Maybe this is a really stupid time to raise this issue – U.S. housing starts and new commercial construction are at their lowest levels in decades. Demand has dropped off steeply in the recession, experiencing a further fall in recent months. But we have always assumed that construction isn’t a segment of our economy that we can outsource, at least not the really big parts. After all, we reasoned, land is land, and it doesn’t travel well! Further, construction requires really big on-site components, and the sheer size of these elements and the cost of transporting them – moving them into place – would seem to be commercially prohibitive.
And it is true that certain on-site work, from preparing the land to installing massive structures on that land, later finishing out the details, is going to be required, but the other stuff… well, think again. If quality can be maintained and verified and if labor costs can be so vastly reduced to as to compensate for the transportation and additional moving costs, it would seem pretty clear that even large structural steel skeletons and massive exterior components (like engineering stone facing) can be manufactured overseas. As ships have gotten larger, as large structural pieces have been “floated” to be towed vast distances, the assumptions of old must be reexamined.
Take for example one of the biggest, most challenging infrastructure construction projects imaginable – building a huge, multilane bridge for one of America’s largest cities. And that is precisely where this outsource paradigm is currently being tested. Chinese steelworkers are making the case in Shanghai: “[In July], the last four of more than two dozen giant steel modules — each with a roadbed segment about half the size of a football field — will be loaded onto a huge ship and transported 6,500 miles to Oakland. There, they will be assembled to fit into the eastern span of the new Bay Bridge…The assembly work in California, and the pouring of the concrete road surface, will be done by Americans. But construction of the bridge decks and the materials that went into them are a Made in China affair. California officials say the state saved hundreds of millions of dollars by turning to China…
“‘They’ve produced a pretty impressive bridge for us,’ Tony Anziano, a program manager at the California Department of Transportation, said a few weeks ago. He was touring the 1.2-square-mile manufacturing site that the Chinese company created to do the bridge work. ‘Four years ago, there were just steel plates here and lots of orange groves.’ ” New York Times, June 25th. Hundreds of millions of dollars? For recession-torn state and local governments, these are magical words. For local job-seekers, they are very depressing. But steel working in the U.S. construction industry is a skilled and dangerous job where pay levels reflect the degree of risk. Safety concerns and risk just aren’t factored into Chinese pay remotely at the same level as they are in the United States. Social benefits and healthcare are not high on the Chinese priority list, but becoming the world’s biggest civil engineering “firm” most certainly is.
Rising worker expectations in China coupled with increasing energy costs are pushing the playing field a bit more towards level, but when you are still talking about saving hundreds of millions on a project, it is pretty clear that this is a wake-up call… but a wake-up call for what? Trade barriers? Think of the retaliation. Increased federal subsidies to encourage employing American workers? We are about to crush the federal budget.
There are elements underpinning American unemployment that go way beyond bad economic times. Try this analysis for example: “The cause of the near-doubling of national employment in the wake of the financial crisis (from 5.8 percent at the end of 2008 to 9.6 percent at the end of 2010) may in fact have roughly as much to do with structural factors as it does with cyclical factors, argues a new working paper put out by the International Monetary Fund. The paper, entitled, ‘New Evidence on Cyclical and Structural Sources of Unemployment,’ was put together by IMF economists Jinzhu Chen, Prakash Kannan, Prakash Loungani and Bharat Trehan…The thinking is centered on the structural problem of the American workforce's ‘mismatch’ with the skills in demand.” Jobs.Aol.com, June 24th. Simply put, American jobs skills are out of synch with what is in demand, and the financial meltdown tore away at the last vestiges of supporting jobs that were obsolete or nearing obsolescence. Thinking that those jobs will come back when the economy improves will probably generate massive disappointment. So what’s the answer?
Yep, I am going to harp on my seemingly one-note mantra: we cannot expect to compete with cheaper labor overseas performing tasks that require easily fungible skills. If we are going to be truly competitive, perhaps following the German manufacturing model, we need workers of extraordinary skill, way above levels that can easily be taught in cheap labor markets, as well as brains capable of generating new values that only quality education can produce. And that means one thing: education has to be America’s number one priority.
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