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You can't stop a tidal wave with a fork

by An American in London Sun May 13th, 2007 at 11:46:07 AM EST

An illuminating story on how one American business went broke due to global outsourcing at such a frenetic pace as to not allow any planned redundancy.

This example of American business is what France has to look forward to if Sarkozy adopts the policies of the 'elites' who supported his campaign to be President.


Outsourcing swept away my company, my father's life savings, and my sanity. But I'm still not singing Lou Dobbs' protectionist song
By David Silverman

I would love to blame outsourcing. I would love to agree with CNN's Lou Dobbs that by exporting jobs to India, greedy American corporations are killing independent businesses. I could say this is exactly what happened to me, that it explains why I lost my father's life savings, my company, $4 million and my entrepreneurial American dream. I could take comfort in the fact that outsourcing swept me away in its capitalistic tide, and that there was nothing I could do about it. But this is not what I believe. And these are not the lessons I learned. The truth about America's small businesses in today's global market is a harder and more indelible one, it contains seeds of hope, and this is the story I want to tell.

Let me begin in 2000. I owned a prosperous typesetting business and employed 200 people. My company, Clarinda, had 100 middle-aged women in "World's Best Grandmother" sweat shirts in two light-industrial brick buildings in the fields of Iowa; 30 young Filipinos in a five-story office tower with windows that looked out at South Super Highway in Manila; and the remaining 70 scattered in small locations about the Northeast.

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He said he won 1 million USD in profit in one year.

At 5.25% (risk free rate), it's 52k per year.

by Laurent GUERBY on Sun May 13th, 2007 at 01:27:10 PM EST
There's no such thing as a "National" economy anymore -- even accepting the dubious proposition there ever was such a beastie.  When the Federal Reserve started paying banks to borrow money after 9/11 the borrowers took that money and built factories in China.  This means the money was used to create jobs in China not in the US.  The follow-on was a loss of income and the necessity of (1) lowering consumpution - defeating the purpose of monetary expansion - or (2) borrowing to consume.  

We all know what was chosen.

Eventually, tho', consumption must follow income.  If the consumers in a geographical area cannot earn they cannot buy.  The industries moving their factories will, eventually, find their profits are directly linked to wages.  

One 'gotcha' is a $50k consumer needs 5 $10k consumers to pick-up the slack but it costs 5 times as much to get those 5 consumers.  As the firms move into new territory they have no established customer base and establishing a market presence costs, as well.  And these firms will be running against Chinese (to pick an example) firms that do not have bloated fixed expenses (e.g., $100 million CEO salaries) and capital costs.  The 'Chinese' firms can provide the exact goods and services at much lower consumer cost.

Together, the firms moving their production to lower-cost countries are putting themselves out of business.


She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sun May 13th, 2007 at 02:24:39 PM EST
When the Federal Reserve started paying banks to borrow money after 9/11 the borrowers took that money and built factories in China.  This means the money was used to create jobs in China not in the US.  The follow-on was a loss of income and the necessity of (1) lowering consumpution - defeating the purpose of monetary expansion - or (2) borrowing to consume.  

Do you have any proof of this?
Where did you get such ideas?

Rutherfordian ------------------------------ RDRutherford
by Ronald Rutherford (rdrradio1 -at- msn -dot- com) on Sun May 13th, 2007 at 03:14:29 PM EST
[ Parent ]
 When the Federal Reserve started paying banks to borrow money after 9/11...

The Fed instituted a negative interest rate following 9/11 and maintained it for (around) 2 years.  Source: Economist

...built factories in China.  This means the money was used to create jobs in China not in the US...

Apparently you don't read the financial press.  See many articles in the FT, WSJ, and Economist.  And, in case you don't know, there is this obscure thing called "Supply and Demand".  And - guess what! - if you buy a bunch of stuff from someone they (1) have to make it and (2) they have to hire people to make it and (3) they have to have a place to make it.  

...The follow-on was a loss of income and the necessity of (1) lowering consumpution - defeating the purpose of monetary expansion - or (2) borrowing to consume.

Hot News Flash:  the US consumer has been borrowing on their equity to fund current consumption.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Mon May 14th, 2007 at 08:36:27 PM EST
[ Parent ]
This is lovely: outsourcing local news:

The job posting was a head-scratcher: "We seek a newspaper journalist based in India to report on the city government and political scene of Pasadena, California, USA."

A reporter half a world away covering local street-light contracts and sewer repairs? A reporter who has never gotten closer to Pasadena than the telecast of the Rose Bowl parade?

Outsourcing first claimed manufacturing jobs, then hit services such as technical support, airline reservations and tax preparation. Now comes the next frontier: local journalism.

James Macpherson, editor and publisher of the two-year-old Web site pasadenanow.com, acknowledged it sounds strange to have journalists in India cover news in this wealthy city just outside Los Angeles.

But he said it can be done from afar now that weekly Pasadena City Council meetings can be watched over the Internet. And he said the idea makes business sense because of India's lower labor costs.

"I think it could be a significant way to increase the quality of journalism on the local level without the expense that is a major problem for local publications," said the 51-year-old Pasadena native. "Whether you're at a desk in Pasadena or a desk in Mumbai, you're still just a phone call or e-mail away from the interview."

by das monde on Sun May 13th, 2007 at 10:49:14 PM EST
I don't like where it's all going. From the articel of the diary:

Our real problem came from our customers, the publishers. We offered to charge them as little as the Indian firms did, but most of them wouldn't even let us bid, preferring to squeeze as much profit as possible out of typesetting.

In the '90s, publishers had merged and merged and then merged some more. What had been hundreds of educational publishers was now just a few. Harcourt bought Mosby, Saunders, Academic Press and the Psychological Corp. Then Reed Elsevier bought Harcourt. The three top companies represented about 80 percent of our business and the pressures on us to maintain those customers were terrible. If Reed said, "Put an employee on site in our office in Texas," we did it, even though it cost us $100,000 a year, which was just about all of our profits on that account. If we said no, we'd have no business at all. It would have been like saying no to Wal-Mart. And just as it is at Wal-Mart, the mantra of our newly merged customers was: "Lower your prices."

From there, the roller-coaster down was very predictable, with or without any proofs of nearing "collapse".

For me, the crucial facet is this:

If the government wants to help small business and the American worker, it could do something to slow the pace of change. It is the speed of outsourcing, more than anything, that dislocates tens of thousands of workers a year and causes shock waves through the economy. The government could slow things down by granting subsidies to American firms to help compete with overseas companies. It could provide them incentives to buy locally. But, in the end, it can't stop the flow of work and money from traveling around the world.

Immense speed of change makes adoptation indeed very difficult, downright impossible for the most subjects. (As a clear example, the modern human impact on the environment is depressingly huge and further escalating, pushin numerous species to extinction.) This might be a loose capitalism: the increasing speed of change makes it increasingly impossible for most individuals, companies and "invisible hands" to adopt. Capitalism is turning against itself - it will hold on "fully" well while it can, and then collapse without any prior "proof".

This brings my disagreement with the author: the subsidy measures to slow down the pace would not really work. To slow the tidal wave, the government would have to throw in increasingly more and more money, with the unbearable pace coming anyway pretty soon. It is socialism at its worst: stupendously expensive, and undermining the whole idea of "fair competition". My serious suggestion would be not to escalate the pace of globalization. Whether the modern free trade policies were making the world more fair or not, the policies of 10-20 years ago were not stupidly unfair and were working out pretty well - no worse (to put it mildly) than the world used to be in centuries. Now we are heading full speed to some "perfect" world we had never known yet. The benefits all globalization are all fine, but we did not have to embrace them so suddenly and blindly forgetting everything else.

by das monde on Sun May 13th, 2007 at 11:43:04 PM EST
great comment, dm.

i had a vision of capitalism-globalisation as a giant machine, hotwired to bypass all human prudence governance, driven insane by the inhuman premise that corporations and their hench-shareholders' needs trump any other consideration...

like tying a brick to the gas pedal just to watch it go off a cliff, with us all aboard.

gravity?

nah...it's a liberal science stratagem to undermine our exceptional wing (nut) power...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Thu May 17th, 2007 at 08:26:12 PM EST


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