Monday, August 30, 2010

Made in the U.S.A.?

Should you "Buy American?" Does it matter? Why are so many products now made overseas?

You've met the type before. You are at a party, and some bore bends your ear about how everyone should "Buy American!" and how those "Idiots in Washington" are driving our precious manufacturing base overseas.

You just want to club these idiots to death, because they just don't get it. The main reasons most of our products are now coming from overseas has more to do with these idiots who say "Buy American!" than with the "Idiots in Washington".

Things are increasingly being outsourced overseas for one very simple reason: Cost. It is not some evil plot on the part of managers to close factories just for the hell of it and move everything thousands of miles across the planet to a place with an unstable government and a huge language barrier.

No, it is cost, and cost alone. And when you think about all the huge barriers to moving production to China, India, or elsewhere, you can understand by what a huge margin overseas manufacturers are undercutting our costs

Why does it cost so much to make things in America? Well, basically it is because of the whiny "Buy American" types who want to blame all our problems on someone else, but never look inward and see that perhaps the problem might be....them.

1. Higher wages are a start - most Americans are incredibly lazy and work very little - if at all. And if they do, they demand a huge salary to do even the most menial tasks that could be performed by a Monkey.

When I was at GM in 1979, we had forklift drivers making $42,000 a year, with overtime. That is a lot of money today, to drive a forklift (which can be learned in about an hour). Back then, well, it was like $100,000 today - if not more.

When I was at Carrier, we did a cost analysis on a new air conditioner product. Labor cost in the USA, with overhead, health insurance, etc. was at least $70 per unit (for a unit with a sales price of $450). Labor in Mexico? $3. If we made the unit in Syracuse, New York, the company would have lost $50 on each sale. Not hard to see why the factory there has been shut way back.

And yet the "Buy American!" crowd would never dream of taking a pay cut. No, they want a raise, if anything, and will see a factory close rather than try to help the bottom line.

2. Health Insurance is another - In most foreign countries (even Mexico!) they have national health insurance. So employers don't have to pay anything for health care coverage for their employees or, more importantly, retirees. This is a huge savings for them, and cuts their labor cost nearly in half.

A recent article about Toyota illustrates the point. Their health care coverage costs are a fraction of GM's. In Japan, they pay nothing at all. In the US, their younger workforce has lower costs and few, if any retirees. Health care and retirement costs are what put GM and Chrysler in to bankruptcy court.

And yet, the jingoistic "Buy American" crowd are also the first people to shout down even the modest health care reform that was passed last year. Forget national health insurance - it just ain't gonna happen! So we pad our labor costs with health insurance and wonder why we can't compete.

And health insurance (along with generous retirement benefits) is one reason many shops would rather pay someone overtime (mandatory overtime, they call it) than to hire a new worker. You only have to pay retirement and health insurance once per worker. So it is easier to work someone 60 hours a week than to hire two people for 30 hours a week.

You want gold-plated benefits? Great. Just bear in mind that they encourage less hiring as a result.

3. Corporate Income Taxes are a big factor too - Most countries overseas have no corporate income tax. You tax shareholders on their dividends, and that's it. And if you think about it, dividends ARE the profit a corporation makes.

Only in the USA do we tax corporations on "profits" and then tax them AGAIN as dividends are paid out to shareholders. This puts US corporations at a huge disadvantage when competing overseas. And the double-taxation of corporations never made any sense at all.

And guess what? The bombastic "Buy American!" crowd are the first ones to say "Tax those evil corporations! They make too much money!" But of course, a Corporation doesn't "make" any money for itself - it has expenses, overhead, and pays dividends. Although it is a legal fiction that a corporation is a "person", there is no "Mr. IBM" out driving a Ferrari and laughing all the way to the bank. But try telling that to the guy with the "Buy American" t-shirt (made in Taiwan).

Shareholders and employees are the only ones who "make" any money from a company, and they already pay taxes on that money.

4. Restrictive Work Rules Hurt - When I was at GM, I needed to have a pallet of parts moved to a machine to keep the line running. The forklift driver (making $42,000 a year, remember?) told me that because of Union rules, he could only move the pallet 10 feet, and that another driver would have to move it the remaining 10 feet. Ridiculous! He finally moved it for me, and guess what? We both had a time-consuming "grievance" filed against us by the Union rep.

In Japan, China, India, or anywhere else not in bizarro-world America, the workers would have hand-carried the parts the 20 feet, if necessary, to keep the line running. Workers overseas appreciate their jobs and understand that if the company doesn't make money, it goes out of business.

And yea, the "Buy American" idiots are the first to subscribe to the concept of unions and union rules. The unions have been cut way back since those old days - silly work rules and nonsense like that are becoming a thing of the past. Becoming - but not fast enough.

5. Take This Job And Shove It - as the song goes. Americans have a schizophrenic relationship with their employment, it seems. They whine and complain when the company closes its doors. But when the company is hiring, it's "I hate this job" and "I hate this damn company!"

I saw this firsthand at GM and, to some extent, Carrier. Highly paid workers, bored to death (restrictive work rules and lax management meant hours of time to kill) literally sabotaging the assembly line or damaging products. You remember the bad old days at GM - when workers would intentionally screw up a car just for laughs. Poor SOB who bought those Monday cars! Ha-ha on him! Of course, that consumer is now a loyal Toyota buyer - and whose fault is that?

Or take the tortured case of Caterpillar. The workers there called a strike - for six years. When they finally backed down and made concessions, it was too late. The plant was closed. And more and more heavy construction equipment now bears foreign-sounding names.

Here's a clue - when you strike for SIX YEARS, you are basically saying "Fuck this job". And you have no cause for complaint when the jobs just go away.

And no, none of the workers there were "underpaid". In UAW and other union plants, most workers make 2-3 times more than similar, non-union workers are paid on the "outside". Greedy little pigs, is all they are, running a shake-down game with the help of the Mafia.

And yea, guess what? The "Buy American!" jerk belongs to a union.

6. I want it cheap - below cost: Most Americans appreciate a bargain. And today, foreign-made consumer goods are far cheaper than American made products of just a few years ago - by a factor of 2 to 5.

When I was a kid, my Dad never bought a Coleman cooler, as they were very expensive back then. Today, the price is about the same, but inflation being what it is, the effective price is 1/10th what is was back then. Chances are, you have one or two of these coolers. In 1965, it was "too expensive" for our family. If we did buy such luxuries, they were carefully tended and expected to last decades.

If you look at the typical household back then, it was pretty bereft of electronics, gadgets and other junk. A vintage radio ad I found from 1960, shows a Zenith portable radio (AM/FM) selling for $79. Ouch! That would be like $500 today. Who could afford such a thing? When "Cheap Japanese Transistor Radios" came out, they took the market by storm.

And yea, you guessed it, the "Buy American!" dude wants all his stuff on the cheap - and if you go through his house, you'll find it chock full of foreign-made goods, just like the rest of us. And chances are, he even drives a Japanese or Korean car.

Talk about hypocrisy.

7. Lawsuits - In China, no one is going to sue you for selling hot coffee (or tea). But in the good old USA, everyone is a "Victim" and has a lawsuit they are filing or have filed.

The cost of litigation is not trivial, and while the idea of lawsuits protecting consumers, the environment or workers is a fine one, in many cases, these suits are little more than shakedown attempts to extort money from companies.

Take "class action" suits, for example. These are filed by opportunistic law firms who take in millions of dollars in fees for cases that are supposed to right "wrongs" that in many instances are trivial. The consumers get little or nothing, in most cases - perhaps a coupon for a free car wash.

And yea, Joe "Buy American!" will no doubt bore you with the status of his lawsuit against his former employer, Doctor, retail store, or whatever. Because you know, he's a victim here.

8. Regulation - This is not as big an issue as you might think, which is why I list it last. But in many places of the USA, building a factory is a major - almost impossible - chore. There are so many regulatory hoops to jump through that it is nearly impossible to even start.

And even if you get all the necessary permits, chances are the "citizens against big factories" committee will spring up and sign a petition to stop your expansion or construction.

And yea, these same "citizens" are the ones who say "Buy American" and then bitch when the factory closes or jobs go overseas.

Yes, some regulations are good, but we have far more than our overseas counterparts. If you want to know why people locate factories overseas, this is one (but not the only) reason.

* * * *

What it all gets down to, with this "Buy American" nonsense, is that Union-types would like to enact restrictive tariffs to keep imports out of our country, so we would all be FORCED to buy American products.

Would that be a bad idea? Yea, hugely bad. History has shown again and again that restrictive tariffs end up causing reciprocal tariffs, and the result is a tariff war, which results in restricted commerce and usually a prolonged RECESSION if not DEPRESSION.

It also means that prices skyrocket and quality goes in the tank. Cars in the 1960's were horribly made, no matter how nice the "hot rod" at the car show may look today. And since consumers had no choices, they were forced to "Buy American". In fact, Americans were so desperate to avoid buying American crap, they bought tinny foreign cars like Volkswagens and Peugots. Companies like that would not have stood a prayer in the US market if not for the horribly bad quality and selection from "the big 3".

In short, we handed the market to companies like Toyota - on a silver platter.

Should we be concerned that crappy manufacturing jobs are going overseas? Perhaps. As our country matures, we have become more of a center for design and development -high paying jobs for educated, skilled people. Crappy, low-skill jobs are going to where the labor is cheap. And if you haven't figured that out in the last 30 years, well, I simply can't help you.

If we want more companies to site themselves here, there are things we CAN do other than raise tariffs or bash Toyotas with a sledgehammer (yes, they did this at GM back in the 1980s. Brilliant).

1. Stop hating your job and buying into this sophomoric "Corporations are Evil" crap. If you want a company to stay in your town, start appreciating it instead of resenting it.

2. Stop blaming the Japanese for being efficient or the Chinese for working too hard. Given the shipping costs from China or Japan to the USA, we should have a huge competitive advantage for any product made here.

3. Show up for work on time, stop sabotaging the assembly line. Yea, you. The whiner. You want to keep your job? Then do it. Yea, working the line sucks. But you chose not to go to college. Not my fault.

4. Just Say NO to Unions. You want a union? The organizer promises that they will double your salary and get you all sorts of benefits? Think long and hard about it. If your job can be outsourced, chances are, it will, if costs escalate.

The Union movement has perhaps realized too late, that they have screwed the pooch, big time. Factory jobs are not hard to pick up and move, lock, stock, and barrel, overseas. No matter how large an investment a company has in the USA, it is often cheaper to build a new factory overseas and have a 50% decrease in overhead. And it is not a matter of being "greedy for profits" either - they have to do it to survive.

Unions today are focusing on the service sector, which is a smart move on their part. While Wal-Mart may buy most of its stock from China, they still have to hire some local low-skill labor to man the registers and stock the shelves. You can't move the store overseas, if you want to sell product.

Of course, it remains to be seen how successful the unions will be at this. Or, if they are, if a Coleman cooler will cost $500.