April 1, 2009

Why America Is In Trouble

Today on the Drudge Report page there are two headlines that contrast the technological progress in the United States versus that of Japan. It was not that long ago that Japan, rather than China was seen as the challenge to American economic preeminence. While China has surged and Japan had faltered, the Japanese continue their efforts untiringly to advance technology. China is busy working on infrastructure but is quickly coming to a point where it can challenge anyone for economic supremacy. Meanwhile, the United States is preoccupied with health care and debt, and Presidential appointments.

It's not just under the current administration that America has taken it's eyes off the ball. In Salt Lake City, a new airline security whole body scanner has been rolled out in a pilot program. That's impressive, and useful. But how many thousands of units are going to be required worldwide? Even if you think beyond the scope of airport security and think about night clubs, police stations etc., it is still limited in usability, and it's likely to stay price-prohibitive for some time. While impressive and useful, it's a limited market technology. Even if that market grows, it pales in comparison to the other Drudge Report item.

Honda has connected brain thoughts with a robot! How impressive is that?

TOKYO (AP) - Opening a car trunk or controlling a home air conditioner could become just a wish away with Honda's new technology that connects thoughts inside a brain with robotics.

Honda Motor Co. (HMC) has developed a way to read patterns of electric currents on a person's scalp as well as changes in cerebral blood flow when a person thinks about four simple movements - moving the right hand, moving the left hand, running and eating.

Honda succeeded in analyzing such thought patterns, and then relaying them as wireless commands for Asimo, its human-shaped robot.

In a video shown Tuesday at Tokyo headquarters, a person wearing a helmet sat still but thought about moving his right hand - a thought that was picked up by cords attached to his head inside the helmet. After several seconds, Asimo, programmed to respond to brain signals, lifted its right arm.

And why is this being done in Japan and not America? Could you imagine if Chrysler were working on this? Honda has efficiently built automobiles, boat motors, lawn mowers, motor cycles, ATVs, power generators, jet skis, jet aircraft, lawnmowers, pumps, snow blowers, farm tillers and gardening power tools, engines (Honda is the world’s largest manufacturer of engines), and now robots and brain connectivity with robots. Chrysler can't even keep it's car line up in business and from personal experience, their products are not always all that dependable.

Why the discrepancy? Because at Honda, or any Japanese company, there exists a focus not shared by many American companies. Chrysler has outsourced much of it's production.

Plastech, Delphi, American Axle– these are just three of the U.S. parts suppliers already in bankruptcy, with fully 25 percent of other major domestic parts makers teetering on the edge of Chapter 11. The domestics are operating on the assumption that the faster they outsource their parts production overseas, the better. Speaking to Automotive News [sub] analyst John Casesa warns that Chrysler's new purchasing czar John Campi's rush to confront domestic suppliers (Plastech) and seek low cost foreign replacements may not be such a good idea– especially when seen in historical context.

Overseas. The bane of America in a world of globalization.

Tangent warning: Is free trade a good thing? Yes. Is it a good thing when combined with an non-level playing field - cheaper foreign labor? Less so, but still yes. Is it a good thing with uneven tariffs and borders to free flow of goods on one side but not the other? No. These are things that need to be considered with every trade agreement, along with dispute resolution mechanisms that have some teeth. End Tangent warning.

Foreign governments appear to be more inclined to incentivize companies to invest in R&D. Consequently, or coincidentally, foreign companies are less pressured to furnish quarterly results and are more able to focus on long, long term objectives. Honda has a research institute. Does GM?

Things in American manufacturing have become too fragmented and too short term focused. Honda is not over-diversified because 99% of everything in their product suite comes down to one core product - engines. And engines are critical to all of manufacturing, and transportation and just about everything in the industrialized world. Chrysler is cars, and their focus is lurching from partnership, to bailout to partnership. When you've lost your way that badly, you reach out to anyone that can save you. But it doesn't help long term. It keeps you alive, but does not help you thrive.

What helps you thrive is understanding the company vision. And not some stupid marketing mantra version of a vision that involves doing no harm to the environment and loving people and eating healthy snacks. Honda's vision: Striving to be a company society wants to exist, through creating new value, globalization and commitment for the future.

Society doesn't seem to be too concerned about whether Chrysler exists. Why? They aren't creating new value. Honda's version of globalization is about selling worldwide. Chrysler's version is sourcing parts worldwide. When you build a Franken-car (Frankenstein, not Al Franken), how can you be certain that there are synergies built into the interactivity of your product?

Honda is ruthlessly focused on it's research and development, with three key factors driving it's direction; product durability, product reliability and product performance.

This is why America is in trouble. If you take the Honda approach and compare it to the flailing about of Chrysler it's no surprise which company is outperforming the other. The economic environment in the United States is conducive to this dichotomy.

  1. Cheaper products mean off-shoring suppliers and jobs. Unions help foster this climate and cannot be allowed to exert the influence that contributes to this continued problem.
  2. The incessant consumer demand for goods drives the balance of trade deficits higher as more products are imported and even domestic products contain significant off-shored inputs.
  3. The government does not create massive tailored incentives for domestic R&D that would generate an economic stimulus and also provide jobs now. Tax policy is a massively misused vehicle when it focuses on dollar amounts instead of where credits can be applied and leveraged by smart entrepreneurs.
  4. The Wall Street view of immediate profits has turned long term thinking into short term thinking, thereby hobbling vision and creativity in America.
  5. The idea that an economy can be a service economy and move beyond manufacturing is a pipe dream. In order to thrive, a country has to make things. It has to sell them. You will never offset an automobile dollar deficit with consulting fees and Disney movies being shown in South Korea. The math isn't there. At least not yet.
What the American government needs to do is step back from the dollar printing press and address these issues in a way that re-releases American entrepreneurs to take advantage of the fixed playing field. GM may never again be 50% of the world car sales, but there's no reason it can't be a thriving business with a relentless drive to be the best and a company that society wants to exist. No reason that is, unless it's run by the government.


  1. Maybe instead of telling executives to "do the Japanese thing" by resigning or committing suicide, the government should do the Japanese thing and stop using ludicrous environmental laws and punitive taxes to make profitable manufacturing in the US completely impossible. Just a thought. (What do you suppose the odds are that that'll happen anytime in this administration?)

  2. Austin - not gonna happen. Great anaology about Wagoner and the ritual suicide. You mention a few things the government could change - here's another that sounds harsh but is needed and not as scary as it sounds - abolish the minimum wage law. It would help with illegal immigration too.

    By the way, if Nonsensible Shoes had an award for most frequent poster - you'd win it. Appreciate the interest and the feedback!

  3. I hate minimum wage laws--passionately. I'll get a raise when the minimum jumps this summer--of 25 cents, which will be more than canceled out by the price increases on the cheap fast food that's all I can afford. Thanks, Democrats!


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