Other Immigration Issues Here and Elsewhere
From SWI, Swiss news: Switzerland’s House of Representatives has rejected an initiative by the right-wing Swiss “People’s Party” to limit immigration and cancel a deal with the European Union on the free movement of people.
Albert Rösti, head of the Swiss People’s Party warns that “uncontrolled” immigration could increase the current 8.5 million Swiss population to ten million and place additional pressure on infrastructure and the environment. It also says free movement of people encourages employers to recruit foreigners at cheap rates rather than Swiss people.
Sound familiar?
Per SwissInfo.ch , Switzerland faces a “shortage of workers 10 years out according to the Swiss Employers’ Association which warned Switzerland could face a shortage of 700,000 workers in ten years’ time. Immigration is a key to plug the gap.”
To help close the potential gap, professionals possessing engineering backgrounds will be needed with a priority on civil and electronic engineering being the most important. Also technical skills in such fields as heating, ventilation, and air-conditioning have moved up from third to second place in needed skills followed by fiduciaries, auditors, and IT ability. These types of capabilities and skills are not possessed by present day migrants coming to Switzerland.
And there is no thought given to the training and education of new migrants. A shrinking population (Swiss birth rate per couple is 1.54 and is not an adequate replacement rate) and a need for more workers is not a new story. Here is a clip from 2006:
“Demographers admit they are not so good at anticipating change. At the height of the ‘population explosion’ hysteria four decades ago, few believed birthrates could fall so far and so fast that the population of a major country like Russia would actually start to shrink (as it did about 14 years ago). Germany’s tipping point seems to have arrived in 2002, and Japan’s in 2005.
The total global population has not yet finished increasing. But nearly half the world’s population lives in countries where the native-born are not reproducing fast enough to replace themselves. This is true in Western Europe, Eastern Europe, Russia, Japan, Canada and the United States. It is also true in much of East Asia, pockets of Latin America and such Indian megacities as New Delhi, Mumbai (Bombay), Kolkata (Calcutta) and Chennai (Madras). Even China is reproducing at levels falling short of replacement.”
This snippet of information is from a 2006 article in Smithsonian by Joel Garreau “300 Million and Counting.”
We hear the same today in the US of employers not finding qualified employees. Much of this is due to lower birth rates and a shrinking population as older cohorts retire and also die off. The result being the US facing similar issues in having replacement population, workers, and workers with technical skills. US birth rate fell to 1.728 in 2019 as compared to 2.01 in 2006 as noted in “300 Million and Counting.”
And yes, the US has an even more derogatory view of immigrants arriving as voiced by a US president. Indeed, even if one had the engineering skills needed in the US, why would they come to a hostile US where they may be chastised for physical appearance? As far as room for more people, the US does not lack for land in which new inhabitants could live, neither does it lack for funding to train workers, to retrain present citizens, or to relieve their debt from training as well and that of many of today’s former students so they can be more productive, contribute to the economy, and start families to sustain population at a replacement numeric. The issue is other than resources.
Alan Collinge of Student Loan Justice commented on Democratic Senator Debbie Stabenow’s snide remark on Student Loan Debt delinquency, saying “maybe they (students) will learn a fiscal responsibility?” Betsy DeVos has doubled-down on loan issues involving for-profit and non-profit schools by removing the clause that any education in a trade must lead to a job (she removed the clause stating it had to lead to a job and claimed it unfairly targeted for-profit schools! Huh? Then there is the “I-did-it and you-have-to-do-it” too crowd. They conveniently forget education was heavily funded when they went and not as expensive for them or their parents. In the midst of all of this are several generations held down by debt and/or a lack of education.
Which brings me back to my point on immigrants also, we need a younger and well educated citizenry. We should be attracting more immigrants, training them so as to be productive (if need be) to make a good income, and pay taxes. As far as students, unchain them by alleviating the debt of which much of it are delinquency penalties. Many of them are already educated. And we not burden new immigrants with the same debt burden.
As fellow AB writer Eric notes, it is all in the aggressive racial appeals of a president who has shown Republicans the nature of such appeals can work in playing to a white America to “trigger latent fears which allow the Republicans to maintain power by emphasizing reactionary positions on race and immigration.”
Lol, Trump is a big immigrant importer, with Asiatic immigrants surging since his Presidency. Again, I would call the “people’s party” bluff. They don’t need more workers, but socialization of the means to have a properly trained populace, not addicted to cheap capital and consumption. That means no more usury and debt expansion of capital. Instead social value in getting the most out of each individual. My guess they couldn’t handle the reorganization and would start pumping immigration up like crazy.
Bert:
And you would fail. We do need more younger people. Did you ever read Buffet’s story on why he did invest in capitol to save his textile company? Google it.
I would succeed. Birth rates can be managed. Capital markets create distortions you cannot even begin to think about.
let me play devil’s advocate for a moment:
i don’t have a racist problem as far as immigration to America is concerned.
we have a big enough and already racially diverse enough country, society, that we can hardly claim to be defending our cultural identity by excluding “strangers.” but i do have sympathy for smaller countries with heretofore relatively homogenous population and culture.
but i do have a problem with eternal population growth. i can no longer find room in this country for the kinds of things i like to do and the kinds of things i love. we are pushing, have pushed nature to the limits of extinction.
nor do i have much sympathy for the we are running out of workers argument. which i first heard in the context of Social Security at a time when we seemed to be running out of work for the people we had. i especially have no sympathy for this idea when running out of workers seems to mean both running out of the reserve army of the unemployed and the constant need for “growth” in the economy, which for a long time now has meant growth in jobs counting rich people’s money and other useless economic activity as lawyers, economists, and sellers of securities, not to mention telephone solicitors.
we did okay with a smaller population… a hundred and forty million when i was in high school, about three hundred and thirty million today. and whatever happened to all that work saving technology?
i am not married to any of these ideas, but i wish people would give them some thought before they start handing out placebo birth control pills and joining the running out of workers hysteria.
my guess is that as the increase in the number of workers falls (the increase in the number may fall, the number itself will not), the need for workers will fall with the falling increase in the size of the population, and incomes will increase with the relative scarcity of cheap labor. we could end up with a reduced money income per capita but a much higher quality of life than we have seen for, say, the last fifty years anyway, if not since the dawn of the industrial revolution.
run75441
could you summarize Buffet’s story for us?
Buffet and Textiles
There is a different story here that people fail to grasp. Buffet admits to what caused the closure of his textile mills in a casual way.
Assumptions for keeping the business:
Further diversification for Berkshire followed, and gradually the textile operation’s depressing effect on our overall return diminished as the business became a progressively smaller portion of the corporation. We remained in the business for reasons that I stated in the 1978 annual report (and summarized at other times also): “(1) our textile businesses are very important employers in their communities, (2) management has been straightforward in reporting on problems and energetic in attacking them, (3) labor has been cooperative and understanding in facing our common problems, and (4) the business should average modest cash returns relative to investment.” I further said, “As long as these conditions prevail – and we expect that they will – we intend to continue to support our textile business despite more attractive alternative uses for capital.”
The rest of the story
It turned out that I was very wrong about (4). Though 1979 was moderately profitable, the business thereafter consumed major amounts of cash. By mid-1985 it became clear, even to me, that this condition was almost sure to continue. Could we have found a buyer who would continue operations, I would have certainly preferred to sell the business rather than liquidate it, even if that meant somewhat lower proceeds for us. But the economics that were finally obvious to me were also obvious to others, and interest was nil.
I won’t close down businesses of sub-normal profitability merely to add a fraction of a point to our corporate rate of return. However, I also feel it inappropriate for even an exceptionally profitable company to fund an operation once it appears to have unending losses in prospect. Adam Smith would disagree with my first proposition, and Karl Marx would disagree with my second; the middle ground is the only position that leaves me comfortable.
(good management) I should reemphasize that Ken and Garry have been resourceful, energetic and imaginative in attempting to make our textile operation a success. Trying to achieve sustainable profitability, they reworked product lines, machinery configurations and distribution arrangements. We also made a major acquisition, Waumbec Mills (vertical integration), with the expectation of important synergy (a term widely used in business to explain an acquisition that otherwise makes no sense). But in the end nothing worked and I should be faulted for not quitting sooner. A recent Business Week article stated that 250 textile mills have closed since 1980. Their owners were not privy to any information that was unknown to me; they simply processed it more objectively. I ignored Comte’s advice – “the intellect should be the servant of the heart, but not its slave” – and believed what I preferred to believe.
The domestic textile industry operates in a commodity business, competing in a world market in which substantial excess capacity (creates spheres of cost of various sizes) exists. Much of the trouble we experienced was attributable, both directly and indirectly, to competition from foreign countries whose workers are paid a small fraction of the U.S. minimum wage. But that in no way means that our labor force deserves any blame for our closing. In fact, in comparison with employees of American industry generally, our workers were poorly paid, as has been the case throughout the textile business. In contract negotiations, union leaders and members were sensitive to our disadvantageous cost position and did not push for unrealistic wage increases or unproductive work practices. To the contrary, they tried just as hard as we did to keep us competitive. Even during our liquidation period they performed superbly. (Ironically, we would have been better off financially if our union had behaved unreasonably some years ago; we then would have recognized the impossible future that we faced, promptly closed down, and avoided significant future losses.) Over the years, we had the option of making large capital expenditures in the textile operation that would have allowed us to somewhat reduce variable costs. Each proposal to do so looked like an immediate winner. Measured by standard return-on-investment tests, in fact, these proposals usually promised greater economic benefits than would have resulted from comparable expenditures in our highly-profitable candy and newspaper businesses.
But the promised benefits from these textile investments were illusory. Many of our competitors, both domestic and foreign, were stepping up to the same kind of expenditures and, once enough companies did so, their reduced costs became the baseline for reduced prices (shrinking spheres of cost) industrywide. Viewed individually, each company’s capital investment decision appeared cost-effective and rational; viewed collectively, the decisions neutralized each other and were irrational just as happens when each person watching a parade decides he can see a little better if he stands on tiptoes. After each round of investment, all the players had more money in the game and returns remained anemic. (results of capital investment eliminating Labor and increase throughput)
Thus, we faced a miserable choice: huge capital investment would have helped to keep our textile business alive, but would have left us with terrible returns on ever-growing amounts of capital. After the investment, moreover, the foreign competition would still have retained a major, continuing advantage in labor costs (it is here Buffet identifies the issue of costs associated with Labor). A refusal to invest, however, would make us increasingly non-competitive, even measured against domestic textile manufacturers. I always thought myself in the position described by Woody Allen in one of his movies: “More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness, the other to total extinction. Let us pray we have the wisdom to choose correctly.”
For an understanding of how the to-invest-or-not-to-invest dilemma plays out in a commodity business, it is instructive to look at Burlington Industries, by far the largest U.S. textile company both 21 years ago and now. In 1964 Burlington had sales of $1.2 billion against our $50 million. It had strengths in both distribution and production that we could never hope to match and also, of course, had an earnings record far superior to ours. Its stock sold at 60 at the end of 1964; ours was 13.
Burlington made a decision to stick to the textile business, and in 1985 had sales of about $2.8 billion. During the 1964-85 period, the company made capital expenditures of about $3 billion, far more than any other U.S. textile company and more than $200-per-share on that $60 stock. A very large part of the expenditures, I am sure, was devoted to cost improvement and expansion. Given Burlington’s basic commitment to stay in textiles, I would also surmise that the company’s capital decisions were quite rational.
Nevertheless, Burlington has lost sales volume in real dollars and has far lower returns on sales and equity now than 20 years ago. Split 2-for-1 in 1965, the stock now sells at 34 — on an adjusted basis, just a little over its $60 price in 1964. Meanwhile, the CPI has more than tripled. Therefore, each share commands about one-third the purchasing power it did at the end of 1964. Regular dividends have been paid but they, too, have shrunk significantly in purchasing power. This devastating outcome for the shareholders indicates what can happen when much brain power and energy are applied to a faulty premise. The situation is suggestive of Samuel Johnson’s horse: “A horse that can count to ten is a remarkable horse – not a remarkable mathematician.” Likewise, a textile company that allocates capital brilliantly within its industry is a remarkable textile company – but not a remarkable business.
My conclusion from my own experiences and from much observation of other businesses is that a good managerial record (measured by economic returns) is far more a function of what business boat you get into than it is of how effectively you row (though intelligence and effort help considerably, of course, in any business, good or bad). Some years ago I wrote: “When a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.” Nothing has since changed my point of view on that matter. Should you find yourself in a chronically-leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”
We can sit here and argue over Labor wages or we can recognize it is not the wages paid in so much as the costs associated with Labor. This goes into Child Labor laws, OT laws, healthcare, SS, Unemployment, Workmans Comp, etc. Buffet indirectly identifies this when he said Labor costs. The other aspect is the cost of doing business in the US such as OSHA, property tax, pollution laws, etc. Outside of Labor wages, the rest can be identified as Overhead much of which is non existent in Asia as witnessed from my own experience.
When you purchase solar panels from China and they dump the chemical next to a village as Richard Smith points out in his article (China’s Communist-Capitalist Ecological Apocalypse)
“The first time Li Gengxuan saw the dump trucks from the nearby factory pull into his village, he could not believe his eyes. Stopping between the cornfields and the primary school playground, the workers dumped buckets of bubbling white liquid onto the ground.”
That is the elimination of Overhead which would be a business responsibility in the US to take care of rather than dump.
When a company moves production to China, we not only lose wages but we also lose the benefits for that one person laid off and the company avoids that Overhead which surpasses the wages of Labor. And the company comes back and sells at mostly the same price.
This is a summary
i fail to understand what this has to do with immigration or worker shortage.
but then i failed to understand both the post and the other comments.
Coberly:
Economists plan future obligations such as national debt peonage and social security upon the basis of a petite Ponzi Scheme with an assumption of rising GDP, some mixture of inflation, population, and in the best and most rare of cases per capita RGDP (a.k.a., productivity) growth. Any story that preserves the validity of this assumption is a win for economics. OTOH, Buffett’s story was deflationary – a real loser in economics.]
Ron
I hate to sound like i am playing dumb, or being dumb, but I don’t understand your comment. Certain phrasings make me suspect it is ideological. That’s okay, but hard to understand without sharing the same ideological language.
Similarly, Buffet’s essay contains too many cute references to popular wit for my taste. I’ll forgive him for that… tastes differ…but it doesn’t add to my faith in his analysis.
Not knowing anything at all about the textile trade, I will accept his conclusion that the textile business was a money loser with no cure in the present state of affairs. But I don’t see that increased immigration would have helped except perhaps by lowering American wages to the Chinese level.
And, unlike Run, I count “benefits” including environmental regulations as part of the cost of labor, if not “wages” still the cost of labor in a country trying to maintain a decent quality of life.
This is all part of an age old battle between employers and their employees
During the 1300s in England the Black Death killed so many people that those remaining could demand higher wages for their services. The response was predictable.
From Page 120 of ‘A Distant Mirror’ by Barbara Tuchman
“In the effort to hold wages at pre-plague levels, the English issued an ordinance in 1349 requiring everyone to work for the same pay as in 1347. Penalties were established for refusal to work, for leaving a place of employment to seek higher pay, and for the offer of higher pay by an employer. Proclaimed when Parliament was not sitting, the ordinance was reissued in 1351 as the Statute of Laborers. It denounced not only laborers who demanded higher wages, but particularly those who chose “rather to beg in idleness than to earn their bread in labor” ”
That last sentence smacks of the modern complaints about the large numbers of people getting food stamps.
To control labor costs in the US, employers went the route of moving production to Mexico or purchasing component parts from southeast Asia. Those both required free trade treaties so as to avoid high tariffs when their products or components were imported into the US. Democrats and Republicans negotiated and approved those treaties.
But President Trump declared war on those existing free trade treaties and is renegotiating them.
So seeing their strategies to control labor costs threatened, they have come up with a new approach.
Now they want to legalize poorly educated non English speaking immigrants who enter the US without a visa.
The educational systems in underdeveloped countries do not meet American standards. And the last time I checked the average educational level in Mexico and central America was 10 years.
How many well educated English speaking latinos walk across our southern border without a visa? I am betting that the number is zero or very close to it. Those particular latinos can go to a US Embassy or Consulate and get a visa.
English is much more difficult to learn to speak than Spanish. Does anyone seriously believe that a poorly educated immigrant is going to become fluent in English in less than 5 or 10 years? Fluent enough to study engineering which many Americans avoid because those classes are too difficult.
So what is the point of all these discussion about labor shortages and encouraging more immigrants to enter illegally?
I believe that employers mean to hire poorly educated latinos to drive wages down for working class Americans! That is their goal, that has always been their goal.
Ignore what they say, pay close attention to what they do!