Those Patriotic Corporations

NYT, via Ritholtz:

As chairman and principal owner of Revere Copper Products, Mr. O’Shaughnessy runs one of America’s oldest manufacturing companies, started by Paul Revere himself, a fact that exerts considerable pressure. As he put it: “What kind of a message are you sending to the people of the country if you abandon America?”

But spend a day with him, and a more complex picture emerges. He wonders sometimes about the less patriotic alternative of relocating production to Asia or closing the factory entirely on the ground that Revere’s profit margin here is too thin — less than $1 million on $450 million in annual revenue.

“If we simply shut down today,” Mr. O’Shaughnessy said, “I could sell the inventory and the machinery, which could be moved elsewhere in the world, and pay off our debts and walk away with $35 million to $40 million.”

What staves off those alternatives are labor concessions and a substantial government subsidy, something he and others in the United States say is increasingly important to fuel a nascent recovery in manufacturing. The labor concessions at Revere, in a contract endorsed by the United Automobile Workers, are much like those unions are giving to other manufacturers. The subsidy comes from New York State, which supplies, at cost, the electric power that Revere uses to produce copper sheets and slabs. Mr.
O’Shaughnessy says it accounts for half of Revere’s profit.

Corporate leaders have to realize that if profits are driven by sales in the developed world, workers in the developed world have to be paid wages sufficient to pay developed world prices for goods.  Can Chinese people making $5 a day pay $20 for a toaster?  Arbitraging third world wages versus first world prices only works as long as other people are still paying first world wages.  The main problems we have in being competitive with the third world are our energy consumption and investment in housing stock.  But energy costs cut both ways.  Shipping Huffy bicycles from China to Des Moines uses more fuel than shipping them from the old plant in Celina, OH, especially when you figure in the cost of getting coal and iron ore from Australia to China.  We will eventually reach some sort of balance in standard of living between developed and developing countries, but there will be a lot of deflationary pain in the developed world, and we may cook ourselves in the process.