What Netflix’s American Factory gets right about the economy

Picture this film: a struggling factory in the US gets a lease of life from new Asian investment and management. Cultures clash as an economic reality brings about a new perspective and cooperation.

That premise was the basis of the (curiously-titled) 1986 Michael Keaton comedy Gung Ho. Keaton played Hunt Stevenson, the former foreman of a Pennsylvania auto plant who negotiated a deal with a Japanese car manufacturer to purchase the plant in exchange to save many jobs of his local Pennsylvanians. Hilarity ensues when the off-the-cuff blue-collar American workers work side-by-side with their more uptight Japanese counterparts.

But that was the 1980s. Flash forward a sober 30 years later, Gung Ho’s spiritual successor comes in the form of Netflix’ American Factory, which centers around a factory in Ohio that was closed down by General Motors during the financial crisis in 2008. Seven years later, Fuyao, a Chinese glassmaker, reopens the plant bringing thousands of local jobs and new management led by a colorful billionaire aptly named Chairman Cao.

While the film is compelling in its own right, three key charts below provide the economic backdrop to the drama that unfolds.

Source: IMF as of August 2019

#1. US economic anxiety is, in part, fueled by the rise of China

For decades, the US has enjoyed a near-hegemonic status as the world’s richest and most productive economy. In the 1980s, when Gung Ho came out, Japan’s meteoric rise fueled many doomsday headlines of US decline. But, even at its best, Japan only constituted about a third of the US’ economic output. Compare that to today, when the International Monetary Fund estimates that China output already exceeds that of the US — a remarkable achievement considering just 40 years ago China’s economy was estimated to be just around 1/10 of the US’ size. China’s newfound economic prowess explains the hundreds of billions of dollars used for investment from Chinese companies to US entities that helped jump-start manufacturing plants like the one depicted in American Factory and a reemergence of the fear of US decline.

Source: St. Louis Federal Reserve as of August 2019

#2. …and the structural decline of the US manufacturing sector

In its heyday, manufacturing made up nearly 40% of non-farm payroll jobs in America. During that time, there was a good chance that you, your friends, and your family worked in a factory. Since then, America’s economy has transformed. The most common job in the US is in retail, and the percentage of Americans who work in the manufacturing sector stands at 8%.

More than ten years since the last US recession, hiring has recovered and the unemployment rate is the lowest in decades. However, many millions of those jobs in the manufacturing sector have disappeared in the US amidst rising automation (Chairman Cao makes a point to hire robots in the film) and the increasingly global nature of labor supply — why hire Americans for $20 an hour when I can hire workers from other countries who are just as productive for a fraction of that cost? So, for many thousands of manufacturing employees who were unemployed after the last recession, a job from a Chinese firm that, in some cases, came with a higher wage is a no-brainer.

Source: Economic Policy Institute, Piketty and Saez (2014), Gordon (2013), and Bureau of Labor Statistics Current Population Survey public data series

#3. The decline of unions coincides with higher income inequality

In the film, arguably the biggest source of tension comes from Fuyao’s opposition to unionization efforts from the factory’s workers. Chairman Cao himself says “If a union comes in, I’m shutting down” — an oddly capitalist proclamation from the citizen of a communist country.

Cao’s intuition is simple: the bargaining power of a collective is stronger than the sum of its individual efforts. Unions have a better shot to achieve higher wages, pensions, and other benefits than any individual employee could have. For the employer like Fuyao, a union represents an expensive detractor from the bottom line.

America used to have a strong history of unionization that helped keep the labor share of income growth in step with corporate profits. In the last few decades, however, membership in unions has declined globally adding to the economic anxiety of the American manufacturing worker. This is especially stark in recent times. Since the early 2000s, profits have surged while the labor income, the dollars that go to workers, of America’s economy has diminished. The erosion of unions is partly to explain why wage growth this business cycle has been so anemic despite a sky-high stock market.

Tidbits:

  • I’m conflicted about how to feel regarding the title of Gung Ho — on the one hand, it’s a mildly racist confusion of a Chinese phrase (工合) in a movie depicting Japanese people. On the other hand, the sentiment behind it — work together — is a rather beautifully succinct description of their movie.
  • American Factory is the first film released by Higher Ground, a production company led by the Obamas
  • The film started as a project from Fuyao to depict the opening of his factory — basically an ad. It took on new life when the filmmakers realized Fuyao really gave them an incredible amount of access — a quality in sync with the company’s motto: “holding up a transparent world” (get it? Because they make glass…)

American Factory is now streaming on Netflix.

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Film Lover. Squash Player. Economist. Currently in Hong Kong.