Corporate Illogic
You must go, now, and read a critically important piece questioning the logic of sending American manufacturing jobs offshore. It’s titled Losing Sparta (hat tip Dikaios Logos) by Ester Kaplan in VQR. We have written regularly about how we have been repeatedly told by managers and executives that the case for offshoring was often not compelling,
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I’ve had executives attest to variants of this behavior, that they offshored even though it was not particularly good for the company because Wall Street wanted it and doing so popped the stock. One can similarly imagine that the simple minded story that Phillips was “concentrating manufacturing” would sound great at investor presentations and never got scrutinized once it became a pillar of the professed strategy.
There’s much more good reporting in this compelling, if sad case about how soi disant business leaders throw loyal, skilled workers on the dust heap with no thought and not even a real commercial justification. Confirming our dim view:
A 2012 study by Michael E. Porter and Jan W. Rivkin of Harvard Business School, based on interviews with 1,767 executives involved in location decisions over the previous year, confirms Bronfenbrenner’s view. Porter and Rivkin found that “rigorous processes for location choices” are “far from universal” and that such decision-making processes “have lagged behind those for virtually all other major investment decisions.” They found that companies often underestimate the hidden costs of offshoring, overlook the advantages of a US location and “fall prey to biases that work against the U.S.”
So workers are correct to see the treatment of workers in class warfare terms. It may take a long time to come to pass, but this level of irresponsibility among what passes for our elites is sowing the seeds for widespread upheaval.
My employer, Philips, is spelled with only one “L.”
I can tell you at around the same time, other lighting business factories in the US were being shut down as part of a consolidation plan, with their volume relocated to other existing US plants that were expanded.
Not every closure results in jobs being shipped overseas.
I don’t know the circumstances at this particular facility.
My employer IBM has had their share of woes in offshoring. They recently shuttered a 2 year old server development lab in China when the hoped for cost savings disappeared with the rapid turnover of headcount.
They’re still doing it though a big chunk of their remaining hardware manufacturing just moved to Guadalajara from Rochester MN. So it goes.
Meanwhile my new PowerMac was assembled and tested in a Flextronics plant just a few miles from my house in Austin TX. I realize most of the components were sourced offshore but you have to start somewhere. And those Flextronics jobs pay living wages here.
In the 1970s, the company my husband worked for, and his sisters and brothers worked for, and his dad had worked for, Clark Equipment Co., of Jackson, MI, began moving South, building three plants in right-to-work North Carolina, and way south, two in Brazil and one in Mexico. He was able to retire with thirty years in, and went on to other work in the ’80s.
Reading the VQR piece brought home the human costs of this policy, and I do believe it is at least partly the ‘economic theory de jour’, keeping up with the Joneses. Humans are very lemming-like, and are easily led; even we Americans, who, for all our talk of “rugged individualism”, still seem to fall for every ‘new thing’, without necessarily asking the hard questions.
I heard a CEO of a multi-national company say in an interview that he “had no more loyalty to America than to any other country where his company does business,” and that the days of the company needing the worker as customer were long gone. He said that now that we are in a “global market”, there is no need to pay living wages to Americans, or support the schools, infrastructure, etc. through their tax dollars and payrolls. The world is their customer and we (America) will just have to learn to do more with less. That was before the Great Recession that took his global markets down, too.
But the larger question remains. How can you have a stable society when so many are forced to take minimum wage, or barely above, jobs? How can you raise healthy families, when jobs disappear and the stresses turn parents to separation, alcohol and drug abuse? Are we really going to be a nation of a few million high income families and vast masses barely hanging on? Piketty and other talk about the danger of such inequality, but I don’t think our ‘leaders’ have a clue. Why would they? They are well established in the 1% and so insulated in DC they couldn’t see us if we were on fire. As long as we’re not storming the Bastille, they think everything is hunky-dory!
I thought things were bad during the Viet Nam War and then the Nixon years, but this, I think, has the capacity to really bring us down as a nation. And many of the states’ rights crowd would, I think, welcome that.
I’m thankful I had the best of America. I worry for my children, who will never know what they missed.
Sandi: AGREED! Sad!
When I started working for GE in the Schenectady steam-turbine plant in 1968, it had 28,000 employees. When I quit in 2003, it was down to about 4000.
For most of my 35 years there, building 285 was the highest quality, highest throughput “bucket” (turbine vane) manufacturing facility in the world. After NAFTA, Jack Welch mandated a move to Mexico, and building 285 was torn down (to lower the plant’s property tax). Building 285 had two manufacturing lines, the “E” line for long, twisted vanes and the “P” line for shorter vanes. At the time I left, the Mexican facility had four lines which were struggling to maintain half the throughput of 285.
We were in the middle of a project to automate turbine steampath design with a large team of programmers, most of whom were in-house with a lot of experience in steam turbine technology, when the edict came down to “out-source” the effort to Mexico. One of the project leaders told me of his meeting with an upper manager to explain why that was a terrible idea. He had about about 20 presention slides prepared. Half-way through the second one, the manager stopped him and said, “Look, this is how it will be. For the rest of this year you can keep half the in-house drafters and get the rest from Mexico. Next year they will all be from Mexico. That’s it.”
“Sir,” he replied, “I’m not talking about drafters. I’m talking about computer programmers who have written about 500,000 lines of what is expected to be a million lines of code.”
“Drafters, programmers – whatever.”
In addition to the inefficiency (not to mention stupidity) of all this off-shoring, there is little to no quality control anymore. I neglected to mention that in Clark’s first year in NC, due to the ‘quality’ of the non-union workforce, the cost of parts they had to scrap because they didn’t meet specs was probably comparable to the ‘savings’ in labor costs. Most of the new workforce had to be taught what a micrometer was, let alone how to use one.
God only knows what the three plants cost to build, though Don says even then there were incentives offered by NC. All three plants were history by the mid-80s.
Jack Welch, IMNSHO, was/is an ego maniac, like many of his corporate brethren. Still, that doesn’t explain why so many good, solid companies have followed each other off the cliff. We’re beginning to hear about some companies ‘bringing it all back home’. I wonder why? Could it be the serious decline in quality has finally hit the bottom line? I know I used to be proud to buy American products, but now I look to see not if it’s a so-called American company, but where the product was made. I’m driving a Toyota made in Tennessee, even though my family was “Chevy” folks for decades.
Something else that I rarely hear mentioned when companies whine that they can’t find qualified people here, back in the day, the unions did a lot of the training, in partnership with the companies. Now companies don’t want to train, don’t want to pay, pretty much don’t want any cost whatsoever, just tax incentives and a desperate workforce.
I’m betting this post and the article will be met in the liberal economic blogging and pundit world with a deafening wall of silence. Anything that possibly could be said to sound roughly like “protectionism,” no matter how remote that charge is and how legitimate the concerns of workers and genuine pro-labor progressives are, shall not be permitted to gain the slightest intellectual foothold. There seems to be an unshakable common ground among those circles with Wall Street.
Or maybe I’m wrong. I hope so, but I doubt it..