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Comment by coliveira | Hacker News Reader

The issue with manufacturing has nothing to do with labor prices as they try to say in the media. For example, Germany has higher labor costs than the US, and it continues to produce way more than other nations.

The true reason has to do with use of capital. The US has perfected a system where capital is highly rewarded for pure financial operations: stock market, futures speculation, banking, real state lending.

Manufacturing requires a lot of capital that US players don't want to tie to a lower reward structure. Germany and Chinese capitalists are completely Ok with employing their capital for manufacturing for political/structural reasons.

That's why American economists will make thousands of excuses that really make no sense when it comes to the fact that they want to invest as little as possible in manufacturing.

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Great points. With decent sneakers selling for $90 to $150, I'm baffled by business people who focus on wringing the last $10/hr out of their manufacturing staffs.

Because nike’s ceo needs a bonus and the shareholders need their dividends. Because the return on capital is given more value than the labour that actually made the thing. Your shoes say they were made by nike, but they were 100% made by a person, who was underpaid, and designed by a person who was underpaid, and shipped by a person who was underpaid - all so that someone who put in some cash and laid back waiting could get a big return.

I'm not sure I follow. The cost of capital is lower in the US than in developing countries because of the generally lower risk of investing in the US. For example, long-term AAA corporate bond yields seem to be about 150 bps higher in China than the US; estimating the cost of equity rigorously is much harder but most estimates would suggest an even wider gap.

Perhaps it’s less the cost of capital, and more the relative return. If I can only get a 10% return from a manufacturing investment, but I can get 20% in finance or technology, why would I settle for 10%. The thing that puzzles me is, if all that money is flowing into the 20% industry, why don’t the returns go down?

Why would a grocery store bother with selling food when they only get 3% margin?

Because large grocery store chains are not in retail - they are in finance.

They make a fortune with the cash they get at the tills (net-0) before they pay it to their suppliers (net-60, net-90).

You need to annualize that 3% to make it comparable. A grocery store isn’t buying everything at the start of the year and selling it at the end. If they do 12 inventory turnovers in a year, that 3% margin becomes a 36% return for the same amount of capital.

Volume/real estate

Volume.

There is no fundamental difference between the approach of German and American sport shoe makers on this subject. [1]

[1] https://manufacturingglobal.com/procurement-and-supply-chain...

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