Let's Not Cry to Washington About Offshoring
I read your column ("Offshoring and Layoffs: How About A Little Decency," October, p. 9) with interest, but I did not see what I feel is the heart of the issue.
As you wrote "we're living in a global economy." We have been in this situation for many years. There is no way to put the global trade genie back in the bottle.
We will not choke off the international trade with legislation and, more to the point, the importation of many goods. Even if we could, and it were possible to re-invest in departed industries back in the good olde U.S.A., how would we justify either not having many goods or paying a high price for them? We'll have to move forward and deal with the problem at hand.
Our company imports, exports and manufactures abroad, yet still runs a several hundred percent trade surplus, even with Mainland China. I find it almost comical that the U.S. government has many export incentives, several of which have been judged "unfair" by international trade bodies, but almost no import programs. Yet, we run a trade deficit.
The Dept. of Commerce is always promoting export programs, which is fine, but why not simply promote international business? Other governments around the world have policies and programs that promote exports to the US. To judge by the trade deficit, they appear to be more successful at promoting exports.
In the final analysis, we must come to grips with a harsh reality: you can't have high-cost labor perform low-value tasks within the same economy. We would not expect doctors and lawyers to do construction and auto repairs. None of us would want to pay their hourly rates. Similarly, we can't expect factory laborers in the U.S., who earn far more than their peers in other countries, to perform tasks that can be done overseas for a fraction of the cost.
Managers of U.S. manufacturing industries must continue to make the U.S. factory worker more productive and place that worker in new jobs that can't be performed overseas. This transformation won't be easy or painless, which is why nobody talks about it.
Let's not cry to Washington. Let's get back to work.
Vice President of International Operations, Eriez Magnetics
The author responds
Thank you for your insights. However, the current offshoring issue goes far beyond the factory worker level. And, as the following writer mentioned in his original letter, even improving worker productivity has its limits. After all, Ford Motor has had to shut down some of its most-efficient plants in the U.S., and lay off some of its most productive workers. What is irritating more people is the fact that so many highly skilled technical jobs, including Ph.D.-level R&D and process engineering positions, are also moving offshore. The ramifications are many. First, why will young people in the U.S. want to pursue degrees in science or engineering in the future -- much less advanced degrees in these fields -- if there are no opportunities for them? Also, what are the political and economic impacts of moving invention and innovation offshore? As you say, it will be essential to develop new jobs that can't be performed overseas. Any ideas, readers?
Creating a Texas Rust Belt
Last year, for the first time in decades, chemical imports exceeded chemical exports -- a fact that will exacerbate the U.S. balance of payments problem. Today, many petrochemical plants and refineries are looking at the ripe old age of 50 years or more, and new technology has passed them by. World-scale facilities built overseas offer competitive advantages and there are already three strikes -- environmental issues, and feedstock and energy costs -- against these old Goliaths of the Gulf Coast.
Aging heat exchangers and piping, undersized reactors and vessels and worn equipment in many plants can no longer provide a company with the ROI required by global corporations. And, for those U.S. companies that have healthy exports, it now makes economic sense for companies to make the product closer to the end user to avoid higher U.S. wages and to take advantage of lower shipping costs.
Overseas feedstock pricing advantages coupled to the other cost of factors now make it cheaper to bring in finished plastic bags than to buy the plastic pellet used to make those bags.
Paper products are also under tremendous pressure. Large international oil companies are selling the production assets to small companies because they can land oil on the Gulf Coast (produced elsewhere) for about half the lifting cost experienced here in the U.S.
Companies like Exxon will probably move world headquarters overseas. In the U.S., six liquefied natural gas (LNG) import facilities are planned or under construction. LNG can be landed in the U.S. for about $4.60 per thousand cubic feet and source gas at the terminal will settle in at about $6.00 per million Btu (1000 cubic feet). At this price, several major companies on the Ship Channel will no longer be competitive.
Weismantel International predicts twenty percent of the chemical plants operating on the Houston Ship Channel and The Mississippi River will be shut down before 2006. It will be nearly impossible to produce methane and ammonia competitively in the U.S. Production of commodity plastics -- including acrylics -- will move overseas and the U.S. will lose more high-paying jobs.
Houston Ship Channel industries have some of the highest -- and lowest -- paying manufacturing jobs in the United States. The wage portion of costs is under downward pressure. Recent union agreements confirm that new hirees will not receive the same benefit packages as oldtime employees. In fact, very few additional hirees will be added to payrolls, and, as attrition takes place, the replacement cadre will not get the perks of those now on the job or those who have retired.
Jobs and taxes
This is NOT just a union or a blue collar issue. White collar jobs are also affected. The Internet shows that some M.S.-degreed chemists are being offered only $35,000.00 annually. At the University of Texas (Austin), five Ph.D. chemical engineers who graduated last spring still cannot find jobs. This is not surprising because the chemical industry is moving offshore. Almost one-third of ALL capital spending of the world is taking place in one country: China.
When Chevron bought Gulf in a "friendly" takeover, 25,000 Gulf employees lost their jobs. The Exxon-Mobil marriage was twice as big with corresponding job losses. Unfortunately, job loss is only one aspect of these mega-mergers. In the process, competent engineers and geologists were placed on the street never to return to oil and gas exploration and production. This is a hard hit for a country that will soon be importing 70% of its energy requirements The balance of payments issue (i.e., the dollars tied to energy imports) will jump tremendously as we begin to import value-added fuel and petrochemicals along with LNG.
As this saga unfolds, and channel plants close, we will be faced with complex politico-judicial disputes that most local elected mayors and councilmen have not even thought about. First, what will happen to the city's tax base? Second, what happens to the the downstream jobs that accompany manufacturing, from dry cleaners to McDonalds?
Guy Weissmantel, President,
Weismantel International, Houston
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