Assembling the Future

Boeing Vice President and General Manager Raymond Conner shares his thoughts on the obstacles in today’s economy that are hindering the manufacturing business.

TRANSCRIPT:

>> 787 being assembled just outside these doors. nice to see you. i am dylan ratigan. this area home to boeing, one of the several great manufacturingers based here in the great northwest, and we’ll take you inside the nucor steel, and efficiency and innovation the name of the game for more than 100 years, an industrial neighbor that is incredibly efficient and as a result welcomed in this town. companies like nucor and boeing a couple success stories here in the seattle and the northwest, but they too are operating in an increasely hostile manufacturing sector, with rigged trade particularly between china and the united states. 5.5 million jobs outsourced, tens of thousands of plants shut down, nearly 100,000 facing a similar fate, as we debate shared sacrifice with public sector cuts in states like wisconsin, what seems to be lost in the debate is how we’re going to bring good jobs back to america. can companies like nucor and boeing overcome the incredible obstacles of that rigged trade, tariffs ten times higher importing to china then coming into our own country, a currency 50 cents cheaper than our own dollar. well, impressively companies like boeing and nucor have been able to achieve success. our first guest here today in the great state of washington is boeing vice president of supply chain and management, ray conner. ray, it’s a pleasure to see.

>> nice to see you.

>> you started as a mechanic.

>> that’s correct.

>> if you look at the business of assembling this plane, you took a bunch of jobs that were here out, brought them back. why?

>> it really comes down to four things, when you think about where do we do work? where are you most productive and most efficient? obviously we have tremendous capability here in the northwest around the entire understanding. where can we get the most talent and most resources? and then when we do go global, because we do sell 85% of our backlog is international, we look to where we can achieve market access or resources and talent in those international places as well. the last thing, dylan, is we always, always want to protect the key critical capabilities that keep us competitive in the long run.

>> what does that mean?

>> you know, like key core ip, intellectual property. what are the things we always want to do? what are the things we hold dear to our hearts, the secret sauce, so to speak?

>> forget suffering or benefiting, how much does the trade policies, specifically the trade policies and the currency and all the rest of it with china, affect the way you have to do business?

>> well, i mean, i think what’s happened with what the administration is doing, thee trying to expand the trade agreements, the things we have done with the wto agreement, all those things. we’re just looking for a level playing field so we can go out and battle our competition in a level playing field so we can win on our own merits.

>> at the same time your competition is in airbus, in effect a state-run company and the other big trade competitor is china, which is effectively a state-run economy. how much of a disadvantage do you have in that context, or advantage?

>> it still comes down to providing the best products, safest, most reliability and most cost-efficient in the world. if we stay close on price, we tend to win those games.

>> a headline on the dreamliner specifically, and incredible advancement, and a stack of headaches trying to make that happen, as you know better than i, but they characterize the dream liner, executives admit the aggressive outsourcing put them in partnership with employers that weren’t up to the job. they didn’t recognize spending so much work abroad would have more intense management from the home plant than less. is that a fair assessment?

>> i think that’s fair. when we moved it out, we did not use as much oversight. we did bring back some of the work. we purchased the facility in south carolina, the global area naughtic facility there, a joint venture there. so we brought things back into the boeing fold and we’re moving forward.

>> one of the really big issues is do you have the engineers? do you have the young people as so many of the boeing employees and so many of the manufacturing workers in general are baby boomers. we sat with david gearing, he gave a characterization of how desperate the need for new talent is. i want you to take a listen and respond.

>> we need 1500 airframe mechanic every year, but our state only turns out 150. we’re failing in 90% of the cases.

>> why are there so few relative to the demand?

>> our education system isn’t well aligned to support our economy, and stem is a great tool to try to bring that back. do you agree with that?

>> absolutely.

>> how much of a problem? it’s more as you look forward. we have to start bringing more younger talent in so they can be the next engineers that design the next dream liners in the future. we have a lot of capable talented dedicated people now, but it’s more about the future, so we can keep perpetuating this thing, so we can be here for the next 100 years as well. five years we’ll celebrate or 100th anniversary. we want be here for another 100.

>> we spent some time at cleveland high, which is the science technology and math school, i think the only one that exists in seattle right now. how many more of those types of schools do we need?

>> a lot more. 10, 12, it’s hard to even say, but when you look forward and start to see what the demand is for our aircraft, we’re going to need so much more as we move forward.

>> listen, ray, thank you for hosting us here and thank you for educating us.

WikiLeaks memo belies Hu’s glossy pitch to U.S.

The following piece by Kevin G. Hall appeared at the McClatchy site here.

WASHINGTON — Chinese President Hu Jintao this week restated pledges to crack down on illegal business practices and painted a rosy picture for foreign investors, but confidential U.S. diplomatic cables tell a far different story for U.S. businesses.

U.S. companies complain about China’s persistent disregard for intellectual property rights — shorthanded as IPR — where Chinese firms ignore patents or copyrights and sell falsified products at home and abroad. They also complain about China’s “indigenous innovation” policy, designed to give domestic companies a leg up when selling to China’s government, which controls much of the economy.

Hu promised that all will be fixed in an interview published Monday in The Wall Street Journal and The Washington Post.

“China will continue to improve laws and regulations concerning foreign investment, strengthen IPR, promptly address the legitimate concerns of foreign companies and facilitate the growth of enterprises all kinds in China by offering them a stable and transparent legal and policy environment,” the Chinese leader said.

Hu also said that China’s efforts to stimulate its economy during the global downturn benefited U.S. firms in China.

“Their innovation, production and business operations in China enjoy the same treatment as Chinese enterprises. The package plan and the related policy measures that the Chinese government introduced to counter the international financial crisis have also provided good opportunities for the growth of all enterprises in China, foreign companies included,” Hu wrote.

Hu’s glossy view on the eve of his state visit to Washington this week is a very different take from the unvarnished one offered in a secret January 2010 memo to Secretary of State Hillary Clinton from Jon M. Huntsman, the U.S. ambassador to China. The memo was one of hundreds of classified documents released late last year by the website WikiLeaks.

“Strong Chinese economic and export growth coupled with an artificially undervalued RMB (currency) will further heighten focus on our huge trade deficit with China. Widespread perceptions that China’s industrial policies are rolling back market access add to the overall sense that China plays unfairly in the global marketplace,” Huntsman noted in the confidential memo. “Other emerging issues, like Google’s problems (censorship and ad hoc bans) and new rules on indigenous innovation, create a drumbeat of bad news stories for firms seeking to do business in China.”

The cable addressed the need to push China in areas that could benefit U.S. jobs, including reducing barriers that favor Chinese-made goods over U.S. exports and pressing China to eliminate requirements that service-sector investors must have a Chinese joint venture partner.

Another obstacle Huntsman cited was China’s more assertive global posturing as the U.S. struggled to emerge from the global financial crisis it created.

“We may want to consider ways to toughen up our talking points and enhance the use — or perception of likely use — of other real ‘sticks’ in order to achieve market opening, job-creating objectives,” Huntsman wrote. “This will require some consideration of just how much disruption in our economic relations we are willing to countenance if we must carry through on threats.”

The biggest “stick” the U.S. wields is the threat of retaliation against China for the valuation of its currency — called the yuan or renminbi. Over the past 12 months, the Treasury Department has twice delayed a report to Congress on whether China unfairly manipulates its currency to make its exports cheaper and foreign products more expensive in China. The delays ostensibly are to give China time to revalue its currency, but that hasn’t happened, and lawmakers threaten legislation.

In another cable released on WikiLeaks about private meetings in 2009 during a visit by Robert Hormats, the undersecretary of state for economic affairs, Chinese economic leaders acknowledged that the currency dispute must be addressed. They also admitted that local leaders are acting to protect their local tax bases and favored industries.

Treasury Secretary Timothy Geithner last week called on China to act now on the currency, noting that doing so would benefit China most.

“If China does not allow the currency to appreciate more rapidly, it will run the risk of seeing domestic inflation accelerate and face greater risk of a damaging rise in asset prices, both of which will threaten future growth,” Geithner said. “And sustaining an undervalued currency will undermine China’s own efforts to rebalance growth toward domestic consumption and higher-value-added production.”

It would be hard to loosen U.S. investment restrictions and export controls to allow Chinese firms access to U.S. high technology, Geithner suggested, without movement from China on its currency and other problems for American firms in China.

“We are willing to make progress on these issues, but our ability to move on these issues will depend of course on how much progress we see from China,” Geithner said. “As China reduces the role of the state in the economy, reforms policies that discriminate against U.S. companies, removes subsidies and preferences for domestic firms and technology, and allows its exchange rate to reflect market forces, then we will be able to make more progress on China’s objectives.”

The appeal of the huge China market to U.S. businesses was underscored in another embassy memo leaked on WikiLeaks late last year, written by Huntsman’s predecessor, Clark T. Randt.

“China plans to build 20,000 to 50,000 new skyscrapers over the next two decades — as many as ten New York cities,” Randt wrote in a cable outlining challenges and opportunities posed by economic interdependence. “More than 170 Chinese cities will need mass transit systems by 2025, more than twice the number now present in all of Europe.”

Is China Really Funding the US Debt?

By Barry Ritholtz – January 14th, 2011, 12:15PM

I keep hearing people erroneously claim that China is funding US deficit spending. It seems that every eejit with a fundamental misunderstanding of mathematics (and access to animated talking bears) has been pushing this concept.

It turns out to be only partially true — and by partially, I mean 7.5% true. But that means the statement is 92.5% false.

The biggest holders of US debt are American individuals, institutions, and Social Security. We own more than 2 out of every 3 dollars of US debt — about over 67%. Hence, we depend far less on the kindness of strangers than you might imagine if your listen to the intertubes.

Those viral animated bears may be clever, but they sure suck at math.

Total United States’ public debt was ~$13.562 trillion at the end of the fiscal year (30 September 2010). As of last week, January 4, 2011, the United States’ total public debt outstanding has surpassed 14 trillion dollars.

Political Calculations has whipped up a chart showing exactly who is holding US debt, and funding our deficit:

click for bigger graphic

Sources:
U.S. Treasury Department:
Monthly Statement of the Public Debt of the United States (September 30, 2010)
Major Foreign Holders of Treasury Securities. (At end of September 2010)

19 Facts About The Deindustrialization Of America That Will Blow Your Mind

The following article appeared on The Economic Collapse blog here.

The United States is rapidly becoming the very first “post-industrial” nation on the globe.  All great economic empires eventually become fat and lazy and squander the great wealth that their forefathers have left them, but the pace at which America is accomplishing this is absolutely amazing.  It was America that was at the forefront of the industrial revolution.  It was America that showed the world how to mass produce everything from automobiles to televisions to airplanes.  It was the great American manufacturing base that crushed Germany and Japan in World War II.  But now we are witnessing the deindustrialization of America.  Tens of thousands of factories have left the United States in the past decade alone.  Millions upon millions of manufacturing jobs have been lost in the same time period.  The United States has become a nation that consumes everything in sight and yet produces increasingly little.  Do you know what our biggest export is today?  Waste paper.  Yes, trash is the number one thing that we ship out to the rest of the world as we voraciously blow our money on whatever the rest of the world wants to sell to us.  The United States has become bloated and spoiled and our economy is now  just a shadow of what it once was.  Once upon a time America could literally outproduce the rest of the world combined.  Today that is no longer true, but Americans sure do consume more than anyone else in the world.  If the deindustrialization of America continues at this current pace, what possible kind of a future are we going to be leaving to our children?

Any great nation throughout history has been great at making things.  So if the United States continues to allow its manufacturing base to erode at a staggering pace how in the world can the U.S. continue to consider itself to be a great nation?  We have created the biggest debt bubble in the history of the world in an effort to maintain a very high standard of living, but the current state of affairs is not anywhere close to sustainable.  Every single month America does into more debt and every single month America gets poorer.

So what happens when the debt bubble pops?

The deindustrialization of the United States should be a top concern for every man, woman and child in the country.  But sadly, most Americans do not have any idea what is going on around them.

For people like that, take this article and print it out and hand it to them.  Perhaps what they will read below will shock them badly enough to awaken them from their slumber.

The following are 19 facts about the deindustrialization of America that will blow your mind….

#1 The United States has lost approximately 42,400 factories since 2001.

#2 Dell Inc., one of America’s largest manufacturers of computers, has announced plans to dramatically expand its operations in China with an investment of over $100 billion over the next decade.

#3 Dell has announced that it will be closing its last large U.S. manufacturing facility in Winston-Salem, North Carolina in November.  Approximately 900 jobs will be lost.

#4 In 2008, 1.2 billion cellphones were sold worldwide.  So how many of them were manufactured inside the United States?  Zero.

#5 According to a new study conducted by the Economic Policy Institute, if the U.S. trade deficit with China continues to increase at its current rate, the U.S. economy will lose over half a million jobs this year alone.

#6 As of the end of July, the U.S. trade deficit with China had risen 18 percent compared to the same time period a year ago.

#7 The United States has lost a total of about 5.5 million manufacturing jobs since October 2000.

#8 According to Tax Notes, between 1999 and 2008 employment at the foreign affiliates of U.S. parent companies increased an astounding 30 percent to 10.1 million. During that exact same time period, U.S. employment at American multinational corporations declined 8 percent to 21.1 million.

#9 In 1959, manufacturing represented 28 percent of U.S. economic output.  In 2008, it represented 11.5 percent.

#10 Ford Motor Company recently announced the closure of a factory that produces the Ford Ranger in St. Paul, Minnesota. Approximately 750 good paying middle class jobs are going to be lost because making Ford Rangers in Minnesota does not fit in with Ford’s new “global” manufacturing strategy.

#11 As of the end of 2009, less than 12 million Americans worked in manufacturing.  The last time less than 12 million Americans were employed in manufacturing was in 1941.

#12 In the United States today, consumption accounts for 70 percent of GDP. Of this 70 percent, over half is spent on services.

#13 The United States has lost a whopping 32 percent of its manufacturing jobs since the year 2000.

#14 In 2001, the United States ranked fourth in the world in per capita broadband Internet use.  Today it ranks 15th.

#15 Manufacturing employment in the U.S. computer industry is actually lower in 2010 than it was in 1975.

#16 Printed circuit boards are used in tens of thousands of different products.  Asia now produces 84 percent of them worldwide.

#17 The United States spends approximately $3.90 on Chinese goods for every $1 that the Chinese spend on goods from the United States.

#18 One prominent economist is projecting that the Chinese economy will be three times larger than the U.S. economy by the year 2040.

#19 The U.S. Census Bureau says that 43.6 million Americans are now living in poverty and according to them that is the highest number of poor Americans in the 51 years that records have been kept.

So how many tens of thousands more factories do we need to lose before we do something about it?

How many millions more Americans are going to become unemployed before we all admit that we have a very, very serious problem on our hands?

How many more trillions of dollars are going to leave the country before we realize that we are losing wealth at a pace that is killing our economy?

How many once great manufacturing cities are going to become rotting war zones like Detroit before we understand that we are committing national economic suicide?

The deindustrialization of America is a national crisis.  It needs to be treated like one.

If you disagree with this article, I have a direct challenge for you.  If anyone can explain how a deindustrialized America has any kind of viable economic future, please do so below in the comments section.

America is in deep, deep trouble folks.  It is time to wake up.

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