01/22/2012
The trend is unmistakable, but generals always prepare to fight the last war — like building up our air superiority to fight counter-insurgency battles on the home turf of native warriors without uniforms or battle lines.
This is what an important January 17th Wall Street Journal article by Timothy Aeppel, Man vs. Machine, a Jobless Recovery: US Companies Are spending to Upgrade Factories, but Hiring Lags; Robots Pump Out Sunny Delight is telling us about the immigration debate.
While the politicians are bleating about creating jobs, industry has been NOT hiring but spending its profits to keep from hiring.
As Aeppel tells us,
In no other U.S. recovery since World War II have companies been simultaneously faster to boost spending on machines and software, while slower to add people to run them.
Part of this is the old story of substituting capital for labor. But a combination of temporary tax breaks that allowed companies in 2011 to write off 100% of investments in the first year and historically low short- and long-term interest rates have pushed that process into overdrive.
Hiring, meanwhile, is too slow to bring the unemployment rate down rapidly. Employers have added workers at a monthly rate of 142,000 for the past six months, half the pace needed to significantly reduce unemployment, which is now at 8.5%.
One reads all the time comments such as “most of those wonderful high paying middle class jobs are never coming back” and for obvious reasons. One can get a lot of cheap labor in Asia, but here at home businesses large and smaller are finding the route to survival is mechanization!
For example, the article tells us:
Billy Cyr, chief executive of Sunny Delight Beverage Co., a Cincinnati-based beverage company, says he is buying new machinery partly because it is a bargain. "When the cost of capital goes up, it is harder to justify an equipment purchase and may, instead, result in higher employment using existing equipment," he says, such as by adding shifts or overtime for existing workers. Today, the opposite is happening.
Instead of hiring, companies such as Sunny Delight and chain-saw maker Stihl Holding AG are investing in technology or other ways to make existing operations faster and more productive. History suggests that investment that increases productivity eventually will create jobs and raise living standards. The mechanization of the farm and the automation of the factory both raised fears of permanent unemployment that were unrealized, as efficiencies in production of basic commodities created jobs in all sorts of services.
Now we should harken to the seminal work of Louis O. Kelso, the economic business philosopher with whom I shared offices with in San Francisco for many years. He invented what he called “binary economics”, whose primary element was the employee stock ownership trust. By leveraging a company’s success, employees could acquire capital through the trust and become capitalists!
Louis had a vision that ensuring all become capitalists would allow enjoyment of many other activities without beggaring or enslaving the rest of the world’s population. In his words:
"The basic moral problem that faces man as he moves into the age of automation, the age of accelerating conquest of nature, is whether he is really fit to live in an industrial society; whether his institutions will adjust rapidly enough; whether he will rivet himself with an absurd institution like full employment in the economic order when it is not only unnecessary but unadministratable in anything but a slave society; whether freed from the necessity to devote his brain and brawn to the production of goods and services, he can address himself to the work of civilization itself." (Louis O. Kelso, 1964)
Similarly, the WSJ article notes,
Most economists say today’s surge in productivity will have the same beneficial effect — in the long run. In the short-term, however, this burst of efficiency allows companies to delay hiring.
And that is happening more in this recovery than in the recent past. Spending on gear and hiring usually are more synchronized. Since the economy began growing again in 2009, spending on equipment and software has surged 31%, adjusted for inflation. In the postwar period, only in the wake of the 1982 and 1970 recessions has such spending grown faster. Private-sector jobs have grown just 1.4% over the same span. Only recoveries following the 1980 and 2001 recessions saw slower job growth.
The implication for the alleged the need for more foreign workers is mighty obvious, isn’t it? Having capitulated to the cheap labor crowd and the ethnic lobbies, we saw the import of well over 100 million aliens — only a fraction of whom, it turns out, are fitted for the reduced needs of our present businesses.
This is not a new phenomenon, we learn:
Erik Brynjolfsson, a Massachusetts Institute of Technology economist, says companies began stepping up labor-saving investments in the first half of the last decade. The turning point, he says, came during the recession, when companies realized they could do far more than they expected with fewer people.
Even as demand has drifted back, companies are keeping that ball rolling by spending more money on machinery that automate functions. "It’s as if the economy had a pent-up potential for labor savings that hadn’t been harvested until the recession," says Mr. Brynjolfsson, author of a new book on automation.
Now if there ever was a critical time to stop further “immigration overload”, the time is NOW.
The WSJ article is clear that spending money for automation makes great long term business sense.
Sunny Delight is spending $70 million to upgrade its five U.S. juice factories, a record annual investment for the company, which was split off from Procter & Gamble Co. in 2004. A big chunk of that spending goes toward upgrading an aging complex that sits astride a railroad siding in Littleton, Mass., outside Boston. Improvements there include a new, brightly lit "filler room" where machines fill four flavors of juice simultaneously on one high-speed line. Previously, flavors were filled on separate lines, scattered in different corners of the plant. Each line required its own operator. Only two people tend the new combined line.
Coming early next year: automated vehicles to replace the factory’s fleet of forklifts and drivers.
Automation means it be politically easier to really fix our broken immigration system. While some less-farseeing business people see cheap labor as the key to the futures, more enlightened firms know that it’s innovation and costs-cutting with more machines and fewer people. Thus the education of our citizens takes front and center, not the importing of aliens who are cheaper temporarily.
And there are other voices supporting my contention that business will soon realize that importing people is a losing game. In the January 19,2012 issue of the Financial Times, Ed Crooks’ column “Business returns to US as Asia loses edge” cites another case:
Bruce Cochrane’s family furniture business illustrates what may be the start of a US industrial renaissance.
His story also offers insights into the opportunities and the pitfalls facing manufacturers wanting to build up their US production.
The Cochranes were in the furniture business for five generations, employing more than 1,000 people in the early 1980s. But by 1996 the going had become too hard and they decided to sell out. Under the new owners, their factory in Lincolnton, North Carolina, was closed, the equipment was dismantled and production was moved to Asia.
Mr Cochrane worked for 12 years as an import consultant, advising companies on how to source furniture from Asia to sell in the US. But by last year, he had come to the view it was viable to make furniture in the US again, even against competition from China.
"Back in 2000, the average wage in China was about 50 cents an hour; now it’s $3.50," he says.
Non-wage costs have also risen in China. The Chinese authorities have become "much more aggressive" about environmental regulation, he adds. Taking into account the higher productivity of US workers, and shipping costs, the competitive advantage of Asian manufacturing was disappearing, he said.
Oh, by the way, don’t forget us old folks — that is, people a little younger than my 80-plus years! — who have skills and realize that retirement can be a one-way ticket to oblivion. Working part time has become commonplace, again a hidden but powerful reduction of costs for the public benefit. Going South and going senile is no longer a magic key to a successful golden age!
So, CEOs, let’s not fight the last war, the cheap labor war now tamping down in Asia.
Get your pals at the US Chamber of Commerce and Frank Sharry’s office to recognize that your interests no longer align with those of the Roman Catholic Bishops or La Raza. You can easily be for American citizens, the Middle Class, and all working Americans by bringing your businesses back home.
Pass E verify, recognize illegal and legal immigration for what it truly is — Immigration Overload — and get the Congress and the White House to climb aboard.
Collins, [email him], a free lance writer living in Washington, DC., is CoChair of the National Advisory Board of the Federation for American Immigration Reform (FAIR). However, his views are his own.
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