Wow, you typed a lot here at the risk of it being lost in the FR troubles that have been plaguing us! Kudos to you. I will try to address some of them, but need to re-establish a couple of foundational facts.
A. This article is about a factory closure in Belgium.
B. The EU is very protective of the labor and many of the countries are especially hard on employers. Belgium is one such country.
C. You used this article as an opportunity to attack capitalism and free markets.
D. You called for more government involvement in the market, specifically you stated a desire for more quotas and higher tarriffs.
E. Belgium has very high hiring quotas and it is extremely difficult have any flexible manufacturing facility in that country.
F. The closure of the plant being discussed in the article, is a result of more government involvement. Yet you called for more.
Now, let me briefly address each of your points by their number:
1. Yes, our corporations have given way to much power to the Finance function. Why did that start to occur? My guess is that it is due to financial reporting regulation growth. I have seen it most recently with SOX and am expecting even more need for “financial controlling” with Frank-Dodd. This additional government control is forcing corporations to spend to much time trying to comply with regulations, therefore the functional area with the most influence is Finance or Controllers.
2. US labor was and is still very productive. As a result, we want it used most efficiently and productively. You complain about the textile industry leaving the US and moving overseas, yet you brag about the productivity of the US labor market. That productivity is best used for higher level manufacturing and not sewing socks or weaving rugs. In my business it is much better for the cheap overseas labor to make fasteners in bulk, and then we can use the US highly productive labor and capital to assemble a car seat.
3. Wall Street still has the long term investment function that you describe. Yes, there is also speculation, but your view of Wall Street fails to recognize that it is still the single best investment vehicle for long term growth.
4. China has not been a nail in the coffin of US manufacturing. As you pointed out earlier, the labor productivity is much lower (much less skilled) than the US labor market. Then you complain that their government subsidizes their manufacturing and your solution to make us more competitive is for our government to increase the burdens on our US manufacturers.
5. You describe crony capitalism. Yet, you claim to want more government interference, which would create more shortsighted managers asking for more government assistance, which would create a “need” for more government control, and on and on and on and on.
OK, you took offense at me calling out your lies. Maybe you weren’t purposefully lying, but you were not wise in chosing a plant closure in Belgium as an opportunity to attack capitalism and the free market. So, in essence you were blaming blaming the result of high quotas and protected labor on the free market! Either you were being purposefully obtuse or you were lying. I’ll let you clarify further or any lurking reader decide.
Then you stated, “I’ve spent over 30 years managing these offshoring issues and fully understand both the macro economic issues impacting the decisions as well as the nitty gritty details associated with establishing supply chains around the globe.”
I anticipated as much after I checked your profile page and to be honest I was rather shocked. Your comments seemed to be completely disconnected from global manufacturing and specifically from Supply Chain Management. Your approach to solving the challenges we face in manufacturing is to compound those problems.
Then you ask, “Are you speaking from similar experience or merely spouting platitudes?”
I am speaking from the background of being a Global Lead Buyer for a Fortune 5 company. I am currently negotiating a $500M buy that touches manufacturing in the US, MX, Brz, Germany, Russia, India, China and Thailand. I am speaking from completing an insourcing project from 2009-11 that brought $400M back to the US in manufacturing. I am speaking from 15 years of similarly diverse experiences that are focused on Supply Chain Management.
The solution to our problems is not more government restrictions on markets, it is not protectionism, it is to get the government out of the way of our manufacturers. They will decide where the most efficient uses of all resources lie on the globe.
All of that said, I’d wager we could both agree that the single best solution to make the US a Global Leader in Manufacturing is to abolish all corporate and income taxes and institue the FairTax.
I agree with eliminating corporate taxes to make US companies more competitive. I would also like to see income taxes lower and flatter.
We disagree on tariffs. During the second half of the 19th century the US built its industrial infrastructure. Tariffs were high and used to fund most of the cost of the federal government while at the same time insulating US industry from European competitors. Had the US adopted a zero tariff/no quota free trade policy, we would not have built the industrial base that allowed the US to become an economic power in the 20th century.
From an economic perspective I support tariffs for the following reasons:
1) The US market belongs to the American people, not companies, not bankers, not foreign players. A tariff can be viewed as an economic charge for the privilege of accessing the market. If the US government is going to tax US companies at a rate of 35% for the privilege of engaging in commerce in the US market, it is reasonable to charge a similar amount to foreign factories for the same access to the market.
2) Free trade is attractive in concept but the reality is many of our trading partners protect home markets and provide advantages to their exporters. These mercantilist trade policies put US companies at a disadvantage in the US market. For example, the Chinese routinely pay Chinese apparel companies a 15% export rebate. The government also ensures factories exporting receive zero interest government loans, essentially a free cost of investment capital. Not to mention currency manipulation which serves to subsidize exports. These subsidies are in essence a form of economic warfare. Tariffs are a reasonable defense to economic warfare. Why should foreign companies be permitted to subside exports to the US and have a competitive advantage due to these subsidies? Subsidized trade is not “free” trade.
3) There is a strategic interest in the US having a robust and broad manufacturing base. Today the US is extremely vulnerable to having supply of key manufacturing goods cut off and no internal manufacturing infrastructure in place to supply substitute products. Contrast the current situation with 1941 when the diverse manufacturing infrastructure permitted the rapid expansion and mobilization of the armed forces and the supply of allies globally with war materials.
4) The US government provides services in support of imports and exports. A significant amount of the cost of the Coast Guard and Customs is related to external trade (imports and exports). The US Navy protects the sea lanes globally facilitating the free movement of cargo. The Army Corps of Engineers dredges harbors and waterways facilitating the movement of commerce. The FAA supports air traffic control and airport construction projects directly benefiting international trade. GPS satellites, launched by the US government, aid navigation globally. To the extent these costs are born by the taxpayer and not the users, the users are receiving an economic subsidy. I favor the allocation of these costs to the users via tariffs or a charge on each container entering or exiting the country.
With respect to the textile industry, I agree US labor is high cost for many apparel assembly (i.e. sewing) jobs. Textiles (yarn and knitting) are a different story as the textile industry is highly automated. However textiles go hand in hand with apparel and when the apparel factories go away from a market, the textile factories follow due to loss of customers. Recognize when an apparel manufacturer closes a large sewing facility, employing large numbers of low skill workers at close to minimum wage, the local community is saddled with significant social costs. Those costs result from the closure but are not born by the company closing the facility. The company may benefit economically from the decision but the community and workers bear the cost. When a company does not bear the economic costs of economic decisions it makes, it is essentially being subsidized.
My answer to Chinese subsidies is higher tariffs on Chinese imports. How do higher tariffs on Chinese imports hurt US factories making these products? If the subsidized Chinese products continue to be sold in the US markets, the US factories will lose market share and ultimately close. What is your answer to the subsidies? As long as other countries have free access to the US market while subsidizing their exports and applying barriers to US imports US companies will be at a disadvantage. Your answer seems to be status quo — keep the US market open and if the US factories can’t compete with subsidized imports and manipulated currencies it is just too bad for the US worker and US manufacturers. We’ve had 20 years of this grand experiment and the result has been a decline in the standard of living for the average US worker for the first time in US history.
For years I believed in free trade. I was involved in lobbying the government to lower tariffs and eliminate quotas. I was involved in closing down US factories and moving production to Asia. The companies I managed benefited economically (for a time) from the decisions to outsource production. By moving production to third world countries the company benefited from lower wages. Some of the other benefits from using overseas contractors included lower costs from child labor, lower labor costs realized by working employees overtime without pay, the ability to have employees work with hazardous materials without expensive protective clothing, the cost benefit of being able to dump hazardous materials into rivers or noxious gases into the air without expensive treatment to eliminate the toxicity. One of the reasons US and European labor costs are higher than third world labor costs is government regulation that prevent companies from abusing workers and polluting without incurring the costs.
Theft of intellectual property developed in the US is also a major issue in many countries. Why should the US allow open access to its markets to countries allowing companies to steal intellectual property?
In a perfect world we would have free trade and factories would compete on a level playing field. This is not a perfect world. While many US companies may benefit economically from subsidized imports and doing business with companies that steal intellectual property, others do not. When in the name of some abstract notion of fair trade the US government allows subsidized imports free access to US markets it penalizes US factories and US labor. If capitalism means I compete with one hand behind my back while my foreign competitor is subsidized by his government, I want no part of it. Been there, done that. The end result is the destruction of the middle class of the US and the lowering of the standard of living for US labor to that of a third world hell hole.