Why the Economy is Toast
We're now told it's our patriotic duty to shop. But in reality -- what is a recession? It's the aggregate sum of bad decisions made by the CEO's of our leading companies
© 2001 Night Hawke
Long before the suspected henchmen of Osama bin Laden slammed headlong into the middle of our Maslow's hierarchy of need the economy was flailing at best. Now we've been given the mandate to return to 'business as usual' in America. Indeed, we've been ostensibly told it is our patriotic duty to shop. This is even understandable in an economy based on consumerism. But for what shall we shop? And is business as usual even a good idea?
In 1995 'business as usual' was me standing in a semi-darkened room before a panel of power brokers presenting my strategy for propelling their company into a sustained profitable future. This was not a small company. It sold roughly 1.2 billion dollars worth of consumer products abroad and here at home with a base of manufacturing throughout North America including Mexico. Electric blankets, toasters, blenders, mixers, can openers, drug store health care items, over 5000 products in all were under my particular jurisdiction for formulating a manufacturing strategy.
Surprisingly enough the CEO of the company actually got my presentation -- I didn't even get it until I was about halfway through the preparation of it. It had taken me over six months of research, writing, meetings with committees, and raw cut and paste time to put together. It was a multimedia Powerpoint extravaganza cast across the room from a state of the art video projector from the Pacific Rim tied directly to the company server. A surround sound system from various parts of the globe gave it that extra little punch. It was glitzy and glamorous -- with a clear message. It was so clear in fact that by the end of my presentation I felt like an idiot for having presented the obvious.
Even though our competitor was engaged in importing the larger part of their products from China and other parts of the world -- our clear strength in the market place and best long term strategy was the fact that we produced close-to-market. (That's bizspeak for here at home.) The cheap labor abroad was a mere specter that near-sighted managers were chasing like a pot of gold at the end of the rainbow.
In the first place, Labor is only a fraction of the cost of a product anymore. There are other factors like flexibility, shipping, spoilage, quality, and inventory costs that grossly offset the fad of devolving a company into a name brand and a marketing house. Not to mention the fact that without hard assets there is little (as dot.com's have now found out) upon which to command a stock price for very long.
But the younger managers, the COO's, the VP's, the marketing execs -- they were all more concerned about next quarter's numbers than the larger economic war we were embroiled in. It was, as a part of my strategy, more important to manufacture abroad to sell in those same markets than it was to blindly divest away our capitol equipment, real estate, and technical expertise for the sake of inflating our cash drawer with fashionable lay-offs and import schemes. And it was more important for us to find ways to manufacture (competitively) here at home. I wasn't falling for some sloganism like 'buy American' here either. It was a core competency issue.
"...if we can't figure out how to compete in the marketplace with toasters -- the rest of our manufacturing base is toast."
But they didn't see it that way. They even went as far as to say -- it's just toasters -- and six months prior I might have agreed. But, I told them, if we can't figure out how to compete in the marketplace with toasters -- the rest of our manufacturing base is toast.
When I then went into a discussion of how dependence on foreign produced goods made us susceptible to world politics and the instability of Central Asia -- they looked at me as if I were from another planet.
Don't get me wrong. We imported plenty of goods. Mostly from Mexico though -- quite a bit of subassembly components from China and some from Eastern Europe. But we maintained a balance of about 6000 people in the manufacturing and finishing of product. These were all people who made above minimum wage pay who supported the communities where we had our plants. Eliminating those jobs would be of small consequence to the nation but to those towns it would be a serious blow -- not to mention the larger picture of how it would ripple through the economy.
Needless to say, the men in that room made shortsighted decisions that would inevitably lead to the firing of the CEO as well as the rest of them -- only to be replaced by the likes of 'Chainsaw' Al Dunlap -- a man who's penchant for violent terrorism against American workforces is legendary.
Take a look now at how the layoff of tens of thousands of workers from the airlines is crashing like dominoes through the stock market and consumer confidence. This is only visible to us because we watched the event in Technicolor horror that caused it -- and because it's happening all at once. The slow erosion of jobs from the manufacturing sector had this economy in a nosedive long before our collective bubbles of security were burst.
People called the new economy the 'information' economy. But economics is really a very simple formula. Prosperity depends upon productivity. If we aren't producing anything but information we won't have the wherewithal to sustain economic growth -- let alone fight terrorism -- or any other war.
It was our manufacturing power that won World War II. That, coupled with a decent fighting spirit, allowed us to come from behind in the production of arms and catch up with with our foes (particularly after the devastating materiel loss at Pearl Harbor) and eventually overwhelm them. But, most people don't realize that war was fought on the technological and productivity front.
"Sure, we live in a global economy now. And that's the whole point. We damned better be sure to learn how to compete with it -- and we'd better get a crop of CEO's in the boardroom that understands that."
It's nice that we're lighting candles and waving flags. But dining out, and going to the store to buy more imported goods is not going to defeat Osama bin Laden. This war, our new war, will also be fought on the productivity front. Sure, we live in a global economy now. And that's the whole point. We damned better be sure to learn how to compete with it -- and we'd better get a crop of CEO's in the boardroom that understands that.
In reality -- what is a recession? It's the aggregate sum of bad decisions made by the CEO's of our leading companies. Nothing more, nothing less. We've already found out that the great superpower is vulnerable to physical threats of violence. It's time to realize we're even more vulnerable in our wallets.
That company, Sunbeam, has been through it's share of CEO's now since 1995 -- even 'Chainsaw' Al got a dose of his own medicine finally and got tossed out on his ear -- and it's stock is valued at about one tenth of what it was at its' peak in '94. If it can happen to a company -- it can happen to a nation -- but it won't if we don't let it.