On Mon, 04 Jun 2012 08:42:30 -0700, George Plimpton
=====================================The problem is that when capital is free to move between
countries, there is no national comparative advantage, only
national absolute advantage.
There is also the question of national defense and domestic
employment. It is pointless to tell people "get a job" if
there are no jobs...
On Tue, 5 Jun 2012 07:12:37 -0400, "Stormin Mormon"
In the GM plant Dan is talking about, they're cutting the number of
robots roughly in half, and the number of repairmen in half, too.
Note that is the *number* of repairmen. They aren't actually cutting
the repairmen in half, although I don't doubt that was suggested in
board meetings. d8-)
On Wed, 06 Jun 2012 14:53:21 -0500, F. George McDuffee
=======================A followup to my own post...
A case on point about the gross excess automotive production
capacity just popped up on Bloomberg.
Volkswagen AG (VOW), Daimler AG (DAI) and Bayerische Motoren
Werke AG (BMW) are resisting calls by Fiat SpA (F) Chief
Executive Officer Sergio Marchionne to form a united front
to push for European Union support to reduce overcapacity in
the region. A meeting today between auto executives and the
EU in Brussels did not advance efforts to shut unprofitable
On Wed, 06 Jun 2012 15:48:24 -0500, F. George McDuffee
You realize that the overcapacity was the result of a consolidation
dynamic going on among car makers since the '70s, when the Japanese
tried to flood international markets and built up very large volumes.
The idea was that only a few (estimates were around seven) car makers,
worldwide, would be standing by 1990 or so. Thus, everyone who could
do so went on a buying spree, eating up weaker car makers.
They all knew there was excess capacity but the hope was that they
could begger the other guy into insolvency and eat him up. They had to
push for maximum volume in the meantime to keep the financials strong
and to strive for market domination.
It didn't work out as planned, but the overhang of capacity is still
================And the overhang capacity continues to increase.
The Volkswagen AG (VOW) unit is planning to add new plants
at an unprecedented pace to chase luxury auto leader BMW.
Until three years ago Audi produced 75 percent of its
vehicles in the German cities of Ingolstadt and Neckarsulm,
focusing largely on increasing quality and expanding its
What are these people smoking?????
On Mon, 4 Jun 2012 11:25:30 -0700 (PDT), " email@example.com"
Because almost the entire story, even the concluding table, is about
how much they've managed to squeeze out of workers' incomes to be
competitive. It sounds like something out of the 1920s.
That's one way to compete in a global market -- the race to the
In this case, most of what they've done is employ vendor's employees
to avoid labor costs. Most of the story is just about hiring people
On Mon, 4 Jun 2012 12:00:36 -0700 (PDT), " firstname.lastname@example.org"
No it's not, Dan. They say they're going to save $72 million in labor
$25 million comes from the "Tier 2" program agreed to with the UAW.
Those are entry-level workers with the same skills as GM's regular
assembly-line workers. They are not "lower skilled." They're just
lower-paid, starting at a much lower wage ($33/hr. with benefits,
versus $57/hr.). GM is making a systematic reduction in its wage
structure and these are the first generation of them. This is just
lower pay for the same work.
$18 million comes from using fewer skilled-trade workers, maintenance
people and such, made possible by newer machiners and, probably, by
wringing the shit out of the ones that are left.
$19 million comes from having the workers of outside vendors, who are
not protected by the GM contract, do the work in-house at GM. This is
sometimes called "in-sourcing." Those guys will be paid $20/hr.,
including benefits. They are the entire group of the lower-skilled
workers you're talking about. In the past, these folks worked at Tier
1 and Tier 2 vendors, and GM didn't count their wages at all. Those
wages appeared as "component costs" on the P&L sheets.
$10 million comes from savings in transportation costs, the direct
result of the in-sourcing.
That wasn't happening to begin with. The only lower-skilled workers
they're talking about are component assemblers, who used to work for
ALL of the Tier 2 assembly employees are taking a huge cut from the
standard UAW contract. They're being hired at MUCH lower wages than
those who are already in place under older UAW contracts. They just
had unfortunate timing.
As I see it , if GM can hire Tier 2 people to work at $33 / hr with
the same skill set as the Tier 1 group paid $57 an hour, then it is
pretty obvious that the Tier 1 group is over paid. And GM had better
get labor costs under control, or we the tax payers will be out a
bunch of money.
Are you referring to wringing the shit out of the machines that are
left or wringing the shit out of the maintenance people?
Exp/ain huge cut. The Tier 2 employees never got the higher wages ,
so they did not take a huge cut. They could have not taken the jobs.
On Mon, 4 Jun 2012 18:58:29 -0700 (PDT), " email@example.com"
That raises an interesting question: Will we let global competition
determine what proper pay levels must be?
Multinational corporations say "yes." If the Chinese workers are
making an average of $1.81/hour (last time I looked; it's $2.85 in the
cities), then that's the proper, competitive pay level for anyone who
wants to compete.
Great argument. That's the "race to the bottom."
Or see my friend Alan Tonelson's book by the same title.
(Amazon.com product link shortened)
(For what little it's worth, I only agree with Alan about half of the
I'm glad you asked. Actually, I was thinking about the maintenance
people when I wrote it; re-read what I wrote and realized it was
ambiguous; decided that either one worked; and left it alone, thinking
I'd leave it up to you. d8-)
Huge cut is $57/hr. to $33/hr. The first is what they would have been
paid if GM and the other US car builders hadn't screwed up and allowed
foreign competition to gut the lower end of the market 40 years ago.
The question is "in what market do you wish to compete?" If the
international market then either you need to pay internationally
competitive wages or you need to discover some other method of being
The alternate is, of course, the protected market where only you can
compete. High import duties to balance out inequities in costs is the
time honored method.
The problem with arguing costs/wages is that a high wage in an economy
where people talk about $100 as pocket money (mentioned on this site)
is quite a different subject then in an economy where $100 a month is
an unimaginable sum.
The basic question is, I believe, whether a society that has achieved
a level where a man can no longer support his family can possibly be
competitive with the rest of the world.
Those continue to be vey tough questions, as they have been for us
since the 1970s. The old Milton Friedman free-trade theories,
obviously, are in the crapper, and no one knows what to do about it.
Friedman's theories look good on paper and probably hold pretty well
under the economic dynamics of his heyday (1960s). But now the
elements that he said would stabilize trade have changed. Free
currency exchange does not automatically adjust currency values to
reflect a country's output and trade balance; central banks of large
countries easily manipulate them. Manufacturing juggernauts, first
Japan and now China, play a strategic game to dominate markets with
absolute advantage, leaving comparative advantage as a backstory, a
stage in the process of capturing a dominant efficiency and market
position for every product category they can.
And technology has become a commodity that can move almost instantly
between countries. Free capital markets and the commodization of
manufacturing technology permit such things as GM's packaging of an
engine plant and sending it to Shanghai in shipping containers. That's
how we got the engine that powers Chevy's Equinox -- or did. I don't
know what engine they're using now. Complete engines were built in
their Shanghai greenfield plant, which rose from the ground and
started shipping engines in just a couple of years.
Now we have limited options and another potential threat: a hollowing
of our manufacturing base, as a result of the prolonged trade
imbalance and slow growth, that sets back our potential for future
growth. Economists are yakking about this a lot these days.
No country has left itself so exposed in trade as we are. Our
government, both Dems and Republicans, really bought into old Milton's
ideas -- not that they weren't good and probably accurate ones for
their time. But now we're hung up with old ideas that don't apply and
no new ones to replace them.
The latest thinking, BTW, is that innovation won't do it, at least not
by itself. The hot topic is entrepreneurship. It's getting those
innovations to market that matters, say the latest economic pundits.
Anyway, end of rant. d8-)
I've been pressured to get the new product out of R&D and into
production to beat the competition since the 1970's. They claimed a 6
month lead was enough to establish the product's name and reputation.
well enough that profits didn't have to be wasted on advertizing.
The unanswerable question was always if we were certain enough that it
was ready, and wouldn't suffer a humiliating recall. It's very
difficult for technically trained people to imagine all possible
dumb/clumsy mistakes, like stomping on the gas instead of the brake.
Sometimes you don't realize there is already a different existing
standard, like the front brake on bicycles and motorcycles. When I was
working on an electric motorcycle it came out that the sets of their
adult riders barely overlap, and the prototype was given the bicycle
I think that Friedman is closer to being right than anyone. The only
problem is that he is too optimistic about the U.S. being able to
remain out in front. He says that education will make everything all
better, but in fact the world is flat and education is improving
everywhere. But the U.S. education is regressing to the norm. That
is it is not staying better than elsewhere.
Yes the world is flat.
But replace them with what? The fact seems to be that the U.S is not
superior to other countries at least in manufacturing. And we are
still telling our children that they are special, when we should be
saying "life is tough, get use to it. Now go do your homework "
The U.S. car builders did not screw up so much as the foreign
competition out worked them. And if the U.S. car companies were to
continue to pay $57 /hr to all employees, they would go out of
business and there would be no one making $57/ hr. Labor unions can
not distort wages over the long haul. It worked when the world was
not flat, but that day is gone.
-The U.S. car builders did not screw up so much as the foreign
-competition out worked them. ...
In the 1970's small imports were insignificant when they held less
than 20% of the market, yet a crisis that demanded Congressional
intervention when they reached 22%.
Yeah, but they were policy decisions, too. Henry Ford II: "Small cars
equal small profits," etc. GM was doing the same thing. The Corvair
debacle didn't help, of course.
The handwriting was on the wall. The US builders just ignored it until
the first oil crisis, when they suddenly looked around and asked where
their market went.
So they never developed nor competed seriously in that market. Now, in
order to do so, they have to run a low-wage plant or nothing. The UAW
said they're rather have low-wage than no-wage, so here we are, in a
race to the bottom.
Let's hope it isn't a trend. It probably isn't. This plant may be an
On Wed, 6 Jun 2012 06:35:52 -0700 (PDT), " firstname.lastname@example.org"
Well, that, plus the currency and technology-transfer dynamics that I
mentioned. Under his theory (at least what I recall about it),
currency adjustments would work very quickly to re-balance trade. And
technology would not transfer as quickly, nor as massively, between
advanced and developing countries. I think he would have been
astonished at what happened with the GM-Shanghai engine plant, for
example. Things just didn't happen that quickly; currency adjustments
were a great buffer; and stable, balanced trade would be the result of
free international markets.
It was a good idea in 1960. It just hasn't worked out, because many
things have changed.
If you can answer that, there are entire countries that will build
monuments to you. d8-)
We don't know what to tell them. I told my kid to go do his homework,
too. But I think he has a pretty good idea. There is a lot of demand
for the skills he's developing in a graduate program in applied math,
backed by his economics degree.
Still, it's no guarantee.
Well, the question is, what kind of world are we building for
ourselves now? One in which we have to keep beggering our incomes down
to compete with the newest, cheapest global manufacturing country?
I guess if we all jump off the cliff together, we'll all hit bottom at
about the same time. It just doesn't sound like fun.
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