Oops, Never Mind: BCG Gets it Wrong on U.S. Manufacturing and China

A major consulting firm recently released a study that predicted, “within the next five years, the United States is expected to experience a manufacturing renaissance as the wage gap with China shrinks and certain U.S. states become some of the cheapest locations for manufacturing in the developed world.” The study received widespread attention in the media, desperate as we have become for any good news.

Contrast that to another study by a consulting firm that came to the exact opposite conclusion: “We maintain, in contrast, that the cost gap not only is unlikely to close within the next 20 years, but in some cases may actually increase.” So which study should we believe, the one that says don’t worry, the cost gap is closing, or the one that says it’s increasing and even more manufacturing will be decamping America for China?

One way would be to put our faith in the consulting firm that has the better reputation for doing good analysis. The only problem is that both studies, believe it or not, were produced by the same firm: the Boston Consulting Group. Now BCG might say we should cut them some slack because the second study, “Capturing Global Advantage: How Leading Industrial Companies are Transforming their Industries by Sourcing and Selling in China, India and Other Low-Cost Countries” was written in 2004 and after all things can change in 7 years. Sure, but BCG told us then that the odds were likely that things would change even more in the direction of these nations increasing their cost advantage over the next 20 years. And it’s only been seven, and now they are saying the exact opposite. Which is it?

This is not just a case of being grumpy because of some conflicting analysis: after all when things change, it’s important to change your views as well. After all, Keynes famously retorted, “when the facts change, I change my mind. What do you do, sir?” Rather, it’s that when BCG talks lots of people listen and now they come out with a report that essentially tells policymakers: don’t worry about the fact that America lost almost 1/3 of its manufacturing jobs in the last decade, a rate of loss even faster than in the Great Depression; we seers at BCG are telling you we’ll be fine. No need to develop a national manufacturing strategy, as ITIF advocates in its report The Case for a National Manufacturing Strategy, since manufacturing is coming back like the swallows to Capistrano.

Moreover, when BCG released the press release touting their findings, they also refused to show anyone the report or their methodology. When we emailed them to ask for a copy they refused. We wanted to see it so that we could examine their methodology and if necessary critique it. But they keep the consulting black box secret. Which is fine, if you are only delivering reports to high-paying clients. But once you step in the public arena and tell the media and policymakers, don’t worry, no need to open the lid, we are BCG, and we are never wrong, that’s not fine. If groups like BCG are going to enter the policy debates over competitiveness and manufacturing, it’s incumbent upon them to be open and forthright about their assumptions, methodology, and data, and let other’s review it and comment on it. For the days when we are supposed to just believe them because they are BCG are long gone, if they ever were there to begin with. And the media needs to learn to not run these kind of stories from groups that won’t open up their black box. While I understand the media today has no time to analyze claims on its own, it should at least refuse to cover reports like this where think tanks and other groups are precluded from offering their own informed critiques. 

Finally, I will make a bet with BCG. You claim that U.S. manufacturing is on the verge of a “renaissance.” Okay, if U.S. manufacturing jobs grow more than 20 percent between November 2011 and November 2016, I will donate $1,000 to your favorite charity. If they grow less than 20 percent you do the same? Ready to take the bet?