Manufacturing’s Race for the Bottom

Today I got more semi-confirmations from others in the slide forming business that US Baird is likely gone. At least, everyone has heard the same rumour, but no one (so far) heard it directly from the horses mouth.

But I thought I’d dwell on this for a bit. What an odd bit of timing. US Baird, an innovative company with a 150 year history, goes out of business. George writes his article on how North America has lost it’s manufacturing tradition. And Menu Foods poisons many hundreds, perhaps thousands of pets, by importing contaminated wheat gluten from China.

What is going on here? Why is manufacturing engaged in a giant race for the bottom?

To some extent, responding to the pressure to reduce cost is good. When you can make an equivalent product, that means, as good or better, by a simpler process, you are reducing cost in a good way. That is, you are reducing the total cost of the product.

For instance, if you find out that 5 microinches of plating is enough for the application, and you cut it down from 10, you reduce the cost. If you find a way to run the machine faster, so it produces more parts per unit time, you are reducing the cost. If you find a smarter method of assembly, so that fewer man hours are needed, you are reducing the cost. If you find a process that is less environmentally harmful, and therefore there is less environmental cleanup involved, you are reducing the cost.

But we’ve stopped doing that. Instead, we’re merely shifting cost into someone else’s back yard, into someone else’s economy. Often, we are increasing the real cost of the item, measured in hours or lives or environmental damage.

Look, for instance, at chinese steel. Chinese steel costs less. There are many reasons, but most of the media attention has been focused on low wages. Low wages are a part of it, but macro economics says that, over time, that will even out. The workers will demand, and eventually get, better wages.

Large parts also have to do with unsafe working conditions, with extremely low cost-of-safety government regulations, inadequate or non-existant enforcement, inadequate compensation for maimed or dead workers, not just in the steel industry but in the other industries behind it, like coal mining.

Those factors won’t ever even out. Those workers will still be dead, and their families will miss them for the rest of their natural lives.

So when the CEO of a company buys products from China, they transfer those costs, insurance, compensation for work accidents, etc, to places which attach little or not currency to those items. It’s not like the number of workplace accidents go down, in fact, they generally go up. And the real human costs, measured by every moral measure, go up. Thousands of chinese mine workers die every year. China has the worst mining safety record in the world. In the world! So in fact, outsourcing to China increases the cost by every moral measure. But it decreases the dollar cost, because the chinese pay so little for a life.

The same arguments can be made for the environment. We shift environmentally substandard processes to other, under developed countries, where the dollar cost of transgression is low, even though the environmental processes are, at best, no different, and in many cases much worse. So it’s not like we’re harming the planet any less, it’s just that we’re doing it in an underdeveloped country where the cost of transgressing hasn’t caught up with the first world.

In other words, we’re creating human misery, suffering and environmental damage, but being asked to pay less for it, because it’s happening somewhere else. Oh, and then there’s the environmental damage of transporting all those products half way around the world.

In what conceivable scenario does this make sense?

Menu Foods is in Mississauga, a suburb of Toronto, Canada. Canada is a net exporter of wheat. Why is Menu Foods buying wheat gluten from China, paying shipping charges?
And now they will be paying for a class action lawsuit, for all the dead pets.

It’s easy to blame Menu Foods. They bought an inferior product from far away, a place where, it seems, contaminating pet food isn’t important because, I guess, pets aren’t important. I’ve seen several reports. The gluten was contaminated with rat poison, in one report, with Melamine in another report. In any case, it’s clear that someone didn’t much care about this product.

But whatever happened to quality? Especially in a food. Whatever happened to being willing to pay for good ingredients, properly prepared? For your pets, or your children. Why are we buying inferior products? Why are the WalMarts of the world stocking inferior products? Why are they forcing suppliers to skimp and save and cheapen their products? Why do we as consumers buy from such stores?

Only when you find an answer to why we, as consumers, have pushed for the lowest quality product at the lowest price, will you understand why North American manufacturing is languishing and dying. The race for the bottom starts with us.

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