How the status quo can kill: the example of free trade
[Welcome, Naked Capitalist readers! And Merry Christmas, Yves! -- lambert]
There is a fault line running through the left. It becomes particularly visible when a debate ignites over whether President Obama has “sold out.” A number of issues have become combustible agents for these conflagrations, most especially the financial bailout, the decision to escalate in Afghanistan, and most recently, the President’s perceived unwillingness to fight for “real reform” in health care. Glenn Greenwald has noted The underlying divisions in the healthcare debate in which Greenwald references a recent article in The New Republic by Ed Kilgore, Managing Editor of The Democratic Strategist.
In my own diaries and comments on DailyKos, in which I have been extremely critical of the President’s economic and financial policies, which I see as working to preserve the status quo, I certainly see a pattern.
It appears to me that many of those who argue against me in defense of the President’s policies are vested in the status quo. A few have made comments with references to their careers in finance or law, and it reminds me of the observation by early twentieth century progressive Upton Sinclair, "It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" Or as one commenter noted in a blog elsewhere that took an extreme position on HCR, “They don’t want to connect the dots, because they are part of the picture.”
I see more of a class divide than does Greenwald and others. Seems to me that people who have secured comfortable positions in “managerial class” and “creative class” occupations tend to support the President and an incrementalist approach to addressing the nation’s problems. They tend to be reflexively hostile to any sweeping changes, such as actually annihilating the health insurance companies, or actually doing away with the big financial houses like Goldman Sachs, Citigroup, and Morgan Chase. They seem to insist on solutions that rely as much as possible on market mechanisms, such as cap and trade to deal with climate change. They recoil in horror at the suggestion that “the system” itself is the problem. Generally, they appear to be economic neo-liberals, who have actually become acclimated to the results of the Reagan Revolution.
And there is one economic policy above all others that they believe in. Free trade.
You’ve probably heard about how free trade has hurt American workers. Maybe you don’t really believe it. Maybe you think that the benefits of free trade – cheaper goods, more choices – outweigh the costs. Maybe you don’t really feel like your job or livelihood is subject to overseas competition. But free trade does affect you. To tell the truth, free trade is probably killing you.
Free trade has become such an axiomatic fixture of establishment economic thinking, that even American labor unions find it is suicidal to attack free trade head on. Instead, they declare that American workers are able and willing to compete with anyone anywhere, so long as trade is “fair.” The unions are definitely pulling their punches, but attacks on free trade also definitely get you frozen out of the policy process.
The economic theory behind free trade is elegant and convincing. Even some of the most progressive economists, such as Robert Reich, are adamant free traders. What I find is that these people, however brilliant and accomplished they are, do NOT seem to have a good grasp of what actually happens down in the trenches of the real economy: the factory and warehouse floors, the farms and hospitals, where, in our complex technologically advanced society, little, even minuscule, details often make the difference between life and death.
I have a friend who has been helping “liquidate” the actual machinery of America’s industrial base for the past three decades. A factory shuts down, and what happens to all the lathes, milling machines, planers, shapers, power presses, and other equipment that sits on that factory floor?
He can, and has, told stories about cavernous, vacated building in Brooklyn and the Bronx, and in the industrial zone stretching from Patterson, New Jersey, to Reading, Pennyslvania, containing dozens or even hundreds of machine tools and other equipment so huge that no one wanted to buy it. Not even for scrap. It would cost more to rig it and move it than the scrap value of the metal in the machine.
Just a few months ago, he was down south, where an elderly gentlemen – let’s call him Russ - had decided to shut down his company. It was the largest manufacturer in the world of shaped cardboard boxes. You know – the boxes shaped like hearts holding a pound of Valentine’s Day candy, or the boxes shaped like a big fat guy with the big Santa Claus chocolate inside. As corporate America goes, it was not a huge operation – it employed around 150 people, including all the people on the production line, all the managers, all the sales people. It wasn’t high tech, but there was always a good demand for these shaped boxes, and it provided a good living and benefits for its workers, by far the best in the private sector in the area where this company was located. It was a large, but not giant, facility, and there was some interesting machinery in there. My friend walked around inside, studied the machines on the production line, and concluded that most of the machines were just too specialized; designed and built for precision cutting and shaping of cardboard, not plastics, or composites, or metals. How many other people were there in the U.S that had use for these types of machines?
Russ was truthful, and in answering that question and a few others, provided my friend a pretty good picture of what the shaped cardboard box industry in the U.S. looks like (this one company was pretty much it, at least for big production runs of 1,000 to 1,000,000 boxes) how it was doing (not well), and what had happened to it (read on for the details).
The boxes this company made were, as you can imagine, sold mostly to candy companies that used them to package candy according to seasonal themes, or sometimes topical themes, like a box shaped like a NASCAR racecar stuffed full of what are claimed to be Richard Petty’s favorite pralines. Over the past twenty years, Russ explained, there had been a noticeable shift in the buyers of the candy in these specially shaped candy boxes. This shift had accelerated the past few years, and now one large national retail chain, notorious for the pressure it puts on vendors and suppliers to sell to the chain cheaper, cheaper, and ever cheaper, was the largest seller, and hence buyer, of candy packaged in specially shaped boxes.
Back sometime in the summer, representatives of one of Russ’s largest customers, a candy manufacturer, visited to place its order for the boxes it needed to package its Christmas candies. An annual tradition. Russ gave them a quote, and the candy maker representatives frowned. The price had to come down; the large national retail chain, notorious for the pressure it puts on vendors and suppliers to sell to the chain cheaper, cheaper, and ever cheaper, had demanded that it buy its packaged candies a few cents cheaper than last year, and was not budging. In fact, Russ’s customer had even signed the contract, and now were looking to suppliers, such as the maker of shaped cardboard boxes, to also knock down their prices a bit.
Russ picked up his pencil, and ran through the numbers again. This kind of pressure was not new; he had held down his prices for many years, even while the costs of manufacturing inputs, especially fuel and electricity, had soared. In fact, he had not really given himself any pay the past two years, and had deferred a lot of maintenance on the factory and its equipment. Sighing resignedly, he said he would try to work up some new numbers, and get back to them. No, sorry, he would not sign a contract right now. He really needed to work on the numbers. Yes, he knew he had signed during this visit for the past twenty-something years, but now they were asking him to sell at a price he was not sure he could. So, sorry, no, he was not signing anything right now.
A few days later, the representatives of another large candy maker arrived, also with contracts in hand. And with the same demand for lower prices. And for the same reason: the large national retail chain, notorious for the pressure it puts on vendors and suppliers to sell to the chain cheaper, cheaper, and ever cheaper, was putting the squeeze on them to. Russ told them the same thing he had told the others a few days before: sorry, he would not sign a contract right now, but would get back to them.
The next day, representatives from another large candy maker arrived, and the scene repeated itself. In between these increasingly painful meeting, the Russ had walked the floor of the factory he had built and run for nearly three decades. He looked at each machine, and considered. This line of cutters were losing their tolerances, and should have had their shaft bearings replaced a year or more ago. He had saved $3,500 by not doing that. This gluing machine had become very variable in the thickness of the bead of glue it applied; the entire hydraulic pressure system needed to be checked and parts of it probably replaced. It would cost $150 just to get a good technician to walk in the door, then $100 an hour in billable time, plus whatever the parts would cost. A thousand dollars, easily. Same with this gluing machine. And that folding machine. And that label applicating machine.
There really was no where else Russ was willing to cut costs. He had worked hard, like many owners, putting in 60 or 70 hours a week. He had enough to retire on now, but that nest egg would rapidly dwindle if Russ tried to keep the company going at the prices his customers were demanding. His kids, thank god, had no interest in manufacturing – who wants to get their hands dirty in this day and age? Sadly, Russ concluded his life's run had reached the finish line. Either he would sell the company, or liquidate it.
There were no buyers for the business, so Russ called my friend. After my friend visited, and told Russ there basically was no market for these box making machines in the United States of America, Russ was pretty much forced to sell everything for its scrap value.
Here’s the kicker. My friend told me this story a few weeks after he had visited Russ’s plant. Since he had left, the riggers had come in, ripped out all the electrical, hydraulic, and water connection, put all the machines on flatbeds, and hauled it away. A few days after that, a large candy maker called Russ in a panic. The large national retail chain, notorious for the pressure it puts on vendors and suppliers to sell to the chain cheaper, cheaper, and ever cheaper, had helped them find a maker of shaped cardboard boxes in China. The candy maker had placed a rush order for a half million boxes, and were delighted when the order arrived in time.
How fast can you make us 500,000 boxes? They asked Russ. You name the price. Even last year’s price.
What’s wrong? I thought you were getting your boxes from China.
We did. But all the boxes smell. Of solvent, or glue, or something. We can’t use them.
Russ explained that he couldn’t help. His factory was shut down, and literally, the machines had been pulled out of it and sent to a scrap dealer.
Of course, my friend wanted to know what the candy company did with its smelly boxes. According to Russ, they unpacked them all, separated them all, then spread them all over the candy factory to air out, while candy piled up in standard cardboard boxes. When the shaped boxes only smelled so bad that you had to hold them close to your nose to notice, then they paid the workers overtime to fill all the shaped boxes, still smelling slightly of solvent or glue or whatever, and finish the production run and ship them to the large national retail chain, notorious for the pressure it puts on vendors and suppliers to sell to the chain cheaper, cheaper, and ever cheaper.
At the end of November, I tried peddling my books at a horse, mule, and carriage auction in a little town about a half hour’s drive north of Charlotte. I had never tried selling at an event like this, but I figured I had some books on carriage making and wheelmaking, as well as raising farm animals. Plus I have lost of books on old farm machinery, including a few hundred manuals for old tractors. Allis-Chalmers, Case, Cockshutt, Farmall, Ford, International Harvester, Massey-Harris, Oliver. Yeah, a lot of those companies are long gone. You would be amazed at the number of people who are still using farm tractors that are fifty years old or more.
The guy next to me was selling saddle horses. Not real horses; wooden ones, on which you can put your saddle after you take it off your horse. On a few of them, he had attached a horse head and a tail, to make them look cute. He also has two old-fashioned rocking horses, which are really quite nice. Those were the first to sell.
Not a lot of people were wandering into the glorified barn called “The Exhibit Hall,” and even less were making it all the way down the hall to look over my books. So I wandered over to say hi and admire the nice craftsmanship. Let’s call my retail neighbor for this weekend “Mike.” A few pleasantries, and we start talking about why we’re there as itinerant peddlers.
Mike was trying to make some extra money so he can buy Christmas gifts for his kids. I ask him what he does for a living. “Oh, I help retrofit airliners with those canard wingtips,” he replies. “The airline can save up to 17 percent of the fuel with those wing tips. They cut down a lot of turbulence and make the airflow over the wing much more stable.”
I knew that those winglets helped save fuel, but I didn’t realize it was that much. According to Boeing, and WikiAnswers, a 747 uses almost one gallon of jet fuel every second. Over the course of a ten-hour flight, that means burning 36,000 gallons. According to Boeing's web site, the 747 burns approximately 5 gallons of fuel per mile. In 2008, U.S. airlines spent $36 billion on jet fuel.
Mike described for me what he does. The wing skins need to be taken completely off, and all the hydraulics and electrical sub-systems removed, the end spars and ribs reinforced; then the winglets installed, everything put back together, and new wing skins glued on.
I express my surprise. “That sounds like a job you’d get paid really well for.”
Mike laughed, with a trace of bitterness. “Oh, no, not really. I mean, I get better than working at a gas station, but my wife’s a nurse, and she makes almost a half more than I do.”
Then Mike says something I key in on. “I’m not happy about it, but at least I have my job back.”
“What do you mean?” I ask.
“Oh, I used to make almost $30 an hour. Same job. But they figured they could do it cheaper overseas. They were sending the airplanes to India for a couple of years. But they were fucking the job up so bad over there, it was taking them a week or more to get it done. We can get ‘em in and get ‘em out in a day and a half. Over there, lots of times, the plane couldn’t even take off. They had to take the whole wing apart again, to find out what was wrong. Just stupid shit. Motors weren’t connected. Positive wires were crossed with negatives. Brackets were missing. We found a wrench in one wing, which had gotten banged around, and kinked a hydraulic line pretty bad. I remember one plane came in, we got the skin off, and there were two bolts left holding the outer flap on.”
Of course I asked. There’s supposed to be eight.
“And both of those had worked themselves loose already. We figured one or two more flights, and that plane would have crashed.”
Well, free trade in aircraft wing retrofits did not work out so good, so the company brought the work back to Mike’s town. The company tried to hire back all the former employees (probably to save money – it costs a lot to train somebody to do work like this to the level of perfection that it won’t kill people; but that’s just my guess), but Mike said a lot of them had left town, or had other jobs, and with the company offering less than half what they were making before, many workers were already making just about the same, or even more. And, there were a lot of bitter feelings – people had lost their pensions and benefits, and the company was making no offers to restore them.
When I talked to Mike, I made an assumption about what nurses earn in North Carolina, did the calculation, and figured Mike is getting about $12 an hour to take apart airliner wings, make some major internal modifications to attach a canard winglet, and then make sure it all gets put back together again. Correctly. Without missing brackets or missing bolts or wires attached wrong.
Turns out I was off a bit. Mike is probably making more like $14 an hour. I’m sure that will make you feel a lot better as you peer out your little window at the wing of the airliner you’re flying on this holiday season.
In late September, I was at a blacksmithing event in the Midwest. It was held in a pleasant little town, situated on a small river with just enough depth for keelboats, but never steamboats, back a century ago, before roads and internal combustion engines solved the problem of knitting together a trans-continental republic. There is a large supplier of welding equipment located in this town – or used to be: most of the manufacturing operations have been relocated to Mexico, and in the past couple of years, China. But the research lab remains, and, the customer service staff. The two often work together, as an attendee of this blacksmithing event – let’s call him Ed - told me. Ed has a few years before retirement, which the company is letting him spend helping in the research lab, though he is no scientist, or even researcher. But, he knows welding, and his expertise has been crucial in the research lab a number of times as it struggled to solve various problems customers have brought to it.
Ed told me about one particularly vexing problem he helped solve. Some aircraft manufacturer had outsourced the fabrication of a particular part to a place in China. This part is made of titanium. Titanium weighs a little less than half the weight of steel, but is three times stronger, so titanium is used a lot in many high-stress structures of aircraft. But titanium is a reactive metal, which means that it reacts with other elements to quickly form compounds and alloys. Those sparkling strings shooting off of fireworks? Lots of that is titanium. So the stuff is rather explosive in certain conditions.
But the reactive nature of titanium is also what makes it so resistant to corrosion. At room temperature, titanium reacts quickly with oxygen to form titanium dioxide, creating a passive, impervious coating that resists further interaction with the surrounding atmosphere. A slight corroding of titanium, in other words, leads to a state in which no further corrosion is possible.
Of course, all this means that titanium is a real bitch to deal with in a manufacturing environment. Any coating of oxide must be completely removed before titanium can be welded. Titanium dioxide has a much higher melting point than the base metal, so if you don’t clean the oxides away thoroughly, you will get little specks of it in the welding puddle, creating discontinuities in the weld that will quickly lead to cracking and failure. Even worse, a way must be found to prevent air, and especially oxygen, from getting at the titanium while it is being welded. The preferred way to weld titanium is by blowing an inert (non-reactive) gas, like argon, alongside the welding arc (you can’t use a welding torch, because the combusting gases in the flame will react with the titanium). To create an arc, you need an electrode, and the best for welding found so far is tungsten. Hence, TIG welding, or Tungsten Inert Gas welding.
Well anyway, this shop in China was welding these titanium aircraft components, and the welds were having a 100% failure rate. And they could not figure out was going wrong. Finally, they called the research lab in this pleasant little town in the American Midwest, where they used to manufacture all the welding equipment.
Ed and the other people in the research lab drove themselves nearly nuts trying to figure out what the problem was – there’s still a decent work ethic that survives down here at the bottom of the dung heap that America has become. Ed and his co-workers made sure that the Chinese were properly applying the argon, including to the backside of the welded area. They set up a makeshift gas chamber with gloves reaching in to perform the weld in, and walked the Chinese through each step to recreate the gas chamber and test it. Twice. Three times. Still all welds failed.
After two grueling weeks of trying everything they knew, it occurred to Ed to ask the Chinese if they were using the proper polarity. The electricity going through the electrode to create the welding arc: in which direction was it flowing? They didn’t know. Ed talked them through the basic set up, and discovered that they had the current flowing from the cathode to the anode, instead of the other way around. What was happening was that the electric arc, flowing in the wrong direction, was picking up microscopic pieces of the tungsten electrode, and depositing them in the weld bead. Put the finished part in a wing, let air flows flex the wing a few times, and SNAP, the weld failed, cracking from one little group of tungsten molecules to the next.
Ed, it turned out, was a fire-and-brimstone religious wrong-winger. He does not like free trade, but he also did not like it when I tried to tie together free trade and free markets, and the whole conservative drift of U.S. economic policies the past three decades. But, as you get on an aircraft to fly to see loved ones this holiday season, I’ll leave you with what Ed said to me as he ended his story. “Every time I’m on an aircraft, I look out the window at those wings, and I wonder: who welded it?”
Have a nice trip. Even if the status quo is being good to you. After seeing the fights on DailyKos, the leading progressive blog, all I can say is: Enjoy it while it lasts. Oh, and that gift-wrapped box of candy in your suitcase or under your arm - you better take a good sniff before you place it under the tree.