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Why the Economy is Toast
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Why the Economy is Toast |
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Local Rebel Member Ascendant
since 1999-12-21
Posts 5767Southern Abstentia 
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Why the Economy is ToastWe'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. quote: 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. quote: 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. |
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Alicat Member Elite
since 1999-05-23
Posts 4094Coastal Texas |
Fairly astute article, LR. And I agree with you. Sure, we could wrangle about mitigating circumstance and semantical issues, along with 'what if' theories which do nothing for reality, but why? You've pretty much hit the nail on the head. I've always found it slightly amusing when a president gets the credit/blame for the economy, especially when they've just landed in office. Back in 92, Clinton took a lot of credit for the good economy, even though he had just been elected. Bush was blamed for a weak economy, even though he had just been elected. Back in 90, a friend of mine told me the economy was going to erupt. He worked in the ball-bearing industry and told me of their backlog of orders for small parts...the small bits of machinery which power larger industry. When I spoke with him again in 94, they had cleared their backlog, and new orders were only trickling in. Those first pebbles, which no one noticed, had started to roll at the top of a hill. |
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inot2B Member Elite
since 2000-09-18
Posts 2205Arkansas |
Local Rebel, I just wanted to let you know that I've been reading your writings in several different sections. Normally you and your discussions are to hot and heavy for me but this one is the first that I felt I could answer without being too off base. If the United States has to depend on other countries to make our products what will happen when that country decides not to deal with us any longer. We will be left trying to make special deals and promises to them. Which I feel we have done over and over in the past. I know that it will cost more, but if we get rid of the high paid CEO's and put our country to work not only will we be self supporting but also less people on the welfare roll. I agree completely with your quote. "...if we can't figure out how to compete in the marketplace with toasters -- the rest of our manufacturing base is toast." |
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Local Rebel Member Ascendant
since 1999-12-21
Posts 5767Southern Abstentia |
Well Alicat -- I suppose stranger agreements have been struck in the last three weeks -- Phyllis Schlaffly's group and the ACLU are on the same petition together to protect privacy in the wake of the NYC/DC attacks.  inot2b -- just wade in anytime; the water's warm - the main thing we have to do re:international trade is make sure that developing countries meet the same requirements as the US... for instance... India has over 11 million children between the ages of 5 and 11 in the workforce -- beyond 11 they don't consider them children? I don't know -- but -- the main thing is -- we're buying stuff that's made by people who can't afford to buy it themselves -- and we're not really getting a price break either -- there are just a few individuals who note the disparity in wage rates and pocket the difference. Free trade is important and protectionism is dangerous -- what we need are the right incentives and directives to make sure that we're reinvesting in American productivity -- the current schemes don't do that -- they actually penalize it. [This message has been edited by Local Rebel (edited 10-01-2001).] |
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Alicat Member Elite
since 1999-05-23
Posts 4094Coastal Texas |
Heh...that's the truth. The U.S. has long protected special foreign interests, at the cost of home productivity. We pay our farmers not to grow, but buy instead from outside sources. We buy sugar cane, bananas, coffee and rubber elsewhere, things we could easily grow here. We buy pieces/parts from outside, things we could easily manufacture here. Some of these trade agreements go back a hundred years or more, and are still in effect. But I guess that if we don't buy from them, we can't have buyers in those countries and can't know what's going on secretly. After all, we do gotta keep our hand in the international poker game, don't we? (tongue in cheek mode) The funny thing is, and this occured to me last night, is that many countries that rely heavily on our produce hate us, but hate us more if we take that produce away. Now, I don't know about any of ya'll, but if someone keeps trying to beat me up, harass me, flatten my tires, and make my life rough, I sure as hell ain't gonna give them groceries...but that's just me. |
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Brad Member Ascendant
since 1999-08-20
Posts 5705Jejudo, South Korea |
I've never quite understood the idea of an information economy. On the face of it, it would seem that it means the shift from manufacturing, from service, to the majority of workers in a nation being employed to acquire information. But information means nothing unless you do something with it. That is, unless the information is employed in the manufacturing sector, in the service sector, unless that information changes things, it is useless. But if it changes things, wouldn't the better name be innovation economy? LR, You've mentioned before as well that high level managers are well paid conformists who prefer to follow the lead of others than actually do the hard work of coming with new ideas and "employing" them in a productive way. Which means they aren't innovating. Which means they aren't using the information. Which means the 'information' economy is a propaganda tool. Perhaps because the idea of a 'service' economy and the idea of a 'manufacturing' economy has gotten a bad wrap? When you think of manufacturing, what pops into your head? When you think of sevices, what pops into your head? When you think of information, what pops into your head? Is it just another name for the same old crud? Sorry guys, just random thoughts. Maybe off topic but feel free to enlighten me here. I'll try to get back later and address the national/international thing. Brad PS Interesting how you told your anecdote, LR. The guys on top could see what you were talking about, the guys in the middle, however, were blind to long term consequences. That is, the guys on top were enlightened, the guys in the middle were greedy. Isn't that the usual story? Think Robocop. PPS Interesting how I can turn just about anything into a topic that interests me.  PPPS Feel free to ignore this. |
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Local Rebel Member Ascendant
since 1999-12-21
Posts 5767Southern Abstentia |
Ali -- it's good that you picked up on farm subsidies as an issue because that's one of the things I was referring to -- although not quite directly. The current conditions that actually harm re-investment in American productivity has to do more with the Tax code that winds up penalizing publicly traded companies for buying capital equipment -- here's how -- depreciation is amortized usually over a five year period which was a method to attempt to increase investment by avoiding payment of taxes -- but that depreciation gets 'charged' agianst the books of the publicly traded company and winds up making 'profits' or better stated 'earnings' look bad which makes for bad trading -- CEO's and other senior managers are judged not by the productivity of the company -- the boards that empower them are stockholders that want thier stock price to go up -- the don't give beans about 'profits' or 'productivity' or taxes for that matter. The irony though -- is that increasingly over the last 12 years or so -- the actual stockholder winds up being the average joe who's 401k money gets plowed into many different stocks by a fund manager -- then it is the fund manager -- acting on behalf of the employees -- to eliminate employment -- to attempt to drive up the value of thier 401k. France and Italy, being admitted socialists (the US is too -- it's a matter of degree and kind), have chosen to subsidize thier manufacturing which makes them very competitive in the global economy. We can be competitive too -- but it will require more capital equipment -- the best example being a shovel and a bulldozer -- the right equipment makes people more productive -- but we're going to have to learn some more accounting skills. The funny thing about the industrial revolution was that what really empowered it wasn't the mechanical solutions that were deployed -- it was that we learned the fine art of cost accounting and applied to systems to make them more efficient. And Brad -- I think the word 'Information' economy was coined basically to attempt to define the rise of the computer and 'soft' solutions -- but I think even the IT sector now realizes that without manufacturing clients there is no information really for them to process... A service economy implies that productivity is shining each other's shoes -- and is totally nonsensical as you've suggested. I don't think we're in a 'hell in a handbasket' scenario though -- I think the street got it's wake-up call long before 9-11, the Fed hasn't though, because it's still trying to use monetary policy as an economic thermostat -- there's only so much effect that can have -- although in an environment of 'artificial' money it can pose some interesting twists. The bottom line is -- we need strategic planning on the productivity front -- which was something Al Gore was supposedly doing in the last administration -- but it was pretty much just more smoke and mirrors. We need incentives for investors to 'hold' assets -- and rewards for companies that innovate. Lastly -- re: managers acting out of greed -- we really can't blame them Brad -- the system is set up that way -- the managers are managed by objective which caps productivity -- if, say, there is an objective to raise revenues by 3% in a given month -- the method is immaterial to the goal -- and manipulation to create a 3% gain may quash what would have been 5% -- is this making sense? The real goal needs to get back to the Deming model -- it's just about continuous improvement -- reducing waste -- increasing efficiency -- improving quality -- delighting the customer. |
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rwood Member Elite
since 2000-02-29
Posts 3793Tennessee |
Applicable and insightful, still. I know you won't accept the word "prophetic," because the topic just isn't as organic as toast. So many knew what the problem was and that it wasn't going to go away. breaking bread... |
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