By Mitch Gurney
November 4, 2010
Political Bandit.com’s William Cormier sent me an article posted at Business Insider, The Reason Ford Is Making Record Profits — They’re Shipping Tons of Jobs Overseas by Michael Snyder asking if I could write up a commentary about it since it aligns with several articles I’ve posted here regarding outsourcing and the consequences this is having on our economy. Thanks William and thanks for the title recommendation.
This article is yet another example of the globalization strategies among America’s multi-national corporations (MNC) that are making business decisions no longer rooted in country first. As the title indicates the article is about Ford’s global strategies and in April of 2009 I wrote an article about American auto companies Moving jobs south of the Border. I’d like to point out that while we are singling out Ford here their global manufacturing strategy is consistent with most American MNC’s. For additional examples please consider this report at YaleGlobal online:
The announcements of such initiatives are similar to Johnson & Johnson’s in November 2009: “…to increase its operational efficiency and generate annualized, pre-tax cost savings of $1.4-$1.7 billion when fully implemented in 2011…” Rather than relocate the entire production lock-stock-and-barrel to India or China, which a few firms have done, managers look for parts of the operation to relocate, offshore or outsource, while keeping critical parts in-house and at home.
Behind Johnson & Johnson’s “global restructuring initiative” is the loss of many thousands of jobs in New Jersey and the US, and that’s only one example…
Michael Snyder’s article, The Reason Ford Is Making Record Profits — They’re Shipping Tons of Jobs Overseas is short and right to point:
Ford earned 1.7 billion dollars during the quarter, which was way up from a profit of $997 million a year ago during the same time period. Ford CEO Alan Mulally is being hailed as a miracle worker, and investors are giddy about the future of the company.
Ala Mulally was named CEO of Ford in September 2006 and was the former CEO of Boeing Commercial Airplanes.
Mr Snyder accurately points out this recent example of success for an American MNC such as Ford “proves that what is good for Wall Street is not necessarily good for average American workers”:
So is all of this success by Ford translating into good jobs for American workers? No.
As described in a recent article on MSNBC, Mulally has been ”revamping Ford’s U.S. and global manufacturing operation to be cheaper, more efficient and more flexible”. In other words, Mulally has been getting rid of American workers in droves.
Since Mulally took over as CEO, Ford has slashed its North American work force by nearly half. Ford has shut down or plans to shut down a dozen U.S. manufacturing facilities. Today, only about 40 percent of Ford’s 178,000 workers are employed in North America, and a lot of those jobs are in Canada and Mexico.
In fact, the number of Ford cars produced in Mexico continues to grow rapidly. The truth is that this is yet another example that proves that what is good for Wall Street is not necessarily good for average American workers.
Today, the average Mexican auto worker makes less than a tenth of what a U.S. auto worker makes in total compensation. In the new global economy, good jobs are going to where the labor is the cheapest, and that means going away from American workers.
Even the unionized workers that remained at the manufacturing facilities that Ford kept open were forced to agree to very substantial concessions to their labor contracts just to keep their jobs.
Meanwhile, literally hundreds of Ford dealerships have been shut down from coast to coast. All of this “dealership downsizing” has also come at a very high price - thousands of good American jobs.
So should we be celebrating record profits at Ford?
The truth is that in the pursuit of profits, Ford has devastated quite a few local communities.
For those who believe the experts and policymakers who suggest all we need do is give bigger tax breaks to encourage companies to invest in the U.S, ponder this:
For example, Ford recently announced the closure of a facility that produces the Ford Ranger in St. Paul, Minnesota.
Closing that plant eliminates 750 U.S. jobs.
But don’t people still want to buy Ford Rangers?
Yes, of course Ford Rangers are still quite popular, and Minnesota desperately wanted to keep that factory open.
In fact, Minnesota Governor Tim Pawlenty offered Ford a very generous multi-million dollar incentive package full of tax cuts and job creation incentives to keep the factory open.
But it didn’t work.
Ford closed the factory anyway.
So where are all of those Ford Rangers going to be manufactured now?
For U.S MNCs it is no longer about country first and never will be unless it benefits their bottom line. The globe is their marketplace and consequently they do not perceive the global marketplace and its labor force in terms of borders or along political party lines. Their business models and strategies are based on a global economy and have been for years. U.S. MNC have adapted to the new paradigm, in fact they created the paradigm.
In continuing with Mr Snyder’s article please note Ford’s reasons for closing that Minnesota plant:
Well, the statement about the plant closing issued by Ford did not reveal that tidbit, but it did offer some clues….
“Ford continues to concentrate on implementing the plan we initiated four years ago to streamline our plant operations and better leverage our global platforms. At this time, the Twin Cities Assembly Plant does not fit into our global manufacturing strategy.”
When you see big corporations like Ford use the word “global”, what it really means is some place other than America.
So don’t be too quick to applaud Ford for record breaking profits.
The truth is that if current trends continue, we are going to end up with literally tens of millions of unemployed American workers.
We are shipping factories, jobs and wealth overseas so rapidly that it is hard to even comprehend what is going on.
Please note there is no reference to America or American workers in that statement. Such concerns simply do not factor into a MNC “global manufacturing strategy” when cost to operate abroad are cheaper and more profitable. As Mish points out in Tax Avoidance by Google and Apple :
Corporations do not exist to create jobs, they exist to create profits. When it comes to hiring, if companies can get a higher rate of return by expanding overseas, that is exactly what they will do, and in fact exactly what they should do.
Unfortunately, tax law is such that it practically begs companies to move both jobs and profits overseas. Those tax laws benefit huge corporations that can take advantage of monstrous loopholes, to the detriment of everyone else.
Mr Snyder continues with the following observations:
Just think about that for a minute.
World trade has been completely and totally revolutionized over the past 25 years, and America is losing.
The United States has lost approximately 42,400 factories since 2001.
So how many more are we going to lose before our “leaders” do something about it?
As of the end of 2009, less than 12 million Americans worked in manufacturing. The last time less than 12 million Americans were employed in manufacturing was in 1941.
The sad truth is that the United States is being de-industrialized. The big global corporations have figured out that they don’t really need American workers anymore, and that is really, really bad news for the American middle class.
Without good paying jobs, the future of the middle class is incredibly bleak.
I don’t know how long this sort of crap will continue before the general public has had enough. During the current economic downturn we have read numerous similar reports were wages and benefits are being cut. I point out in Hey Mister can you spare me a job:
I hate to burst any illusions but there will be no meaningful jobs growth in the U.S until the manufacturing lost through outsourcing over the last 30 years return to U.S and this won’t happen until the cost of labor, cost of operations, and ROI for companies in this country reaches parity with those of the third world. Seriously, how is a U.S based programmer earning $40k or more per year going to compete with $8k per year Chinese programmers with engineering degrees? There is only on direction for U.S. salaries and our standard of living to go, and that is down.
With the elections behind us and the results in one reason given by some experts as why voters returned control of the House to the Republicans were people’s concerns over jobs. Exit polls conducted by Edison Research and featured at the Daily Reckoning following the election indicate voters are concerned over the deficit and jobs:
Edison Research interviewed 18,132 voters. They were given three choices for reviving the economy, and asked which they preferred most:
- Cutting the federal deficit
- Spending programs to create jobs
- Tax cuts.
Leave aside the peculiar either-or nature of the question: It’s pretty remarkable that a plurality – four in 10 people – opted for cutting the deficit. Even self-identified Tea Party voters faced with this false choice chose cutting the deficit over cutting taxes.
The irony is that the second two concerns expressed by voters, spending cuts to create jobs and tax cuts each contribute to the federal deficits as I discussed here. Stimulus spending creates jobs abroad but not here as I’ve demonstrated here and tax cuts do not get companies to necessarily invest in the U.S as I’ve illustrated here.
A report by ABC, Solyndra faces layoffs despite stimulus loan makes it perfectly clear the government in nearly impotent in reversing the job losses as a consequence to outsourcing or reversing the trend of US MNC shipping their manufacturing abroad:
New competition from China is causing layoffs at Fremont’s Solyndra, a solar panel maker that received a stimulus loan last year to build a new factory.
Solyndra was the epitome of what the government envisioned to be our green tech future.
President Obama, Gov. Schwarzenegger and Sen. Barbara Boxer, D-CA, toured the solar panel production line. Confidence was so high that Solyndra got a $535 million stimulus program loan to build a new factory along I-880 in Fremont.
Now there is word it will shut down its older plant down the street — 40 employees will be laid off and 150 contract workers won’t be renewed. The reason is price competition from lower cost Chinese solar panel makers, and Solyndra says it needs to cut its expenses so it can drop its prices.
Suddenly, the future isn’t as bright as it was a year ago and taxpayer money is on the line.
Solyndra’s shiny new plant cost $733 million — $535 million came from federal funds. Only $198 million is for private financing, so the government’s stake is 73 percent.
According to a filing by Solyndra with the Securities and Exchange Commission, if it were to default on the $535 million loan, the Dept. of Energy would end up owning that brand new fabrication plant as well as the land underneath.
The article and the company fault China competition but does not indicate how many American solar panel manufacturers have their panels manufactured in China but it is a sure bet that most of them do.
YaleGlobal online reports in Global “Chop Shops”: Slice Dice and Outsource:
The restructuring of some modern companies resembles “chop shops,” as the value chain is chopped into fine slices and distributed worldwide, and employees are relocated and reduced. Older firms in wealthy nations face competition from low-wage countries and downward price pressures so severe that the high payrolls in the US or elsewhere can no longer be sustained.
The trend is apparent in manufacturing, computers and architecture, but is spreading to other industries like biopharmaceuticals.
The YaleGlobal online article in promoting the virtues of outsourcing points out:
The fundamental restructuring of the global economy underway does not necessarily mean the loss of competitiveness for multinational companies based in advanced nations. By retaining, and nurturing key components of their business – for example by pharmaceutical firms focusing on high-level areas like genetics, molecular sensing, virtual screening, data architecture and certification expertise, while externalizing or relocating other slices to other countries, the firm can improve its overall competitive posture.
A flexible economy is a more creative economy. Jobs that are outsourced can be replaced by creative new and well-paying jobs, and where whole new industries can germinate and flourish.
“Jobs that are outsourced can be replaced by creative new and well-paying jobs” …really? This ‘logic’ is similar to the notion that lower taxes increases more revenue which I debunk here. I invite YaleGlobal online to write a report explaining how this is so to the 23 million unemployed and millions more who are underemployed.
Reality can be a bitch sometimes. I’ve been thinking about this a lot lately especially with all the campaign rhetoric from politicians foaming at the mouth about “jobs”. What do we really expect the government to do about jobs in general or with companies that are outsourcing in particular? In our ‘free enterprise’ system is it our expectation that the government regulate and tax MNC who outsource or outright block them from doing so? This does not seem appropriate under our form of government or feasible without some form of regulations and or taxes – which some Democrats and the Obama administration have proposed but which the Republicans oppose. The truth is there is little the government, the Democrats, or the Republicans can really do.
I am a guest writer at another blog Keep America at Work that has a byline the accurately depicts our situation:
We are not out of work because the economy is bad…The economy is bad because we are out of work
In closing Mr Snyder invited his readers, as we do:
If you think that you have figured out how the U.S. middle class is going to be able to thrive without good jobs, please leave a comment…and tell me why I am wrong…
You may visit the article to post a comment directly with Mr Snyder or you may post your comments here.