Quotulatiousness

February 3, 2012

The end of London’s diesel locomotive plant

Filed under: Cancon, Economics, Railways — Tags: , , , , — Nicholas @ 12:10

I’ve updated my earlier post on the labour dispute at London’s EMC plant now that the current owners have announced the closure of the facility.

Update, 5 February: Mike P. Moffatt at Worthwhile Canadian Initiative debunks some of the media coverage of the closure:

After the U.S.-Canada Free Trade Agreement, GM Diesel closed their La Grange, Illinois plant and consolidated their production to the London plant, though kept the head office, research, design, and manufacturing of some components in La Grange. EMD London was a direct beneficiary of the U.S.-Canada Free Trade agreement, something I have yet to hear in the media. The domestic locomotive market, by itself, would not have supported the level of production we have seen over the last two decades.

In 2005, GM Diesel sold the Electro-Motive Division (including the GM Diesel plant in London and the head office in La Grange) to a couple of U.S. private equity firms, who re-named it Electro-Motive Diesel. In 2010, those firms sold EMD to Caterpillar.

[. . .]

We need to keep in mind that:

  1. EMD has always been a U.S. corporation.
  2. The intellectual property from research and design, etc. was from the head office in La Grange, Illinois.

So that leaves “know-how” which Cohn mentions in a follow-up paragraph. On Twitter, Colby Cosh asked: “Cohn talks about “know-how” but (a) know-how isn’t IP and (b) Cat doesn’t seem to have much use for the workers who have it, do they?” Caterpillar, however, did send a number of employees from London to their new plant in Muncie, IN, to train newly hired workers. I am Facebook friends with an EMD worker and I remember him objecting loudly to this last fall. But did Caterpillar really buy EMD so that it could obtain the talents of a dozen guys to teach advanced welding techniques?

There are a lot of narratives to this story, many of them unpleasant. A narrative about a U.S. company buying Canadian IP at 15 cents on the dollar does not pass the sniff test, however.

Update the second, 7 February: Andrew Coyne gets his inconvenient, yucky facts in our lovely flag-waving, anti-capitalist nationalistic fantasy:

EMD never received any subsidies from the federal government; certainly not since Caterpillar bought it. Indeed, looking through the hundreds of pages of “grants and contribution” in the Public Accounts, it may be the only company in the country that didn’t. The Harper visit to which Olive refers was to promote a tax break for the purchasers of locomotives, not the manufacturers. The visit occurred in 2008, two years before the Caterpillar purchase.

It’s not clear how the foreign investment laws could have been invoked to cover a purchase of an American company by another American company, or if they could, why this should be the pretext for “demanding job guarantees.” Presumably if it is wrong for a firm to close a plant or lay off workers, it is just as wrong whether it has recently been the object of a foreign takeover bid or not. Perhaps you will say we should bar all companies from closing a plant. Okay: why would they ever open one? If workers, once hired, cannot ever be laid off, why would they ever be hired?

Of course, there’s always Olive’s suggestion of a punitive tariff, through which the cost of keeping jobs in London locomotive plants could be shared by consumers and businesses across the country. (You’re welcome.) This would recreate the system of foreign branch plants that existed in the days before free trade, small factories producing exclusively for the domestic market. Rather than lament at foreigners stealing our jobs and technology, the nationalists could once again lament at being tenants in our own land.

January 1, 2012

Bargain hunting: pay only $103,000 for a car costing $2.2 million

Filed under: Economics, Environment, Government, Technology — Tags: , , , , , — Nicholas @ 12:41

They’re pretty exclusive: so far they’ve only made 239 of them, and they start at $103,000 per unit. They have, however, taken on a bit of US federal government funding:

It’s another example of USA tax dollars at work — in Finland:

From ABC News, Oct 20th, 2011:

    With the approval of the Obama administration, an electric car company that received a $529 million federal government loan guarantee is assembling its first line of cars in Finland, saying it could not find a facility in the United States capable of doing the work.

    Vice President Joseph Biden heralded the Energy Department’s $529 million loan to the start-up electric car company called Fisker as a bright new path to thousands of American manufacturing jobs. But two years after the loan was announced, the company’s manufacturing jobs are still limited to the assembly of the flashy electric Fisker Karma sports car in Finland.

Let’s do the math.

239 cars produced for 2012 model year.

$529,000,000 USD in Government loans

That works out to $2,213,389 (2.2 million) per car.

Selling price $103,000 USD, that leaves only $2,110,389 in taxpayer funded overhead per vehicle. And, they’ve only sold 50 so far.

Such a deal.

Of course, when your promotion strategy revolves around a sitcom based on Charlie Sheen, such things are bound to happen

August 27, 2011

US government moves swiftly to crush guitar industry

Filed under: Bureaucracy, Government, Law, USA — Tags: , , , — Nicholas @ 09:46

The US federal government, not satisfied with the state of the economy, is now targeting smaller industries for regulatory SWAT raids and asset confiscation:

The Justice Department raided the Memphis and Nashville offices of a guitar manufacturing company this week, seizing several pallets of wood, electronic files and guitars as part of a crackdown on illegally harvested hardwoods from protected forests, The Wall Street Journal reported.

But Henry Juszkiewicz, the chairman and chief executive of Gibson Guitar, defended his company’s manufacturing policies and accused the Justice Department of overreaching.

“The wood the government seized Wednesday is from a Forest Stewardship Council certified supplier,” he said in a statement to the newspaper, suggesting the Feds are using the aggressive enforcement of overly broad laws to snare the company.

The Justice Department refused to speak to the newspaper.

The raid prompted Iowahawk to connect the dots between this raid and the “Fast and Furious” operation:

Today’s uncovering of secret multi-agency program for shipping illegal Gibson guitars to Mexican drug cartels left red-faced officials of the U.S. Department of Justice scrambling for an explanation amid angry calls for a Congressional investigation.

“I have ordered all agency personnel to fully cooperate in any Congressional inquiries, including all reasonable document request, as soon as we can redact them with Sharpie pens and lighter fluid,” said U.S. Attorney General Eric Holder.

The secret program came to light early this morning in the border town of Nogales, Arizona, after what was described as a wild battle of the bands between members of the Sinaloa cartel and Los Zetas, two of Mexico’s most notorious violent drug gangs.

“Usually these guys are armed with Mexican Strats and Squires, Epiphones, small caliber stuff like that,” said Pedro Ochoa, 36, an eye witness to the sonic melee. “This time they were packing the heavy firepower.”

The steady barrage of power chords and piercing solo attacks attracted the attention of nearby U.S. Border Patrol agents, who arrived at the scene just as Los Zetas broke into Led Zeppelin’s ‘Immigrant Song.’ By the time the dust had cleared, U.S. Border Patrol Agent Oscar Jimenez was found in a catatonic state of headbanging. He was later flown to University of Arizona Hospitals, where his condition is listed as seriously rawked.

Jon, my former virtual landlord, sent me a link to the press release from Gibson and a link to this Wall Street Journal article with more information.

John Thomas, a law professor at Quinnipiac University and a blues and ragtime guitarist, says “there’s a lot of anxiety, and it’s well justified.” Once upon a time, he would have taken one of his vintage guitars on his travels. Now, “I don’t go out of the country with a wooden guitar.”

The tangled intersection of international laws is enforced through a thicket of paperwork. Recent revisions to 1900’s Lacey Act require that anyone crossing the U.S. border declare every bit of flora or fauna being brought into the country. One is under “strict liability” to fill out the paperwork — and without any mistakes.

It’s not enough to know that the body of your old guitar is made of spruce and maple: What’s the bridge made of? If it’s ebony, do you have the paperwork to show when and where that wood was harvested and when and where it was made into a bridge? Is the nut holding the strings at the guitar’s headstock bone, or could it be ivory? “Even if you have no knowledge — despite Herculean efforts to obtain it — that some piece of your guitar, no matter how small, was obtained illegally, you lose your guitar forever,” Prof. Thomas has written. “Oh, and you’ll be fined $250 for that false (or missing) information in your Lacey Act Import Declaration.”

March 2, 2011

Why “Buy American” or “Buy Canadian” campaigns are bad economics

Filed under: Economics, History, Liberty, USA — Tags: , , , , , — Nicholas @ 12:26

Daniel Ikenson takes ABC to task for their misleading propaganda against international trade:

Back in the “golden age” of 1960, when imports were oddities to marvel over in a disdainful way, the per-capita U.S. income was $2,914. In 2009, with imports ubiquitous, per-capita income was $46,411. (Economic Report of the President, 2010, Tables B-1 and B-34). In real, inflation-adjusted terms, even with a U.S. population increase from 181 million to 307 million, per-capita incomes in 2009 were almost triple what they were in 1960 ($42,277 vs. $15,669 in 2005 dollars — ERP, 2010, Tables B-2 and B-34). Oh, if only we could replicate the relative poverty, the limited consumer choices, the inefficient production processes, the massive trade barriers that compelled Americans to buy American, and the uneconomic work rules and wages commanded by once-powerful private sector labor unions. In 1960, before real economic liberalization spawned cultural and social liberalization, Diane Sawyer would never have dreamed of being a network news anchor, if she even dared to entertain the concept of working outside of the home. How can she pine for such an era?

It’s frustrating that so much research refuting the myth of manufacturing decline and supporting the conclusion that U.S. manufacturing is thriving — and is in fact leading the world in terms of value of output — is simply neglected by a media that is more committed to scaring than informing. Today Americans are less likely to find in their homes products manufactured in the United States because U.S. manufacturers have moved on to producing higher value products. American manufacturing isn’t focused on products that consumers find in retail stores, like furniture, hand tools, sporting goods, flatware, draperies, carpeting and clothes. American factories produce more value than any other country’s factories by focusing on producing the highest value products: pharmaceuticals, chemicals, airplanes, sophisticated componentry, technical textiles, and other items often sold directly to other businesses.

I and others have been making these points for several years, as U.S. manufacturing continues to thrive in every metric . . . except employment. Manufacturing employment peaked in 1979 and has been on a downward trajectory ever since. But that is the point that eludes ABC and everyone else who thinks U.S. manufacturing’s best days are in the past. Making more with less is the goal! That’s how an economy grows! The political imperative of “putting people back to work” regardless of the economic value of that work — remember the so-called stimulus? — spits in the face of economics. The fact that Americans are unemployed speaks to a mismatch of skills demanded and skills available, as well as to a business and regulatory environment that dissuades investment and hiring.

February 12, 2011

Deeper implications of the rise of “3D printing”

Filed under: Economics, Technology — Tags: , , , , — Nicholas @ 10:49

One of the most interesting things happening in the manufacturing world is the rise of a technology that may well make huge swathes of factories obsolete: practical 3D printing. What was originally just a neat way to develop small prototypes for mass production is quickly becoming a viable way to replace the entire mass production step. The technology is still limited to a small range of materials, but the price has been dropping steeply enough that small 3D printers are within the reach of hobbyists already.

The Economist points out that this will not be an unmixed blessing (as technological revolutions ever have been):

Others maintain that, by reducing the need for factory workers, 3D printing will undermine the advantage of low-cost, low-wage countries and thus repatriate manufacturing capacity to the rich world. It might; but Asian manufacturers are just as well placed as anyone else to adopt the technology. And even if 3D printing does bring manufacturing back to developed countries, it may not create many jobs, since it is less labour-intensive than standard manufacturing.

The technology will have implications not just for the distribution of capital and jobs, but also for intellectual-property (IP) rules. When objects can be described in a digital file, they become much easier to copy and distribute — and, of course, to pirate. Just ask the music industry. When the blueprints for a new toy, or a designer shoe, escape onto the internet, the chances that the owner of the IP will lose out are greater.

There are sure to be calls for restrictions on the use of 3D printers, and lawsuits about how existing IP laws should be applied. As with open-source software, new non-commercial models will emerge. It is unclear whether 3D printing requires existing rules to be tightened (which could hamper innovation) or loosened (which could encourage piracy). The lawyers are, no doubt, rubbing their hands.

Just as nobody could have predicted the impact of the steam engine in 1750 — or the printing press in 1450, or the transistor in 1950 — it is impossible to foresee the long-term impact of 3D printing. But the technology is coming, and it is likely to disrupt every field it touches. Companies, regulators and entrepreneurs should start thinking about it now. One thing, at least, seems clear: although 3D printing will create winners and losers in the short term, in the long run it will expand the realm of industry — and imagination.

So, even if you don’t have immediate plans to buy a 3D printer, you could do worse than to dust off your old drafting book and learn a bit of CAD. You may be using those skills sooner than you expect.

There’s more information (from 2009) on the 3D printing process here.

December 18, 2010

The fascinating economics of Chinese manufacturing

Filed under: China, Economics, Tools, Woodworking — Tags: , — Nicholas @ 11:17

An interesting post at the Bridge City Tools blog about how Americans (and Canadians) are actually willing to pay the outrageous price of $5 for a single 1/8″ drill bit:

About 10 years ago I was in an OEM Chinese factory that made bench grinders. You have seen them, 1/2 HP motor, two 6” grinding wheels, pig tail cord, a small plastic face shield and no nameplate — these would be attached by the American companies that bought them. The total cost per grinder, landed in the US was $7.15. Of course at this price it would be asking too much for a UL tag.

These grinders were, and still are being sold here and the prices range from $49 to $200 — awesome margins by any standard.

Behind the factory floor there was a small mountain of insulated wire that had been pulled from old cars, appliances, televisions and the like and it was replenished daily. Surrounding the wire mountain were a couple of dozen women who were stripping the wire of insulation. These wire remnants were then spliced together and used in the grinder motor windings. Completely illegal, and dangerous. But cheap.

I thought I was shocked until I walked into the factory section that made twist drill bits. Here they were making, for the AMERICAN MARKET, those 59, 89, 119 pc drill sets found at the box stores and other discount joints for $19.95. Again, there were rows of women who were dipping the bits in what looked like Easter egg dye.

I asked the interpreter what they were doing. He replied, “They are making all the bits the same color as these four.” The four bits he pointed out were the 1/8”, 1/4”, 3/8” and the 1/2”.

I asked why.

I learned that those four bits were properly hardened. The remaining 115 bits were made with what I call pot metal. The reason?

“Because those are the only four hole sizes that Americans use.”

I asked, as politely as I could, if there was any guilt or remorse for duping their American customers. The reply was shocking.

“In America, if it cost less than $20, nobody complains about quality — everybody in China knows this.”

It’s an interesting explanation . . . and has the ring of truth to it: I’ve got several sets of drill bits, most of them bought from a reputable source (Lee Valley Tools), but I have one “big” set bought from a big box store (I think it’s branded as DeWalt, but probably made in China).

Most of the sizes of drill I use in woodworking are from the Lee Valley sets, but I think I’ve only used the 1/16″ and 1/8″ bits from the big box set. I wonder what’d happen if I tested all the rest of that set?

I have to admit being guilty of this:

More recently, I found myself at the local paint shop to purchase a Purdy paint brush — I have always liked them. So when I walked into the store I asked the sales rep to show me the most expensive brushes…

“I don’t get asked that very often…” he replied.

I then learned that the cheapest brushes outsell the flagged end bristle brushes by about 20 to one. The reason?

So people can throw them away rather than clean them.

In my defence, I can say that I get several uses from each of the “disposable” brushes because I do clean them after each use, but I do eventually throw them away. Once the quality of the applied stain or finish starts getting worse, it’s time to get rid of the brush.

October 12, 2010

Monty on structural unemployment

Filed under: Economics, Education, Technology, USA — Tags: , , , — Nicholas @ 12:07

Monty is still too busy with real life to do a daily Financial Briefing, but he’s dropping by a few times a week with his insightful-and-acidic thoughts at Ace of Spades HQ:

Welding jobs may be plentiful, but that’s no help to you if you’re not a welder. This is called “structural unemployment”, and it has no real short-term solution. It results from a disconnect between current worker skills and employer requirements. It’s really a form of malinvestment. Students train in subjects like Postmodernist Literary Theory and The Hermeneutics of Lesbian Cinema, but the job market is asking for engineers and plumbers. Workers in fading industries won’t or can’t retrain. The last time this problem cropped up was during the 1982 recession: the old manufacturing jobs were gone, and the hundreds of thousands of Rust Belt factory workers — many now middle-aged, with high union wages and benefits packages they didn’t want to lose — either could not or would not re-train into other fields. This led to a long cycle of stagnation in which the American upper midwest remains mired to this very day. Pull quote:

Victor Calix Cruz, 51, has been job hunting for two years after being laid off from construction work in Miami. He, his wife and their two teenage children are “surviving” on his wife’s disability and his unemployment payments, he said. While he heard of openings at hotels, he hasn’t applied because the pay and benefits aren’t as good as what he had before.

I don’t imagine that your unemployment check matches what you were making before either, Chief. It’s like the old Rolling Stones song: you can’t always get what you want.

July 26, 2010

The unwillingness to disbelieve

Filed under: China, Economics, India, Media — Tags: , , , , , — Nicholas @ 15:03

Mike Elgan debunks the latest “mind-crogglingly cheap computer for the masses” announcement:

“India unveils $35 computer for students,” says CNN.com. “India unveils prototype for $35 touch-screen computer,” reports BBC News. “India to provide $35 computing device to students,” says BusinessWeek.

Wow! That’s great! Too bad it will never exist. That this announcement is reported straight and without even a hint of skepticism is incomprehensible to me.

[. . .]

India itself doesn’t build touch screens. They would have to be imported from China or Taiwan. The current price for this component alone exceeds $35. Like touch screens, most solar panels are also built in China. But even the cheapest ones powerful enough to charge a tablet battery are more expensive to manufacture than $35.

Plus you need to pay for the 2GB of RAM, the case and the rest of the computer electronics. Even if you factor in Moore’s Law and assume the absolute cheapest rock-bottom junk components, a solar touch tablet with 2GB of RAM cannot be built anytime soon for less than $100.

More to the point, no country in the world can build a cheaper computer than China can. The entire tech sector in China is optimized for ultra-low-cost manufacturing. All the engineering brilliance in India can’t change that.

There’s also the point that government bureaucracies and university engineering departments are not designed for or experienced in the mass production techniques that any of these “ultra-cheap but powerful” computing initiatives all require. Have you ever heard of a government that could keep their hands (and political priorities) out of the critical decision of where this wonder device would be assembled, tested, packed, and distributed? The “industrial policy” wonks would need to get intensely involved in such a decision and the location would have to meet diverse electoral and financial requirements (note that the economics of the project won’t even make the top five priorities in the process).

Awarding the contract to just one area would be unthinkable: the benefits must be seen to be helping areas that elected the current government and emphatically not going to opposition ridings. The horsetrading over that alone would consume any possible price advantage such a scheme might have over ordinary computers and software bought commercially.

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