Saturday, November 10, 2007

Engineering Talent, Regulation, and Housing Cost

I work in the Electronics industry. It is amazing to watch how rapid development progresses in Electronics - witness Moore's Law - how quickly memory, hard disk space, RAM, flash memory, and CPU speed are improving, and how quickly cost is going down.

The Electronics industry is incredibly competitive, despite the high degree of skill required to design and manufacture the products. I've worked in a few companies, and the competition is fierce. The strive to improve the products and reduce production costs is relentless; if a company slacks off one bit, significant market share will be lost almost immediately.

I believe part of the reason that the electronics industry pushes the state of the art so aggressively is that it seems to be very highly unregulated, resulting in very dynamic free market competition. This means that startup companies with some new technology or that spot a niche can very easily jump in and provide a new product.

I've written before about the history of government regulation, where a lot of so called pro-consumer regulation, is actually lobbied for by the big corporations, in order to legislate laws that actually protect them; in some cases, by setting up artificial barriers to startup competition. If you want to know the beneficiaries of such laws, follow the money. Who gets to laugh all the way to the bank? Here is a short list of examples:

The Bird Flu scare and $2B purchase of Tamiflu doses
The Medicare Prescription Drug Act of 2003
Sarbanes-Oxley Act
Bankruptcy Law of 2005

Even with respect to Safety regulations and standards, the electronics industry is quite self-regulating. One set of regulations that many electronics and electrical companies follow is that set by Underwriters Laboratories.

For the most part, the standards for a given product are written with the design engineers in the loop; as such the standards are very reasonable, don't cost much at all to implement, and UL doesn't charge very much for compliance testing. The system works well, such that a consumer who finds the UL logo on an appliance can be reasonably assured of product safety:

This is in contrast to say government regulatory bodies, such as the FDA, which is a government bureaucracy, whose kowtowing to Big Pharma is legendary. Here is one such article:

And just try googling "FDA lies".

In the electronics industry, legions of talented engineers work hard to make the next generation of products better and cheaper. Often an engineer will spend weeks knocking $0.10 or 5% off the cost of a design.

This makes me wonder. It looks like the free market has created the demand for engineers to spend their talent doing such cost reduction exercises. However, if one were to look at the typical budget of a household, the single largest expenditure, after taxes, is probably the home mortgage. Of the cost of a home, perhaps 1/3rd or 1/2 is the construction of the house itself. Definitely much more than that spent on electronics.

So why isn't all this engineering talent expended on reducing the cost of a typical family's largest single expense? Why aren't legions of engineers developing better and lower cost housing materials, and homebuilding robots to reduce labor cost? Why haven't design-it-yourself lego-like building block homes catching on?

A possible answer is that the construction industry is heavily regulated and is unionized. Both of which are meddling in the free market. There is still some belief in the myth, that automation and labor saving devices, reduce employment and is bad for the economy.

Or maybe it's part of the mass media's perpetuation of consumerism - consumption of overpriced shoes, bags, watches, furniture, weddings, and homes. I've written before about the mass media pounding people incessantly to be good little consumers.

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