“Welcome to capitalism in the 21 st century. The end result of free trade and globalism is to replace high cost labor with low cost labor. Without tariffs and government imosed quotas, middle class jobs in industrialized countries will move to locations where lower wages can be realized.”
Your claim that this is the result of capitalism is a flat out lie. The Unions in the EU are very protectionist and this one in Belgium is especially so. Manufacturers in EU in general are forced to hire folks that are not needed and then it is very difficult to have any flexibility in the labor force.
Their wage of $40.60 EU$ is the equivelant of $51 fully fringed here. The wage portion of that would be $33 USD an hour to turn a screw. You advocate for government imposed quotas, while blaming the results of government imposed quotas on capitalism.
The reality is that this plant closure is the result of your preference for government interference in the free market. It is not the result of the free market forces.
Non union manufacturing facilities in the American South have been decimated over the past 20 years thanks to lower tariffs and quotas. Entire industries have virtually disappeared (textiles, apparel assembly, furniture, home furnishings, and consumer product assembly). These nonunion workers did not have bloated benefits packages and many began their factory work at minimum wage or slightly above.
I spent over 30 years working in management for large corporations and was involved in many decisions to outsource. It is naive and simplistic to say the decisions were related to excessive union wages and benefits. The companies I worked for had nonunion labor forces and were located primarily in right to work states. Here are the facts:
1) During the 1970’s and 1980’s financial managers, most trained as MBA’s at the nation’s leading business schools, wrested control of many US companies from the product and customer focused managers who typically worked their way up from sales, marketing, design, or manufacturing assignments. The financial executives were not connected to customers, employees, or operations. They managed “numbers”, not factories or customer relationships much less the R&D/product development required to sustain innovation and new product activity. Under management of the financial executives US industry shifted from a focus on driving sales growth to managing quarterly improvements in bottom line performance. Organizations became internally focused on cost reduction, not externally focused on driving sales. To reduce costs and increase cash flow, US companies deferred or eliminated routine capital investment associated with increasing productivity. By the early 1990’s when the US market was opened to “free trade”, US factories were filled with obsolete equipment.
2) US labor was highly productive, but the equipment was not the most productive available. US companies were faced with a need to invest heavily in modern equipment and facilities if they wished to remain competitive. It is interesting that almost every financial analysis I was involved with showed US workers with modern equipment were competitive globally thanks to the higher productivity of the US worker and the creative management in US factories. The problem was getting the investment capital to give them the updated equipment.
3) At the same time Wall Street had shifted from its historical function of providing long term investment capital to US companies to a casino of speculators focused on quarterly performance, not long term value creation. In fact the Wall Street financial leaders of the 1990’s were obsessed with innovations in leveraged buyouts and private equity restructuring. Wall Street rewarded companies that stripped assets in order to free up cash and improve earnings in the short term. The speculators in charge of the US capital markets had no interest in funding the billions of dollars required to provide US workers with the current technology equipment needed to make them globally competitive.
4) Another nail in the coffin of US manufacturing came from China. While we opened our markets to the world, China maintained a mercantilist trade policy. Export industry were given zero interest loans by the state to construct modern factories with state of the art equipment. The Chinese government also gave its domestic companies rebates on the value of goods exported. The combination of free capital and export subsidies of up to 20% (15% was typical in the industries I worked with) distorted the economics to the point where the decision to offshore became simple. In addition, the China’s intentional manipulation of its currency to make its exports less costly in global markets has been well documented over the past two decades. Corporate tax rates in China are also lower than in the US giving Chinese companies another cost advantage.
5) The other nail in the coffin of US manufacturing came from the big Wall Street investment banks, and the big management consulting firms. I sat in a number of presentations where the bankers and consultants met with US public corporate management teams encouraging them to shut down US factories to free up capital to reinvest in acquisitions or stock buybacks. In other words trade hard productive assets for paper created by Wall Street. Many corporations took the bait, shedding people and plants giving modern state subsidized Chinese factories instant customers while decimating US workers and communities. I can assure you every presentation I viewed included a section on how the US company could unload the social costs of the layoffs on state, local and federal agencies.
Very few of the major offshoring initiatives with which I was associated ever realized the promised savings. Rising global petroleum costs dramatically increased freight costs. Many of the financial projections assumed the offshore workers would achieve the high productivity level of US workers. The productivity gains did not occur due to different management processes and higher labor turnover. Meeting quality standards was a major problem for Chinese factories in particular. Chinese culture does not frown on cheating and one way to reduce production costs is to produce product out of spec or use inferior raw materials. US companies incurred significant unanticipated costs to monitor production and ensure quality standards were being met in the factory. Finally, most US companies underestimated the reserve inventory they would have to carry in order to preserve service levels with longer lead times.
Today, for a variety of reasons, the economics of most manufacturing operations actually favors US labor, assuming it is supported with modern equipment and management processes. However, after 20 years of offshoring domestic raw material and component supply chains no longer exist for many industries. Even if a company is willing to invest in building an assembly operation in the US today, it faces the daunting challenging of supplying the factory with components when domestic suppliers of the components do not exist.
I take great exception to you accusing me of lying and preferring government interference in the market. 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. Are you speaking from similar experience or merely spouting platitudes? There are legitimate reasons for tariffs particularly when other countries are subsidizing their competitive industries or engaging in currency manipulation to make their industries more competitive. Tariffs also allow the government recapture some of the costs the taxpayers bear to support trade (Customs Service, Coast Guard, harbor dredging by the Army Corps of Engineers for example). If tariffs and duties are not imposed to cover these costs, essentially taxes paid by domestic manufacturers are subsidizing the importers.
Union labor, as you infer, has another set of issues but politicians can easily correct the distortions unions impose on the marketplace by passing a national right to work law. Remember, union wages are the result of a voluntary agreement between management and labor. It is management’s fault if it agrees to uncompetitive labor contracts. No doubt the executives who acquiesce to the unions also give themselves compensation packages several times the compensation for equivalent management jobs at overseas competitors. If your preference is to lower the compensation of US working people to the level of workers in third world countries, I suggest you should also support the lowering of the compensation of senior executives in the 1% to equivalent competitive levels. After all, isn’t that what should happen in a perfectly free market?
Non union manufacturing facilities in the American South have been decimated over the past 20 years thanks to lower tariffs and quotas. Entire industries have virtually disappeared (textiles, apparel assembly, furniture, home furnishings, and consumer product assembly). These nonunion workers did not have bloated benefits packages and many began their factory work at minimum wage or slightly above.
I spent over 30 years working in management for large corporations and was involved in many decisions to outsource. It is naive and simplistic to say the decisions were related to excessive union wages and benefits. The companies I worked for had nonunion labor forces and were located primarily in right to work states. Here are the facts:
1) During the 1970’s and 1980’s financial managers, most trained as MBA’s at the nation’s leading business schools, wrested control of many US companies from the product and customer focused managers who typically worked their way up from sales, marketing, design, or manufacturing assignments. The financial executives were not connected to customers, employees, or operations. They managed “numbers”, not factories or customer relationships much less the R&D/product development required to sustain innovation and new product activity. Under management of the financial executives US industry shifted from a focus on driving sales growth to managing quarterly improvements in bottom line performance. Organizations became internally focused on cost reduction, not externally focused on driving sales. To reduce costs and increase cash flow, US companies deferred or eliminated routine capital investment associated with increasing productivity. By the early 1990’s when the US market was opened to “free trade”, US factories were filled with obsolete equipment.
2) US labor was highly productive, but the equipment was not the most productive available. US companies were faced with a need to invest heavily in modern equipment and facilities if they wished to remain competitive. It is interesting that almost every financial analysis I was involved with showed US workers with modern equipment were competitive globally thanks to the higher productivity of the US worker and the creative management in US factories. The problem was getting the investment capital to give them the updated equipment.
3) At the same time Wall Street had shifted from its historical function of providing long term investment capital to US companies to a casino of speculators focused on quarterly performance, not long term value creation. In fact the Wall Street financial leaders of the 1990’s were obsessed with innovations in leveraged buyouts and private equity restructuring. Wall Street rewarded companies that stripped assets in order to free up cash and improve earnings in the short term. The speculators in charge of the US capital markets had no interest in funding the billions of dollars required to provide US workers with the current technology equipment needed to make them globally competitive.
4) Another nail in the coffin of US manufacturing came from China. While we opened our markets to the world, China maintained a mercantilist trade policy. Export industry were given zero interest loans by the state to construct modern factories with state of the art equipment. The Chinese government also gave its domestic companies rebates on the value of goods exported. The combination of free capital and export subsidies of up to 20% (15% was typical in the industries I worked with) distorted the economics to the point where the decision to offshore became simple. In addition, the China’s intentional manipulation of its currency to make its exports less costly in global markets has been well documented over the past two decades. Corporate tax rates in China are also lower than in the US giving Chinese companies another cost advantage.
5) The other nail in the coffin of US manufacturing came from the big Wall Street investment banks, and the big management consulting firms. I sat in a number of presentations where the bankers and consultants met with US public corporate management teams encouraging them to shut down US factories to free up capital to reinvest in acquisitions or stock buybacks. In other words trade hard productive assets for paper created by Wall Street. Many corporations took the bait, shedding people and plants giving modern state subsidized Chinese factories instant customers while decimating US workers and communities. I can assure you every presentation I viewed included a section on how the US company could unload the social costs of the layoffs on state, local and federal agencies.
Very few of the major offshoring initiatives with which I was associated ever realized the promised savings. Rising global petroleum costs dramatically increased freight costs. Many of the financial projections assumed the offshore workers would achieve the high productivity level of US workers. The productivity gains did not occur due to different management processes and higher labor turnover. Meeting quality standards was a major problem for Chinese factories in particular. Chinese culture does not frown on cheating and one way to reduce production costs is to produce product out of spec or use inferior raw materials. US companies incurred significant unanticipated costs to monitor production and ensure quality standards were being met in the factory. Finally, most US companies underestimated the reserve inventory they would have to carry in order to preserve service levels with longer lead times.
Today, for a variety of reasons, the economics of most manufacturing operations actually favors US labor, assuming it is supported with modern equipment and management processes. However, after 20 years of offshoring domestic raw material and component supply chains no longer exist for many industries. Even if a company is willing to invest in building an assembly operation in the US today, it faces the daunting challenging of supplying the factory with components when domestic suppliers of the components do not exist.
I take great exception to you accusing me of lying and preferring government interference in the market. 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. Are you speaking from similar experience or merely spouting platitudes? There are legitimate reasons for tariffs particularly when other countries are subsidizing their competitive industries or engaging in currency manipulation to make their industries more competitive. Tariffs also allow the government recapture some of the costs the taxpayers bear to support trade (Customs Service, Coast Guard, harbor dredging by the Army Corps of Engineers for example). If tariffs and duties are not imposed to cover these costs, essentially taxes paid by domestic manufacturers are subsidizing the importers.
Union labor, as you infer, has another set of issues but politicians can easily correct the distortions unions impose on the marketplace by passing a national right to work law. Remember, union wages are the result of a voluntary agreement between management and labor. It is management’s fault if it agrees to uncompetitive labor contracts. No doubt the executives who acquiesce to the unions also give themselves compensation packages several times the compensation for equivalent management jobs at overseas competitors. If your preference is to lower the compensation of US working people to the level of workers in third world countries, I suggest you should also support the lowering of the compensation of senior executives in the 1% to equivalent competitive levels. After all, isn’t that what should happen in a perfectly free market?