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Aug
2013
27

“Factoryless Manufacturing” Will Undermine Calculation of GDP, Scrutiny Over Outsourcing Beginning in 2017

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A new Bureau of Economic Analysis paper shows that the U.S. will begin narrowing its trade deficit in the year 2017 simply by changing its accounting methods to include “factoryless manufacturing.” This oil-slick math will enable a U.S. company (such as Apple) which creates a device (such as the iPhone) in another country to file their exploits as exports and not imports despite the manufacturing not taking place on home soil. The reasoning? The American company has final ownership of the product.  

Simply put, come 2017 trade numbers won’t reflect the actual amount of importing and exporting being done.

The definition of “factoryless manufacturing” from the BEA’s position paper:

“Factoryless” manufacturers, as defined by the U.S. OMB, perform underlying entrepreneurial components of arranging the factors of production but outsource all of the actual transformation activities to other specialized units.

This creative accounting seeks to blunt the negative impact offshoring has had on our GDP by simply moving it to the other side of the ledger. It will be purely aesthetics, an act of prettying up an ugly trade deficit wart on the United States’ face. It won’t create new jobs in manufacturing, rather it will serve to mute the public’s understanding of how dire the need for a shift in manufacturing balance is.  

The BEA’s position paper gives an example of how a company like Nike can help the GDP of the U.S. while manufacturing its shoes in southern Asia.

If a U.S. shoe company sent soles and leather to a contract manufacturer in another country for assembly of its athletic shoe, the U.S. shoe company— the principal— is importing manufacturing services from the contract manufacturer.  Because the U.S. shoe company owns the soles, leather, and assembled athletic shoe, there is no international transaction and therefore the soles and leather should not be recorded as U.S. exports and the assembled athletic shoe should not be recorded as a U.S. import.

Manipulation of numbers will be paired with manipulation of words as actual manufacturing of 2017 goods will be labeled “transformation activities.” A further explanation of our new plans to outaccount our problems is given by Economic Populist:

By redefining global outsourcing as ownership of the intermediate stages of manufacture, magically multinational corporations can offshore outsource plants, capital, jobs and services, yet because they own it, this redefinition will make that global production part of the U.S. domestic economy.  So, instead of Apple iPhones being classified as an import, which they are, only the contract service to build them would be considered.  In other words, those one million Chinese workers at Foxconn would be considered a contract service, a cost, similar to electricity, yet the iPhone itself, would be claimed to be an American product, which clearly it is not.  This is outrageous for it hides the massive trade deficit and worse, completely discounts how manufacturing scales.  Most jobs in making of goods are in the actual production.  Sales, Marketing, R&D employ only a small percentage of labor involved in making a product and even there, we have massive offshore outsourcing and the importing of foreign workers as well.  Reclassifying imports and exports by which greedy multinational corporation owns what, eradicates the millions of Americans who should and would have been working in manufacturing, making those very products. This agenda to modify national accounting methodology for trade, imports, exports, manufacturing, wholesale trade, GDP, employment and so on will literally sweep under the rug the millions of Americans jobs lost due to offshore outsourcing as well as hide those same jobs being given to China and other low wage nations.

Manufacturing and Technology News also provides insight into the soon-to-be out of sight situation:

U.S. federal agencies involved in economic data are on the verge of a major and transformative change in the way they classify companies that have outsourced their U.S. production to foreign manufacturing contractors.

The change could radically increase U.S. production statistics by classifying “factoryless goods producers” as domestic manufacturers. Companies like Apple will no longer be considered “wholesale traders,” and their sales would be counted as U.S. production, even though none of their manufacturing is in the United States.

Imports by American companies that outsource their production to foreign manufacturers also would no longer be counted as imports, thereby impacting the balance of U.S. international trade accounts.

The idea is for the federal government to determine how much production has been offshored and to pinpoint the number of American companies that are linked to manufacturing, even though they don’t make the products they design and sell.

A research paper from the economists at the Federal Reserve shows that by using this method of counting factoryless manufacturing, the value of manufacturers’ shipments would have risen by 30 percent in 2007. This would have been a grand, yet artificial, boost to GDP.  This reclassification is a surefire way to accelerate our race to the bottom. American will feel the increased the pinch of globalization while shiny new numbers exhibit growth. The bad publicity associated with outsourcing will be mitigated because it won’t matter if an American good is made in Shanghai or Sheboygan.  

Economic Populist summarizes the evil calculus thusly:

Below is the definition of of a Factoryless Goods Producer (FGP) by the ECPC and with a stroke of a pen, our multinational corporations who offshore outsourced millions of jobs, ruined millions of lives along with America will now be reclassified as American manufacturers from wholesale trade.  The irony is beyond gallows humor, it’s like bulldozing a mass grave and pretending it is no longer there and the original atrocities never happened.

• Owns rights to the intellectual property or design (whether independently developed or otherwise acquired) of the final manufactured product.
• May or may not own the input materials.
• Does not own production facilities.
• Does not perform transformation activities.
• Owns the final product produced by manufacturing service provider partners.
• Sells the final product.

When the “final product” is American integrity…

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