And true, it takes far more people to make the toys than to create the movie and manage the intellectual property in its characters. So he sees that America has a problem. Given the alternative, however, it is a nice problem to have. And the solution to it lies in education. 

Photo by Flickr user fd.