Manufacturing will move

The refusal of China and India to go along with the carbon-dioxide limits should be the death knell for the Cap and Trade bill currently being
considered by the Senate. The legislation is a pretty hard sell. Even advocates admit restrictions would only have a small effect -- only a fraction of 1 degree Celsius, a virtually unnoticeable .07 degrees -- on global temperatures by 2050.
Even if a worldwide agreement made sense, an agreement without China, India and other developing countries can be counterproductive. It could actually mean more, not less, carbon-dioxide emissions. With massive increases in energy costs for the United States, Europe and Japan, energy-intensive manufacturing will move to countries without limits. That would negate some of the carbon-dioxide reductions in countries with limits.
http://www.washingtontimes.com/news/2009/jul/10/killing-cap-trade /
Best Regards
Tom.
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On Mon, 13 Jul 2009 16:28:54 -0700, the infamous "azotic"

Yabbut it puts billions of ducats in the pols' pockets while raising the utility bills until half the population can't afford to use them. What's not to like?
-- Mistrust the man who finds everything good, the man who finds everything evil, and still more the man who is indifferent to everything. -- Johann K. Lavater
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scrawled the following:

Will the last manufacturer in the US turn off the lights when he leaves...oh, never mind.
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scrawled the following:

a bit naieve, don't you think? energy prices are rising and will continue to do so, hence transportation costs. your doomsday scenario will not happen. what is more likely is a protectionist approach to prevent imports from those who won't comply, just like child labor laws block import of some carpets and stuff
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scrawled the following:

There are plenty of other good markets, the US is headed for the bottom of the heap. A friend of mine set up a satellite plant in Indonesia five years ago to service his 20% of eastern customers. That plant is now doing three times what his US plant is doing...at MUCH lower costs. He says he has plenty of room for me.
In reality, I'm not moving out of the US just yet, but we are moving into a more efficient building in another city. We are planning for electricity and natural gas to triple within three years and labor costs will skyrocket with mandatory COLAs, union demands and healthcare. More automation, less people. Almost the same effect as if I moved to Indonesia...less and less employees! I hear the same talk from other business owners. So much for job creation! The number of jobs I have and will eliminate will be multiplied by hundreds of thousands.
Protectionism, even in the smallest form will never pass! Too much money goes into too many politicians' pockets. The US is now so corrupt with wealth redistribution, blatant political lies, (not so) hidden agendas, ruined education system, etc., that I doubt it's light will ever shine brightly again. They've managed to cut open the goose to get all the gold, and we all know how that turns out.
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About 14 months ago we recieved an automated cell that wiped out 5 jobs. If the numbers make sense, machines in, people out. As long as the equipment isn't self repairing, I'll be fine.
Wes
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wrote:

Yep, as long as there is demand for the products produced. Less employees equals less money circulating in communities. A dollar gets spent 7 times locally. That's created wealth from manufacturing, cheese checks don't count. Even low-end jobs give accomplishment satisfaction to people, cheese-checks cause despair, apathy and crime.
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wrote:

It isn't clear what your point is, Tom. Are you arguing for trashing automation? For paying people Chinese wages? Or what?
You and Wes seem to be implying that you wouldn't automate if there weren't factors that raised labor costs. That's a mistake. What drives automation is competition, not labor. That's been true since manufacturing began, and the commentary I read in _American Machinist_ from the 1920s, '30s, '40s, etc. said exactly the same things you're saying now. And it was just as wrong.
It wouldn't matter how low your labor costs were. The greatest influence on the economics of automation is the interest rate you pay for capital equipment, in combination with the availability of credit for large capital investments -- investments in automation, in other words. And the relationship between the viability of automation and labor costs ALWAYS trends in favor of automation. That's happening even in China today.
If you take a look at the automotive parts plants in Mexico, you'll see the same thing. We were selling Wasinos for that work and they had to be sold without our gantry autoloaders -- not because it was more economic to run without the automation, but because the Mexican government required it. Even with their low wages, automation won, on the P&L statement. It just lost temporarily because the government didn't want to face the inevitable.
In the US, or Mexico, or China, competition always applies pressure to automate. One Chinese company competing with another will cause each of *them* to automate -- and put even more pressure on you to do so. There's no getting around it.
And trying to avoid it is just like pushing on the end of a rope. However, if you succeed in driving down wages as a temporary stop-gap on the way to further automation, you will have one economic effect: You'll drive real wages, and the real economy, into a race for the bottom.
-- Ed Huntress
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Actually I agree on the competition theme to your reply. The point Tom was making is if the costs of employing people increases significantly due to policies likely to come from Washington, that will be that 'extra' budget that makes marginal automation schemes look reasonable.
Wes -- "Additionally as a security officer, I carry a gun to protect government officials but my life isn't worth protecting at home in their eyes." Dick Anthony Heller
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wrote:

But that's the fallacy, Wes. If you look at it that way, you're always behind in investment. If *today's* pricing and *today's* competition are driving your decisions, you've already lost the game.
What you're describing is the kind of static thinking that killed the US machine tool industry, among others. You are going to have to automate or make other productivity-enhancing investments, no matter what happens to your labor costs. If you're waiting for labor costs to make the decision for you, you're too late. Your competition, overseas or domestic, has already made that decision. That is, the competition that you will be fighting for price and quality tommorow, rather than today.
If you use labor costs as your trigger for automating, you're using them as a scapegoat for your own lack of foresight. Competition will force you to act. And if you act by putting pressure on labor, you're just racing to the bottom, because you're squeezing your own market, directly or indirectly. Recognizing that is the "enlightened" part of the phrase, "enlightened self-interest."
-- Ed Huntress
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wrote:

EXACTLY! I think nothing of spending $30k on a project anymore because I know the pay back is so fast with displaced labor costs. And, I don't have to negotiate labor contracts with machines, nor can the state increase my cost on a whim. I've given my engineering team a blank check and a mandate to replace employees. I feel bad about it, but...
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wrote:

I know it sounds funny but I feel guilty for eliminating jobs due to automation. The lack of continual improvements in the previous generation gave me a huge opportunity to make a lot of simple, easy improvements that had big impacts in profits. I always had a lot of empathy with my workers because I've done every job in a production role. A lot of the jobs were very simple and a lot of the people we had just weren't capable of anything more complex. But, they did the jobs proudly and felt good about themselves. I worked side-by-side with everyone, ate lunch and told jokes with them. Those are the jobs most easily eliminated and I know they won't GET another job...they are doomed to welfare. But, If I wanted to stay in business, I had to cut costs. The State of Ohio was no help to these people by raising the minimum wage by almost 50%. Almost a third of my people were affected. I couldn't keep everybody at that rate. The people that I had to let go would gladly WORK for the lower wages rather than not work at all...and they knew it! I think it's VERY important for all people to work and feel productive as a contributing member of society. The left doesn't get this at all! The left thinks that if somebody isn't making $30k, they should be on welfare, they are worthless and can't contribute to society.
The average employee salary is much higher now as is the training level and skill level. BUT, my labor costs are a lot lower, production is much higher, and quality is higher. I've even managed to have a structure in place that has allowed me and my sister to take a lot of time off. A few phone calls and a half-day here and there have kept everything going smoothly. Good for me but bad for guys like "Robert" who used to sweep and move stuff around for me. That was all he was capable of doing and he was happy. I had to let him go, I liked him and he was handy to have around. And, with his past record, he'll NEVER get another job. But guess what - I couldn't justify the unnecessary expense, especially after union demands. I would love to provide a bunch of jobs to people
Meanwhile, my neighborhood is blighted with the jobless and crime is worse. Are these people better off on the dole? The yearly COLA from Ohio won't increase my labor cost or put more money into the neighborhoods, it'll hurt the people THAT MUCH MORE! Sure, my first responsibility is to keep the business running and profitable, but why does the State, unions and other democrats demand that I hurt my community? It just goes against my grain.
Sorry, just another fanatical right-wing rant.
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wrote:

I don't think that's a rant at all. That's the result of some very admirable attitudes and behaviors on your part.
This reminds me of the arguments I used to have with Andy Ashburn, the editor at _AM_ when I was there. Every time we wrote about some amazing new automation idea I'd ask, "and what happens to the 20 workers who were displaced?" Andy would get really pissed at me for asking. So would the other older guys. The idea was, there would always be jobs for them, because the automation improved productivity, increasing economic activity and thus increasing demand for labor.
I scratched my head over this, wondering why they didn't realize that their entire idea depended on a high, probably unsustainable level of growth. And now we're seeing what happens when growth flattens out. As it inevitably will, IMO.
So your displaced workers are inevitable, if you accept the precepts of capitalism, unless you can figure out a way to grow faster than you're displacing workers. That was possible for a few decades in the middle of the last century but my guess is that the rate of productivity improvement has now outstripped the rate of job expansion. If you consider it as a math problem, you'll recognize that the economy has to grow at some logarithmic rate to produce a linear increase in jobs, given that productivity is increasing all the while. Sooner or later, it becomes a Malthusian problem.
That's life. You do the best you can for your workers. But you'll never be able to compete in a manufacturing field that responds to technical productivity improvements and still keep them employed, without a high rate of growth for your business, because it would require an ever-declining wage rate -- until they couldn't live on it at all.
-- Ed Huntress
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Ed Huntress wrote:

Nonsense.
--
John R. Carroll



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wrote:

Nope. No growth, no employment. And with improving productivity, less employment -- unless you have substantial growth.
-- Ed Huntress
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Ed Huntress wrote:

Yeah, you have to pay attention and keep broadening your business into areas where growth will occur. What you said was that growth can't keep up. The facts and the evidence don't support that unless you want to keep making buggy whips. Then there is plenty.
Let's take Cleveland as an example. The cities population and tax base continue to evaporate. One area that will definitely grow is the downsizing business. Flint Michigan is taking the lead on this. They will be wiping out half of the place with bulldozers and putting something, or in saome cases nothing, in the space created. The population will move to the space that is left. I was born in Flint's East Side Ed. My grandmothers family had a successful screw machine business on Dort Hwy. in Grand Blanc for half a century. Two years from now the East side of Flint won't even exist and the screw machine shop in Grand Blanc died with my Uncle Del, but what is left of all of that when the city is done will be serviceable and vibrant. They will attract new industry. I might move back just to watch it happen and lend a hand. The valuations will certainly be right but I'm pretty well hooked on warm wheather and ocean breezes.
Tom might consider expanding into the automation industry. He seems to have a knack for it. There are also a ton of trainable people in his area. He'd experience real growth if he focused on the sort of automation the energy business was going to need to make, oh I don't know, batteries for vehicles that we'll otherwise buy from Korea.
What you have to be able to do is see opportunity, get organized and seize it. Otherwise, you just set yourself up to fail eventually.
--
John R. Carroll



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wrote:

What I said was that you can't maintain employment without a healthy rate of growth. That applies to goods-producing industries in general, and to individual companies in particular. I've never tried to sort it out for the whole economy, but the pattern has been clear for years now in manufacturing.
Here's employment in goods-producing industries since 1940: http://research.stlouisfed.org/fred2/series/USGOOD?cid 
Here's the growth it took to sustain those levels of employment: http://research.stlouisfed.org/fred2/series/IPMAN
Since about 1970, the output of goods produced in the US has had to be on a pretty steep incline just to keep manufacturing employment about level. In other words, you need a lot of growth to keep from laying people off in manufacturing, due largely to improvements in productivity. And if you have even a slight downturn in manufacturing output, you get a big dip in employment.
All of this is happening, of course, while the population is increasing. So the percentage of people in manufacturing keeps dropping, even though the total number is fairly flat. Where do the others go? As I've said, I've never tried a full analysis, but a lot of them never return to manufacturing.
So, as I said to Tom, it doesn't matter if you're chasing wages or not; your competition is automating, here and abroad, and you have to, as well. And unless you grow, you're going to wind up with fewer people.

All well and good. That requires getting into another business. If he wants to keep all of his people employed, he'll need to sell more than brushes.
-- Ed Huntress
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wrote:

Yep, or at least new products into new markets. 80% of what I make today, didn't exist 10 years ago. The trick for me is to find a market/product that is hard to make, over priced and nobody want's to really do but they have to keep customers happy with "me-too" items. Then I'll just tell my guys that it can't be done.
Nobody wants to deal with flat wire, it's a bitch. We're now the biggest and best in the world. It's a little niche but it's a nice little niche and not even the Chinese want anything to do with it.
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wrote:

To be fair, I should be self-contradictory and confusing here by pointing out that you're more or less making John's point, and contradicting mine. d8-)
This is one of the enigmas of mixing micro- and macroeconomics, because your effort to seek new products and markets is what John is talking about, and it's the way to look at things from the point of view of a businessman, or of a microeconomist. Looking at you and what you do, from the point of view of a microeconomist, one sees the necessity to keep innovating and pushing the boundaries of what your business does. From that microeconomist's point of view, that *is* what you do. As an economic agent, you don't just make brushes. You discover or create brush markets and fulfill them. That's John's mindset, too.
Then the macroeconomist looks at the situation and puts it into a different context -- the national statistics and trend lines in manufacturing, finance, etc. -- and sees that it doesn't matter very much what you do. You're like Brownian motion in a problem that, to that macroeconomist, is a problem of gas pressure and volume. A businessman or a microeconomist looks at Ohio Brush and sees a dynamic system that has an individual path and a fate of its own. The macroeconomist sees a particle taking its random walk in a stochastic process, and he isn't concerned with where you're going, as an individual or an individual company.
In this thread I've been talking about the pressure/volume issue: the macroeconomics. John is talking about the microeconomics. The self-contradictory part is where I'll agree with him and say that you can indeed find ways to employ Robert and that your emotional involvement in his welfare, and that of your other employees, is hardly in vain. You can do something about it. The goals of your enterprise are yours to choose.
But the macroeconomist will say, that's interesting and good human interest copy for page 3 of your local newspaper, but I only read the index tables in the business section. I want to know the parameters as they're being set by economic conditions. Individual particles can go where they may; they're not my concern, any more than the behavior of individual vapor molecules are a concern to someone trying to adjust the running of a steam engine. No matter how any individual particle may behave, the dynamics I'm looking at are based on the safe assumption that they'll behave in a certain average way.
Many of the enigmas, frustrations, and arguments that arise in talking about business, trade, employment, wages, and so on are the result of not keeping the macro and micro in their appropriate boxes. When you're looking at government wage policies and the state of competition with China, you're looking at macro issues, which have their own driving forces and desired outcomes. When you consider how to run your business, those are among the parameters you're working with. The confusion and frustration come from assuming that the micro benefits you would gain if we followed some different policy would project to general benefits across the economy, ones that are greater than the negative macro consequences. Lower wages would keep more people employed -- for a while. But the consequences of driving down wages would be a running down of the entire clock mechanism that is our economy. Everyone will be hurt by it, once the particles are averaged out into units of pressure and volume.
You won't solve our problems with competition, or even of a slumping economy, by starting a race to the bottom.
-- Ed Huntress
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Ed Huntress wrote:

It would be interesting to study a group as close to communism as one could get- our girls in the slammer. Federal Prison Industries pays about fifty cents an hour. The living expenses of the inmates are paid for from another account, so to speak. The prices are hard to beat, and the quality is good. (Metalworking Content) The fellows at work that deal with FPI tell me that clusters of machine shops, started and staffed by ex-cons, have sprung up around the prisons, to supply the manufacturing inside. I have been told that the redivicisim rate among ex FPI employees is very low.
Kevin Gallimore
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