Commentary: Manufacturers know all about economic collapse

Manufacturing News ^ | 9/30/08 | Richard McCormack

[ccmay]

God forbid we listen to this pissing and moaning and end up re-instituting something like Smoot-Hawley to "protect" our manufacturers. Then we really will have a Great Depression.

Much better to overhaul the insane legal system, break the unions Thatcher style, and cut corporate and capital gains taxes.

-ccm

[xDGx]

The playing field certainly is, and has been uneven. Things like keiretsu in Japan would be considered anti-competitive in the US. And intellectual property goes out the window in some countries (it’s an odd feeling seeing your own work copied by someone else) but we adjust and find other areas of opportunity. The mfg. bosses the author speaks of are often 2nd or 3rd generation family scions with no knowledge of hunger or adaptation. Or worse they are MBA’s with finance and no practical knowledge. Either way they wind up wrecking perfectly good companies. And they would have done so with or without China even existing.

[SeeSharp]

We manipulate our currency too. So I don't see how you can indict China for it. Besides, in the long run I think what they are doing will come back to bite them. Look at Japan.

As for child labor: what do you think kids in the third world who don't work in factories do? Before you judge make sure you are using a realistic perspective.

Environmental regulations are only necessary because of government ownership of environmental resources. It's their environment and they will have as much or as little mess as they want. How does any of that equate to cheating?

[raybbr]

No, the article is an illogical diatribe that does not examine the confluence of factors that drove much production overseas (unions, regulations, lawsuits, etc.) and devolves into the usual Bush / Iraq / claptrap.

Do you have any idea what percentage of manufacturing in the U.S. in union?

Regulations are what's killing manufacturing.

As America's military hardware was being shipped to the Middle East, America's industrial base was being shipped in the opposite direction to China.

Is there any denying this?

Manufacturing has become a pariah in the eyes of the litterati and elites of the U.S. They see those of us who've worked in factories as nothing more than their gardener or janitor.

There are quite a few supercapitalists here on FR that sneer at us for working in a factory. It's all about making a buck. If there ever was any patriotism about giving a fellow American a job it has been washed out by the moneychangers and harlots of finance.

I thinks that's the author's point.

[xDGx]

Agreed that transportation cost will make offshore less attractive (but will push more to Mexico - and I have ZERO use for that country). I’m in the heart of the rust belt, and while it is sad to see towns drying up you can breathe the air again, so it’s not all bad. Many moons ago I was in one of the Unions, and across the river from the plant where I worked there was no foliage. Zero. The plant is still there (one of a few remaining) but now the hills are green again. China on the other hand is a hellhole. Eventually it will all level out as cheap places to run to are used up (Africa will be the last, and not sure they can get much quasi-technical production there)

The big thing is the idea of raising all the countries up, rather than siphoning off our funds (lowering us) to underpriviliged countries in a wrongheaded attempt to equalize.

Interesting times (the old Chinese curse)

[cmdjing]

East Tennessee is booming? I was under the impression that the place was hollowing out. From what I have heard from people still living there is that things aren’t as good as they used to be. I lived in Knoxville for over 12 years.

[Tallguy]

The mfg. bosses the author speaks of are often 2nd or 3rd generation family scions with no knowledge of hunger or adaptation. Or worse they are MBA’s with finance and no practical knowledge. Either way they wind up wrecking perfectly good companies. And they would have done so with or without China even existing.

I am generally a "free-trader" but my business is involved in servicing manufacturing companies. My head & my heart are often in conflict when it comes to discussions like these.

There are amazing technologies out there that are going to continue to drive manufacturing jobs to the margins worldwide. It would be interesting to see what the world will look like in 100 years.

[ajay_kumar]

Many reasons why US manufacturing is shrinking. Labor costs is one. I know of another important reason why Mfg jobs in US have been lost.

I worked for many years at a manufacturer of heavy machinery. The machines we designed and built were subject to heavier loads than any machines used any where. In other words very specialized machinery. Around 25 years ago China offered the owner $1.5 million to buy only engineering know how. 25 years ago $1.5 million was good chunk of change. The Chinese got experience and theory developed over 50 years by the outfit for what I consider was a bargain price. As I expected, China now builds those machines and our outfit went out of business. I wonder how many other outfits sold out their know-how to other countries which resulted in loss of manufacturing jobs. Just to make it clear I am not a disgruntled laid off employee, I had left the outfit 10 years before it went broke.

[T-Bird45]

God forbid we...end up re-instituting something like Smoot-Hawley

I didn't get any sense the author wanted to go down that path -- I am in agreement with you S-H tariffs would just exacerbate the situation.

[xDGx]

Well, considering I was once in a union, then worked up through union and non-union shops, yeah I do know a little about working in a factory. Still have my metatarsal boots as a memento from the coke works. And I saw first hand what unions do to a company. And I’ve also seen bad, bad management. But it was long before Hussein even invaded Kuwait, let alone us going into Iraq. I have nothing but respect for anyone that does an honest day’s work, with work being the operative word.

I didn’t cry when the mills went away, just finished my degree and moved on. Been ‘downsized’ too. Went out and started my own deal. Controlling one’s own destiny can be a good thing.

[ßuddaßudd]

Good enough to bump

[xDGx]

Here’s another: The Engineering schools that are filled with Chinese (and some other countries) students are not turning out their Engineers, they are turning out their future Engineering Teachers. Universities are blind to it, but another generation and they will have been outsourced!

[blam]

"McCormack has interviewed such people as Robert Noyce, inventor of the integrated circuit..."

Intel should be ashamed.

That's a lie, Jack Kilby (Texas Instruments) won the Nobel prize in 1990 for this invention:

Jack Kilby: Nobel Prize Winner

"Mr. Kilby delivered his Laureate Lecture on "Turning Potential into Realities: The Invention of the Integrated Circuit." He spoke to an audience of about 800 on the campus of Stockholm University, where students, teachers, journalists and members of the Royal Swedish Academy were in attendance."

[xDGx]

He’s a journalist, I wouldn’t expect accuracy! ;)

And hell you never hear of Shockley, Bardeen, and Brattain - it was Al Gore who invented all this mystical stuff.

[familyop]

"We neither need nor want $50/hr union labor watching a machine do its thing."

$7 per hour for a Millwright machine operator in 1980 in the K.C. area. And that's some of the work was beginning to go overseas. The shifting of work to overseas interests had more to do with vanities than money.

We were mostly young and didn't care about politics. Since then, unions are disgusting to many healthy men, because union interests are socially confused and anti-family (just as most non-union corporate interests are). And we see that the more anti-social unions like the NEA are allowed to retain political sway and stay in business.

Management was to blame in manufacturing during the '70s, too--lot of old spoiled brats getting drunk, carousing with office prostitutes, making false accusations and throwing tantrums. One example of the incompetence where I worked was the hiring and retention of a Pakistani Muslim (college student bound for oil work), who started fights with Christians. Many of the manufacturers themselves have started operations in communist countries since then.

In 1981 I was fired from a machine shop by a homosexual son of a manufacturing board member, because I was not homosexual and refused to play with him. That was enough for me, and I left that kind of work behind.

The blame does not all belong to any one group in our USA, although the few manufacturers with better management are not culpable. Many individuals adhering to both political parties and various kinds of work are traitorous for their own material opportunities.

Some new efforts to start efficient manufacturing companies are stopped by false front environmentalists who work for or are related to import interests. Efforts to start small building projects are stopped by the same. Many small sawmills...same thing.

We're morally bankrupt.

[Mikey_1962]

I agree with everything in this article. The exportation of our jobs is the core cause of Americas current problems. I cannot fathom any red blooded american believing otherwise. Ross Perot was right.

I am an engineer and I work feverishly to eliminate jobs in my plant. The jobs are not lost to outside companies they are lost to automation and efficiencies.

[free_for_now]

I wrote this a couple of months ago, before the sh_t really hit the fan, but much of it is still relevant, especially to this article.

....In the '80's, the Reagan Administration was for easing the regulatory burden, cutting taxes and providing a sound currency. This proved a bonanza for our economy as capital flowed into the US. Bit by bit over the last 25 years, our overseas competitors have made their economies friendlier to investors, while bit by bit we have made ours gradually worse. Money seeks it best return on investment and, for a number of reasons, the real after-tax return for investments made in the US are no longer better than those in other economies. Low-risk investors can find safe investments in Europe and high-risk investors can find many options in Asia. As investors find better returns elsewhere, the demand for dollars drops. With no offsetting drop in the supply of dollars, the price of the dollar in terms of gold has skyrocketed. This has been a major factor in the change in oil prices. The markets are doing what markets do, trying to predict the future. The markets are betting that not only will the demand for dollars drop further, as anti-business, pro-tax, pro-regulation, pro-lawyer Democrats take complete control of the federal government, but they are guessing that the money supply will not be adjusted to offset this drop in demand. This is an easy guess, since some of the favorable business climate in the US was a result of the Bush tax cuts which are set to expire and unlikely to be renewed. The Federal Reserve is in no mood to tighten, because it has been dealing with the problem of subprime mortgages. It doesn't help that both presidential canditates are also proposing to add huge new costs to American industry in order to slay the mythical Global-Warming beast. The combination of these anti-business factors is causing investors to shun the US. All of this is made worse by lawmakers who clearly have no clue what to do and have platforms that would make things worse. When you are doing everything wrong, the solution is simple. Stop it. Since we are competing with other nations to get the worlds investors to supply our industry with capital, we need to provide an environment that convinces them that investing here will benefit them. If you invest long-term, you have to believe that you can both make a profit and will get to keep that profit. If regulations are so burdensome that they impact profits too strongly, the investment will be made where regulations are not so strict (or where regulators can be bribed). If the courts treat torts like a lottery and confiscate hard-earned profits to punish companies that are operating in good faith, this increases the risk of making investments in that country. If tax policy is confiscatory, capital will be invested where government takes a smaller cut. If a country debases its currency, other nations will not want to trade in that currency. So what should we do? We need to create an environment that encourages capital investment. The cost of doing business could be be lowered by reducing regulatory burdens on business. Tort reform could likewise lower risks and costs. Finally, reductions in corporate tax rates would increase return on investment. Finally, pegging the dollar to a gold-price target would convince investors that the return on their investments would not be made in dollars which are worth much less than the ones that made the investment. Until policy makers get this, it would probably be wise to short the dollar and buy gold and commoditites, art, and collectibles.

[free_for_now]

I wonder how many other outfits sold out their know-how to other countries which resulted in loss of manufacturing jobs. Just to make it clear I am not a disgruntled laid off employee, I had left the outfit 10 years before it went broke.

Not only have companies sold the technology, often they have in effect given it away. In electronics, the firms manufacturing devices automatically get the designs. If you have a circuit board manufactured overseas you have to give drawings and parts lists. It is much easier to reverse engineer if you know the values of all the components.

[Clintonfatigued]

Great editorial on a huge problem that far too few are willing to address.

[AuntB]

Thanks!!