What crushed Detroit? Will it crush Silicon Valley? (profit, investment, salaries)

[artillery77]

Once upon a time, if you were an engineer or designer, you went to the rust belt to catch the wave of the greatest industrial and manufacturing transformations taking place around the globe. Oil, autos, pipelines, canals, engines, design.....where better to go than the region between Pittsburg and Detroit?

I've always thought that the idea that low wages alone could catch the marvel of innovation never quite sat right...like a convenient excuse. Wondering if anyone's found a good read on the subject that was well done. The region seemed to stop growing in the 50's. Decay set in and the while the cheap labor of imports is often cited as the killer, it seems strange that the innovation center of the mechanical world would get caught by cheap only. It doesn't seem to tell the whole story.

How does a building that was built with premium updates get left for nothing?

https://www.zillow.com/homes/for_sal...56_rect/12_zm/


To date, the area has great talent...which I believe is slowly getting rediscovered. It seems to be emerging as well. Pittsburg has new hub activity. Detroit is revitalizing. Almost at the point of hanging up on the old institutions, it's now being reborn in a new ones.

It would be a handy lesson to understand. Why/how did the area fall. Cheap labor alone doesn't catch the innovative incumbent. New infrastructure post war alone doesn't beat the knowledge of what to do. Was it foreign new infrastructure, low wages and/or theft of IP?

Was it the culture? Did the culture shift? Not that the unions were bad per se, but that the timing of aligning the company, union and workers simply made things too brittle...too slow to adapt...to hard for achievement to be made? Require too many non-productive people to be hired?

Was it envy? Was it a migration of people who saw the high wages of the industrial jobs, but didn't understand how to make it successful?

Bad governance seems to be a given, and seems to turn ever worse whenever people turn to a defensive situation.

In the meantime, I can't help but fear that whatever infected the region at the time is now coming to Silicon Valley. At some point there was a shift in culture from coding houses and innovative garages....to leaving regular working hours over a problem in mass protest. From disruption with new ideas to meeting after meeting where no disagreement is raised. Foreign capital making plenty of inroads. Local costs rising on all fronts, and the layers of new positions ever reaching with titles nobody has ever heard of before.

I don't forsee the area as collapsing like the rust belt, but I sure wish I knew why they did...because people didn't stop consuming anything they made....they just stopped using the region to make it.

[Hemlock140]

You have hit on the difference between Detroit and Silicone Valley, labor unions. With so many tech workers being exempt, their big salaries and great benefits come with long hours and no overtime. All of that “free work” helps keep those companies profitable. Without unions they can Laynpeople off and hire new at lower pay, or just when they shift priorities, to remain competitive.

[artillery77]

Originally Posted by Hemlock140

You have hit on the difference between Detroit and Silicone Valley, labor unions. With so many tech workers being exempt, their big salaries and great benefits come with long hours and no overtime. All of that “free work” helps keep those companies profitable. Without unions they can Laynpeople off and hire new at lower pay, or just when they shift priorities, to remain competitive.

See, I think that's might be too general, and would like good reads to look further. I don't think high salaries for workers is what kills companies, though salaries paid that are extraordinarily high sometimes go beyond loyalty and actually create significant incentives for job protection at any cost.


Still, when you walk into the high performing companies, of course it's a cost, but so long as good people are working on value-added tasks, there's a surplus.



My inherent bias is towards restrictiveness of it all. In a new company, people wear many hats. In a structured companies, there's designated hats and a hierarchy, and in a unionized company, the hats belong to certain individuals...and if they're gone, then only a named replacement goes next.



I'm don't think that paying all of the workers a lot of money was the killer. The killer was that with that much structure, changes, replacements and innovation became too hard to perform in that area, relative to competing areas.



I don't think SV would go the same way, but some of the office politics are amazing in how far they slow things down. Getting the ever changing barter system of tit for tat relegates more and more people to smaller roles. Managers that will focus on not solving problems, but instead pinning blame in areas to bring in people they know, who are often blindly loyal and on occasion people of talent.



My thought is that it causes the exact same problem as unions bringing only their own. Not that the positions are paid well, but the positions become rigid. Too many people waiting for a leader to determine if they're going to jump in and help, or add gasoline to a fire.

[slowlane3]

Detroit actually has the lowest, or one of the lowest, unemployment rates in the nation as of 2018. Google it if you don't believe me.

[Thatsright19]

The UAW.

In 2008, the UAW average salary and benefits was 75 dollars per hour. That’s 25 to 30 dollars more per hour than their foreign competition who was producing domestically. Legacy costs of retirees was also adding about 3k to the cost of a vehicle.

All you need to do is look at the infamous “jobs bank” to see the extent of the rot. Laid off workers still collecting 95 percent of their pay. Older workers riding out their final years collecting from the jobs bank as a favor.

The jobs bank kept the auto makers keeping the workers active...producing for the sake of producing (of course this allowed the UAW to hit their bonuses and production targets)...which overstuffed inventory...which causes price concessions to remove excess inventory. Rinse repeat. Shifts would compete against each other...leaving critical maintenance for the next shift...removing components and resetting dials so each shift had to start over. Withholding information from each other. Production lines stopping (costing thousands per minute) when simple fixes were obvious, but union job x had to arrive to do said project...halting production.

This type of infighting wasn’t just left to the plants. The white collar divisions would withhold info from each other. Critical business information or even technological breakthroughs were hidden. They would fluff internal numbers to win internal investment, which had limited internal capital going to the wrong projects at the wrong times....at the opportunity cost of actual good, profitable projects. This is very common in big companies.

The phrase “killing the golden goose” was invented for a situation like this. To use a Cold War term, the UAW and the big 3 engaged in mutually assured destruction, but unlike the soviets and Americans, there was not enough level headedness to not drive off the precipice.

The unions pushed to do less and less and extract more and more. You have to create value as a business. The UAW actively clashed with management to destroy it. Innovation and efficiency was stifled to create jobs, rather than shareholder value.

Eventually, the trump card was played and automation and offshoring removed the UAWs egregious leverage. From 1994 to 2007, 70 percent of the hourly workforce at the big 3 was axed. Obviously, things got uglier in 2008.

[Thatsright19]

As far as Silicon Valley, I would foresee it’s demise being the COL when technology allows people to work from anywhere.