Nigel Southway is based in Toronto, Canada, and is an independent business consultant and the author of Take Back Manufacturing: An Imperative for Western Economies, and Cycle Time Management: The Fast Track to Time-Based Productivity Improvement, an early LEAN thinking textbook.
Most economists continue to maintain that global free trade has worked marvelously at creating global wide prosperity.
But many of us have always argued against such uncontrolled global trade, but our views were disregarded by experts, and so we have all been forced to live through this global prosperity illusion. Now sadly we are being proved correct, as the prosperity crisis we had predicted takes hold in most of the mature economies.
My book Take Back Manufacturing… An Imperative for Western Economies explains how in less than one lifetime we have experienced through the adoption of global free trade the near destruction of the industrial sectors in our western societies. This has created a significant loss of national prosperity, and why the imperative for western economies must be to Take Back Manufacturing!
The book explains how this prosperity problem was allowed to happen and provides a roadmap for the future fix. Thankfully, some elements of a recovery plan are underway in some western nations, but it will require significant political will and firm leadership to avoid the many distractions being faced by the western democratic nations to ensure prosperity is restored for all their citizens.
This article provides a brief overview of the prosperity problem, and the solution, and I encourage every western citizen to read my book before they vote in any future elections.
The global prosperity illusion
It is true that globalization through trade over long supply chains, and the free movement of low interest capital, has accelerated prosperity in some parts of the global population. and reduced global poverty by almost 60%.
But many of us disagree that this is a fair and balanced outcome.
We can show that this global free trade approach has been a huge mistake, and it’s the main reason we are experiencing an economic illusion of prosperity.
The globalization of trade has increased 8 times since 1980 and has added almost 3 billion people to the global workforce, but average global wealth has only increased 3 times, and we continue to struggle with insufficient global demand to fully employ such a global workforce with high expectations to rapidly share in the wealth of a modern economy.
Due to this unmanaged and unbalanced global trade some economies have seen prosperous growth, while many others have flatlined or worsened. So, its clear that global trade has created winners, but many losers, and it has been very poor at wealth creation, but extremely good at wealth transfer!
The justification for the massive offshoring of product was that goods will be less expensive due to low-cost country providers via the global trade approach, but this same approach has created far larger western economic and wealth transfer problems that can never be offset by cheap offshore imports.
The global free trade system has allowed significant unbalanced trade between nations that is clearly transferring wealth, and especially if the trade is being balanced with assets, currency value or international loans.
Also, nations that import significant levels of products or services for citizen consumption without any equivalent exports will suffer diminished job value for its citizens, and lower associated taxation for government revenue.
Further, there is a massive amount of global trade where products are traded for raw resources, but resources provide far less value adding jobs than products, so this transaction always benefits the trader of product in terms of job creation
For the emerging nations such as China, India, and other Asian countries this unbalanced global trade environment has been an incredible ride. They have managed it to their advantage and have added significant exports and job value to their economies. They have enjoyed annual growth rates in almost double digits year after year. This has provided an explosion of industrial and export capability, providing improvements in their citizen living standards, and the robust building of a modern working population. Also, such growth has attracted massive amounts of cheap and unconstrained global capital.
This sustained growth in these emerging nations has clearly been possible due to unbalanced trade and wealth transfer subsidized by uncontrolled imports to the mature economies. This has forced a dismal reduction in average living standard for the citizens of these mature western economies of the USA, Canada, and most of the EU.
Western de-industrialization and prosperity loss
The globalized manufacturing approach, with its efficient supply chains supported by liberalized free-trade agreements, has been the business norm for the last four decades and has created an ongoing wealth transfer gradient from the west to the rest. This is due to massive and unmanaged import to export imbalance. Some western nations have been able to offset these massive levels of imports with exports of mainly raw resources, but this has only slowed the wealth transfer and their eventual prosperity decline.
This ongoing trade imbalance has eradicated many western jobs and small enterprises, with vast amounts of manufacturing capacity being relocated offshore to low-cost countries.
This has resulted in the eventual destruction of most western industrial capacity, with also most of the product investment and technological development being relocated offshore to foreign factories. So, not only have the western nations lost manufacturing capacity, but also the infrastructure to support the capability for new product and process development. Also, with the aid of computer and internet technology a significant portion of much needed service jobs that could help balance western economies, have also been relocated offshore
So due to this offshore “herd behavior” western manufacturing and many industrial and commercial support sectors have been neglected, with indifferent industrial policies, undercapitalization, and poor development funding.
This has resulted in the catastrophic hollowing out of the Western nations value adding industrial base, with the loss of national productivity and prosperity for its citizens.
Many parts of the western nations are now deemed to be “rust belts” and with an economy much more dependent on imports has relegated the national workforce to lower value service jobs mostly only generating minimum wage. The governments have experienced increasing debt due to lower tax revenues and this has forced the need to subsidize this weak economy.
The impact of untethered capital has allowed capital investments to move to more lucrative offshore opportunities. Also, most of the capital that remained has been channeled into real estate and other more rent seeking destinations with the result that house prices and rents have escalated out of reach of most of the western population.
Ultra low interest rates have become the new normal and has fueled the ability to handle large inventories in long supply chains to support the global trade model. But it has also ensured that the average national citizen cannot participate and benefit in the total financialization of the global economy. The low interest rates have encouraged over borrowing and under investing by the average citizen who is under-employed with low disposable incomes.
Also, low interest rates have encouraged real estate to become a globalized investment vehicle rather than an essential and affordable asset for the citizen population.
Young people have been unable to start a worthwhile career due to declining demand, forcing them to stay in the expensive education process longer to qualify for that elusive career.
The result of all the above is that most western nations now suffer lower productivity and declining prosperity!
The impact of declining prosperity has been softened by new technologies that has made life easier and perhaps more entertaining, but those benefits are never going to be enough to offset the lost intrinsic buying power of the average western pay cheque. For example, a young married couple with 2 children in North America in 1980 before globalization was underway, and with one member working in a profession, could buy a house for just 2 times that single annual salary, and own a car for a quarter of that annual salary, and would have been able to educate themselves without a student loan. This situation offered the option for one adult to afford to stay home and parent the children. Today these three most expensive and important family building purchases are about 4 to 5 times more expensive than in 1980 compared to current salaries. Its small wonder that massive debt loaded childless couples suffer with depression and despondency for the future of a family in these western economies, while their parents worry about the fact that their children will have a significantly less prosperous future than they enjoyed.
Global free trade – Is it sustainable?
It is now clear to many that this laisse-fair economics on a global scale is not sustainable as it continues to create a huge wealth transfer machine from the west to the rest!
It’s very clear that the global free trade approach clearly generates winners and losers. The winners have been the emerging nations, and the big losers have been the mature economies with others who are unable to access such a global market staying flatlined at best. The other clear winners have been the globalized financial institutions and the elite members of this fraternity that have benefited from the free movement of capital, and the lack of other national level controls.
This has also reduced the power of the nations to control their own economies including the loss of the delicate balance between capital and labor. The liberalized and unconstrained capital is now able to cross borders and so avoids any need to bargain with local labor for capital / wage equity.
Geo-political experts predicted that global trade and the increased dependency of economics between nations would reduce wars, as well as move democracy into nations that were deemed dangerous authoritarian regimes. But this is a failed prediction, as currently we have even more geopolitical conflict and less successful adoption of democratic rule across the globe. We have social unrest in most western nations associated with low prosperity, under controlled immigration and migration.
Its very clear that we have far more global capacity and labor force than can be productively employed with the level of global demand. So, globalization has created an unrealistic expectation for growth and prosperity that cannot be fulfilled into the near term. Unless better managed it will be an ongoing mechanism for trade imbalance, unacceptable wealth transfer, prosperity loss and uncontrolled economic migration.
Even China the poster child for global trade growth is now unable to sustain the necessary growth to employ its young people as they leave an expensive educational system and embark on a career. Its now hard to imagine they can maintain the prosperity promised by the past economic growth without the assistance of ongoing exports to the west, which may certainly decline as the west reshores its capacity. Its also clear that the Chinese population just like the western citizens will be looking for answers to difficult prosperity questions.
The economic issues
For many western nations, the following issues are driving a change in economic thinking away from a global free trade approach, which has mostly transferred wealth rather than created it, and toward a more localized nation centric trade bloc approach.
Many businesses are “running the numbers” on reshoring business models that are demonstrating that across most industrial sectors current and future supply chain total costs have reached a tipping point that indicates that reshoring back to localized factories, operating in much shorter supply chains, and utilizing modern automation strategies, will offer a competitive advantage compared to the added costs of long supply chains,
The recent Covid supply chain disruption has sensitized everyone to the real and increasing cost, inherent waste, and instability of long global supply chains.
Also, recent geo-politics has underscored how the dependence on globalized trade will become an economic security risk for the Western world.
And most important, many western citizens can now see clearly that the mistake of uncontrolled globalized trade and the outcome of deindustrialization has been a huge wealth and job transfer machine, and that the situation needs to be reversed. These issues are reflected in significant political upheaval in the western world, with prosperity and immigration at the top of the voters list. There is severe citizen dissatisfaction with how their nations are providing for them and their children. They are more open to a wider range of policy solutions, and a powerful will to see change and try something different from the past political ideology that the majority believe has taken their nation in the wrong direction.
The proposed solutions
The political and economic solution will be to react to the economic issues mentioned above and undertake a change in trade structure. This will see many nations moving away from the past global free trade approach, and more toward nation centric economies organized into regionalized trade blocs, where trade balance and total economic autonomy is far better achieved. This will avoid excessive wealth transfer between these trade blocs and the larger global market.
Of course, globalize trade will continue as needed between trade blocs, but only if essential, and far more balanced and controlled. This means that national governments must learn how to operate the national economy through a local trade bloc, and engage where needed with a broader global economy, and only for the benefit of its citizens, and so better manage the uncontrolled global market, and avoid the mistakes of the past.
The reshoring of industrial capability will be undertaken with much needed local re-capitalization to ensure future western economies are a far better balance of resources, manufacturing, and services. This will mean the trade bloc, as much as practical, will mine, make, and grow much more of what it consumes to improve the value adding effort within the economy to achieve high productivity and prosperity for its citizens.
This will also require energy independence within the trade bloc that must achieve a far better balance between any climate change mitigation and energy affordability. A further review of the need for NetZero will be demanded, as its clear that a growing number of scientists are stating that although the Climate is always changing, its not an emergency, and CO2 is not a pollutant, and its not a significant driver of climate change. So, any mitigation such as NetZero is unnecessary, technologically unattainable, economically unviable and extremely foolish. Also, many new political leaderships are declaring that NetZero is an unnecessary distraction from the need to focus on reshoring their industrial capacity to recover the prosperity for their citizens.
The future solution will also demand far stricter border control of resources, goods, capital and people with far stricter immigration and migration systems that ensures not only economic stability, but also redresses the social disorder of the past.
About the book… take back manufacturing… an imperative for western economies.
It has been written for all Western citizens, industry leaders and their governments to understand that Take Back Manufacturing is an imperative for the Western economies to ensure future productivity and prosperity.
The book explains how the globalized manufacturing approach with its efficient supply chains supported by liberalized free-trade agreements has been the prime reason for the hollowing out of the Western nations industrial base. This has caused manufacturing to be neglected and has resulted in the loss of national productivity and prosperity for its citizens.
This book provides a justification and detailed guide for the reshoring of our Western industries and explains in detail with a lot of facts, graphs, and diagrams all the political, social, economic, and technological factors that must be considered for Western nations to take back manufacturing, including the investment in education, and technology. It will demand a strong political review of social priorities, immigration strategy, and climate change action, as well as a clear national level recovery plan that will demand a strong political will and national leadership.
We did not call the book “Welcome Back Manufacturing.” because for most Western economies manufacturing must be taken back with a focused and coordinated national level policy roadmap, and it must be embraced and followed by all involved: the political leadership, the industries, the education system, and society as a whole.
Nigel Southway is based in Toronto Canada and is an independent business consultant and recently authored the advocacy book Take Back Manufacturing. He is also the author of Cycle Time Management: The Fast Track to Time-Based Productivity Improvement, an early textbook on the concept of lean thinking and Six Sigma, and how to implement it.
He consults and educates worldwide on Business Productivity Improvement, Advanced Manufacturing Engineering, Sustainable Supply Chain Management, Industry 4.0, National
Sustainability & Prosperity, Global technology transfer projects and joint ventures and more.
He has gained experience assisting clients across a wide range of business sectors and industries and helps clients develop a strategy and a vision to attack waste, capture productivity improvements, increase profits, and become more competitive in the global market.
He is a part time professor for Canadian Colleges and lectures on Advanced Manufacturing and Global Supply Chain Management.
He is a past chair of the Society of Manufacturing Engineers and the leading advocate and spokesperson for the Take Back Manufacturing (TBM) Forum, and the North American Reshoring initiative in Canada.
Nigel Southway, Take Back Manufacturing Author
Nigel Southway is based in Toronto, Canada, and is an independent business consultant and the author of Take Back Manufacturing: An Imperative for Western Economies, and Cycle Time Management: The Fast Track to Time-Based Productivity Improvement, an early LEAN thinking textbook.
He consults and educates worldwide on Business Productivity Improvement, LEAN business practices, Advanced Manufacturing Engineering, Future Supply Chain Management, Industry 4.0, National Sustainability, Global technology transfer projects and joint ventures and more.
He is a past chair of the Society of Manufacturing Engineers and the leading advocate and spokesperson for the Take Back Manufacturing Forum, and the North American Reshoring initiative in Canada.
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