Editorial: Unrestricted free trade doesn’t benefit the country’s manufacturing industry
By Glenn Beall
Published: September 12th, 2011
Published: September 12th, 2011
Last week President Obama gave a speech with his view of the future of job creation in the U.S. The Republican party countered with its own ideas. Is unregulated commerce destroying U.S. manufacturing? Yes, argues Glenn Beall, author of our By Design series of article and Plastics Hall of Fame inductee, in this editorial.
The demands made by the Second World War created shortages of aluminum, brass, copper, steel, and rubber. In many applications plastics were substituted for these scarce materials. That was the beginning of the rapid growth that produced the modern plastics industry. That war's demand for more and more of everything allowed the manufacturing industry to fully recover from the great recession of 1929. Manufacturing prospered and so did the rest of the country.
By the 1950s there were enough jobs in the U.S. for nearly everyone. The average wage earned could afford to buy a car, a refrigerator, a television, and eventually a house. The cities, states, and federal governments collected taxes, managed their budgets, and had enough money to pay their bills. The national debt was manageable. The economy fluctuated, but the good times mostly prevailed until the frightening recession of 1981-1982 when unemployment reached 11%. That recession slowly faded away, and the economy came back stronger than before.
I joined the industry in the 1950s at a time when there were an endless number of new applications for plastic materials. My first inkling that something wasn't right was in the 1970s when the escalating cost of molds became difficult to justify while delivery schedules were prohibitively long and unreliable.
The root of these problems was traced to the glory days of the 1950s. At that time many tool making companies were negligent in being too busy building molds and making money to worry about the future. As a result they failed to train enough apprentice mold makers to support the growth of the plastics industry.
This oversight forced injection molders and their Original Equipment Manufacturers (OEM) customers to go off-shore to procure the molds required to carry on their businesses. It took the Americans a few years to learn how to work with these off-shore mold makers. Once that happened, an increasing number of molds were imported into the U.S. The mold making industry there never fully recovered from that loss of business.
It quickly became apparent that there were advantages to sampling a new mold near where it was built. If tooling changes were required they could be made by the original mold maker and that reduced the cost and time involved in shipping molds long distances.
Why stop at just molds?
It wasn't long until OEMs eager to get new products to market started purchasing their first product run from the molders who sampled their new molds - typically one near the foreign mold maker. If the molded parts were acceptable and the costs were favorable, then there was no need to ship a mold back to the U.S. This situation was all very understandable, but it established a practice that led to the massive off-shoring of America's injection molding business.
There has always been an international marketplace. My first two jobs after college were with General Electric and Abbott Laboratories. Both were multi-national companies who manufactured and marketed products in many countries. In most instances they sold their products in the country where they were made. They were not imported for sale in the U.S. This left the U.S. market to its domestic manufacturers. Consumers worked for those manufacturers and made enough money to buy their products. The system worked well until rampant greed and globalization were set loose in the world.
Sometime during the late 1980s and early 1990s greed was reclassified from a sin to a virtue. At about the same time big money promoted the concept that unregulated commerce and uncontrolled free trade were the best way to maximize shareholder equity. Books such as "The Borderless World", "The World is Flat", and "One World Ready or Not", helped convince business leaders that globalization was the secret to future prosperity.
An increasing number of OEMs moved their manufacturing operations to low-labor-rate countries. Shortly thereafter the talking heads and politicians began claiming that the U.S. was transitioning from a manufacturing to a service economy. The governor of New York loudly proclaimed that heavy manufacturing was no longer welcome in his state. The trade media editors questioned these assertions and sounded the alarm, but no one took heed.
Get involved
By the turn of the century it was no longer possible to ignore that off-shoring benefited only a few at the expense of many. During the campaign leading to the 2008 presidential election the politicians stopped talking about a service economy and started mentioning the importance of rebuilding the U.S. manufacturing industry. Today, at the start of the build-up to the 2012 presidential election, most of our national leaders have come to realize that they do not have the will to manage the free-wheeling global economy created by the unregulated free market. They have now stopped talking about manufacturing and have started stressing the importance of creating jobs.
While all of this is happening the man-on-the-street is seeing his family's lifestyle declining while he is being told of record-breaking corporate profits and multi-million dollar salaries. The man-in-the-street feels helpless, but there is something he can do. For example, approximately 50 of our 535 members of the U.S. Congress who represent regions with significant amounts of manufacturing. Let those 50, and the rest, hear your vioce.
There will be a presidential election in 2012. If every man-in-the-street seeks out and only votes for candidates with an appreciation for the importance of manufacturing, then we can make a difference. We cannot bring back everything that has been lost, but we can keep what we still have and build on that to allow America to continue to be a world-class manufacturing country.
My view is that we are a US
My view is that we are a US company, granted, a start up, and we support the US worker. Our investors bought our original presentation based on that commitment and when we were vetting the process (R&D Manufacturing)we included the numbers for off-shore production. The investors immediately responded to squelch that concept citing fuel driven costs to transport, potential political instability impeding delivery, and a host of other sound concerns.Latest Technology
There has always been an
There has always been an international marketplace. My first two jobs after universities were with General Electric and Abbott Laboratories. thank you messages for sharing this nice informative post and keep sharing this for best of all messages. like Best wishes sms
VIOLENCE IN MEXICO..... DO
VIOLENCE IN MEXICO.....
DO YOU KNOW IF 21 or 22 MILLION OF DRUG ADDICTS HERE IN USA STOP USING DRUGS, THIS COULDN'T BE HAPPENING IN THE WORLD? ALL THE DRUG CARTELS ARE FIGTHING FOR THE USA MARKET.
WE ALL KNOW THIS IS AFECTING ALL OF US WHO ARE EXPORTING USA PRODUCTS TO OTHER COUNTRIES.
WHEN WE VISIT MEXICO WE ARE AFRAID IF POLICE STOP US FOR A VIOLATION OF A RED LIGHT, WE GET A TICKET, OR PAY HIM RIGHT THERE, OR WE MAY BE ENDING ON AN OPEN FIELD DEAD, ALSO WE KNOW THAT THE MEXICAN POLICE HAS "GOOD AND BAD" POLICEMAN WORKING TOGETHER, CORRUPTION IS ONE OF THE MAJOR PROBLEMS DUE TO THE MINIMUM WAGES OF $9.00 USD ($117.00 PESOS)A PERSON EARN PER DAY!. (if you work for the cartel they pay more!! plus they give you a possition inside the Police Dept.)
SOLUTION: EDUCATE THE NEW GENERATIONS TO SAY NO TO DRUGS. BECAUSE THIS GENERATION IS ALREADY ROTTEN.
ON THE MANUFCTURING, REMEMBER THE DAYS WHEN YOU SEE AN ARTICLE MADE IN CHINA IT WAS A BAD QUALITY, NOW THEY IMPROVE THE QUALITY, EVERYTHING IS MADE IN CHINA, WE CAN'T AVOID TO CONSUME/USE ANY OBJECT MADE IN ASIA.
(We need to bring all THE MANUFACTURING back to U.S.A.)
CHEVROLET VS TOYOTA: WHY TOYATA CAN LAST MILES & MILES? WHY THE CHEVROLET, BEFORE OR AFTER WE DO THE LAST MAYMENT THE TRANSMISSION IS BROKEN, OR THE COMPUTER FAILS? ....QUALITY IS THE KEY.
Plastics Today thank you,
OLI
I believe the initial premise
I believe the initial premise is fawed. Free trade is NOT the enemy, management has flaws but is not the enemy, labor has flaws, but is not the enemy, our giant parasitic government IS as it has become too large to sustain. (Also, greed is kept in line by freedom.)
The cost of tariffs imposed on American companies and goods (that imports escape much of) has risen to 80% or possibly even higher, with all the taxes imposed: federal income tax, socialist security tax, local income tax, state income tax, unemployment tax, property tax, etc. (I documented this back in the 1990s on my own small manufacturing company, assuming my suppliers paid the same ratios.)
I used to desire the same pesonally calculated 80% tariff on imports, but now I believe the answer is to go to something like the fairtax.org, only figure out a plan to include ALL taxation, federal, state, and local, and make it a Constitutional Ammendment, so that ANY increase is voted on by the public.
(Even the communists in Pittsburgh vote against increasing the sales tax for some of the political boondoggles like stadiums.)
The Obama administration is trying to accelerate taxation severely enough to bring the middle class to its knees by jacking up the cost of government even higher, to unsustainable levels, as we have seen from the last 3 years. (Which we have barely survived.)
Freedom really works, but we have to be really free to see its benefits.
Fred (plasticstoday @ hydroworks.net)
Very good article. I would
Very good article.
I would only add that voting a certain way in the upcoming political elections is not the only recourse for the man-on-the-street.
Consumers (both businesses and individuals) can at least as meaningfully "vote with their wallets" -- if they truly have the will to do so. Give extra support to businesses that show a meaningful commitment to sustainably supporting your community, rather than just "strip mining" the local consumers for their money.
Also, activist investors can play a huge role in re-shaping corporate policy. Many of us "men-on-the-street" are shareholders, either through direct stock ownership or through participation in managed plans of one sort or another. If we, as shareholders, collectively exerted ourselves to persuade corporations to re-shape their policies, some things might just change -- with or without government policy.
Glenn, I worked for you for
Glenn,
I worked for you for 17 years and it was the best 17 years of my life. You ran the company well and we ALL profited from it. You had all molds built and run in this country-and stll made a profit. I too believe greed is too rampant in this country.
I don't see where the author
I don't see where the author is suggesting we go back in time when he refers to our business history. "Free Trade Agreements," are for starters falsely names, but more important is that they have been detrimental to the USA overall, and continue to be. Since we have the largest economy in the world, most of the USA's agreements are with countries whose citizens have average annual incomes that are a fraction of the average income in the U.S. The net result following the agreement is that the other country does not import nearly as much from America as America with its higher income imports from that country. The balance-of-trade statistics show that we import far more than we export. Does anyone, other than free-trade proponents, doubt that buying more than we sell is a major factor in America's ongoing decline? The benefit of free trade agreements doesn't necessarily flow to America's trading partners, if that's what you're thinking. Instead it mostly goes to multinational corporations, many of them U.S.-based, that set up manufacturing in the trade partner countries so they can ship goods to the U.S. without duty. Large American corporations are currently very profitable and loaded with cash. Apple has more dollars than the U.S. Treasury, it is said, and that despite the USA being in an economic slide with no sign of a turnaround in sight.
If a U.S. company is exporting, let's all cheer them on, but don't be blind to the larger picture. What Mr. Beall has written is well thought out, and worth considering without our customary political biases, mine included.
While I can appreciate and
While I can appreciate and respect the industry experience of the author, and it is easy to be critical from an "anonymous soap box", I am confused as to what his call to action entails. Are we to contact our representatives and request reversals of all free-trade agreements currently in place (NAFTA, etc)? Will increasing tariffs on imports (and experiencing in-kind increased tariffs/restrictions on our exports) increase manufacturing in the states? I highly doubt that. The author suggests we go back to the time when US mfg would restrict their selling to domestic customers only, and off-shore mfg would just sell to their respective citizens. Am I the only one that sees this as being not only backwards, but silly? Exporting is one of the fastest growing segments of our business! Isn’t is natural and smart to see a potential customer base of 6 billion rather than 280 million?
Sure, we should probably be taking a closer look at fair competitive practices by our trading partners when we evaluate free-trade agreements, but a sending out a blanket message that all free-trade is detrimental to manufacturing jobs in the US is short-sighted and reeks of entitlement mentality.
i am in full agreement that
i am in full agreement that we need to revive the manufacturing base. i am not in agreement that globalization is the enemy. collective amnesia about all the issues US based companies had during the 70's will not help us fix our issues. car companies had no compettion so quality suffered, prices went up and consumer satisfaction was ignored.
so enough with nastagia. we need to look forward and energize our manufacturing base. here are some ideas.
1. remove health care as a burden to business. let there be a vat tax that then gives everyone a voucher to purchase health care on thier own.it will also spread the burden of health care to imported products which get a free ride.
2. allow 100% expensing for plant and equiptment put in place here in the U.S.
3. reduce all the regulations placed on business in regards to employees, osha, EPA etc.
4. reduce taxes on sub S corp for the money left in the business. only tax what is distributed to the shareholders. this will allow business to invest in thier businesss.
Outstanding. I also think
Outstanding. I also think that deferred salary and deferred stock options should be made mandatory to people at the vice-president and higher level. They can still earn a good living but do not see the huge payouts for 1 or 2 good years. It is effectively a pension, but helps to ensure decisions are made for long-term growth rather than a quick payouts.
Outstanding. I also think
Outstanding. I also think that deferred salary and deferred stock options should be made mandatory to people at the vice-president and higher level. They can still earn a good living but do not see the huge payouts for 1 or 2 good years. It is effectively a pension, but helps to ensure decisions are made for long-term growth rather than a quick payouts.
The basic problem is that our
The basic problem is that our system requires corporate management into "short term planning". Investors especially institutional investors are always chasing the next great quarter. Management is forced to follow.
Often that means cashing in on "non-balance sheet assets".
This is done by several methods:
1) squeezing suppliers. Cashing in on a relationship of trust built up sometimes over decades.
2) squeezing employees. same as above
3) Offshoring - transferring decades of knowhow to an offshore plant, knowing that in a decade or so they will be your competitors.
4) Labor agreements that defer labor costs. Pensions etc.
SHORT TERM MANAGEMENT IS A HUGE PROBLEM
A possible solution:
Change the capital gains tax. Republicans have been pushing for 0%tax on capital gains. Let's give it to them - only make it effective only after, say, ten years. Let's raise the capital gains rate (say 28%) on investments of less than a year, and on a sliding scale in between. 5 years would be the current (15%) rate.
How would investors change their buying if it implied a 5 year commitment?
How would management change if they didn't have to worry so much about the next quarter?
I work for a company the has,
I work for a company the has, so far, managed to stay ahead of our competition domestic and foreign. We have seen one of our major domestic competitors go out of business and another is reportedly shaky. Our foreign competition is fierce and it is growing. We have to compete as much on price as we do on performance and quality. We have been targeted by Asian companies who have some cash flow advantages that a typical Western company tied to quarterly performance doesn't have. So we have to be agressive on the cost of components in order to be competitve. I'm sure if we could do this by buying everything in the US we would but this is not the reality.
I have worked here for a long time and I have seen the changes - they were not made to merely reap profits but to survive in a very competitive environment. Being profitable is necessary for survival.
Glenn, You hit the nail on
Glenn, You hit the nail on the head dead square!
I just turned 50 and have been in mold making since 1982 and the machine shop from 1979. In school the "enlightened educators" said shop classes were for the ones who not that good at regular school. The only way to a successful career was through college. no wonder why there were not enough mold makers, die makers etc....
The minute we stop producing we die.PERIOD. Your right all for individual and corporate GREED.
I will say this though, in the mid 90's when I started my company what people were charging for molds and dies was a crime. Hence the nucleus of my company.
Michael Gore
Three R Plastics
Excellent insight. Now if
Excellent insight. Now if only the rest of the Nation could understand the value of the strength of the manufacturing industry and what it means for the socioeconomic strength of this country and the future economic growth of this country as well. Thanks for sharing. PS - shared on FB and Google+
Look at Australia, 30 years
Look at Australia, 30 years ago there was a strong manufacturing industry, now we only dig stuff out of the ground and make hamburgers. Now the government is hell bent on destroying what is left by introducing the carbon tax.
Good article..I appreciate
Good article..I appreciate the in depth study of the subject..
Hope your word is spread and heard by the intended people...