[Spam] [Vision2020] World Economics

Tue Jan 31 16:20:24 PST 2006

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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