Demise of An American Shoe Manufacturer - Odabo
WSJ recently reported on the demise of the local manufacturing of an innovative manufacturer of custom shoes, Otabo. You can read that article here, but the gist of the article is this... an executive with skills in shoe making gets the entrepreneurial bug and decides to start a shoe company in the United States. The company wins many awards, is recognized for innovation, and seems to have done well on marketing and public relations front, but in the end the idea of manufacturing shoes in the US fails, and the company is moving production to China.
What went wrong? The article analyzes the situation and pins the blame squarely on "manufacturing failure".
Supporters of free trade will point to this and say, Mr. Shaffer had no business starting the shoe manufacturing operation in the US. China has developed an efficient market for the shoe manufacturing, so by attempting to do in US what China does best, Mr. Shaffer was engaging in an enterprise that was bound to fail. Most economists would see this as a triumph of both Adam Smith's theory of "absolute advantage" and David Ricardo's theory of "comparative advantages".
Fine, but it was not always this way. China did not start out with the comparative advantage in shoe making. In fact, for the longest time US (and other western countries) held the comparative advantage through their ideas and technology, and the balance only tilted in China's favor when the western manufacturers decided to barter their ideas and technologies to China in return for cheaper Chinese labor. Today, the situation is that most of the manufacturing of shoes has moved to China, and any dreamy eyed entrepreneur who wishes to start a shoe business locally faces the problem of sourcing even raw materials.
So the question is, should we have allowed this situation to come to a pass? A free trader would look at this and say, this is exactly how its supposed to work. By moving your shoe manufacturing to China, you are improving the efficiency of the business, and there by reducing the costs of the product, and that helps you gain greater profits.
Fine. A shoe manufacturer is motivated by short term profit (especially in the US publicly funded companies), but shouldn't some one in our society be responsible for reviewing this from society's perspective? Is there no cost to the society at all if the society looses its ability to manufacturer certain goods and products? Are there no economic consequences to the society if Odabo leaves US shores? Is there no value in nurturing such potentially "inefficient" entrepreneurial efforts? I understand that the US maker of shoes might be motivated by profits, but shouldn't our government policies encourage retention of a certain skill level in the US? A free trader may scoff at the idea of government intervention to save an industry, but I bet you that the rise of Chinese shoe industry did not come without a significant help from the invisible hand of "government policies".
Today, the situation in shoe industry is so dire that Odabo cannot even buy a small consignment of shoe laces here. That is just pathetic and clearly a failure of our government policies. A theoretical economist may not agree with my assessment but the fact remains that with the loss of shoe makers, we have also lost the shoe laces makers, sole makers, the eyelet makers, the leather tanners and so on. With the loss of those manufacturers, we have lost those skills, and eventually the industry. And with the loss of the industry we have lost our ability to create opportunities for skilled craftsmen like Mr. Shaffer who dream of starting an enterprise to leverage their skills, not to speak of the jobs and the societal pride in being able to make something worth while within our country.
That is a cost a free trader may be willing to pay. But we as a society have the responsibility to create opportunity for our entrepreneurs. As a society we shouldn't be so quick to sacrifice our small and relatively inefficient industries at the altar of "free trade". We need to nurture these industries just the way we nurture an economically "inefficient" child, in the hopes of raising a "economically efficient" and "socially productive" grown up in future.
What could we have done differently to help Odabo and scores others like it, save its manufacturing operations in the US?
What went wrong? The article analyzes the situation and pins the blame squarely on "manufacturing failure".
What killed his U.S. factory isn't just competition from Asia's cheap labor, he says. It is the lack of infrastructure needed to make a factory tick, a problem that has bedeviled the few remaining independent shoemakers in the U.S.
Supporters of free trade will point to this and say, Mr. Shaffer had no business starting the shoe manufacturing operation in the US. China has developed an efficient market for the shoe manufacturing, so by attempting to do in US what China does best, Mr. Shaffer was engaging in an enterprise that was bound to fail. Most economists would see this as a triumph of both Adam Smith's theory of "absolute advantage" and David Ricardo's theory of "comparative advantages".
Fine, but it was not always this way. China did not start out with the comparative advantage in shoe making. In fact, for the longest time US (and other western countries) held the comparative advantage through their ideas and technology, and the balance only tilted in China's favor when the western manufacturers decided to barter their ideas and technologies to China in return for cheaper Chinese labor. Today, the situation is that most of the manufacturing of shoes has moved to China, and any dreamy eyed entrepreneur who wishes to start a shoe business locally faces the problem of sourcing even raw materials.
So the question is, should we have allowed this situation to come to a pass? A free trader would look at this and say, this is exactly how its supposed to work. By moving your shoe manufacturing to China, you are improving the efficiency of the business, and there by reducing the costs of the product, and that helps you gain greater profits.
Fine. A shoe manufacturer is motivated by short term profit (especially in the US publicly funded companies), but shouldn't some one in our society be responsible for reviewing this from society's perspective? Is there no cost to the society at all if the society looses its ability to manufacturer certain goods and products? Are there no economic consequences to the society if Odabo leaves US shores? Is there no value in nurturing such potentially "inefficient" entrepreneurial efforts? I understand that the US maker of shoes might be motivated by profits, but shouldn't our government policies encourage retention of a certain skill level in the US? A free trader may scoff at the idea of government intervention to save an industry, but I bet you that the rise of Chinese shoe industry did not come without a significant help from the invisible hand of "government policies".
Today, the situation in shoe industry is so dire that Odabo cannot even buy a small consignment of shoe laces here. That is just pathetic and clearly a failure of our government policies. A theoretical economist may not agree with my assessment but the fact remains that with the loss of shoe makers, we have also lost the shoe laces makers, sole makers, the eyelet makers, the leather tanners and so on. With the loss of those manufacturers, we have lost those skills, and eventually the industry. And with the loss of the industry we have lost our ability to create opportunities for skilled craftsmen like Mr. Shaffer who dream of starting an enterprise to leverage their skills, not to speak of the jobs and the societal pride in being able to make something worth while within our country.
That is a cost a free trader may be willing to pay. But we as a society have the responsibility to create opportunity for our entrepreneurs. As a society we shouldn't be so quick to sacrifice our small and relatively inefficient industries at the altar of "free trade". We need to nurture these industries just the way we nurture an economically "inefficient" child, in the hopes of raising a "economically efficient" and "socially productive" grown up in future.
What could we have done differently to help Odabo and scores others like it, save its manufacturing operations in the US?
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