[Spam] [Vision2020] World Economics

[Phil Nisbet]

Andreas

I have seen it in practical terms.  Boise Locomotive, a pretty Idaho 
company, looked at expansion in Boise in the late 1990's.  They picked San 
Luis Potosi Mexico instead.  I was working in SLP at the time (Doing a 6 
week on and two week off in Salmon was one heck of a load, but the price an 
Idaho guy has to pay to work overseas.) and knew the Boise Locomotive guys 
in both offices.

They required 2 Mexican employees to fill the positions of one American, 
even though the Mexican workers worked a 6 day work week for 48 hours a 
week.  Their average Mexican employee was pulling in $10,000 a year and the 
average US worker was pulling in $35,000, but with the other costs involved, 
including taxes and the rest, it was a wash over all on labor costs.

They moved there because to permit in SLP took 30 days while between DEQ, 
EPA and the rest of the US permits, they would have been at it for a year to 
get an expansion on their existing plant in Boise.  They had to go through 
that one year delay for any changes to their production lines, which put 
them behind the market windows against the Swedes and others in the sale of 
mass transit locomotives any time there was a change i that particular 
market and its desires.  Its the same 30 day permit hoop in SLP for new 
factory construction or for palnt expansion or for retooling.

So Idaho lost 400 jobs and SLP Mexico gained 800 jobs.  The time cost of 
money savings is what did it and the Boise Locomotive guys said that it 
saved them in excess of $30,000,000.

And I can side by side the environmental regulations they faced in SLP with 
those that we have here in Idaho.  ON paper the standards were the same, 
though some will argue that enforcement is weaker in Mexico.  The point is 
that forcing higher environmental standards on paper for Boise Locomotive 
would not have made a difference, but cutting the time delay would have.

Phil Nisbet


>From: Andreas Schou <ophite at gmail.com>
>To: Phil Nisbet <pcnisbet1 at hotmail.com>
>Subject: Re: [Spam] [Vision2020] World Economics
>Date: Tue, 31 Jan 2006 16:56:47 -0800
>
>Phil --
>
>I rarely agree with everything you say. This, however, is dead-on.
>
>-- ACS
>
>On 1/31/06, Phil Nisbet <pcnisbet1 at hotmail.com> wrote:
> > 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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