[Spam] [Vision2020] World Economics

[Mark Solomon]

Phil,

Why is it then that after 11 years of a 
Republican majority in Congress and 5 years of a 
Republican president that the permitting 
requirements that are, in your opinion, forcing 
companies to take their operations abroad have 
not been changed? It could make one cynical 
enough to believe that the controllers of some of 
these corporations prefer to leave the supposed 
permitting hurdles in place so they can cry about 
them while shipping capital abroad.

The post WWII steel industry is a classic 
example. At the end of the war, this country had 
the only intact steel industry in the world. 
Steel mills in Japan, Russia, Germany and Britain 
had been heavily damaged in the fighting. Rather 
than take advantage of this global domination of 
a vital industry to reinvest in new technologies 
and facilities and maintain their market 
position, the US industry instead ran their 
plants into the ground while sending their 
profits to shareholders. Surprise, surprise when 
this most basic industrial building block of the 
American economy "all of a sudden" faced the 
flood of "cheap imported" steel from new plants 
built with new technologies (continuous batch and 
rolling mills) from the resurgent post war 
economies of Japan, China, etc. I lived in 
Cleveland for a while back then. I saw mills 
closing right and left. All this happened before 
any of the modern suite of environmental laws and 
regulations were enacted in the early 70's.

Mark Solomon

At 8:48 AM -0800 2/1/06, Phil Nisbet wrote:
>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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