How to Save American Business

The Challenge of Foreign Competition

It's a fact of life that American business owners in general -- and manufacturers in particular -- face stiff competition from countries with dramatically lower costs than we have. In Mexico, for example, someone can remanufacture one popular type of engine in 20 hours for $2.15 an hour, including labor and all the invisible overhead costs, such as rent, electricity, accounting, and health benefits (if the company provides them). In Springfield, it costs us $40 an hour to make that engine, partly because the invisible costs are much higher. So we're spending $800 per engine, while a Mexican remanufacturer can do it for $43. That's a $757 difference. We think it's only our exceptional quality that saves us.

But with that kind of cost differential, I can't criticize any U.S. business owner for thinking about setting up shop overseas. We may eventually be forced to consider it too. If we're pushed to that point, we wouldn't shut down any of our Springfield factories, but we might start doing some business in Mexico to bring down our average cost. There are simply no cheap alternatives this side of the border. Although in theory we could reduce our invisible costs by not offering health insurance, I doubt that anybody would want to work here if we did. Besides, our goal is to improve the quality of life in our community, not to make it worse. We can continue to do that and remain competitive by manufacturing both here and abroad. It doesn't have to be all or nothing.

That's the message I think you can convey better than anyone else to company owners who are being hurt by competition from countries with much lower costs. Erecting trade barriers certainly isn't the answer. Look what happened in 2001 when you put tariffs on steel imports. It hurt a lot more people than it helped by driving up steel prices for American builders and manufacturers. Instead, you should be the teacher. Explain the issue to company owners. Encourage those who are thinking about shutting down entire factories to keep some work here and transfer a smaller portion abroad. That way, they'll reduce their costs without devastating their communities by eliminating thousands of jobs.

Tax issues are important, but it's the continued escalation in the invisible costs that's killing us these days.

The Toll of High Energy Costs

I'm sure that boosting U.S. oil production will be one of your priorities this term, as well it should be. High energy prices are a huge burden on companies like ours -- and everybody else, for that matter. In the past, however, I think we've gotten sidetracked by focusing too much attention on issues like drilling in Alaska, while we've all but ignored other major obstacles to increased oil production, such as the shortage of domestic oil refining capacity. That's a direct result of the regulations we've put on oil refineries. As you may be aware, no new refinery has been built in this country since 1976. Why? Because it would cost more than $2.5 billion to build one from scratch that meets our stringent emissions standards. As it is, even if you succeeded in getting more oil pumped in Alaska, we might not be able to refine it, meaning that we'd have to continue living with high gas prices -- and suffering the consequences.

Don't get me wrong. I'm all in favor of having a healthy environment. But there are always tradeoffs in the decisions we make, as every business owner knows. The desire to achieve one important objective, like having cleaner air, has to be balanced against other important objectives, like keeping the economy strong. That requires planning. At SRC, we make sure in advance that we have enough labor and equipment to reach our goals each year. Otherwise we could run into capacity constraints that would trip us up. Clearly, Congress did not do the same when it passed the legislation clamping down on oil refinery emissions. If you really want to boost oil production, you'll have to force Congress to go back and do it now.

The Raw Materials Shortage and Global Warming

As you know, we face a serious raw materials shortage that's likely to get worse as the economies of countries like India and China continue to grow. In the past year alone, the price of steel has more than tripled, from 15c a pound in October 2003 to 46c a pound in October 2004. Meanwhile, you've taken a lot of flak for refusing to sign the Kyoto Protocol without proposing any alternative plan to reduce emissions of carbon dioxide and other heat-trapping greenhouse gases. You've said you were concerned that such efforts would cost America jobs.

Well, I've got a way for you to kill two birds with one stone: Embrace remanufacturing. Tell business owners they need to come up with ways to recycle whatever they make. The effect will be to reduce pollution, relieve the raw materials shortage, and create jobs all at the same time. The company I work for is living proof of it. As a business, remanufacturing is labor-intensive and environmentally friendly, and it cuts down on our nation's need for raw materials by reusing the materials we have.

I should warn you that other developed nations are ahead of us in this regard. Japanese car manufacturers, for example, already figure out where every tire, rim, and crankshaft will go after their cars die. Last year, the European Union began requiring all automakers to recycle the cars they sell in Europe. Caterpillar is putting increased emphasis on its remanufacturing business because it sees it as a growth industry. The company melts down and reuses the plastic, steel, aluminum, and copper in its old worn-out equipment. Last year, it began offering that service to other companies. Why can't every business owner follow Caterpillar's lead? Considering that the U.S. is unable to meet its domestic demand for steel in any given year, I'd say that this is an urgent matter. Let's push the voluntary, patriotic remanufacturing of everything from cars to computers. Let's challenge U.S. companies to take the initiative and come up with the world's best recycling programs. I have no doubt we can do it.