Thursday, December 10, 2015

The Decline of US Manufacturing and The Rise of Income Inequality

Author:  Stuart M. Rosenberg
Senior. Inventory Manager | Supply Chain Best Practice Author

The Decline of US Manufacturing and The Rise of Income Inequality

Please do not misunderstand my intent here.  I am not a naysayer or a pessimist but we have had our heads in the sand way too long and this is the result of that denial.

On January 28, 2015, the U.S. Census Bureau reported that some 20% or 16 million of U.S. children receive food stamps. This is roughly a doubling since 2007 when 9 million children, or one in eight, received this form of assistance. Further reports indicate that the overall number of U.S. food stamp recipients has reached close to 50 million (matter of public record)

We need to ask the following question: Is this just another income redistribution instrument in the Federal toolbox or does this really reflect a more alarming feature of the overall U.S. economic picture?

In order to get a better handle on this issue, this will be the first of a short series of articles sorting out this issue from the end of World War II to the present. We will need to look into what really goes on in our domestic economy.

1947 – 1953: The Post War Years

Hence, the wheels of U.S. manufacturing were churning ahead with full speed, and the sector’s share of U.S. GDP rose from around 25.5% in 1948 to 27.6% in 1953.  

In Figure 5, the initial post-war years are shown. Here manufacturing’s share of U.S. GDP was rising, and the income equality improving in leaps and bounds. The U.S. had come out of the war with a very efficient and diverse manufacturing sector. The U.S. was the source of industrial export to a war-torn Europe, and its might and prestige was without bounds.

In a June 5, 1947, speech to the graduating class at Harvard University, Secretary of State George C. Marshall issued a call for a comprehensive program to rebuild Europe. This program, later known as the Marshall Plan (officially the European Recovery Program, or ERP), was an American initiative to help rebuild the mostly ruined European economies after World War II. Most of the help was in the form of machinery and infrastructural implements.

Figure 5 - Source: US DOL/BLS & US DOC/BEA

1954 to 1967: The Eisenhower-Kennedy-Johnson Years

Better times were awaiting the U.S. population, as the middle class and the manufacturing sector expanded, although only in total terms. In comparative conditions, the effect of the Marshall Plan had begun to take hold, and German manufacturing was on the rise, particularly TVs, a newcomer on the European scene, and automobiles gradually took over the European markets.

But the socio-economic scene in the U.S. was one of optimism and belief in the future. Carl Perkins and Elvis Presley were, for the most part, only worried about their “Blue Suede Shoes.”

The Cold War was now in full bloom, and the Iron Curtin had fallen along the central European borders. Worrying signs of unrest in the world at-large would soon move the public attention from personal apparel to war. An armistice had been reached in 1953 on the Korean conflict. Almost 40,000 Americans died in action in Korea, and more than 100,000 were wounded. Consequently, the U.S. population was in no mood for another major war.

1968 to 1975: The Vietnam, Mid-East and the Oil Shock Years

Unfortunately, another and more devastating war and more international unrest were on the horizon. When the French left Vietnam after the First Indochina War (1946-54), the U.S. stepped in to assist the non-communist cold war proxy fight. This engagement lasted from 1955 to 1975, although American military advisors had been there since 1950. At the end, the total cost in human life had reached to around 58,000.

During the same period, the world oil supply was endangered by the Middle East conflict. As a reaction to the Yom Kippur War, the Organization of Arab Petroleum Exporting Countries (OAPEC) decided in 1973 to instigate an oil embargo on the western nations that sided with Israel. The embargo ended in 1974. The result of this embargo was that global crude oil prices rose significantly (from $3/bbl. prior to the embargo to around $12/bbl. after).

The impact of the global economies was immediate and severe, as the economic structures adjusted to the fourfold hike in energy costs. Structural change takes time and implies both permanent and interim unemployment for large segment of the impacted economies.

Although well-endowed with hydrocarbons, the oil embargo caught the U.S., to a large extent, off guard. Not only did the gas lines at the gas stations become long and tedious, but the various oil consuming industries were suffering. Fortunately, a valuable lesson was, however, learned through this experience: utilize national resources and build up reserves.

1976 to 2014: The Relentless Outsourcing Years

As the economic tumults subsided during the late 1970’s and 1980’s, new international trade agreements, both through GATT and bilateral trade agreements were finalized. Additionally, the U.S. managed to get free trade agreements with 20 countries.

Currently the U.S. is in negotiations on regional, Asia-Pacific trade agreement, known as the Trans-Pacific Partnership (TPP) Agreement and the Transatlantic Trade and Investment Partnership (T-TIP) with the European Union. The objective here is the shaping of high-standard, broad-based regional pacts.

On top of this, the U.S. has bilateral investment treaty (BIT) program that helps: to protect private investment, to develop market-oriented policies in partner countries, and to promote U.S. exports. The BIT program's basic aims are to protect investment abroad in countries where investor rights are not already protected through existing agreements (such as modern treaties of friendship, commerce, and navigation, or free trade agreements); to encourage the adoption of market-oriented domestic policies that treat private investment in an open, transparent, and non-discriminatory way; and to support the development of international law standards consistent with these objectives.

Now, one should think these would be powerful tools to enhance the ability of U.S. manufacturing to penetrate most of the world markets for exports. Unfortunately the U.S. manufacturing industries have continued downward and, by 2014, these industries’ share of contribution to the U.S. GDP stood at around 12%, down from around 21% when manufacturing outsourcing started in earnest.

The income and wealth distribution index (the GINI coefficient) has by 2014 reached Third World levels, and there is no improvement insight.

Simultaneously, however, the U.S. participated in the various UNCTAD trade rounds and the more hemispherical NAFTA negotiations. Some political actors heard sucking sounds, but came with no suggestions on how to moderate or restructure the outsourcing phenomenon. There is, however, a strong suspicion that our free trade agreements provided political cover for U.S. companies, particularly the larger corporations, to move production to countries with adequate human skill sets, an economic environment that has lower taxes; and a free trade agreement with the U.S.

Hence, with corporate offices in the U.S. and the production facilities flying a “flag of convenience,” the quarterly reports and bonuses for the leadership started to improve.

Improved bottom lines should, of course, always be the goal of well managed businesses, but the flight of labor-intensive industries has a vicious downward spiral attached to it. and, unless new needs and wants are created or discovered in the economy, the purchasing power of the remaining population will over time deteriorate.

What to expect from recruiters

Author:  Gontran de Quillacq
Managing Director, Head of the quantitative & risk practice, IJC Partners

After 20 years as a candidate then a hiring manager, I became an executive recruiter. This new vantage point brought me a new perspective on the recruitment industry. The posting below and the few others are my attempt to share this experience.

You will find the other postings on my work website The site also publishes my current roles, my professional details and some selected candidates.

               What to expect from recruiters

Your rights – the recruiter’s obligations

Recruiters have duties towards you. In recruitment like in many aspects of life, they are not always respected.

Fair candidate expectations, aka recruiters’ duties, are stated here, so that we all know going forward. These are my guidelines as a recruiter:
·      Recruiters' qualifications: Clients will not hire 5 CROs and 3 CIOs, so the only way for recruiting firms to increase their profitability is by having more roles to fill and more people to fill them. The consequence is that many recruiting firms use juniors to increase their volumes. It explains why you end-up being approached, being "sold a job" and being represented by people who have a pretty poor understanding of the role or of what you do. The poor scalability of any recruitment activity also explains why there are so many recruitment boutiques: juniors grow in experience and go independent. Despite all this, you have the right to expect your recruiter to know his client, know what the job is about, to understand what you do, and be able to link the two. If your recruiter doesn't seem to be capable, you can ask to talk to his manager or simply work with a different recruiting firm.
·      Feedback: How it goes normally: you send your CV. The recruiter emails or calls you. He interviews and vets you, then he introduces you to his client. Either at the start or at the end, weeks sometimes pass and you never hear from anybody again. There are some structural reasons for it: recruiters and clients both receive far more resumes than they can humanly cope with. They can't reply to everybody and can’t even open all emails. Also, many clients simply don't give feedback (for good reasons sometimes, like multiple internal hiring managers). It's unfair to demand your recruiter to answer all emails. But if he has introduced you, you should get some feedback. Rule of thumb, when you talk to a recruiter, you can expect from him an estimated deadline, an answer when he gets one (even negative), the reasons when they are stated or at least the right to query him where you stand with respect to any given employer.
·    Truth: The recruiter sells you a job that is not the entire description. The firm isn't as stable as described. The manager or career perspectives aren't as good as pretended. The corporate culture isn't so fun... Many potential reasons that make the job less valuable than advertised.
o   There are reasons for this and it is partially your fault: Since candidates won't consider a role which doesn't have the same superlatives as the others, they are implicitly accepting that roles have to be "well-presented" to be attractive. The question is by how much.
o      You probably don't realize this, but clients lie to recruiters in the first place! They do it to both attract better candidates and simply to improve their brand, which recruiters advertise. A blatant case of a client’s misrepresentation unfortunately happened to me with my very first placement. I am still so sorry for that motivated young candidate, whom I tried to help out afterwards.
o       Rumors abound. I once heard that my client was bankrupt...
o     Still, your recruiter should have done his due diligence on his client. You have the right for transparency and honesty in any case.
o     All-in-all, it's best to use recruiters who have worked with their clients for a long time. You still have to do your OWN due diligence on the company.
o      If you hear something bad about a client, do attract your recruiter's attention to it. He might not know it himself and will appreciate the info.
·      Confidentiality: The bad news is that it takes only one recruiter to flood the market with your     CV. When it happens, the effects are disastrous. Clients know of you before you talk to them, killing your chances. Your own employer could receive your CV... The good news is that most recruiters do NOT do this.
o     Now that I am on the other side, I have a better perspective on the magnitude of this phenomenon: I'd say that up to 10% of my candidates have been introduced without their knowledge to famous/prominent clients. Probably as many candidates forgot that they did introduce themselves (friends, website, university CV books, etc) or gave the approval to be introduced to this client. Unknown introductions quickly become much less frequent as the clients become less-known.
o     Some numbers: of the 700 recruiters and hundreds of recruiting firms I have worked with during my first life, I now know that only three recruitment firms use 'distribution lists' frequently as BAU. I have suspicions of a few more shops doing unauthorized introductions on an occasional basis. These 5-7 firms are well-known recruiting firms in my the financial market segment! Conclusion, do ask your friends who the usual culprits are and do NOT share your resume with them (not even online through websites).
o       Do not let a recruiter send your resume to dozens of places. Ask him/her the places he works with most of the time. Ask him to select a few of his best clients only.
o    Finally, and most importantly: you own your CV. You have the right to know and decide where it goes. No exception.

Your part

"Nobody can escape his/her karma" they say... Relationships take time to build and you should start building them now. That’s the required step to benefit from quality relations later, or avoid negative consequences of bad / absent relations.
Your part of the relationship building is:
·         Tell the truth. You can be ‘economical with the truth’ but cannot lie.
·        Do not send your CV to an employer, after a recruiter has disclosed you its name & the role they   are trying to fill. If you hear from a friend that company X is publicly recruiting for job Y, then go  ahead, pass on the message to other friends. But if it's a recruiter who told you so, it's his bread and butter that you are taking away by telling your pals, and that’s not cool to him.
·        Do your due diligence on both your recruiter and his clients. 
·       Do invest in your long-term relations with information: if a firm you know is recruiting, share it with your recruiter. If the role fits your profile, he should introduce you first (!) and his introduction will have the benefit of being more objective for the client’s eyes. If you are not a good fit, then his other candidates could benefit from the role. What goes around comes around. His clients probably were discovered in this way at the start.

Your expectations

Like in any game you play, you can expect the players to follow the rules. But don't blame the game or the players if you don't win. Recruiters can't guarantee you a job, only a fair representation. Don't forget as well, that they offer to you:
·  A no-cost-service: When someone sells you a service for free, it's probably because you are the commodity. Social networks explain your preferences to advertisers for a fee; Users get a communication benefit paid by the product advertisers. Facebook is now the world's largest country as a result. In the same way, recruiters explain your experience and profile to hiring managers for a fee. Candidates get the benefit of free introductions because clients pay the recruiters. PS: recruiting firms surely aren’t as big and as profitable as Facebook...
·       Extended reach: Recruiters allow you to reach clients and be presented to jobs you never heard of, and which are often not advertised publicly.
·     Other approaches: Recruiters are only one of three ways for you to get your next job: the other two are 'applying' and 'networking' (that's the professional word for 'friendship'). Recruiters are a very efficient and cost-efficient way for clients to fill jobs. Networking is the most efficient way for you to get your next job. Never put all your eggs in one basket.