My briefcase has been filling up over the last couple weeks... with snippets of stories not quite ready for a full post, but still annoying enough that I need to tell you about them. So what the heck, let's throw them all out at once, with just some minor commentary.
Let's start off with the GM-Segway story. Hopefully all of you caught it.
General Motors Corp. is teaming with Segway Inc., maker of the upright, self-balancing
scooters, to build a new type of two-wheeled vehicle designed to move
easily through congested urban streets.
GM has slashed product-development programs, advertising and spending
on auto-show events. But it will take to the streets of Manhattan on
Tuesday to show off a prototype of the vehicle. The Segway Personal Transporter was launched with considerable hype
eight years ago but practical issues prevented the scooter from
becoming a mass-market product, including its relatively high cost and
restrictions on its use in many jurisdictions.
What the...? The Segway is a cool technology. Used by mall cops. It's only fitting that GM would team up with such a company for it final death throw effort. Instead of simply spending the time to figure out how to make a car that people actually want to buy.
Let's move on to a more positive story. Some companies are apparently figuring out that there's an alternative to slash and burn layoffs.
Revenue may be down and the pressure to slash costs intense, but some companies say job cuts are not an option. "If you overshoot on the downside and lay off workers, it puts the
company at a disadvantage when the economy comes back to life," said
Sean Snaith, economics professor at the University of Central Florida.
Despite the alarming job losses nationwide, John Challenger, the
firm's CEO, said it's more common now than in past recessions for
companies to find other paths to savings than laying people off. That's
because many companies have concluded that layoffs could be costlier
down the road. Employers who have laid people off have to find, hire
and train new ones when the economy recovers. Workers with specialized
skills or strong customer contacts aren't easily replaced.
Focus on the long term. But I've also heard some interesting anecdotes: one company contemplating layoffs began to analyze its workforce and found a large number of serious individual performance issues that hadn't been addressed. Shame on them; you need the best, especially now. Not addressing performance issues, especially if they are truly performance issues and not a result of a poor process, is like organizational rot.
Let's move on to the auto bailout nonsense. An editorial on CNN tried to make the argument that Chrysler is (oops.. almost wrote "was". A slip?) too big to fail. Yeah, right. Especially this point:
Shutting down Chrysler's 3,300 dealerships would likely lead to
additional job losses and economic pain that would spread to every
corner of the United States.
Ok, sure. Let's keep Chrysler around in order to keep auto dealers, an excess of auto dealers no less, in business. If the dealerships close, then I guess we'll have to bail out the manufacturers of plaid polyester leisure suits and those big "Three Day Sale" signs.
The China outsourcing lemmings continue to be ignorant.
In November a supplier in the southern Chinese city of Shenzhen told
Smith her order for 5,000 coffee mugs didn't meet its 12,000-unit
minimum. That didn't surprise Smith—she'd been turned down on small
jobs before.
The article went on to describe quality problems, rising production costs, Chinese factories closing, high inventory, communication problems requiring "executives" to visit to handle tiny orders... you name it. But somehow outsourcing to China somehow remains "smart." Go figure. They should read Bill's post of a couple weeks ago. Or visit our favorite company.
But there are some smarter people who have realized their mistake.
Scott Tanis took the plunge and outsourced some of his manufacturing to
Asia--and lived to regret it. Using
a broker, he found a plant there to make his labor-intensive
twisted-bristle brushes. But within two years, customers of the $9
million company began complaining about quality. Between the language
barrier and the time difference, Tanis had trouble fixing things. "Once
the problems surfaced it became a big drain on my time," Tanis says.
"It was a mistake."
While it would still be cheaper to produce in China, he says the
quality snafus and wasted time would wipe out any savings. "This whole mentality of rushing off to find cheap labor has
backfired," says Tanis.
Good for him. And what happens when fewer companies outsource? Oops...
Danish container-shipping and oil company A.P. Moller-Maersk AS
reported a 4.8% decline in 2008 net profit and warned that its 2009
results will be "significantly below" last year's levels.
Wait a minute... where had I just heard about Maersk? Not pirates. Oh yes... here.
The Wall Street Journal reports today that the next generation of container ships are getting ready to hit the high seas. The MSC Daniela is a glimpse of the
future. The size of an aircraft carrier, the ship completed its maiden
run from Asia to Europe this month packed with 13,800 containers, or
equivalent units, each big enough to contain all the contents of a
three-bedroom house. Thirty-five ships of Daniela's scale are scheduled to hit water in 2009, doubling the number floating today.
Unbelievable. Let's tackle a completely different subject for a moment. Foreign aid. Africa to be precise.
A constant stream of "free" money is a perfect way to keep an
inefficient or simply bad government in power. As aid flows in, there
is nothing more for the government to do -- it doesn't need to raise
taxes, and as long as it pays the army, it doesn't have to take account
of its disgruntled citizens. No matter that its citizens are
disenfranchised (as with no taxation there can be no representation).
Yes, we are talking Africa, not the U.S. government. Although the similarities in today's world are... remarkable. And scary. So scary that we need to venture to the edge and take a closer look at the world of government financial nonsense.
Remember a couple months ago when we told you about the potential waste in speed? Well we all know it happened again with the 1,000 page "economic relief" bill earlier this year, a bazillion dollar monster signed with less than 24 hours of review. Then the goons had the audacity to haul AIG execs and treasury officials into their exalted corridors to explain why bonuses were approved... which were expressly allowed by their own bill. The irony was delicious. What did they do then? Slap a 90% tax on the bonuses with little thought to the consequences. Like most people I thought the bonuses for complete abject failure were ridiculous, but emotional retribution can be dangerous.
When does a single policy blunder herald much larger economic damage?
Sometimes it's hard to know ahead of time. Few in Congress thought the
Smoot-Hawley tariff was a disaster in 1930, but it led to retaliation
and a collapse of world trade. The question amid Washington's AIG bonus
panic is whether Congress's war on private contracts and the financial
system is a similarly destructive moment.
In 1827 in Ogden v. Saunders, the U.S. Supreme Court issued a
similar warning about legislative limits under Article I, Section 10 of
the Constitution: "The states are forbidden to pass any bill of
attainder or ex post factolaw, by which a man shall be
punished criminally or penally by loss of life of his liberty,
property, or reputation for an act which, at the time of its
commission, violated no existing law of the land," wrote Justice
Bushrod Washington.
Which brings us to the Smoot-Hawley analogy. With such a sweeping
assault on contracts and punitive taxation, Congress is introducing an
element of political risk to economic decisions that is typical of
Argentina or Russia. The sanctity of U.S. contracts has long been one
of America's competitive advantages in luring capital, a counterpoint
to our lottery tort system and costly regulation. Meanwhile, the 90%
tax rate marks a return to the pre-Reagan era when Congress and the
political class behaved as if taxes didn't matter to growth or
incentives.
The financial system will suffer in particular, just when the Obama
Administration is desperately seeking more private capital to ride out
future losses. Facing such limits on the ability to reward talent,
every bank CEO will try to pay off the TARP as soon as possible.
Which brings us to the second article to fall out of my briefcase... banks are trying to pay back the TARP "loan" and aren't being allowed.
I must be naive. I really thought the administration would welcome
the return of bank bailout money. Some $340 million in TARP cash flowed
back this week from four small banks in Louisiana, New York, Indiana
and California. This isn't much when we routinely talk in trillions,
but clearly that money has not been wasted or otherwise sunk down Wall
Street's black hole. So why no cheering as the cash comes back?
My answer: The government wants to control the banks, just as it now
controls GM and Chrysler, and will surely control the health industry
in the not-too-distant future. Keeping them TARP-stuffed is the key to
control.
Fast forward to today, and that same bank is begging to give the money
back. The chairman offers to write a check, now, with interest. He's
been sitting on the cash for months and has felt the dead hand of
government threatening to run his business and dictate pay scales. He
sees the writing on the wall and he wants out. But the Obama team says
no, since unlike the smaller banks that gave their TARP money back,
this bank is far more prominent. The bank has also been threatened with
"adverse" consequences if its chairman persists. That's politics
talking, not economics.
Think about it: If Rick Wagoner can be fired and compact cars can be
mandated, why can't a bank with a vault full of TARP money be told
where to lend? After 35 years in America, I never thought I would see this. I still
can't quite believe we will sit by as this crisis is used to hand
control of our economy over to government. But here we are, on the
brink. Clearly, I have been naive.
Indeed. In fact, let's see what our buddy Jim Rogers had to say about this whole bailout mess.
What would I like to see happen? I'd like to see them let these people
go bankrupt, let the bankrupt go bankrupt, stop bailing them out. There
are plenty of banks in America that saw this coming, that kept their
powder dry and have been waiting for the opportunity to go in and take
over the assets of the incompetent. Likewise, many, many homeowners
didn't go out and buy five homes with no income. Many homeowners have
been waiting for this, and now all of a sudden the government is
saying: "Well, too bad for you. We don't care if you did it right or
not, we're going to bail out the 100,000 or 200,000 who did it wrong."
I mean, this is outrageous economics, and it's terrible morality.
Hear, hear.
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