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Letters by a modern St. Ferdinand III about cults

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Plenty of cults exist - every cult has its 'religious dogma', its idols, its 'prophets', its 'science', its 'proof' and its intolerant liturgy of demands.  Cults everywhere:  Corona, 'The Science' or Scientism, Islam, the State, the cult of Gender Fascism, Marxism, Darwin and Evolution, Globaloneywarming, Changing Climate, Abortion...

Tempus Fugit Memento Mori - Time Flies Remember Death 

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Thursday, January 12, 2012

Offshoring, Inshoring and the Government-Union nexus

Hostess as yet another example of the obvious.

by StFerdIII

The usual lament is that 'we don't build anything anymore' in advanced economies. This is not true. 15 % of GDP is in manufacturing and if one adds in software and technology development – which is a manufacturing process – the number is 30%. IT accounts for about 15% of US GDP making it the single most important industry. There are three factors about manufacturing which the mainstream media never reports.

  1. The first is that high taxes, ridiculous regulation, labour rigidity through governmental laws and 'rights', and the total cost burden per worker have all risen by more than 50% in the past 30 years. This is a real cost solutioned in part, by offshoring some aspect of manufacturing overseas.

  2. The second fact is that unionization has in large measure added to the problems of the above. Unions are literally forcing firms to go bankrupt. See GM, Chrysler, and now Hostess [detailed below] as prime exhibits.

  3. Offshoring leads to Inshoring. There are over 10 million inshored jobs in North America, created in the past 15 years.  The manufacturing process is not monolithic. Inshore jobs include retailing, distribution, creative design, high quality production, client management, and ancillary product creation. It is simply untrue that nothing is made in an advance economy.

If you want to increase 'Inshoring' reduce the burdens of government and of labor. Reform or eradicate unions. Hostess the maker of the Twinkie is a classic example of union created bankruptcy. Its sordid tale can be summarized: [see also the WSJ for a summation though unions are not blamed]

-2009 filed for Chapter 11

-$500 million in losses the past two years

-20.000 unionized workers

-No flexibility from the unions about the use of technology, better processes or productivity enhancing reforms.

-Post 2009 the Unions would not lessen their rules about work. Drivers could not unload their trucks. Trucks could not service more than one large store at a time. Hours and over-time, not to mention worker numbers strictly regulated.

-$100 million per annum paid out to retired workers, or even workers who did not work for the company in benefits.

-$150 million per annum in welfare state costs [health care etc.]

-High prices due to labor rigidity and costs. [Sounds like GM]

The Hostess firm made more than just the fat enhancing Twinkie. But thanks to union greed, 20.000 people will be without jobs. The only way to salvage the assets is for a private capital firm to buy Hostess, fire the union, hire non-Union labor and return the firm back to reality. But that is unlikely to happen. In 2009, the firm was bought by a venture capital firm who decided to 'play nice' and appease the unions. Within 2 years its $350 million buy-out was in ruins, the firm a shambles, and the entire workforce disbanded.

In a normal market without government and union distortion there will be a mix of offshored and inshored processes and job creation. This should be encouraged. But when governments and unions view firms, capital and humans as fodder and plunder, the result is predictable. More job losses, more laments about 'the greed of those who offshore', and more demands that 'government must do something'. It appears that government is already doing more than enough to encourage job destruction – along with their union friends.   


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