Posts Tagged ‘Job Creation’
The Problem
Before we discuss the problem, let’s first discuss the segment and the value of this segment to Americans and the rest of the world.
Engineering & High Tech Manufacturing Segment
- Known for high speed innovation, technology, technology developers, and for being leading edge.
- Segment feeds large manufacturing and distribution via acquisition, mergers and licensing.
- Segment creates jobs, lots of jobs, for: engineers, scientists, technicians, craftsmen, etc.
- Consistently delivers Message of Hope … that tomorrow will be better than today, hope for new technologies to improve products and improve our life.
In the good ole days before the recession, when the world seemed fairer, here’s an example of a capital equipment manufacturer. In this example, Nova Co is an American high tech manufacturer, and Comp A and Comp B are competitors located in America or Europe. Each of the companies make quality products, and their respective products differ by technology and features.
| Nova Co | Comp A | Comp B | Comp D | Comp F |
|---|---|---|---|---|
| $75,000 | $85,000 | $70,000 | $90,000 | $73,000 |
During the recession several things started to happen. First, the American manufacturers that did not manufacture quality products failed and were the first manufacturers to go out of business. Soon after another interesting phenomena began to surface. Americans fell into either of two mindsets. Either they had hope that tomorrow would be better, or they didn’t have hope. Our American Economy has always been based on Hope. When we have Hope that Tomorrow will be Better than Today, We invest and grow. For example, you may own a cell phone that works fine and you may be able to do just about anything you want with it. If you have Hope that tomorrow will be better, you may decide to buy a new cell phone. With Hope that tomorrow will be better, Americans will buy things. Without Hope, Americans will fix things or do without, or buy cheap over quality.
So, during the recession, our example evolved as follows:
| Nova Co | Comp A | Comp B | Comp C |
|---|---|---|---|
| $59,990 | $80,000 | $65,000 | $22,000 |
| —– Quality Products —– | — Junk — | ||
| Supported Products, Lasts Forever | No Support, Lasts 1-3 years | ||
| Purchased by Companies with Hope that Tomorrow will be Better | Purchased by Companies without Hope
|
||
To offset the effects of a recession, Nova Co and Competitor A and B lowered their selling prices which means that profits were reduced to encourage customers to buy during the recession. Competitor C (for “China) is a new supplier of a similar product. The Chinese are not known for technology, they are known for providing low tech or products based on older technologies. In this example, Comp C offers a cheap knock-off of an old version of equipment to compete with Nova Co, Comp A and Comp B. Lots of American companies bought Comp C because all these same companies were without Hope that tomorrow will be better.
Why is it that American companies don’t have Hope for a Better Tomorrow? In my opinion, the most important job of an American president, or, for that matter, any leader, is to instill hope in the people. During the recession, America’s president had shown his inexperience as a leader, and didn’t fulfill his job of instilling hope for a better tomorrow. As the recession deepened, President Obama began to talk of “hope” by promising Americans that each American that desires to work should have a job that pays well. Unfortunately, it was only “lip” service, since the infrastructure to create a better tomorrow isn’t even on the “drawing board.”
So, without Hope of a Better Tomorrow, American companies preserved capital by laying off tens of thousands of jobs, and companies that needed equipment or capital equipment bought low quality products manufactured in China and Asia but not made in the United States by Americans.
The president foolishly bailed out the financial institutions without ever thinking that the money handed out to the financial institutions would stay with the financial institutions. Which meant that there was no loans available to businesses . Without loans, and without hope, the likelihood of more jobs is dismal.
After awhile, our president seems to have figured out that bailing out insurance and banks just resulted in greed. Next he spent time trying to push his Obama Health Bill. Even more of a joke … still not addressing the underlying problem. Hopefully by the end of his term, he’ll figure out what America needs to prevail.
In any case, I’ve digressed, back to NovaEconomics. Without assistance, is it possible for American high tech engineering and manufacturing companies to compete with China. More specifically, without Hope, the answer is an emphatic NO. Here’s why. We continue with our example and show Nova Co competes with Competitor C.
| Costs to Build One Machine | Nova Co | Comp C |
|---|---|---|
| Costs: Metal, Elect, Welding, Paint, Controllers, Pneumatics, Hardware | $22,000 | $7,000 with Government Subsidies |
| Labor & Burdened Taxes | $21,000 | $2,000 |
| Employee Benefits | — (thankfully Americans can still opt out) | — |
| Overhead: Phone, Electricity, Rent, Marketing | $9,500 | $500 with Government Subsidies |
| Commissions | $3,000 (5%) | $2,200 (10%) |
| Amortized Cost of Technology/Patents | $1,500 | — |
| Profits | $2,990 | $10,300 |
| Profits as Percentage | 5% | 47% |
As the note says, “thankfully” American manufacturers can still opt out of paying health and other benefits to employees. If Obama Health ever became mandatory, American manufacturing is history.
By the way, the only companies that are currently purchasing Nova Co’s products are companies that have Hope for a Better Tomorrow. And thanks to our president and our political system, leadership still hasn’t instilled HOPE and without it and other incentives, the future of American technology and manufacturing is dismal.
What does that mean? Consider the following realizations …
Chinese government continues to subsidize Chinese manufacturing while US government does absolutely nothing to help American manufacturing.
Future of US Military. As Americans we’ve always had confidence that our military is strong, and our equipment is the best. Imagine if US Airforce Fighter Planes were manufactured by China, and we deployed defective Chinese bombs … how will that compromise our confidence?
Did you know that legal accountability is limited to American companies that manufacture products in the United States.
Or what if aspirin and other daily consumed pharmaceutical products were manufactured by the Chinese. Defective aspirin kills how many Americans …
Wake Up America!
Years ago, before the recession, salaries kept increasing. Colleges would promise graduates larger and larger salaries. Government employees received less money than non government employees, and times seemed good.
When the recession started, lack of business resulted in significant layoffs, and the highest paid employees began to migrate from non government to government jobs. Today, government and public utility salaries are far greater than private sector non government jobs.
| 5 Years Ago | Government & Public Sector | Small Mfgr, Private Sector |
|---|---|---|
| Engineers | $60,000 | $80,000 |
| Technicians | $50,000 | $60,000 |
| Craftsmen | $40,000 | $50,000 |
| Today | Government & Public Sector | Small Mfgr, Private Sector |
|---|---|---|
| Engineers | $62,000 | $40-50,000 |
| Technicians | $52,000 | $35-45,000 |
| Craftsmen | $42,000 | $30-40,000 |
At a recent conference attended by several politicians, a concern was discussed relative to the future of Engineers, Technicians and Craftsmen, and the answer was shocking. Several political leaders stated that US manufacturers need to realize that manufacturing in the US will decrease year after year; and that existing employees who have chosen professions including engineers, technicians and craftsmen will have three choices:
a) Retrain. One of the leaders actually said that if an engineer is smart enough the engineer should retrain for something else. With a decreased need for manufacturing, US won’t need engineers in the future;
b) Move to China. This same political leader suggested that since manufacturing is moving to China, that engineers, technicians and crafts people that desire to remain in their field should move to China; and
c) Collect Unemployment Compensation. Again this politician went on to say that if the engineer, technician or crafts person doesn’t want to retrain, or fields too old to retrain, or doesn’t want to move to China, then he suggested they collect unemployment compensation. He went on further to say, that under our current administration, unemployment will never run out.
… and that’s from a political leader. Believe it or not this guy’s affiliation was republican. Like I said, neither party seems to understand the problem, and since politicians are rarely, if ever, from the manufacturing sector, or would consider themselves an engineer, technician or craftsman, it is not that difficult to believe.
Normalize Salaries
So what does salary normalization mean. For manufacturing to exist in the US, government and public sector employees salaries need to be reduced and become more inline with normalized private sector salaries. If for no other reason, how can America afford to pay government and public sector employees so much money when the tax base continues to dwindle. Two years ago, one of my best employees, an individual we were paying $60,000 per year was given an offer to leave Nova Co and work for Florida Power & Electric for a salary in excess of $175,000! And for FPL to pay that kind of salary, rates for electricity have since increased throughout Florida. I hope you agree that there is something significantly off balance.
And benefits. Can you guess which type of employee, one working for the government/public sector or private sector receives the best benefits? Then to top it off, who do you think pays for government employee benefits?
Limit Unemployment Compensation Terms.
Qualified employees remain unemployed waiting for high paying salaries. When President Obama said that every person desiring to work should have a job and be paid well, do you think he implied that those unemployed should stay unemployed until the private sector can afford to pay them what they were making before they lost their job? In Florida there are many engineering/manufacturing jobs available that pay realistic salaries, however the number of candidates available to fill these jobs is at an all-time low. As an employer, we compete with unemployment compensation all the time. Apparently many qualified workers would rather collect $1,200 per month plus part-time income rather than accept a job paying less than they were paid years ago. If there were term limits on unemployment compensation, (a) more people would have jobs, and (b) unemployment costs (and rates) would decrease.
