How US manufacturing was gutted with a smile - Asia Times
I had never heard the “Smile” theory articulated, but have certainly seen its effects. Essentially, it is the theory that manufacturing is low value-add and easy, whereas design & marketing are high value-add and difficult. We are living with the growing negative consequences of that unfortunate idea.
“… But now, all of a sudden, everyone is telling us that the US must re-industrialize. America has grown dangerously dependent on Chinese manufacturing, they say. The US has lost the necessary skills for an advanced industrial economy, they say. The loss of manufacturing capacity is a national security risk, they say. …
So how come it is so hard? If manufacturing resides at the bottom of the Smile Curve, where the least value is added, should it not be the easiest part of the value chain to replicate? …
In multiple interviews, Elon Musk explained that manufacturing was two to three orders of magnitude more difficult than design – that’s 100x to 1,000x more challenging. …
The value of manufacturing only appears low on the Smile Curve because the sell-off of American assets has distorted value capture. The globalization trade, turbocharged by China’s 2001 WTO accession, has been to exchange American assets for Chinese goods. …
… the American economy has been living beyond its means by financializing its economy and selling off all kinds of assets – stocks, bonds, treasuries, agencies, real estate, derivatives and now cryptocurrencies. …
Outsourced manufacturing was not the easy, low-end part of the value chain. It was, in fact, the hardest, highest-skilled and most difficult to replicate part of the value chain. …
It is not so much that the Smile Curve was erroneous. It did (and still does) help companies determine where to focus to maximize shareholder value. The Smile Curve is not, however, measuring skills, difficulty or replicability. It is, in fact, revealing the effects of Dutch disease and Baumol’s law in a globalized world. …”