Daily Archives: October 2, 2012

Federalist No. 3

Today we discuss Federalist No. 3. This is the second of four contributions by John Jay (in the thirty-six essays we will cover) who again addresses the dangers from foreign force and influence while writing to the people of the State of New York.

In this essay, Jay notes that among the many objects to which a wise and free people find it necessary to direct their attention, that of providing for their SAFETY seems to be the first. As a result, in this essay, he takes up the subject, but only as it respects security for the preservation of peace and tranquillity, as well as against dangers from FOREIGN ARMS AND INFLUENCE, as from dangers of the LIKE KIND arising from domestic causes. His goal, to examine whether the people are not right in their opinion that a cordial Union, under an efficient national government, affords them
the best security that can be devised against HOSTILITIES from abroad

To this end, he puts forward the argument that when once an efficient national government is established, the best men in the country will not only consent to serve, but also will generally be appointed to manage it; for, although town or country, or other contracted influence, may place men in State assemblies, or senates, or courts of justice, or executive departments, yet more general and extensive reputation for talents and other qualifications will be necessary to recommend men to offices under the national government. As a result, the administration, the political counsels, and the judicial decisions of the national government will be more wise, systematical, and judicious than those of individual States, and
consequently more satisfactory with respect to other nations, as well as more SAFE with respect to us

Let us deliberate on this for a moment. In this paragraph he is making a number of claims which not only serve as the basis for his argument that a Union is stronger than a collection of confederacies, but also highlight the key difference between a Union and a collection of confederacies. In these statements, Jay is stating that

  1. A national government will attract the best men,
  2. The best of the best men will be elected by the population to manage it, and, as a result,
  3. The decisions from the whole will not only be better than the decisions from the part, but, as they will be coming from a nation, they will be more amicable to other nations and, thus, decrease the chance of conflicts, increasing the nation’s safety.

Of these claims, the first two are paramount. If you are going to have an effective republic, then

  1. the best candidates have to be put forth and run for office and
  2. the people have to elect from those candidate the candidate who is best able to serve them as a whole.

If the best candidates are not put forth, the Union will not offer the benefits it is designed to offer. This means that if you are running a party system, the party has to put forward the candidates who will best serve the interests of all of the citizens with a leaning toward that party, and not just the senior party members. If it doesn’t, then you, as a citizen, have to vote for an independent as it is your responsibility to elect the best possible candidate just as it is the responsibility of the best possible candidate to represent the needs of the people as a whole to the best of her ability. The needs of the many outweigh the needs of the few.

In addition, Jay also argues that while the prospect of present loss or advantage may often tempt the governing party in one or two States to swerve from good faith and justice … those temptations … consequently having little or no influence on the national government … will be fruitless, and good faith and justice be preserved. In other words, while it may be easy for a person, corporation, or nation to sway the decisions of a rather small body of people that represent a small entity like a state, it will not be so easy at the level of the Union. For example, while you may be able to bribe a few elected officials to sway a vote at the level of the state, such an act would be considerably harder to do at the Union level.

Want to discuss? Join The Federalists on LinkedIn. The open group has been created specifically to discuss the philosophical underpinnings of the governance of nations and their ramifications on the national and international economics and global trade.

Should Manufacturing Jobs Be ‘Re-Shored’ to the U.S.?

Yes. No. Maybe.

A recent article over on the Knowledge @ Wharton site that questions if manufacturing jobs should be ‘re-shored’ to the U.S. points out that the Boston Consulting Group forecasts that 2 Million to 3 Million manufacturing jobs will come back to the U.S. because of the fundamental shift in economics between China and the United States. While the projected shift will increase U.S. economic growth by about $100 Billion, let’s not get too excited. First of all, this is less than 1% of current GDP. Secondly, if the right jobs aren’t brought back for the right reasons, they’ll just shift again next decade.

Before we dive into this discussion, let’s summarize some key statistics from the article. Namely:

  • it is projected that the wage differential will drop from the 22X it was in 2000 to 4X in 2015, not adjusted for productivity
  • many global manufacturers have begun to move their outsourcing to even lower cost countries such as Vietnam, Indonesia, and Cambodia
  • outsourcing costs include higher transportation/logistics costs, extra inventory costs, and quality control costs
  • improved lean manufacturing processes can often cut production-times per unit considerably, up to 65% in one instance at GE
  • more than 60% of the cost of manufactured goods can be attributed to goods and services that the average firm buys from its suppliers

When you consider these points, it becomes clear that:

  • if the primary reason for outsourcing to China was labour savings, this is no longer a good reason; in some districts, the wage savings are less than 40%!
  • the wage game requires a constant move, often into unknown, or dangerous territory (as Africa will be next)
  • there are ‘hidden’ costs as transportation costs are rising, inventory carry costs can explode if demand patterns shift, and quality control costs are exponentially higher as the only sure way to ensure quality is to get feet on the ground … regularly
  • innovation and creativity can slash the relative cost of manufacturing at home if productivity is doubled (or tripled)
  • the production costs will probably be less than the procurement costs for the raw materials, components, and services — which means cost reduction is more reliant on Procurement efficiencies and successes than manufacturing, as it should be

This means that:

  • you should never outsource on a wage analysis alone, but it doesn’t necessarily mean you should pull back to the U.S. — sometimes near-sourcing, to Mexico for instance, is the right solution
  • you shouldn’t play the wage game unless you are planning two moves ahead
  • bulky items, items that can experience unpredictable demand spikes, and items that require a lot of quality control are typically not good options for outsourcing
  • you should never underestimate the potential of talent — and what can be accomplished with the right incentive
  • decisions should be made from a true TCO perspective, not just a manufacturing perspective

And when you start looking at the overall picture, the overall product lifecycle, and the strengths and weaknesses of outsourced manufacturing partners, you’ll realize that some manufacturing, even with the disappearing wage differential, should be left in China; some should be brought back home yesterday; and some should be near-sourced. For example, you can’t build a FoxConn in the U.S. China is dominant in many areas of electronic manufacturing now and will stay that way — and considering the density of phones, tablets, and laptops, it makes sense to produce them in China. On the other hand, major appliances and automobiles should be produced at home, where efficiencies in production and greatly reduced transportation costs more than make up for the labour differential. And major appliance and automotive sub-assemblies should probably be produced in Mexico, where they have idle factories, and from where shipping costs are relatively minimal.