[Spam] [Vision2020] World Economics
Phil Nisbet
pcnisbet1 at hotmail.com
Wed Feb 1 08:48:56 PST 2006
James
I will give you the example of a plant I know. Rock Island used to produce
Silicon Carbide and shut its doors in 1998. We buy that material from the
Chinese now. The job lose from closure of the plant had a drastic effect on
not only the folks there in Wenatchee, but also on the people who supplied
raw materials to their plant.
Why did it shut its doors? Because the plant was built in the 1940. In
order to meet new requirements for efficiency they needed to up grade the
plant and a new plant, a change in the operating conditions on their
existing permits, required just the kind of expenditure I was talking about.
They were not a new start up, just an existing business with old plants
that needed upgrades.
And it was not simply Rock Island; the whole Northwest Silicon and Silicon
Carbide industry closed its doors. 2000 Jobs went across the great waters
to China. Over a billion dollars in product went from being made in the USA
to being controlled by the Chinese.
Now some may argue that such industries are bad and inherently nasty and as
dead as the Dodo or buggy whips. The trouble with such analysis is that
Silicon is the basis of computer technology and our high tech industries.
Silicon carbide is the basis of many of the innovations in materials
sciences like composite armors. We were operating those plants in America
to supply those industries and they had not upgraded for many years. All
plants have to eventually modify their production lines to add new
technology or become obsolete.
But changing plants requires new permits. Hence that application of the
rule that I have previously given you.
We do not build new refining capacity here in the US, because the permits
are simply too hard to get.
We do not expand factories in the US, because the permits are too costly
here.
We do not upgrade the equipment and processes of our existing plants in the
US, because doing so will require new permits to operate, we let the plants
run until they fall apart and then close the doors.
When the cost of getting a permit is higher than the actual costs of
environmental compliance, you might think that somebody somewhere would
figure out that we just might have a problem. As we end up with more people
working in offices filling out paperwork than in the field actually doing
environmental work, you just might want to figure that we have a problem.
Your suggestion, James, is that we seek to change the environmental
regulations in countries that the plants move to. I am suggesting that even
with their laws a duplicate of ours; they will still hold an advantage that
relates not to environmental standards but to the permit process itself.
I know that there are cases for some industries moving to get a benefit from
pay issues, but I think that as you investigate you will find that those are
low tech and low skill, low pay jobs. Are we that concerned about the call
centers shifting to India? Or should we perhaps be more concerned with
losing high paying blue collar jobs?
Phil Nisbet
>From: "James Reynolds" <chapandmaize at hotmail.com>
>To: pcnisbet1 at hotmail.com
>CC: vision2020 at moscow.com
>Subject: Re: [Spam] [Vision2020] World Economics
>Date: Wed, 01 Feb 2006 07:54:09 -0800
>
>Phil,
>
>Thank you for the interpretation it added a lot to our conversation last
>night. All agree with your information in terms of having an effect on a
>new start-up industry. It was brought up however that many of the jobs we
>are losing are when existing manufacturing plants shut down here. Those
>examples don't seem to fit your explanation since an existing entity would
>not have to deal with the start-up issues you describe. In our ignorance we
>guessed that our job losses result from plant shut-downs more than from
>missing the new potential development. Why then are businesses shutting
>down plants here to build new ones elsewhere if it is not to reap the
>benefits of lower wages and more slack environmental
>regulations/enforcements?
>
>James
>
>
>>From: "Phil Nisbet" <pcnisbet1 at hotmail.com>
>>To: chapandmaize at hotmail.com
>>CC: vision2020 at moscow.com
>>Subject: Re: [Spam] [Vision2020] World Economics
>>Date: Tue, 31 Jan 2006 16:20:24 -0800
>>
>>James
>>
>>Actually, the fact is that even with higher standards for environmental
>>protection and high wages, the productivity of American workers is so much
>>higher than those overseas that we can and do compete favorably.
>>
>>The reason we end up with problems in the competition relates to
>>regulatory delay and not the regulations themselves.
>>
>>I give you the example of Corning deciding to huild a SiC and SiBr plant
>>to make composite fiber for use in body armor and humvee armor. Both the
>>US and Canada have the exact same environmental regulations and standards
>>and comparable pay scales and the Canadians have a higher rate of tax on
>>products. So why was a plant built in Canada? Because Corning could get
>>their permits to build in just 6 months and to build a plant in the US
>>takes a permit time line of years.
>>
>>So any company who wants to meet a current demand and get to market in a
>>timely manner is not going to build in the USA, because you want to be
>>selling from a finished facility at the peak of demand and not have your
>>money tied up waiting to build for years. You lose opportunity costs and
>>you lose time cost of money costs and those are pretty major for any
>>business.
>>
>>Lets say that the bank charges a company 6-7% on money borrowed or
>>reserved for building a new plant. If the plant costs $100,000,000, you
>>are going to have it cost you an extra 3 millions to build in Canada and
>>in the USA it is going to cost you a good three years interest or 18
>>millions of dollars. On top of that, if you get to market first you get
>>bigger market share and peak pricing for the materials you are seeking to
>>compete in, which on a major plant you have to figure on as preliminary
>>sales of 30 milion a year and an ability to pay off your plant in a three
>>to four year stroke, while the people who come in behind the market leader
>>will take 8-10 years to pay down plant and equipment.
>>
>>Look at labor costs in a plant that size as about a third of product, so
>>about $10,000,000 in payroll costs. You can ship the plant overseas and
>>save on that payroll, but what are you really saving? You have a need for
>>fewer and more productive workers here in the US so your labor savings is
>>really not that much. You might save far less than twenty percent of your
>>labor costs, which is only $2,000,000 a year. Put that up against killers
>>for sending the job overseas like transportation costs to get the product
>>back here to the market and it would be no contest where you would build
>>products. You end up spending serious money in containers and shipping
>>and in demurge and a host of other problems that are costs far greater
>>than any savings in labor.
>>
>>If you look at the environmental costs per dollar its about ten cents on
>>the buck here or Canada and around 7 cents on the dollar elsewhere. Thats
>>not a lot of savings for a plant when you have to ship product back here.
>>
>>So why do they go elsewhere? Because as I noted, instead of paying off
>>100 million in plant costs they have to pay off 118 million, they miss the
>>market window and end up paying on that for an extra 7 years at 6-7%
>>interest.
>>
>>At a 7.5% interest rate the building of the Canadian plant cost 3 million
>>in interest for the delay and then hits market window to pay out o the 103
>>million for construction in three years, bringing their interest costs on
>>the plant to about $16,000,000. On a three year building delay in the US,
>>they end up paying 118 milion and take 7 years to pay out the plant for an
>>interest cost on the plant $52,000,000. In both locations the
>>environmental and labor costs are the same.
>>
>>In the third world its even more attractive, as in, you walk in they hand
>>you their requirements and you go out and build it, no delays. You hit
>>your market window on the nose every time and you do not need a huge staff
>>to try to get all the paperwork and hearings and lawyers and all the rest
>>required here.
>>
>>Want to remain cost competative with the rest of the world? Pre-Plan and
>>have it figured out where we want what so that industry has shorter
>>delays. Consolidate the permitting process so that the people who want to
>>get a plant in can go to one location and get all the permits going at the
>>same time. Keep the same environmental standards, the actual requirements
>>for discharges and the rest, but make it less time consuming to report and
>>comply.
>>
>>Because its the time cost of money that is killing US manufacturing, not
>>the wages paid to workers or the environmental costs of real standards.
>>
>>Phil Nisbet
>>>From: "James Reynolds" <chapandmaize at hotmail.com>
>>>To: lfalen at turbonet.com, vision2020 at moscow.com
>>>Subject: Re: [Spam] [Vision2020] World Economics
>>>Date: Tue, 31 Jan 2006 15:05:27 -0800
>>>
>>>I feel the same way as you on this Roger.
>>>
>>>The main argument used for the ultimate lowering of our standard of
>>>living was that we could not compete with foriegn wage rates or the lack
>>>of environmental regulations placed on foriegn industries. Then it went,
>>>either their wages and enviromental regulations have to increase or our's
>>>need to decrease in order for us to compete. Industry will naturally
>>>choose to operate in the place of least cost, leaving us without jobs
>>>which will then push us to lower our wage expectations and thus our
>>>standard of living.
>>>
>>>The scenario does make it seem very important for our trade agreements to
>>>have wage and enviromental specifications in them. I sure hope we don't
>>>end up screwed.
>>>
>>>James
>>>
>>>
>>>
>>>>I am not an economist and would have to do so some research to come up
>>>>with a good analysis. Off the cuff, I doubt the statement in the
>>>>paragraph. On the second point. Isolationism would be an unmitigated
>>>>disaster. Two hundred years ago, that was somewhat workable, but not
>>>>today. We have to compete in a global market.
>>>>
>>>>Roger
>>>
>>>
>>>> > Is it true that the current trend of opening up the USA to the
>>>>principle of
>>>> > a world market (WTO etc) is what is driving the unsettling of our
>>>>economy? I
>>>> > was listening to a pontificating friend about how the USA cannot
>>>>maintain
>>>> > the current standard of living unless the rest of the world is
>>>>brought up to
>>>> > the same standards and that is not going to happen because of the
>>>>scarcity
>>>> > of resources.
>>>> >
>>>> > Are we going to have to lower our standard of living to enter into
>>>>the world
>>>> > economy our government is taking us into? Could we maintain our
>>>>standards if
>>>> > we did not go along with the world economy model but instead relied
>>>>on
>>>> > ourselves for everything again? Do we have the resources to go it
>>>>alone
>>>> > under any model and still maintain the life we are accustomed to?
>>>> >
>>>> > James Reynolds
>>>
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