Christopher Devereux, managing director of consultancy ChinaSavvy, now resides in southern China. But he has a very interesting background -- specifically, extensive experience in the plastics industry in three continents, Europe, the Americas and Asia.

He first dived into the plastics business in the early '70s as a product development manager for an English investment bank that owned several manufacturing companies with extensive injection and blow molding facilities. Then he left his home in the U.K. and worked in the polymer industry in Central and South America in the mid-70s. In 1984, he returned to the U.K. to found a packaging company using injection molding and extruded foam thermoformed processes. Later he joined Packaging Corp. of America (Tenneco Packaging, Inc.) as business development manager for Europe and set up the company's first OPS packaging company in Belgium. He set up Chinasavvy in 2002 to help Western companies outsource and manufacture plastic and metal parts and products in China.

Hearing complaints every day here in the U.S. about China taking jobs away (especially in this election season), I wanted to pick his brain on the trends of geographical shifts of manufacturing. I'd like to share his reply with our readers:

Whenever labor jobs are lost, politicians scream. It's only natural. The United Kingdom politicians screamed as their automobile industry declined and as their manufacturing businesses slipped below the 50% mark (it's much lower than that now). Everyone said it would be the end of the British economy.

But what has happened there? The U.K. has now one of the most buoyant economies in Europe. The economy has shifted from a manufacturing economy to a service economy.

And the British, like the Americans, are good at inventing, designing and developing products. They know their markets. So what do they do? They invent. They design. They develop. Then they go to China and have it made and a third of the cost of making it in America.

The Chinese, on the other hand, are not good at developing products. They don't understand the markets. But they are good at copying and making to someone else's designs. It will be many years before they start producing home grown products that will beat American or British designed and developed products.

Remember the inflation of the last 20 years? Horrendous at times. Now we have low inflation. And why? Because the cost of goods coming in from China (and Asia) has brought down the cost of living and inflation.

If importing countries try to block these low cost imports they will find that prices will rise very fast.

What American producers and manufacturers need to do is to embrace the opportunities of an outsourced manufacturing base or setting up manufacturing within the China/Asia area. They will find that they can expand their sales and their exports through high quality/low cost manufacturing using their designs and IP.
There is a lot said about the lack of IP protection in China. This is changing but it only affects companies who want to attack the Chinese market. They have all the protection they need within the US.

Manufacturers who embrace the low cost manufacturing base in China will be the ones who will be laughing all the way to the bank.

If we look at economic history, the center of manufacturing shifted from the U.K. to the U.S.

The U.S. succeeded in overtaking the U.K. with higher productivity. Labor productivity in U.S. manufacturing was already roughly double the U.K. level in 1870, according to economist Stephen Broadberry. Measuring labor productivity by output per worker, the U.K. was still 36 percent behind the U.S. in 2000, according to a paper by the U.K. HM Treasury. About 65 percent of the gap was attributable to innovations, while physical capital accounted for only 31 percent, another research paper found.

How wide is the gap between China and the U.S. in innovation? As Devereux indicated, China doesn't excel in innovation at all. And the productivity is much lower than the U.S. level. Therefore, instead of seeing China as a threat, maybe it'll work better for all to respect the natural flow of manufacturing, especially the low-value-added, labor-intensive type. The future of U.S. economy can't depend on retrieving and retaining those low-level jobs. Expand the service industry and strengthen innovation, jobs will be recreated, and these upgraded jobs won't pollute the air and water either.