EXPORTING OUR TECHNOLOGY & OUR JOBS
Larry LaBordeMy son recently took a trip to a large Gulf Coast city in the Southern US on a buying trip with one of my brothers/partners. My son is a recently graduated engineer and is interested in working globally in general and on the Pacific Rim in particular. During their trip they visited two very different importing companies.
The first importing company was run by two brothers from India. Both were engineers. They mainly dealt with small metal castings. They had connections with 30 or so small foundries throughout the Pacific Rim. They could have almost anything copied and cast in a variety of metals. The more technical castings with exotic metals went to Korea while the simple bronze and cast iron jobs went to India and China. If there were over 3,000 units or pieces a year they could have the part custom manufactured for you at a substantial savings.
The second company was a large old line machine shop. This company had slowly moved into the manufacturing business by having semi-complex castings poured in Korea and importing the rough castings. (They were currently working with a foundry in China to improve their quality.) They would then perform the final machining and assembly for large refinery pumps here in the US. By using the Pacific Rim foundries they were undercutting the domestic pump companies by a large margin. In order to work with the foundry overseas they had purchased a very detailed three axis tracing machine. This machine had a large 3 axis arm that literally touched the part and traced out a shape on their computer. After a few hours of tracing a complex part an exact digital shape was obtained that could be transmitted via the internet to an overseas foundry and allow work to begin on the part that same day.
It became apparent to me that the overseas import market was opening up to more than just Wal-Mart and fortune 500 companies who could afford to visit and forge alliances with Pacific Rim companies. With digital communications and the help of a facilitator almost any part could be copied and reproduced if there was a reasonable volume needed. Many of our engineered products that were developed over the years in the US are now simply copied overseas and shipped back here for final assembly. How much longer until the final machining and assembly is performed overseas as well?
Every time another casting, machining or assembly process is moved overseas a US manufacturing job is lost. We are slowly turning from a nation of producers (that exported our surplus) into a nation of consumers. I see almost no new manufacturing jobs in the US, only the slow and steady erosion of the existing ones. (Even though federal statistics have now re-classified hamburger flipping as a manufacturing job the stats still look bad.) Perhaps we can turn the entire US into a service economy where we do each others dry cleaning and serve each other hamburgers. Somehow we may make enough money that way to import a few manufactured goods from abroad - I just do not understand how. As the only growth industry (government programs) gets larger and the domestic manufacturing industry gets smaller I do not see good things ahead for the US economy. The only thing ahead is what I call the "great equalization" where the standard of living gets better for the 3rd world and it gets worse for us.
In the past the thing that allowed us to live better than the rest of the world was our wonderful US productivity rates. Our high productivity was a result of our capital markets allowing us to accrue capital and invest it in tools that made us more productive. We are now spending everything we make and borrowing more. Our savings rate (remember back two sentences about accruing capital to invest in better tools) is negative! One US worker with his "modern factory" in years past could out produce dozens of 3rd world workers using hand tools. Well the 3rd world worker, in many instances, now has as good or better tools than the US worker. In many foreign factories they are as productive, or even more so, as US workers. Why then are we entitled to live better or at a higher standard of living?
The fact that the dollar is the world's reserve currency has a little to do with it. As long as foreigners are willing to accept our dollars in exchange for their finished goods and let them pile up in their central banks as "reserves" then the game can continue. Whenever the foreigners decide they have enough dollar reserves and start to spend our IOU's then the game is over. There will be a rush for the exits as central bankers around the world dump dollars and spend their US IOU's at the same time while trying to exchange them for anything they can before they devaluate even further.
At that point in time the US economy will be exposed for what it has become - just another 2nd rate world economy. In order to trade with the world for goods that we no longer produce we will have to export something - any ideas?
Trade your dollars for precious metals while your dollars are still worth something. When all those dollars finally do come home flooding the US economy they will certainly be worth less. If we are ever to become a powerhouse economy again we must PRESERVE and accrue capital to reinvest at the right time in the future. No matter how little or how great your income, save something every month and live below your means.
September 16, 2004
Larry and his wife Puddy both live in the South with their two almost grown children and Haley the wonder dog. Larry manages the family drilling company and also sells gold and silver through Silver Trading Company at www.silvertrading.net.
Please send your thoughts or comments to Llaborde@cdswater.com
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