You Won’t Win The Race Facing The Wrong Way

I link to WoodWeb. I read their message boards as an insight into other woodworker’s situations.

I’m not in the same business as 99% of the participants there. They generally make kitchen cabinets and sell them directly to the end user. I make furniture.

99% of those 99% of the business owners have no idea what business they’re in, by the way. They think they are manufacturers. They are not.

Someone posted an article written by someone whose mouth moves when they read the (tabloid) paper that’s got them in a tizzy.

You can read it if you want, but I advise not wasting your time. It’s drivel of a very common kind; disconnected charts and weird, unrelated facts — mostly unrelated to accuracy as well as each other — with a “Someone should do something about all these problems!” bleat as a kind of turd cherry on top.

He’s got graphs, all signifying not much. Here’s my fave:
See, the graph goes down. I just fell off the turnip truck but even I know that a graph going down is bad.

But alas, I also know that the population of the US in 1950 was around 150 million people. I also know it’s around 300 million people now. So the percentage of people in manufacturing has been halved, while the the population doubled. That would mean… hmmm… about the same number of people work in manufacturing now as half a century ago. You’d have to think it is a defacto societal ill that the proportion of people doing any particular thing in an economy changes over half centuries for this chart to matter. I wonder how many people were telephone operators in 1950? I wonder how many are now? I’ve haven’t noticed that my phone service is worse, but maybe it’s just me.

Why would our pixel-stained wretch think it matters? Because he’s an economic troglodyte, that’s why. Here’s his theory on how wealth is created:

Wealth is created when we add labor and functional capability to raw materials that increase its value to an end user. Companies and individuals that produce durable and consumable goods create wealth. They then share some of that wealth with local, state and federal governments which consume the wealth in order to deliver the services and infrastructure we require. Wealth-creating jobs include manufacturing, construction, mining and farming.

Service organizations such as banks, accounting and law firms, retailers, newspapers and digital media, restaurants, hospitals and the like merely redistribute wealth across the economic chain, depending primarily on wealth-creating enterprises for their revenue stream.

If that theory of wealth creation sounds familiar, it should. It’s the “Labor” theory of wealth, and its big daddy is Karl Marx.

It’s fashionable to think that if you make tangible things you’re swell, and everybody else is a parasite. It’s also pre-renaissance economics. Actually, it might be pre-dark ages now that I think of it.

(Upon further reflection, it’s probably pre-historic economics. Just because they still occasionally give this a go at the Universities doesn’t mean it’s cutting edge, guys.)

OK, let’s “add labor and functional capability to raw materials that increase its value to an end user” and see how wealthy we get. They tried this method in Eastern Europe a while back: They stripmined coal and iron ore. They burned the coal in a furnace and made steel. They made the steel into… you guessed it… excavation machines to mine coal and ore. That’s it. Everyone had a job. Stuff got made. But there was no wealth created.

As I recall, this ended with everyone standing on a wall in East Germany with sledghammers, not with anything remotely resembling a functioning economy. I was actually amazed they could swing the hammers with so much force after the diet of ration-card suet and vodka they’d been on for half a century.

I believe in personal responsibility, so it’s Don Shultz’s fault he can’t write and won’t think. Likewise, it’s Wood Digest’s fault that they publish stuff which is mildy inflammatory — where it’s coherent enough to be much of anything at all — instead of enlightening for its readers. But I can’t blame the readers for being upset, and somewhat at sea over their situation. No one talks any sense to them.

The reason that the amount of people in manufacturing doesn’t go up is because productivity has skyrocketed. Watch “How It’s Made” on television. A factory makes a lot of stuff with not many people working in it nowadays. Does anyone really think 300 million people in 2008 have fewer consumer durables than 150 million people in 1950 because their proportional representation in the workforce has been cut in half? We added 41% of the population to the workforce in the last 50 years, too, don’t forget–women went from 26% to 67% percent employed in those intervening years. Just exactly who would you get to work in those American factories you demand we build? There’s no one left to hire. And there isn’t much for them to do there. Chinese labor isn’t competing with American labor. They’re competing with American machines.

As I mentioned earlier, my fellow woodworkers at WoodWeb are mostly in trouble, in my opinion because they don’t even know what sector they’re in. They think they’re manufacturers, because manu= hand and factory = mill. But in any real sense of the term, they are not manufacturers. They are in the service industry and don’t know it.

What anyone that wants to help them make sense of their place in the modern economy needs to tell them is to find out what the customer wants and give it to them, and they will flourish. And it’s the “finding out,” not the manufacture of the goods that offers an opportunity for the small to medium sized woodworker to add value and create wealth. The end product is less than 50% of that equation. A customer gets better service from Home Depot installing Chinese-made cabinets than they do from the average woodworker that makes custom cabinets. The average cabinetmaker treats the customer like an annoyance, and thinks that by paying close attention to the last 50% — the made good — that he’s all done and people will beat a path to their door. But manufactured goods are not scarce, and you’ll get killed if you try to paddle across the ocean of manufacturing in a raft. People need to add value to the process, not just the item, and the only thing you can offer a customer that he can’t get from a factory with almost no one working in it is service. But if you think all ancillary functions of a business are parasitic, you’ll never even try.

The WoodWeb is there for people who are in the woodworking business. But they have been taught from birth that accounting, banking, actuarial analysis, sales, insurance, advertising, and almost all forms of pure management are parasitical. Don Shultz is just the latest guy to tell them that, he’s nothing special. And why shouldn’t they be confused by macroeconomics? We just watched a few hundred thousand Ivy League, Sorbonne and Oxford educated MBAs run the international banking and investment system into the ground, then throw up their hands and say: We have no idea how to assess value in the modern economy. Let’s make charts of workforce participation in the manufacturing sector like it was still 1950, and have a liquid lunch with a government official.

Small businessmen post questions that break my heart at the WoodWeb. Business is bad, should I think about printing business cards? How much is a “fair” price to charge for a cabinet? Why do I even have to talk to the customers? They’re annoying, and they always want stuff I don’t want to give them. Can’t I just make stuff like I want to and why can’t people just mail me money and wait for me to make it?

They’ve been told from birth that if you build it, they will come. They were told wrong. Wrong like Don Shultz. Stop listening and save yourselves.