Return of the Blacksmith

The Dow Jones Industrial Index closed over 15,000 this week for the first time in history. Corporate profits are smashing and prospects for the future look fabulous. Yet, at the same time, long-term unemployment hangs like a stink over some unlucky corners of developed economies, most notably the unskilled.

In the United States, for example, Bureau of Labor Statistics data, as published in a recent New York Times article (and shown graphically in the chart below) says it all – people who have added value to their brains are thriving along with Wall Street, while those who can only offer their labour are falling further behind.

The problem these high-school dropouts face is simple: raw labour is basically worthless. This is especially true in developed economies like the US and Europe where unrealistic expectations of a “decent” job prices people out of truly manual tasks like picking onions or sewing clothes. Even in low-income countries, however, we are seeing a clear move away from treating people like cogs in the machine. This should be good news for humanity, even if the adjustment is painful for some.

Productivity miracle

I’ve been tracking a productivity miracle that I think reflects the impact of embedding information technology in physical supply chains. The best scholarly work on the topic comes from Erik Brynjolfsson at MIT, while a steady stream of contrarian views can be heard from Robert Gordon at Northwestern University in Chicago. Debates continue around data definitions and relevant time periods for comparison, but simple macroeconomic facts make me a believer.

US Bureau of Labor Statistics data on multi-factor productivity show in the simplest possible terms the output per hour in dollars (see chart below). The slopes of this line, although only rougly correct, show a decisive inflection point around 1996. This happens to be the same moment that commercially available internet access became a reality with Netscape. Whatever long-term smoothed rate of productivity growth this implies, it’s pretty clear that we are getting better much faster now than we did during the post-World War II boom in which jobs for unskilled workers could, and often did, lead to a “decent” middle-class lifestyle.

The good news is that we should expect continued profit growth as businesses exploit this technology impact. We also are unlikely to see much inflation so long as manufacturers keep finding ways to squeeze another 5% out of their costs each and every year. The bad news, though, is that job creation suffers. This is especially true for the kind of corporate manufacturing jobs traditionally credited with spurring wider growth via demand multipliers. Until work is re-imagined to fit this reality, economic growth will carry a ball and chain.

Craft and commodity: a bipolar manufacturing world

Manufacturing is heavily affected by this productivity miracle and is likely to bifurcate into two parallel streams, neither of which promises much work for those who can only offer labour. Some production will move steadily towards low-cost but high-quality massive scale operations. These will deliver commodity platforms, components and ingredients as well as undifferentiated consumer goods or intermediate industrial products that are used and discarded (or more likely recycled). There will be plenty of work for machines, but only design, engineering and other problem-solving work for people. Such jobs will pay very well, but they certainly won’t be filled by the unskilled.

The other, perhaps less obvious, type of manufacturing will be craft production. The movement has already started with dozens of small-scale artisanal businesses making furniture, food and fashion. One example is the Brooklyn Navy Yards in New York, a former industrial complex that has been rehabilitated around a Green Manufacturing Center. This hosts small businesses such as Within, a London-based firm that specialises in “latticed microstructures and variable density surface skins” as applied to medical implants, and Crye Precision, which makes high-end armoured apparel for the military. Manufacturing on this model could provide many career opportunities for craftsmen, materials specialists, scientists and artists – but not undifferentiated workers.

Manufacturing jobs in the next generation promise exciting prospects for creative thinkers who can help big companies to navigate this craft/commodity divide for branded goods or industrial applications. There will also be worthy and rewarding openings for people willing to apprentice for established craftsmen.

Maybe your child will grow up to be a blacksmith.

Kevin O’Marah
Chief Content Officer
SCM World

Please contact me directly with any comments, questions or suggestions. I welcome your feedback.