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ups.com...
On Oct 27, 5:17 pm, "Ed Huntress" wrote:

We could solve this problem easily. All we have to do is to eliminate
the
minimum wage, outlaw unions, and then tell people they can accept
$0.80/hour (a sort of median wage in China) or suck wind. That's
something like the way things operated here before 1910 or so.

--
Ed Huntress




Here's another key point: If they find themselves in direct competition
with
a low-wage overseas manufacturer, they can't remain competitive no matter
what they do. You can't compete with $0.80/hour wages. As GM demonstrated
a
few years back, you can crate the technology and the management skills
and
ship them to Shanghai, and then build engines for Chevy SUVs that you
ship
back to the US. It all happens a lot quicker now.

If a company finds itself in the unfortunate position of competing
directly -- an apparel manufacturer, or a basic steel producer -- the
best
thing to do is to get themselves *out* of direct competition, by finding
a
niche or a collection of services that overseas competitors can't easily
duplicate. We do better now in steel mini-mill recycling and in specialty
steels than in basic steel. Apparel companies in the US, those few that
are
left, specialize in things that move fast and that require acute
sensitivity
to local tastes and fashions. And so on.


You have two choices: Try to cut your costs to compete with subsidized
manufacturing and $0.80/hour wages, and watch your company go down the
toilet; or make a change in your business to get out of the line of fire.



--
Ed Huntress

I disagree. The US is manufacturing more than ever. Maybe not as
much as it would be if some industries had not moved to places with
lower costs, but still more than ever.

That's true, but it doesn't tell you anything about the competitiveness of
US manufacturing. The fact is that much of US manufacturing has no
significant competition from low-wage countries, which is the competition we
were talking about. There is no such competition in car assembly (yet),
aerospace (yet), a large part of construction materials, and a variety of
other fields that amount to well over 1/2 of US manufacturing. Where there
is direct competition with low-wage countries, many US manufacturing
industries have all but disappeared -- consumer electronics, textiles,
tabletop consumer appliances and lower-cost goods of many kinds, for
example.


As far as things as basic steel producer, read " American Steel ". It
is about how Nucor installed the first continuous casting steel
plant.

I saw and reported on the continuous casting steel operation at Bethlehem's
Burns Harbor plant almost exactly 30 years ago. Nucor was doing continuous
casting at its mini-mills back in the late '60s. By that time, Japanese
steel mills were using it for most of their production in their primary
steel plants.

I don't know what "American Steel" has to say about it, but that was my beat
in those days. Success in the primary steel industry depends on a lot more
than technology. Anybody can buy the technology today.

Nucor built its business on remelting scrap in mini-mills, which is the kind
of service-enhanced manufacturing I was talking about when I discussed ways
to get out of the line of competition with low-wage countries. The way
economics work in the electric-arc steelmaking business, the cost structure
is entirely different from that of primary (or "basic") steel. It favors
local production and the economies of scale are much smaller than in primary
metal production. Direct labor is a smaller issue compared to warehousing
and shipping costs on that low-value steel. At the high end of the scale,
another set of forces produce a similar result. Thus my mention of specialty
steels as a better target for high-wage, high-technology countries, as
opposed to the high-volume mass market of primary steel.

The trend in primary steel is toward cross-border ownership by a handful of
multinationals who play one country off against another. It's getting very
messy to follow and probably isn't a good example anymore of a given
country's true costs of production.

You say there are two choices. Actually there are at least
three. The one you did not mention is getting rid of unskilled
labor. A group of metalheads in Seattle recently toured the Nucor
plant is West Seattle. The plant is highly automated. I forget the
exact number, but I think they have about 18 people working per
shift. All well paid. I know you are going to say Nucor is in the
mini-mill business, but they are the second largest steel company in
America. And the day we toured the plant, they were producing rebar.
A pretty basic product.

First, I hope you're aware of the difference between a primary steel
producer, which makes basic steel, and an electric-arc-remelt operation like
Nucor. I made clear that I was talking about primary steel, and, if you
noticed, I said that the specialty steel producers (into which we can lump
remelt operations for the purpose of this superficial discussion) are the
more promising ones for the future of the US steel industry.

Nucor does not "make" steel. They remelt scrap, plus some basic ingot steel
they buy from the primary steel manufacturers. Most of what they make is
steel at the low-cost end of the business -- structural steel and the like
that isn't graded by alloy, but rather by a few performance parameters. It's
also true that some high-quality specialty steel is made in mini-mills, but
that's made from remelted primary steel ingots -- many of which come from
foreign primary steel producers.


Nucor has two plants the make fasteners. Nuts and Bolts. They run
three shifts, but the grave yard shift has zero people working in it.
Look up Nucors web site and see all the things they produce and how
much per employee.

Yes, I visited and covered Nucor when I was reporting on the
metals-producing industries. They've been very innovative from the start.


You can compete with $ .80 wages , but only if you are about 25 times
more porductive. There are still a lot of machine shops in the US.
But they do not employ many machinists. They are automated.

Again, you can't compete head-to-head against $0.80/hour wages. The example
I gave of the GM-Shanghai engine manufacturing operation, which makes
engines for the Chevy Equinox, is a good example of how quickly advanced
technology can be transplanted to a low-wage country. There are many other
such examples ranging from Volkswagen to Charmilles EDMs.

As I said, you either have to be in a niche that isn't attractive to
low-wage producers for some reason, or you have to offer some services they
can't. For example, delivery on JIT schedules and in-person engineering
consultations. Communications is a big advantage that US shops and plants
have over cheap competition located halfway around the world.


What is going to the the real force is that the foreign plants are
eliminating the unskilled labor too. They are automating, educating
more engineers, more quality control people, educating more people in
manufacturing plant management.

I am also not sure how much difference the unions made in increasing
the standard of living in the US. Eli Whitney invented mass
production. Ford the assembly line.
It takes time for things to change, but I think that they would have
changed without the unions. Maybe not as fast, but the change would
have occurred never the less.

Not likely. We were headed for a completely divided society and possibly for
the end of anything that resembled democracy. It was the unions that
arguably saved the US from going communist. Karl Marx despised trade unions
because they interfered with the conflict that he (and many other economists
and business leaders of the time) thought was going to build to a crisis
that would result in revolution. One of his mistakes was that he didn't
believe that unions would be successful in improving the lot of workers.


It was not the Unions that raised the standard of living. It was the
increased amount of goods manufactured per manhour. Unless more goods
were manufactured, the standard of living would have stayed the same.

The last part is true. As for the first part, it was unions that led to the
redistribution of wealth such that we wound up with a pretty well-off middle
class of workers. Prior to that time the middle class was a class of
merchants and professionals. If you study the history of the period, it's
pretty clear that nothing else was pushing in that direction.

Ford understood that the masses had to be able to afford a car in
order to sell millions of cars.

His personal effort in that direction actually was a kind of cockeyed idea
that probably added little or nothing to his bottom line, and it wasn't
contagious. g Ford was a very strange guy and an extremely successful one
for many reasons, but I doubt if his one-time doubling of workers' wages had
much to do with it. It's true, though, that he was making products for a
market that needed more money if he was going to be able to sell millions
more cars.

The bottom line on competitiveness with low-wage countries seems to be this:
Many people grossly overestimate how much of our manufacturing really is
vulnerable to low-wage competition, so they're surprised that manufacturing
as a whole actually is growing in the US, should they happen to hear about
it. I'm not surprised at all by it. But I did a lot of reporting on the ups
and downs of US industry and world trade over the years, so I've been close
to the actual numbers.

But it's also true that low-wage competition has wiped out entire segments
of US manufacturing. Our present status is that manufacturing as a whole is
stable or growing slightly, at the same time it's declining as a portion of
our GDP. It's also declining sharply as an employer. The parts of US
manufacturing that are growing most are ones that do not have direct,
head-to-head competition from low-wage countries, either because the US
companies are one step ahead, because they're in a niche that's hard to
attack from the outside, or because they are able to offer services that
only local suppliers can offer.

None of his is anything to get depressed about. Some of it is the result of
our country's industrial maturation. We're quite flexible and our economy is
doing quite well in the long term despite the nibbling away at the edges. We
could do a lot better at easing the hardship for people who get caught in a
trap by sudden influxes of low-cost goods, something for which even the IMF
is highly critical. But our economy as a whole will adjust.

I think it's important not to generalize and to conclude from this that we
can compete in every segment if we're only smart enough and innovative
enough to boost productivity by leaps and bounds. The GM example
demonstrates the fallacy with this argument. Technology can be transferred
in a relative blink of an eye today. In GM's case, it took just over two
years from the zero point to shipping Chevy engines back to us (to Canada,
actually, but the completed SUVs are then shipped to the US for final sale).

Looking at the segments that are successful, and why, has to be considered
at the same time we consider why some good companies have failed in the face
of low-wage competition. It isn't always, or even usually, because they did
something wrong. A lot of them just got stuck between a rock and a hard
place.

And then, from that study and consideration, we have to make smart decisions
about where the opportunities and the traps are in a globalizing economy.
The thing that would be deadly right now would be a lot of self-delusion
that we can compete in any product category if we just try harder. That
generalization isn't true.

--
Ed Huntress