Archive for the ‘business’ category

Good Paying Jobs

November 5, 2014

One of this past midterm’s election mantras was “I’ll work to create more good paying jobs”. With the GOP gaining control of both Houses of Congress, I wonder how they will try to accomplish this goal.

Good paying jobs would perk up voters and if the GOP somehow appeared to accomplish this, it would almost certainly lock the GOP into Government control for some time to come. But is it in the realm of possibility that the GOP can accomplish this? Could Democrats create good paying jobs?

The answer is yes to both, that is both parties could enact legislation that would promote the creation of good paying jobs. The unfortunate caveat is that neither will do what would be necessary. Why?

First, one has to recognize where all the good paying jobs went and why the average pay in the US hasn’t changed in real terms for almost 40 years. I submit it can be summed up with three words, consumers, technology, and corporate greed (misplaced values).

  • Consumers. Each of us has been seduced with the idea that we can get more for less. The advent of big box stores like Walmart has driven the conversion low cost suppliers regardless of where in the world these suppliers are located. The perceived value has been high quality goods at relatively low prices. The cost has been low US manufacturing wages to match those available in other parts of the globe.
  • Technology. The fruits of computers and robotic manufacture has changed the need and reliance upon manual labor. Gone are secretarial pools armed with carbon paper and white out. Gone are rooms full of draftsmen helping design buildings, ships, planes, or cars. In many cases, gone are warehouse men and in their place are digital tracking systems coupled with automatic materials transfer methods.
  • Corporate Greed. The modern corporation features two elements of greed. The first is to pay workers no more than necessary to accomplish any task. Outsourcing has been found effective in holding down wages and benefits. Moving entire operations to other US locals which offer tax incentives has helped hold wages in check while also being destructive to local economies. In addition, the most hurtful corporate practices involves the decision on how to share productivity increase. The data tells the embarrassing story that for senior executives, especially CEOs, pay have risen over 400% while those who produced the increased productivity remained flat.

So what could Government do?

  • Minimum Wage. Congress could enact minimum wage legislation which could turn workers’ pay at places like McDonalds or Walmart into a living wage ($15/hr, $30,000/yr).
  • Training and Retraining Programs. Congress could offer tuition refunds for those taking “skill” related education or training. In Germany there is a well developed apprenticeship system where jobs ranging from plumbers to electricians to hotel receptionists, to nurses, to draftsmen, to robot technicians, to transportation workers are schooled in skills specifically related to a profession.  Greater skills could energize the growth of new market segments which inherently paid more.
  • Corporate Greed Tax. One must be clear headed about this one. No amount of talking will encourage any manager or senior executive to pay his employees more. Corporate officers either recognize a return for increased pay or they resist paying more. No amount of shame will work either to dissuade the leaders from accepting a greater share of productivity increases. In other words, nothing short of true labor shortage will encourage a greedy employer to pay more than the minimum he can. Congress, could, however modify the tax code to make the decision to pay more easier and more equitable. Congress could pass a progressive corporate wage and salary tax where corporations which increased executive’s pay more than wage earners (by some percent) would be punitively taxed more. In the end, shareholders would have to decide whether to retain a management team which put money in their pockets and returned less value to shareholders.

We can reject out of hand any calls for lower corporate taxes as a route to more good jobs. Lower corporate tax rates tied (as an offset) to elimination of corporate tax credits and reductions could help. Experience, however, has shown that lobbyists will set to work again on incorporating new tax loop holes.

The American capitalist system which has benefited the country so well over the years would still suggest the need to reward more those who work harder or contribute at a higher level than those who did less. Raising the average wage and narrowing the income inequality distribution can be accomplished while still honoring that time tested principle. We will see if the GOP brings any of this attitude.

Diversify Young Man

October 25, 2014

Anyone who has visited a “financial planner” has heard the words “diversification” and “diversify”. The diversification principle says that it is impossible to know the future and consequently select only investments that will pay off handsomely.

Experience has shown that by investing broadly, one can protect against a sudden market shift or self inflicted problems within the investment companies.  Diversification helps avoid a wipe out of significant value had the investor had only invested in this one area.
So, the principle of not putting ones eggs in one basket can be just as relevant in other industries. How about the auto industry?

In the early 80’s, the US auto industry began to lose share to cars made in Japan. Cars from Toyota, Honda, and Nissan (plus others) were perceived as better on quality and price terms than those of the big three. As manufacturers began to study how both quality and cost could be so superior, they found that Japanese manufacturers formed close partnerships with certain suppliers. If the supplier would manufacture parts to very tight tolerances each and every time, it turned out this company could also produce parts in a more cost effective manner.

It is many years later now. This Japanese bred quality approach has pretty much be adopted worldwide.  Major original equipment manufacturers have settled on a few major suppliers for their global businesses.  Automotive manufacturers point to these major parts suppliers offering technology and lower prices due to volume. They also promise untouchable quality. Hmmm.

Untouchable quality actual means “initial” quality, the trouble free performance of the supplier’s parts for say the first three years. The common industry wisdom was that once a car is sold by the original owner, all bets are off. Who knows what that original owner did to the car?  Compared to car performance in the years before 2000, todays automobiles are relatively trouble free.

The recent airbag recalls, however, sheds a different light upon quality. Airbags which are clearly a huge step forward in automotive safety are in fact a form of IED (improvised explosive device). At the heart of an airbag is an explosive container which when detonated, fills the airbag in fraction of seconds. This is a one time event. There is no second try for the airbag detonator.

In actual use, an airbag’s life history includes freezing cold days, steamy hot ones, and long periods of no driving at all. The airbag travels over bumpy roads, hits sidewalk curbs, and travels at a full range of altitudes. And when the crash sensor triggers, the airbag is expected to deploy the airbag flawlessly.

So, it should not be a huge surprise that if there were a design shortcoming in the airbag design, it might take a long time to actually realize there was something wrong with airbags.

Unfortunately with the Takata airbags, the rigorous quality checks confirmed that each airbag was like the one produced before. There was no way to verify how airbags would perform after several years of in place use.

So here’s the quandary.

Depending upon large suppliers like Takata, auto manufacturers obtained uniform quality at a low cost. If some thing were to go wrong with a Takata part, the defect would be present in an awful low of the auto makers products. And unlike a radio or seat cushion where a quality defect could be seen quickly, an airbag defect could only be known if the airbag was deployed. Hmmm.

For this small number of unique parts which are critical to safety but which may never be used, putting all ones eggs in one basket may not be the wisest decision.

I wonder whether automakers are studying this airbag crisis in a way that ask the question, should OEMs diversify their airbag suppliers?