“The Escalating Cost Crisis”

ShopFloor.org, the National Association of Manufacturer’s blog, has a must read on the recent report issued by NAM, The Manufacturing Institute, and the Manufacturer’s Alliance/MAPI that outlines the escalating cost burden carried by U.S. manufacturers that is hurting their competitiveness. From ShopFloor.org’s post:

*Myth: US business taxes have been cut to the bone. Reality: the report shows that the United States is standing still while the rest of the world is cutting corporate taxes. The OECD average rate is now a full 10 points BELOW the U.S. rate. In our report, only Japan is higher. It telltale when even German socialists are cutting corporate tax rates but the U.S. hardly budges.
* Myth: Europe is greenest. Reality: The report looks at the costs of pollution abatement regulation and finds that this country spends more of manufacturing output on it than France, Germany or the UK. What does this mean? It could mean that those countries are more efficient regulators, gaining environmental improvements without saddling their manufacturers with extreme costs. Or it could mean the U.S.is greener.
* Myth: Energy is a disadvantage for the US. Reality: Just ten years ago, the US had a large international advantage because of our large natural gas reserves. That’s been turned into a cost–a disadvantage–in the past decade though and it is one of the saddest elements in the cost study report. That’s because we have ample natural gas resources that manufacturing needs, we are just not deploying them. So US manufacturers pay more for this fuel than counterparts in Canada, UK and elsewhere. Sad because we can remedy it easily by allowing more drilling but Congress can’t seem to get there.

You can access the full report from the linked post or click here.

I went through the report and found it very illuminating, chock full of analysis and facts that explain in convincing terms the need to improve the competitiveness of U.S. manufacturing by reducing the cost burden. Three years ago they released a report titled “How Structural Costs Imposed on U.S. Manufacturers Harm Workers and Threaten Competitiveness”. The report analyzed five components classified as “non-wage, structural costs” – corporate tax rates, employee benefits, tort costs, natural gas, and pollution abatement – and the effect these “external costs” were having on the U.S. manufacturing industry. This new report revisits the findings from three years ago and finds that costs are rising dangerously. From the foreward by John Engler:

With this new study, The Escalating Cost Crisis, we re-examine these costs and conclude the trends are headed in the wrong direction. Dramatically, dangerously so. The same external costs now add 31.7 percent to U.S. manufacturers’ production costs compared to our major trade partners.
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Rising non-wage, structural costs are outside the direct control of manufacturers and they shape the attitudes, expectations, and planning of U.S. manufacturers more than any other factor. They define our ability to succeed in the increasingly competitive global marketplace.

It’s 29 pages long, but well worth the read. You may be surprised by what you find.

Bangkok’s new airport finally opens

Finally, after years of delay, the new Suvarnabhumi International Airport in Bangkok has officially opened. This new airport replaces the old Don Muang International Airport that had been operating at over-capacity for some time.

Container Security : Clueless Representative DeFazio

Fresh off my post from yesterday linking to remarks from security expert Stephen E. Flynn, one of which was “…I can guarantee that our government will behave irrationally from a risk standpoint…” comes clueless Rep. DeFazio (D) from Oregon who proves most of Mr. Flynn’s points in a news article I read last night:

“Why can’t we do it on the other side of the ocean before they depart?” asked Rep. Peter A. DeFazio of Oregon. “Why has there been resistance on the part of the administration and the majority here, to screening all the containers on the other side of the ocean?”
In response, Mr. Chertoff said, “For one thing, we don’t own foreign ports, Congressman.”
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“We retain the right of sovereignty in international trade and we can refuse the entry of any cargo,” said the Oregon Democrat. “The Chinese regularly do this for commercial purposes; we can sure as heck do it for homeland security purposes.
“Anybody who isn’t cooperating with us, we say, ‘Well, that’s fine, but guess what? Nothing’s leaving your port to the United States of America anymore.’ It’s pretty simple.”
Such action, Mr. Chertoff said, would cut off 75 percent of international trade and lead to a depressed economy.
Mr. DeFazio proposed a three-year period to implement such a strategy, but Mr. Chertoff balked and called it an “artificial deadline” that would be “as unrealistic as passing a law that says in three years cancer has to be cured.”
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“We all would desire to have radiation scanning before things are loaded on ships,” Mr. Chertoff said. “But I’m not going to sell the American people pie in the sky. I’m going to give something that’s realistic, actionable and produces real results.”

Elected representative advocating irrational behavior from a risk standpoint? Check.

Elected representative expressing enthusiasm for shutting down ports and inspecting our way to security? Check.

Elected representative showing overwhelming ignorance about how global transportation and logistics systems work? Check.

Elected representative showing a complete lack of appreciation for the importance of global trade and transportation systems to the economy? Check.

Did I miss any points, Mr. Flynn? I believe this guy just about hit them all. If I were a businessman in Oregon, particularly in Representative DeFazio’s district, I would be writing him a letter or giving him a phone call offering a free tutorial in international trade and transportation 101.

What’s real scary is this guy sits on the House Transportation and Infrastructure Committee and the House Committee on Homeland Security. Shouldn’t a long term Congressman who sits in such committees have at the minimum a rudimentary knowledge of trade and transportation?

China looks to Tianjin in its quest for “balanced economic development”

According to this article from TheEdgeDaily, Tianjin will be China’s next guinea pig in testing market-based reforms:

Imagine a corner of China where the yuan is freely traded, banks can offer a full range of financial services and farmers receive fair compensation when they have to leave the land.

It sounds far-fetched, but that is exactly what could happen before long under plans to turn the Tianjin Binhai New Area into a test-bed for market-orientated reforms that, if successful, could shape China’s economic future.
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Beijing also wants Binhai, which lies about 200km southeast of the capital, to show the way in tackling income inequality and environmental degradation at the same time as jumping up the value chain by developing new technologies.

In short, the Binhai experiment is meant to come up with the new model of balanced economic development that China’s leaders, worried by growing inequality and pollution, have been seeking with growing urgency.

Wang Kai, head of the policy research department for Binhai New Area, is under no illusion about the enormity of the task.

“There’s no roadmap for us to follow,” he said. “We’ll be creating a new path with every step we take.”

Tianjin Binhai, about four times bigger than Shanghai’s futuristic Pudong New Area, is already a thriving manufacturing centre.

Motorola churned out nearly US$9 billion worth of handsets and other telecoms equipment in 2005. Toyota, Samsung and GlaxoSmithKline all have plants here, while Airbus recently chose Binhai as the site for a plant to make A320 single-aisle jets.

But Pi Qiansheng, a senior local official, has a much grander vision. He wants Binhai to account for 2% to 2.5% of China’s economy within a decade, compared with just under 1% now.

It will be interesting to see if they can meet their growth objectives while maintaining their model of “balanced economic development”.

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