Every article you read about manufacturing in the U.S. focuses on what used to be and no longer is – tales of woe about communities that have gone down the toilet and companies that now do business in Mexico, Bangladesh, or worse, Mississippi. When was the last time you saw a story about a company that not only continues to manufacture in the U.S. but isn't constantly threatening to leave?
This story about the Airstream company, maker of those shiny jellybean-shaped trailers, is an interesting commentary on the differences between the companies that stay and those that fled across the border as soon as NAFTA allowed it.
It has been several years, but I used to watch on occasion the John Ratzenberger-hosted TV series Made in America on sleepless nights and I was always struck by the bizarre juxtaposition of the host's Extreme Teabag politics and the countless examples in every show that put the lie to all of the right-wing whining about our government failing to be Business Friendly. It takes a weird person to host a show that profiles three or four successful American businesses per episode while also believing that taxes and wages are so high that it's impossible to make a go of a business in the U.S.
So what enables some companies to make it here while so many argue that they can't? The Airstream piece suggests that one useful ingredient is being run by a person or a family rather than a faceless Board of Directors or a CEO in another state. I'm sure plenty of small business owners or family businesses are assholes, of course. And I'm sure that even the "good ones" like the owner profiled here work hard to push down wages, costs, and so on. That's business. Yet having a person who actually feels some connection to the company and its employees would increase the odds of staying put.
The other thing that jumps out is the cost of the final product from a company like Airstream. The days of making disposable ballpoint pens in the U.
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S. are probably gone for good, but it makes it easier for a company to justify (in the strict "bottom line" MBA-speak sense) paying decent wages in the U.S. when the end result retails for six figures. I do think it's naive, though, for the article to suggest that the workers in Middle of Nowhere, OH are uniquely skilled and the company could not replicate that elsewhere.
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If Mexican factories can churn out $50,000 luxury cars, they can figure out how to make a trailer that won't fall apart.
While there are people who have studied this issue much more extensively and systematically than I ever will, this is an interesting case study in what happens when people make decisions instead of corporate institutions.
Middle Seaman says:
The group that enriched itself immensely, and continues to do so, is companies' CEOs. That by itself shows the the corruption and inefficiency of the modern board run companies. For every rich CEO, I'll find you a much better one for a fraction of the cost. Still boards are here to stay.
American manufacturing will be back when the companies will make more money here than in Mexico or Mississippi. We are closer now than a decade ago.
Anonymouse says:
@Middle Seaman when i went car-shopping 2 years ago, I found my choices narrowed down to a Ford Focus (made in Mexico) or a Hyundai Sonata (made in Alabama). I thought it was interesting that a Korean car company chose to manufacture its cars in the USA but an American car company couldn't do the same.
Dave Dell says:
Elon Musk. Interesting article about his solar venture in Grist today. Panels made in the USA.
c u n d gulag says:
Families care about communities.
CEO's and shareholders care only about profits.
That's why psychopath's like Mitt Romney go around doing take-overs of local and smaller business.
They can cut staff, and make a profit.
And then move the company to another country, for still more profits.
Or, like a hostage-taker, use the company as ransom when negotiating with the local and state politicians, for (still) more tax breaks and other perks:
"Nice company you's got dere. Shame if sometin' happen' to it."
It's a nice racket.
If the ransom is paid, the company stays.
For awhile.
And then used as ransom again.
Rinse and repeat, in few years, for still more tax breaks and perks.
And if the ransom isn't paid – well, too bad, the hostage is taken to another country, and used as ransom there.
And, after the initial ransom has been paid in the other country, rinse and repeat for better tax rates.
Rinse and repeat, as the hostage moves from one cheap labor pool, to an even cheaper labor pool.
Tim H. says:
One obstacle to American production, besides productivity as defined by Wall $treet, and suits that "Just know" it's cheaper in China is our healthcare system, it would be worth a lot to business for healthcare to become a "SEP". The omission of a public option in "Obama care" was welfare for the healthcare industry.
John Danley says:
Cheap labor conservatives have ruined the concept of product accountability. Outsource the manufacturing, outsource the warranty, and outsource the blame.
Major Kong says:
I believe it was Jack Welch of GE infamy who once said that the factory should be on a barge and sailed around to whichever country had the cheapest labor at the time.
Greg says:
If you want to get a sense as to why boards are often but not necessarily worse than no oversight, google the business judgment rule.
HoosierPoli says:
Just another piece of the social contract dynamited by Randians.
Remember when you were in high school and you saw the flyer that said you could win TEN THOUSAND DOLLARS for school if you submitted an essay about The Fountainhead? I was savvy enough to be suspicious even then, but little did I suspect that I was viewing a festering sore on the face of civil society, a spot of rot on the skin of the pear that only hints at the brown, curdled mess at the core.
negative 1 says:
Your line about Mexicans is off the cuff, I know, but highlights exactly how bad labor practices are in the world. Mexican labor is considered comparatively expensive if you're shopping abroad for slave – er, cheap – labor.
However, Germany, which has as high a standard of living as the US, has a booming skilled manufacturing sector. Part of the reason is because yes, they have protective tariffs and incentives to keep it there. The other, though, is because they have a skilled workforce. The US could do it too, and the thing is for other countries it's not just the workforce. Repair, ordering parts, all of that infrastructure needs to be in place, because it can be troubling to just drop that stuff in the middle of a (metaphorical) desert. Just a few tweaks of the tax code could easily bring that kind of manufacturing back.
Sarah says:
The most recent Cracked podcast (to which everyone should listen, because it's excellent) touches on this, re the food industry. The business model of the food industry depends on John and Jane Q. Public overeating themselves into obesity and its attendant problems, while dumping the costs of those problems on the public.
Skipper says:
There are two problems at work here. One of them is serious and the other is worse.
First, there is the Walmartization of the American economy. Here's how it works. Suppose you own and run a bicycle company — Ed's WhizBang Bikes. You're doing pretty well, and then along comes a WalMart guy who tells you that your new Excalibur 32X is the hot new thing. All the kids want them. And WalMart wants 10,000 of them a month — and they'll pay you $30 per bike.
You have two problems. You current factory can only make 5,000 a month — and they cost $45 each to make. "Yeah, yeah," says WalMart guy. They don't care. They want 10,000 a month and they'll only pay $30. To "sweeten the pot," the guy tells you that if you don't agree, WalMart won't carry any of your bikes at all. (They really do this.)
Now, this is a problem, mostly because WalMart so dominates the retail market. It's responsible for a tremendous amount of retail sales. And, in fact, 30 percent of your total sales come through WalMart.
So, now you're left with three choices. One, you can tell the WalMart guy to go screw himself and lose 30 percent of your sales, lay off people, lose money, etc. Two, you can cut salaries enough to make a small profit and then try to hire people at the reduced salary to increase volume. Or — you can move your operation to China where you can get the bikes made for $25, so you can still make a small profit.
However, this involves giving your proprietary plans and drawings for the bike to a Chinese firm that will be peddling the plans on the open market, and someone there will be selling knockoffs in about three months. I'm not making this up. This situation has happened to numerous companies who have been driven out of the country or out of business by WalMart. You can look it up.
But, at the end of the day, it's your choice. You are the owner, manager, and principal stockholder.
But what if this were to happen in a publicly held company, where ownership has been divorced from management? Well, as it stands in the US right now, corporate law specifically requires CEOs, other officers, and directors to maximize return to the stockholders — without consideration of anything else. A corporate manager would have no choice but to do whatever will make the most money for the shareholders. If they don't, they can be — and have been — sued.
In large publicly held corporations today, the majority of stockholders are not mom-and-pop stockholders. Many are foreigners with huge blocks of stocks. Others are institutional investors — your 401K, mutual funds, insurance companies, etc. None of these stockholders care about the air quality in Peoria, whether 16,000 people are put out of work in Akron, or whether their are PCBs in the river — until, and only when, any of those negatively affects their bottom line. All these stockholders care about is whether they're getting 4.9% on their money or 4.8% on their money — nothing else.
So, saying that directors and CEOs are just a bunch of greedy pigs out to make money is the easy answer. Some are, to be sure, but that's missing the point. The point is that the law requires them to "maximize profits." Until that changes, we're going to see more of the same.
Pat says:
"While there are people who have studied this issue much more extensively and systematically than I ever will, this is an interesting case study in what happens when people make decisions instead of corporate institutions."
I'm pretty sure you're talking about the stuff Paul Krugman did his early work in, the stuff that won him his Nobel. His particular concern wasn't American Slipstreams, but it was roughly on the following question: Why are there Japanese consumers driving Audis at the same time there are Germans driving Toyotas? Wouldn't one country or the other have an insurmountable advantage (price or quality or whatever), or else wouldn't transport dictate everyone buy the cheaper, local option? There's no obvious reason this should happen… but it is obvious to all of us that it in fact does happen.
Anyway, my $0.02. Although the logic of a high school economics textbook would suggest these utility-non-optimizing outcomes would be unlikely, a quick look around the world quickly indicates that said textbook is a rotten predictor of how people actually behave. Tons of people the world over make a perfectly fine living while not behaving like avaracious scavengers. The reason that we don't do it in America is, well, I think the kids say "the subject of a future blog post.""
Mike S. says:
@Skipper
"corporate law specifically requires CEOs, other officers, and directors to maximize return to the stockholders"
Can we get a citation for that?
http://www.nakedcapitalism.com/2014/05/guess-who-is-responsible-for-the-corporations-exist-to-maximize-shareholder-value-myth.html
"Directors and officers, broadly speaking, have a duty of care and duty of loyalty to the corporation. From that flow more specific obligations under Federal and state law. But notice: those responsibilities are to the corporation, not to shareholders in particular…Shareholders are at the very back of the line. They get their piece only after everyone else is satisfied."
Brian M says:
Skipper: One important point: CEO bonuses and pay are often dictated by metrics like share price rise. This is the more critical factor than theoretical legal requirements to maximize shareholder value.
Although shareholder value (and the ability to leverage takeovers) is yet another factor that requires off shoring and narrow, quarter by quarter focus by American business. The financialization of the American economy.
mothra says:
Small quibble: the writer of the article is not the one suggesting that no one anywhere else can make Airstreams. The CEO is quoted as saying that. Which is a nice shoutout to his employees, but a little silly; he maintains it is nearly impossible to teach anyone how to make an Airstream. This must be false or they wouldn't be making Airstreams today.
Skipper says:
@ Mike S: Yes, we can
@ Brian M: It's not "theoretical"
Here's an article from a corporate lawyer explaining it…
http://www.commondreams.org/views02/0119-04.htm
bill says:
I accidentally a bonus.
Sarah says:
@Skipper, I already wasn't shopping at Walmart, but thanks for giving me more reason not to.
Coastsider says:
@Mike S/@Skipper – this myth has always fascinated me and a professor at Cornell University Law School wrote a whole book on it that pretty much cuts it to shreds – here's a good video where she talks about her research The Shareholder Value Myth
Whatver says:
Highest paid purple puckering sphincters are the worst performers: http://www.forbes.com/sites/susanadams/2014/06/16/the-highest-paid-ceos-are-the-worst-performers-new-study-says/
vegymper says:
@ Middle Seaman: "The group that enriched itself immensely, and continues to do so, is companies' CEOs."
It is probably the other way round, because CEOs seem to be part of the rich class before getting to be CEOs, and being CEOs is a way to protect the interests of the (evermoreinternationalizedandlesspatriotic) rich class, as I've learned at
http://www2.ucsc.edu/whorulesamerica/
Fernando_G says:
An economics professor once asked the question: What does General Motors, American Airlines, Procter & Gamble and McDonalds have in common, which is also its MOST important product?
To our puzzled look, he quickly replied: Shares. All your products and services, all the talk about quality and service, all the advertising about the company's vision and culture, everything has a single, narrow purpose: Increase the share price.
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NonyNony says:
And this is precisely what is wrong with publicly traded American corporations today. And it doesn't take a genius to figure out why:
How much benefit does the corporation receive by taking an action that costs the company a million dollars while increasing it's share price by, say, $1/share if it isn't actually selling new shares? Nothing. The corporation gains NOTHING by this action. The people who own shares (or options) gain quite a bit but the corporation gains NOTHING AT ALL directly from that increase in share price.
How much benefit does the corporation receive by taking an action that costs the company a million dollars and receiving a return a year later of $1.1 million? That's a 10% return on investment for the corporation.
But the first choice is often the one taken, even when the company has no intention of selling shares itself to make some money off the increased share price. Why? Because the CEO is paid out in options and shares and will see his personal wealth increase more if that million is used to inflate the share price than he will if he devotes it to a strategy that sees a decent but not huge ROI. And the shareholders – the only real check on the CEOs actions these days – have the same interest. Long term health of the company be damned if a quick buck can be made!
The theory behind this is that apparently the company taking good actions that lead to profit will increase the share price while the company taking poor actions that lead to decreases in profit will decrease the share price. BUT THIS ASSUMPTION ONLY WORKS IF SHARE PRICE IS DIRECTLY RELATED TO PROFITS. Which was true a hundred years ago when people purchased a stock based on the dividends that it was supposed to eventually pay out but these days not so much.
And this is why privately owned corporations can make big money in the USA while publicly traded ones have to send their labor overseas to stay in the black – because what's good for the share price has no bearing at all on what's good for the company.
The system is broken, but too many people make too much money off the broken system.
Two Below says:
Privately-held corporations have more freedom to make decisions that a “good corporate citizen” would make. Perhaps it is time to create differing kinds of legal personhood for corporations. A corporation could choose to be classified as a “community-minded corporation” or as a “pirate corporation,” and different laws would apply, depending on the classification chosen by the corporation. A community-minded corporation would (for example) be prohibited from sending more than a certain percentage of its jobs overseas and be prohibited from stashing funds offshore to avoid paying federal income tax, and in return receive certain tax and other benefits, such as protection from shareholder lawsuits. A pirate corporation would (for example) be able to operate under existing laws, except that it would pay a higher tax rate. And, of course, everyone would know the classification chosen by every corporation.
Unrealistic? Of course. Naïve? Probably. But, with Mitt Romney’s “Corporations are people, too,” and Scalia’s desire to be clever rather than wise, I’m fed up with the legal fiction of corporate personhood having been taken too far.
Coises says:
Regarding “shareholder value,” Harold Meyerson: The myth of maximizing shareholder value appears helpful.
The key confusion seems to be between “the interests of the corporation and of the shareholders” (a phrase which appears in corporate law) and “shareholder value” (which does not).
“Shareholder value” doesn’t even make much sense (We want to maximize the value of our shareholders?), but it’s probably meant to imply “share price.” Meyerson’s editorial notes:
There is the crucial point. The idea that a for-profit corporation exists to make a profit is built into the system, and does constrain the behavior of public corporations. The notion that long-term goals, worker and community good will, etc. should be ignored, because the share price already reflects everything worth knowing about a company, is pure Chicago School. It isn’t part of law, and it wasn’t the way most corporate executives thought until the eighties.
dimmsdale says:
Once there was a furniture co. in South Carolina, or maybe North Carolina, that had been making furniture for well over a hundred years, locally. Came the day the owners decided to take it public. (I forget what motivated the decision; probably money.)
Look, they were told, there's no point in going public if you're going to continue to manufacture stuff here; nobody does that anymore, and if you continue to manufacture domestically, all the stock analysts will downgrade your company's market valuation.
This happened in the last ten years and I have none of the specifics at my fingertips, but you could look it up. To sum up, not only is an "American" furniture company making stuff overseas and then boating it back over here for sale, they're undoubtedly using American lumber THAT WAS EXPORTED OVERSEAS IN THE FIRST PLACE to make the furniture they used to make locally, with local labor and local lumber. If cost of supply-chain issues (petroleum) ever rises to a high enough level, they might manufacture here again (if the analysts let them), but where's their machinery now? Where are their craftsmen now?
We are doomed. Bring on the asteroid.
fernando_g says:
We (the US of America) are entering a second gilded age, with a new breed of robber barons on one side and the plebes on the other.
The significant difference between now and its previous incarnation, is that it has gone global. The plebes no longer have to share the backyard with you, they are now in a different continent.
Additionally, the local unemployed plebes will be desperate enough to be more willing to join our imperial army, to defend freedom and our national interests.
Jado says:
Umm, exCUSE ME!!!
CORPORATIONS are PEOPLE, people.
By definition, we are creating the greatest middle class ever, as well as increasing the size of our upper class. It's just that all those "people" are corporations.
But they STILL COUNT!!! ***
*** This rant brought to you by the logical acrobatics of the Grand Conservative Movement of the last 40 years, and the Alito/Scalia SCOTUS
Kaleberg says:
Even if we erected an impenetrable tariff wall and manufactured everything we needed here in the good old USA, we'd still be losing manufacturing jobs. We've been losing manufacturing jobs almost linearly for at least 100 years, except for a brief respite during WWII. Maybe 40% of the workforce was making things in 1920. It was maybe 30% in the 1960s, and maybe 10-15% today. The problem is that manufacturing keeps getting more efficient in terms of labor input. One reason is automation with the current rule of thumb being that when the robot to do a job comes down to about $75,000 to buy, you fire the human, and robots keep getting cheaper and more capable. Another reason is that things are being optimized for ease of manufacturing even at the expense of maintenance and modification. Fifty years ago, all sorts of things were made out of wood and metal and had multiple parts. Now they're molded in one piece out of plastic. A 1950s television set was full of tubes, wires, bent metal, and discrete components. A modern television has a couple of chips machine bonded to a board. Maybe someone, or a robot, has to plug in a few connectors and tighten a screw.
This doesn't mean that we aren't going to manufacture things in the USA. It just means that we are going to manufacture things here that play to our strengths. That means things we can make better than other places. Germany and Japan have done this by focusing on industrial machinery, basically the stuff that is destroying jobs worldwide. We actually make a fair bit of this stuff, but our religious refusal to engage in industrial planning makes us a weak player.
democommie says:
"A modern television has a couple of chips machine bonded to a board. Maybe someone, or a robot, has to plug in a few connectors and tighten a screw."
I haven't owned a television for a long time but I'm pretty sure that the vast majority of them are made in Asia–they still have plenty of pieces that are tiny–attached with screws that are tinier still.
China has no need for metal, plastic and silicon robots, they have an excess of the human ones.
The "Matrix" was a lot closer to the mark than "1984". The "Machines" in this case are the corporations, we're still the batteries.
Rich says:
Airstream actually is the kind of enterprise that Mitt Romney and Co. like to see. Not a lot of debt, probably plenty of cash. They probably borrow for very specific long-term reasons and don't borrow to support operations. They have a niche product and probably know their customer well and how much to tweak their product and what level of quality is needed to sustain demand. The might be willing carry over employees in periods of weak demand, because they know the importance of continuity and having people who know how to make the product well.
An investment whatever like Bain will buy them and then load them up with debt. In Airstream's case, they don't have a huge potential market and demand probably is cyclical–in a recession no one buys these things. If Bain buys them, loads them up with debt to pay for the purchase, etc., all they need is a cyclical downturn and they go bankrupt. If they could they might move production to Mexico, but they'd need more borrowing for that.
Brian M says:
…and all of that borrowing creates plenty of fees and consulting charges, even if the company goes belly up, the hyennas have already fed.
Skipper: I'm not really denying the fiduciary duty rules of corporation. I'm just pointing out the real driving force is that the managers who represent the "owners" (an often diffuse class of people) have strong incentives to act in a short term manner. their income and wealth depends on it.
democommie says:
This may have already been covered and I just missed it…
When fiduciary duty is considered is it necessary that it focus on quarterly or year over year results? I don't think that's a hard'n'fast economic rule but I could be wrong.
Thoughts?
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