Business creates two types of jobs service jobs and manufacturing jobs. Both are needed to pull to us out of our current Great Recession. But it is the manufacturing jobs that exports goods and supports the Nation’s balance of payments. America’s is losing the battle the dollar is eroding fast and could be replaced by the Euro as the world’s leading currency.

The problem is we have not followed “the Principle of Economic Self Interest” at the international level. The Principle of Economic Self Interest is used by cities to compete with other cities for new businesses and government installations. It is also used at the state level for the same reasons. But somehow the understanding of this concept at the federal level has been lost and worst of all tax incentives for outsourcing have been provided to manufacturers who send jobs out of the country. The idea is simple to build the economy by providing jobs which in turn multiplies the economy through worker spending at local businesses. We see the violation of this rule by all the US manufacturing companies that are going to China and other third world countries in search of cheap labor. See my Article 99. Understanding the Principle of Economic Self Interest.

Most of these jobs were lost because of two factors, powerful union pressure for a larger piece of the pie and incredibly poor decisions made by manufacturing management.

So what is the nature of these bad decisions? It is not so much bad decisions but the bureaucratic management making these decisions. Most poorly managed manufacturing companies have bureaucratic management that is no different from that found in government. Incapable of reforming its 19th century management practices the company looks only at two factors raw material costs and labor costs. Unable to control its raw material costs it seeks the lowest world wide labor cost it can find. When they talk about Labor costs they are only referring to union labor costs which are diligently measured using Work Measurement (mostly time study). But they never measure overhead employees and allow unnecessary over staffing with multiple layers of management in its bloated bureaucracy. At the same time corporate management is rewarded with huge salaries and other perks.

In contrast the competition Toyota and Honda use the Total Quality Management form of organization to get innovation in its work force. Yes they have unions but the members realize that their fate is closely tied to the fortunes of the company they work for. When sales are not so good the union may even forgo asking for a raise. Most of their corporate leaders use mass transit to get to work rather than chauffeured limos.

Case in point Warren Buffett, who is 78, was intrigued by the entrepreneur behind BYD, a Chinese electric car manufacturer headed by a man named Wang Chuan-Fu. The company itself is frugal. Until recently, executives always flew coach. He was appalled when he learned that Ford, which lost billions last year, had staged a gala at the Hotel George V during the Paris auto show. By contrast, the last time BYD executives traveled to the Detroit auto show they rented a suburban house to save the cost of hotel rooms. Last fall Berkshire Hathaway bought 10% of BYD for $230 million mainly because of its CEO.

The point is that there are serious problems in the way many American companies are managed most are still using the 19th century bureaucratic organization with all its flaws. These poorly managed companies are more likely try to solve their financial problems by seeking cheap labor abroad rather than reforming themselves.

But there is an alternative to just accepting fate and allowing companies to close down. Local governments need to fight to save these jobs by requesting the companies to reform themselves. They should be implementing Lean Teams, using Work Measurement for staffing its overhead employees and reduce the levels of management. Given the cost of a company building a plant in China and transporting the manufactured items back to the US there is a good chance for a reformed company that the move may not be economically feasible.

To avoid further losses of manufacturing jobs when troubled companies come to local governments seeking tax relief it should be given only if the company can show progress in reforming itself by shedding its bloated bureaucratic management. Unions should also be prepared to make concessions to save their jobs.