Workers at Bain-Owned Plant Beg Romney to Save Their Jobs

July 18, 2012

http://www.reuters.com/article/2012/07/17/us-usa-campaign-bain-idUSBRE86G1BP20120717

Ouch.  Romney really didn’t need this at a time when his background at Bain Capital – something he hoped would be an asset in his presidential run – is steadily becoming a liability.  It seems that workers at a Bain-owned plant that manufactures sensors for the automotive industry in Illinois have signed a petition asking Romney to use his influence at Bain to stop the plant from being moved to China.  (Bain owns a controlling share of Sensata, the company that owns the plant.)

In all fairness to Romney, he had no role in these moves, which all took place after he left Bain.  The problem is that this is exactly how capitalism, lacking any trade boundaries, works.  Romney can’t deny that any more than he can deny that that’s how it worked while he was at Bain.  As much as Romney would like to deny it, the fact is that venture capitalists have been net job destroyers in America for a long time. 

That’s how trade between two nations grossly disparate in population density work.  When American companies, disgruntled with their mature market of 300 million consumers at home, were suddenly presented with a virgin, untapped market of 1.2 billion consumers in China, they rushed in to build plants there to supply that market.  But, once there, while that market was still in its infancy, they needed to immediately start selling those products.  What better market to dump them on than the one with the hungriest consumers – America?  Now their American plants – already operating on thin margins and dependent on maintaining their high sales volume, were faced with a massive increase in competition.  They were almost instantly forced to close.  In a free trade world lacking boundaries to prevent the inescapable trade imbalances driven by population density disparities, that’s how capitalism works.   It’s painfully obvious to most Americans.  As much as Romney may want to deny it, such denials are coming across as disingenuous at best. 

Some of the specifics here are interesting. 

Sensata was created in 2006 when Bain bought Texas Instruments Inc.’s sensors and controls business. The company now employs 11,400 people worldwide. Almost all of its products are manufactured outside the United States, in countries such as Mexico, China, Bulgaria and Malaysia.

Mexico, China, Bulgaria and Malaysia.  What do you think is the per capita consumption of Texas Instruments products in those countries compared to the U.S.?  A very small fraction.  And what is the population density of those countries compared to the U.S.?  2X, 4X, 2X and 3X the density in the U.S. respectively.  Combined, their population density is close to 4X since the other three are dwarfed in size by China.  They come to the trade table with vast, idle labor forces, looking for jobs, but with virtually no market to offer in return.  Is it any wonder that manufacturing jobs are disappearing? 

If there’s any benefit to be derived from this election campaign, it will be the erosion of economic myths – the shining of light into the dark room where we’ve all been treated like mushrooms – kept in the dark and fed a bunch of B.S.

 


Population Density and International Trade: One Tiny Example

November 15, 2008

http://blogs.reuters.com/great-debate/2008/11/14/a-long-shaky-bridge-to-recovery/#comment-978

I was just reading the linked commentary by James Saft, a Reuters columnist, who suggests that the U.S. needs to take the same approach that Japan used to pull themselves out of a 15-year recession.  However, it’s not his commentary that I found interesting so much as one of the comments from a reader.  It began with a comment from another reader who remarked that the economic crisis wouldn’t end until housing fell to an affordable level.  (That’s true, but how will the fall ever stop if the trade deficit keeps incomes in a downward spiral?)  Anyway, the comment that really interested me came from someone named “Mike” in Singapore:

I am from Singapore where land is scarce. I am always very envious of you guys in US owning a piece of land at 3.5 times of the annual income. In Singapore, USD235k would only get us a public housing of 3 bedrooms and size of 90 sq meter. It is really pathetic.

If we are looking at private condo, a 120 sq meter typically costs around USD 700k for those in outskirts areas, and could go as high up as USD 1.5mil for a unit in the CBD, absolutely crazy.

For me, I would like to have a garden of my own, a car porch for two cars, a double storey terrace house with 3-4 bedrooms, and probably a unit of 200 sq meter landed property. But this is going to cost me USD 1-1.2 million over here (for a non-CBD location), which is like 10-12 times my household annual income, and I would have to work very hard for it. I just hope that sanity will bring back realistic property prices around the world.

 

(I believe that “CBD” stands for “central business district.”)  Here is a perfect example of the whole premise of my theory.  Mike lives in a country with a population density of 18,000 people per square mile.  Well, OK, Singapore is really just a tiny city-state within the larger country of Malaysia.  But when included with Malaysia, the population density is still 233 people per square mile – almost three times as densely populated as the U.S.  Mike lives in a home half the size of the average American’s and has few of the things that we associate with a high standard of living, things we take for granted.  It’s not because he doesn’t want them; it’s because space is so scarce that it’s priced out of the reach of most people.  And Mike is obviously a relatively wealthy person.  How much worse is it for those further down the economic ladder?   

But while Mike’s per capita consumption is low, he is just as productive as an American when he goes to work.  There is only one way that such a nation can sustain a labor force with high productivity and low consumption, and that is to take jobs from someone else.  And that’s precisely what Malaysia does.  They  rank number 8 on America’s list of countries with whom we have the highest per capita trade deficit in manufactured goods.  Some may say that, “well, that’s because of low wages in Malaysia.”  Hardly!  Malaysia ranks quite high on the list of the world’s wealthiest nations, with purchasing power parity of almost $30,000 per person.  Look at Mike.  Do the math and he’s making about $100,000 per year, yet can only afford a standard of living equal to the bottom third of Americans. 

This is just one tiny example of how population density is a major factor in international trade.  But everywhere you look, it’s the same thing.  The world will never extricate itself from its economic mess until it understands this factor and deals with it appropriately.  I feel for you, Mike, but we want our jobs back.