2011 December 03 Saturday
Expensive Data Centers Bring Few Jobs
The people of Maiden North Carolina can be forgiven for expecting that a $1 billion investment in a data center near town would have produced a lot of jobs. Surely in the old economy a $1 billion factory would have employed thousands of people. But, as an article in the Washington Post illustrates, in the new economy capital has little need for labor.
Just off Startown Road, on the edge of town, Apple recently completed a massive $1 billion data center to help power its cloud computing products.
Total new full-time jobs running the facility: 50.
Sounds like some contract workers for security are supposed to work there too. But this little town's people don't seem to be among them.
Apple’s data center is also supposed to create 250 indirect contracting jobs for maintenance and security. But many in this close-knit town of about 3,400 people — it essentially shuts down Friday nights for high school football — do not know anyone working at Apple.
I am reminded of an article about manufacturing by former Intel CEO Andy Grove in he observed that for every Apple employee in the United States Apple supplier Foxconn employs 10 in China making stuff for Apple. Many supply chains have migrated to East Asia.
The future for low skilled workers in America looks bleak. Yet American immigration policy for decades has been to let in tens of millions of low skilled workers on the theory that they are key to economic growth. Instead, these immigrants drive down wages for Americans on the left half of the Bell Curve. Those wages have gone down even lower than would have been the case with only outsourcing and automation as causes. The coming years will see lower class wages go down even further with changing American demographics. I also think that resource limitations will push wages even lower still.
Randall said: "Yet American immigration policy for decades has been to let in tens of millions of low skilled workers on the theory that they are key to economic growth. Instead, these immigrants drive down wages for Americans on the left half of the Bell Curve."
Who benefits from low wages? Is it capital or labour?
The purpose of a system is what it does.
The real reason for a lack of job creation is excessive government regulation.
It is silly to expect companies to hire people and to not outsource to Asian countries when the regulatory apparatus keeps expanding without limit. If I were to do any kind of manufacturing start-up, of course I would outsource to Asia. I would not dream of doing it here with the kind of regulatory BS we have in today's U.S. You want business growth and job creation? Reduce the regulatory burden to the level it was, say, in 1985.
I find most bloggers are clueless about these kinds of issues. I suspect this is because the vast majority of bloggers and pundits discussing economic issues have not the experience of running their own businesses. I emphatically beleive that only those people who have experience owning and running their own businesses or are self-employed are capable of understanding economic issues. It is a rare and exceptional individual who does not have such experience to understand economic issues.
As I said before, it is silly to complain about outsourcing and a general lack of job creation while refusing to acknowledge that the continual growth of government regulation, licensure, and taxation as the root of the problem. Those who refuse to acknowledge this as the real cause of outsourcing and no job growth are not serious about discussion of the problem.
I will also say again that it is my firm conviction that only those who have experience owning or managing a business are capable of understanding any economic issue at all. Everyone else is completely clueless about economics and any discussion with such people is utterly worthless. Sometimes I think the franchise should be limited to those who own their own business or are self-employed in some capacity.
Abelard, I think everyone agrees with you. We know reduced government regulation is the central reason for offshoring work to Asia. In India you can hire an entire family: man, woman and two pre-teens for about $2000 per year without federally regulated minimum wages, state regulated school attendance, without rules preventing dumping waste into rivers and streams, without any health insurance, without any overtime rules. They aren't forced to pay (much) for schools, property taxes, hospitals, health care for the destitute, orphans or other feckless folks. If they get hurt on the job there are no mandatory forms or anything. You just wheel 'em out to the curb. If they lose a hand or an arm or even a life there is virtually no risk of any lawsuit whatsoever. Hell, the Indian government doesn't even require employers to take them to a hospital! India and China are incredibly efficient and welcoming to business with little to no regulation or enforcement. That is precisely why companies move there. It makes for extremely motivated workers. India and China are an employer's paradise of low regulation. Knowing this, I am more than a bit surprised that you don't move there. You seem pretty aligned with the low cost, low regulation way of running a country.
"Yet American immigration policy for decades has been to let in tens of millions of low skilled workers on the theory that they are key to economic growth. Instead, these immigrants drive down wages for Americans on the left half of the Bell Curve. Those wages have gone down even lower than would have been the case with only outsourcing and automation as causes. The coming years will see lower class wages go down even further with changing American demographics. I also think that resource limitations will push wages even lower still."
I completely agree with this, and as an aside, this issue is a good example of a policy collision on the Left. They are supposedly pro-labor and pro-"little guy", and yet their pro-illegal alien position undermines their other social positions. I've NEVER seen a liberal mention this, and until I do I will have to assume that this is a blind spot for them.
Hopefully this policy will continue, so that those of us are who are making 6-7 fig incomes in highly technical fields can continue to make that kind of money, while the less-skilled continue to suffer. I didn't design the system, but I'm sure as hell going to work it to my advantage if possible.
I expect that this coming great stagnation will help cool off the American religious/resource wars. The domestic economic situation is rightly considered a national security issue, because it's an energetic economy that makes the imperial adventures possible. They can't do it ALL with UAV's...assassinations and surveillance only get you so far. Even if you have an endless supply of fresh meat due to poor economic prospects for the young, you still have the mounting debt to consider. But it's the NATURE of this late capitalist government to tighten their grasp..on the population as well as on business, and this grasping for control is the very thing that will choke off productive work and tax revenue. Ugly for business, but even uglier for labor; business is mobile, labor is much less so.
I think we should reduce regulations to levels we used to have. Like when rivers would catch fire in Pittsburgh. Wages should be reduced to less than 2000.00 per family. Then we'll all have jobs.
Abelard, I think everyone agrees with you. We know reduced government regulation is the central reason for offshoring work to Asia.
Then you would agree with me that it is utterly stupid and worthless to complain about outsourcing and what not without addressing this central issue.
Take away minimum wages and unemployment checks and surely many more people would be working, albeit at lower salaries. Make it easier for employers to fire without fear of law suits and, again, we'd see more hiring. But regulation is not the only force at work here.
Do you really think labor market regulation is worse than in 1985? What's your evidence? I would point to contrary indicators such as a far larger illegal immigrant labor force that is fearful of reporting employer abuse, the huge decline in the percentage of workers in unions, and the much higher rate of use of contract employees and temps. It looks like employers have more labor force flexibility on average now than then.
If our labor market regulation alone was enough to cause employers to flee to China then I would not think it necessary for the Chinese to fix their currency to the dollar by requiring Chinese exporters to convert their foreign earnings into Chinese banks in a way that enables the Chinese government to suppress Chinese demand for imports.
If our labor market regulation alone was reason enough for manufacturing to flee then Germany should not be the 2nd largest manufacturing exporter. Surely Germay's labor market regulation is much tougher than ours. I've worked with German engineers over from Germany on business trips and they describe rules that limit how many hours they have to work and how much vacation they get. So why is Germany an exporting powerhouse? And, yes, the fact that it is populated by Germans has a lot to do with it. But corporate governance plays a big role as well. The unions have helped keep the work there.
Agreed that neo-imperial adventures are becoming much less affordable. 10 years from now the huge debts of America are going to cause a gutting of the national security capabilities of America. This is already baked in. Peak Oil, a number of demographic changes, rising sovereign debt, and intensifying competition for increasingly scarce resources will all limit what the US government can do abroad.
Domestically I wonder how things will develop. Will people peacefully accept declining living standards. They have so far for the most part. But at some point I think dissatisfaction will surge. I wonder how that will be handled by the political system. Charismatic demagogues could become a big problem. I'm thinking a modern day Huey Long.
Business is mobile: I think one has to consider at least the possibility long term of becoming an ex-pat. I'm trying to work very hard now to prepare myself financially for what's to come. I encourage all my regular readers to raise their game and step up their approach to their career somehow or other. Save more. Work harder. Develop more skills. You either go up or you go down. The middle isn't going to include a whole lot of people.
Do you really think labor market regulation is worse than in 1985? What's your evidence?
Yes I do think it is way worse than 1985. The fact that HR is involved in hiring decisions makes this abundantly clear to me. In the 1980's, I never encountered HR people while looking for a job. HR's only function in the 1980's was benefits administration. Today, they are actively involved in the hiring process. The reason is that labor law was changed during the 1990's that made it easier to sue for discrimination. Labor law was changed in other ways that increased the liability risk for employers. This is the reason why companies have vastly expanded HR departments compared to the 1980's.
Regulation in many other ways has increased the cost of doing business (and hiring and firing people) since the 1980's. I stand by my point that any discussion of "outsourcing" that does not include discussion of this issue is completely meaningless drivel.
Randal, do you have experience as a business owner or manager? If not, then you are incapable of understanding this issue (as well as any other economics issue at all). The same is true for the rest of you in this blog.
I will say it again. It is impossible for anyone who does not have experience in running or owning a business to understand ANY economics issue at all!!!
Abelard, I think there are a lot of influential business leaders who are incompetent in broader economic issues (and in general). And there are a lot of tech & science thinkers who can apply their extraordinary clarity to many disciplines. (I say this as someone who happens to run a business.)
I do agree, though, that thinking in business terms is a plus. Politicians mostly coming from a background in law, for example, seems particularly strange.
Also, if nations were run more like companies, we would never have things like the US importing 80 million unskilled workers since 1970, and the criminal class and the parasite class (people who cost more than they contribute) would be kicked out of the company. I think the safest bet is that Peter Thiel's vision of voluntary micronations and Blueseed are going to be a growing trend in the future.