Mexican Aerospace Industry Booms

Here are some thoughts about American manufacturing as a whole. They're somewhat philosophical, so they won't help you increase efficiency, cut costs, gain market share, or retain valuable employees. But they just might influence how you vote.

"The Tragedy of the Commons" is a somewhat obscure mathematical argument that was first published by William Forster Lloyd in 1883, and boosted into academic prominence by Garret Hardin in 1968. But this argument about the behavior of English cattle farmers is now being played out on a huge scale in the American manufacturing sector. We call it outsourcing, or, somewhat more grandly, globalization.

Picture a public pasture in 19^th century England that is shared by a number of herdsman. For each individual herdsman, there is obvious value to adding another animal to his herd. His profit is based on the number of cattle he sells in a year. The problem with this situation - the "tragedy" – is that all the herdsman who share the pasture think the same way. And at some point in time, this limited resource will become so crowded that all the herdsman's cattle will suffer for lack of food, thus decreasing their value on the market and increasing the likelihood of disease, etc.

In other words, each individual acting in a logical fashion for his personal good ultimately harms everyone, including himself.

This is exactly what's happening in American manufacturing today.

Huge numbers of individual companies are making a rational decision to outsource work to low-wage countries, which increases their profitability. But in the long term, the whole American economy suffers.

The newest example is an alarming shift of aerospace manufacturing to Mexico. To quote a recent article by Chris Hawley in The Arizona Republic on aerospace outsourcing,

Mexico's aerospace-related exports have more than tripled since 2004, from $146.2 million to $683.2 million last year, and exports are accelerating quickly as manufacturers move into big-ticket items like tails and fuselages. One aircraft maker, Canada's Bombardier Inc., says it hopes to eventually assemble complete jets in Mexico.

The lost jobs are a problem in themselves. What's worse, at least in the long run, is the technology transfer. One executive quoted in the article refers to "tribal knowledge" accumulated over more than half a century in other manufacturing sites, knowledge which, once transferred to Mexican workers, will make it all the easier for them to compete. And just in case that transfer isn't complete, the Mexican government is planning to build a national aeronautical university - a move which would never have happened had American companies not started the ball rolling.

What's likely to happen over time is that the crucial tribal knowledge about building aircraft will not only be gained by thousands of Mexican workers. It will be lost by American workers.

In a tragedy of the commons scenario like this, the only hope is via government policies that have the net effect of influencing individual decisions. It's ridiculous to ask business people to act against their own interest, no matter how patriotic they may be. But the choices the government makes concerning this issue are of enormous importance.

As the political debate in front of us continues to unfold, I urge you to listen to how the candidates propose to approach this issue.