Globalism, Free Trade, and the WTO #176 of 178: katie@imt.net (mirmir) Sat 14 Oct '00 (02:36 PM) this long post is taken from chapter 6 of One World, Ready Or Not by William Greider, hardback, Simon&Schuster, 1997. the remarks inside of triple parens are my comments ((( ))). Six Jidoka* THE GREAT CONTEST of technology sweeps across every industrial sector, a harrowing competition that discards the old way of making things and invents future benchmarks for quality and efficiency. No enterprise can stand aside and none can feel permanently triumphant. (((this anxiety is a permanent feature of corporate globalization, and it translates into depressive and deflationary effects within local economies -- except for short initial boom times when the most recent efficiency features and novelty features of the product make it the latest *hot* seller, to be superceded by tomorrow's *hot* seller.))) The race for technological improvement drives on two levels at once: improving the product itself and improving the processes by which it is made. On one level, engineers add refinements and complexity to their product while, on the other level, they try to extract time and cost from the design and manufacturing processes. The new industrial leaders are those brilliantly managed firms that do both simultaneously, and a vast literature is devoted to recounting their achievements. There is another dimension to the technological revolution, however that is seldom discussed in the business books: the gathering vulnerability of an industrial system that is ruled by persistent excess supply. The same technological imperative that continuously reduces costs and improves quality has also generated a seemingly permanent and expanding surplus in the productive capacity of the world. (((these are the words of doom: OVERCAPACITY, EXCESS SUPPLY, UNDERUTILIZED PRODUCTION CAPACITY, INADEQUATE DEMAND))) Crudely stated, the technology competition leads companies to invest in more output of goods than the global marketplace of consumers can possibly absorb. (((this is the key relationship of the fully globalized consumer economy there is no possible way to create enough consumers to soak up the oversupply which can be produced by today's hyperefficient production processes -- so efficient that labor costs of the actual production, excluding all management overhead, is quite a bit less than either costs of distribution or costs of marketing -- both of which are add-ons, nonessential add-ons which are only necessary where a given product is marketed to the entire world; as opposed to the local manufacture, local distribution, and local balance of supply/demand--which is within the same wage earned/product sold locality))) New factories, designed to produce more from less, naturally increase the capacity for production, but the output potential expands faster than older, less efficient factories are being closed. This underlying imbalance is compounded by the accelerating drive for globalization, as firms both modernize and rush to build new production in the developing markets. A perverse syllogism is thus at work, company by company, sector by sector: the burdensome presence of overcapacity quickens the price competition and threatens market shares, but the only obvious response is to create more new capacity—that is, to build new factories that will be more ---------------------------- * Japanese: “automation.” Toyota Motor Corporation defines the word more pre cisely: “investing machines with humanlike intelligence.” -- page 103 =============================================== page 104 104 • ONE WORLD, READY OR NOT cost-efficient than one’s rivals. The resulting surpluses are often lamented by business leaders but generally regarded as a revolutionary condition beyond anyone’s control. From a manager’s viewpoint, the challenge is to make sure that the market’s overcapacity becomes the other guy’s problem, that some other firm will be compelled to swallow losses in sales and close down its factories. Meanwhile, it is hoped that the newly developing economies will create enough new consumers so that the market eventually comes back into balance. Economists conventionally assume the same. As orthodox theory teaches, markets are always self-correcting, so the surpluses are a temporary consequence of competition and will work themselves out as supply comes into balance with demand. Theory notwithstanding, the global system is headed in roughly the opposite direction for most major manufacturing sectors. (((another instance where academic market doctrine is completely contradicted by the aggregate experience of global corporatism))) The productive overcapacity is neither temporary nor diminishing. Autos are the leading example of the dilemma—too many cars chasing too few buyers—but the same trend is visible in steel, aircraft, chemicals, computers, consumer electronics, drugs, tires and some others. The particulars vary from one sector to another, but the overriding fact is gross surplus of capacity, despite the many years of plant closings, and the overhang grows steadily larger in most cases. Of all the imperatives driving the behavior of global enterprises, this constitutes a central source of their anxiety. For the global system as a whole, it represents a fundamental disorder, threatening to destabilize the free- running commerce. At a minimum, the growing imbalance between supply and demand guarantees that the storm of dislocations and shakeouts must continue. Whether these are described as restructuring or deindustrialization, more factories must be closed, more employees discarded, more production moved elsewhere. The scale of adjustments that will be inescapable grows larger as the industrial overcapacity expands. No one can predict who exactly must absorb these losses— which companies or which nations— but the usual pattern is that the old gives way to the new, more costly locales cede to less expensive ones. A calamitous possibility also lurks in these facts: the threat that accumulating overcapacity will lead to some sort of decisive breakdown, a financial crisis or an implosion of global commerce, perhaps precipitated by emergency measures enacted by nations desperate to protect their home producers. (((i consider this to be a certainty, because failing and dislocated economies give rise to political instability and violence, which give rise to emergency measures and national withdrawal from aspects of the WTO compact.))) In the 1920s, similar imbalances developed from similar causes, and the root cause of the eventual market breakdown was excess supply and inadequate demand. Capital was being invested in new productive capacity based on expectations that could not possibly be fulfilled by a marketplace already burdened by plentiful goods and scarce buyers. When that reality could no longer be denied, the optimism of financial investors collapsed; so did financial prices. The Great Depression followed. An alternative threat that these surpluses pose for the free-running global system is political: How much more loss and upheaval can be page 104 -------------------------------------------- page 105 absorbed by the political systems of advanced nations before the popular stress generates a reactionary counterrevolution? No one, of course, can know the answer, but the symptoms of rebellion are already visible in many leading economies. One foreboding fact is the evasion and denial of political leaders in those nations. None is yet willing even to discuss the global economy in these terms. The No. 4 Assembly Shop at Toyota’s Tahara plant was not the absolute pinnacle of manufacturing perfection, but it stood among the awesome heights constructed by Japanese ingenuity. Tahara was a vast gray industrial complex situated on a narrow peninsula alongside Mikawa Bay and the Pacific Ocean, two hours southeast of Toyota’s corporate headquarters at Nagoya. The Lexus 400s that rolled off the No. 4 line were test-driven, then loaded straight aboard ships bound for the American market. Inside the plant, fantastic machines were making cars. There did not seem to be many people. In the body shop, where the car frames were constructed, scores of longnecked welding robots swayed back and forth like white storks in a mating ritual, performing a mechanical ballet of bending and dipping and flashing sparks. Computers controlled the factory’s three hundred welders who, unlike human welders, always torched the frames at precisely the right spots. The assembly line known as No. 4 looked like a mad mechanic’s concoction of Erector set pieces, with huge and plodding industrial equipment that moved things around, eerily confident about what it was doing. A greenish fluorescent glow emanated from the line’s complex superstructure as various disconnected elements of an automobile floated silently through the dimness. The empty shell of a blue carbody glided forward overhead, hood up, doors and engine missing. Down below, its power train, the engine and transmission, proceeded independently on the shop floor carried by a lowslung driverless vehicle. While overhead hydraulics lowered the body to meet up with the chassis, the package of the car’s electronics controls traveled a parallel route through the maze, waiting for its moment. A robot came forward to install the seats. Another with camera eyes attached doors. Another bolted on front wheels. As the elements of a Lexus came together, a huge conveyor device turned the vehicles sideways, more conveniently positioned for the finishing operations to be done by human hands. Machines did all of the heavy lifting and most of the precision work as well. Watching the contraption’s effortless motions, I found myself wondering: Where are the workers? Some were around. Now and then, one or two of them appeared from the shadows, wearing bright blue safety helmets and white shirts, to complete an installation task or often to perform a quick test on what the machines had done. A small robot carried their tools for them, from car to car. If something was amiss, the workers could pull a page 105 ============================================== page 106 cord that signaled error. In an instant, the machine would stop briefly while things were corrected. The autos were moved forward on an accordion lift so workers could adjust things to function at a natural posture. Less back strain. “How far can we go making human life and invention pleasant?” a management text asked. “This is our quest at Tahara plant.” At five o clock an electronic chime filled the shop with cheery music, announcing the end of the shift. The auto workers themselves became more visible at the point where the finished cars rolled off the line because all of their pictures were posted there on a large bulletin board, accompanied by personal messages from each of them, expressing their enthusiasm for the enterprise. “I will do my best to make this the No. 1 car which will be loved by our customers.” “I stick to the carmaking which can satisfy our users.” Bottom line: Tahara No. 4 assembled the Lexus LS 400, a complex and luxuriously equipped automobile, with only 18.4 hours of human labor. In Hamtramck, Michigan, at the plant where General Motors assembled Cadillacs, each car required 38.8 hours of labor. A Buick from GM’s Buick City plant took 32 hours. At Ford’s Wixom, Michigan, plant, where Continentals and Mark VIIIs were assembled, each one consumed 34 hours of labor. (((i had not seen this statistic before, and i could not be more appalled. 18.4 hours human labor, even using high american wage standards of $20 per hour with $10 per hour add-on for benefits, that means that the most money that went from the sale of the $50,000.00 lexus towards paid labor, industrial line workers, was 18.4 X $30 = $552 or approximately 1.1% of the sale price. ok, here is the inescapable anomaly of a global economy driven by trade in arbitraged consumer goods, these kinds of wagespaid/retailprice ratios exists in all of the consumer gadgets and machines we buy. and these widgets are produced at individual factories which can make a significant portion of the entire world's demand for that kind of product, from cars to radios. thus, the total number of factory wage laborers in the entire world who are making all of the consumer widgets for the entire world demand, is going to be well less than 10% of the total global buyer- consumers. do you start to see the measure and scope and vastness of the problem? the problem is that wage labor is no longer an effective or useful method of distributing enough money to support required demand.))) Sweden’s Volvo, a longlasting car because it was made with great care, required 47 hours of labor (reduced from 70 hours, Volvo officials proudly noted). Germany’s luxury cars—Mercedes, BMW, Audi—were said to involve labor inputs of more than 100 hours per car. Even Volkswagens—the simpler, less expensive cars made at VW’s mammoth industrial works in Wolfsburg, Germany—required an average of 36 hours’ labor each—that is, half as efficient as Toyota’s luxury car production at Tahara. The Tahara plant provided a visual marker of how the technological contest was proceeding and some obvious implications. James E. Harbout, an independent authority in Detroit, estimated that Toyota’s engineering prowess translated, roughly speaking, into a cost advantage of $600 or $700 per car because of the more efficient production, (((which is in line with my figure of $552 for total labor costs for a lexus))) plus another $300 or so in savings from the higher quality—that is, cars with fewer defects and thus lower warranty costs to the company. Labor input was the most convenient measure for comparisons of productivity, but reducing labor costs was, of course, only one dimension of this competition. And robotic automation was only one of the ways in which the company reduced production costs. Still, Line No. 4 offered an intimidating demonstration of what was possible at the extremes: when machines were substituted for people and systematically organized to produce a better automobile. Toyota had a reputation, even among its own people, as a company that will “squeeze a dry towel,” and it was not as relentless as some of the other Japanese companies. To glimpse the implications, one need only imagine: What if page 106 -------------------------------------- page 107 every auto producer in the world might someday be capable of matching Toyota’s efficiency? And what would happen to those producers who remained far behind? In crude outline, the questions defined the global chase: catching up with the best. Formulating the broad strokes of history was assumed to be the province of statesmen or great generals, but the work of shaping the future was also done, more concretely, by engineers -- people who know how to make things work. Their decisions also determined the social reality at least as profoundly as the politicians who ostensibly governed. One of those people was Tadaaki Jagawa, a Toyota vice president and the engineer who designed Tahara. Jagawa was tall and lean like an athlete, with grayflecked black hair and a flat, hawklike face. He managed Tahara and two other Toyota plants, and while we talked, he was waiting on a helicopter ride to one of his other outposts. His manner was direct and precisely engaged, though perhaps slightly impatient with familiar questions. The engineer’s commanding presence was reflected in the body language of those around him. When Jagawa uttered a guttural aside, their heads bobbed and bowed anxiously. “When we introduced automation systems, people thought it was only for labor saving,” he said, “but that was kind of misunderstood. Actually our concept has always been the same—quality. To improve the quality is the key to winning, and to improve the quality you must improve the system.” When launched in 1991, Tahara No. 4 was described as “experimental”—an opportunity to see how far the engineers could go with capital intensive automation -- but Toyota managers preferred to emphasize the humanistic aspects. “Probably the labor saving was about 20 percent,” Jagawa said, “but our main purpose was to reduce the turnover rate among the workers on the assembly line. At that time, turnover was very high. Why? Because the physical work was too hard, too heavy, maybe too complicated. So we have to change that. The longer the workers stay on with the company, the better quality they will produce.” Actually, during the latter half of the 1980s, when Japanese capital was abundant and cheap and its auto sales were booming, Toyota and leading rivals Nissan, Mazda and Mitsubishi had indulged in a kind of capital spending binge test of manhood in which the auto companies competed to see which one could develop the highest levels of automation. “Other engineers would say, hey, Toyota, we’re at 60 percent robots and you’re only at 40 percent -- what’s the problem?” a Toyota official recalled. “Engineers cannot resist such competition and so they all wanted to show, hey, we can do that.” The contest consumed billions in capital, built some of the world’s first-class factories and also greatly expanded Japan’s capacity to produce cars (more cars than it could sell). In hindsight, this was widely regarded as an expression of hubris. Toyota had been more restrained than others, but page 107 ================================================ page 108 it concluded that Tahara had gone too far. Even Jagawa acknowledged that some of the investment was wasteful. “The engine-and-chassis automated assembly machines reduced labor to only four operators, but to do that we had to spend 600 million yen—not a very efficient investment,” he said. “When I introduced this automation, I knew it would not be a good investment for the moment. But it would be a good experiment for the future. The knowledge of labor saving was in place.” Furthermore, the intensive automation produced unanticipated discontent on the line: surrounded by dazzling machines, workers felt impotent and ignorant, cut out of the carmaking process. So Toyota backed off a bit. At its new factory at Kyushu, the work system was redesigned to give the workers a greater sense of control and a more comfortable knowledge of what was happening around them. “In a sense, the full automation at Tahara was cut in half at Kyushu,” Jagawa said. The Kyushu plant was still extraordinarily efficient, and a similar approach was being followed in Toyota’s U.S. transplant at Georgetown, Kentucky, a factory that has become the second most efficient assembly plant in North America, with 19.5 hours of labor per car. In first place was Nissan’s plant at Smyrna, Tennessee, where the labor input per vehicle matched Tahara’s No. 4 line. Inevitably, these leaders have become the new benchmark for the American companies. By 1994, Ford had several car plants that were operating with 20 hours’ labor per car, very nearly as good as the Japanese transplants, and Chrysler was closing fast with several of its own. Despite large gains General Motors still lagged behind: the most efficient GM factory required 24.8 hours per car.2 The ascendance of Toyota as a front-ranking American manufacturer represented one of the great role reversals in industrial history. In the early 1930s, when Sakichi Toyoda announced his desire to manufacture cars, his own son, Kiichiro, thought it sounded farfetched. The elder Toyoda was a self-taught engineer and successful manufacturer of automated looms, but there were no Japanese auto companies back then. GM and Ford virtually owned Japan’s market, operating knockdown assembly plants with the mass- produced parts imported from the United States. The son, with an engineering degree, pursued his father’s dream. Fifty years later GM was inviting Toyota to form a joint venture at a plant in Fremont, California, so Japanese managers could teach Americans how to make a car with the “just-in-time techniques. * Company lore subsequently attributed all of Toyota’s basic concepts to ----------------------------------------- *The Toyoda family has continued to manage the enterprise through three generations, but the company name was altered in 1936 when the first logo was designed. In Japanese script, Toyota required eight brush strokes, instead of ten for Toyoda, and eight was regarded as a lucky number, signifying growth. page 108 ------------------------------------------- page 109 the founding patriarch—jidoka, the automation premised on machines with humanlike reflexes, or kaizen, the systems for continuous improvement. But the saga of invention was necessarily more complicated than that, a mix of borrowed ideas and brilliant insights across several decades. The first Toyota engine in 1934 was a knockoff patterned after a Chrysler model and was so poorly cast it produced only 30 horsepower. Taiichi Ohno, the engineer who developed the “just-in-time” organization of production, was said to be inspired by his visit to an American supermarket in 1956. The ambitions of Japan’s infant car companies also converged with the nationalistic agenda of the military regime that took power in the thirties. As it prepared for war, the Japanese government provided a subsidized market for the new made-in-Japan cars and trucks, while it simultaneously squeezed out the American companies. Toyota trucks went to war in China and across the Pacific Rim; its Koroma factory was bombed by B29s near the close of World War II. Afterwards, amid Japan’s postwar devastation, the car companies got help from another governmentthe victorious Americans—as procurement by the U.S. military occupation provided new demand stimulus and helped Toyota and the others to recover and grow.3 This history might not seem especially relevant to the technological competition under way at century’s end, except the story of defeat and triumph was the past embedded in Japanese national memory. It was one of the reasons people like Tadaaki Jagawa were determined to be winners. On the other side of the world, the chase quickened in different directions. The German car makers, hailed in the past for their high quality and skilled workforces, were engaged in wrenching restructurings and massive layoffs. Sweden’s struggling Volvo arranged a corporate merger with Renault of France, but when Swedish shareholders and workers realized they would be junior partners to the French, they vetoed the marriage. Volkswagen, Europe's largest producer negotiated a labor contract that provided for a four-day workweek and reduced pay for German workers, meanwhile shifting more production to Portugal, Mexico and the Czech Republic. VW was described by its own chairman as “a duck grown too fat to fly.” In an age of flexibility, it was stuck with a huge centralized complex of foundries and factories at Wolfsburg, 57,000 employees and forty-three miles of its own railroad tracks. “An industrial dinosaur” one business professor called it. To make matters more difficult, the state government of Lower Saxony was a major shareholder and defended local jobs almost as zealously as the union, IG Metall, both of which sat on VW’s supervisory board. Nonetheless, swamped with losses in 1993, Volkswagen set out to get lean and mean. The Germans hired away a Spanish engineer named Lopez from General Motors, where he had saved billions by streamlining GM’s supplier base first in Europe, then in North America. José Ignacio Lopez de Arriortua preached reform with revolutionary fervor and enunciated a grandiose page 109 ======================================================= page 110 vision—a manufacturing scheme called Plateau Six that he said would eclipse even the Japanese. Lopez pounded VW suppliers to reduce component prices, just as he had done at GM, and organized ten thousand young German workers as “warriors” in training for revolutionary conflict. He also dreamed aloud about a factory of the future he wanted VW to build in his native Basque country: an assembly plant that could make an automobile with less than ten hours of labor. The world is in the midst of the Third Industrial Revolu tion, Lopez told audiences, and manufacturers and nations must mobilize for the struggle. “Only those that don’t realize they are in a revolution will disappear,” he promised.4 A car made with only eight hours of human labor? That would indeed be a revolutionary breakthrough, but managers at other companies remained quite skeptical. Volkswagen was not about to build Lopez’s “dream factory” in Spain, they figured, not while it wanted to shed some thirty thousand surplus workers at home. The company was, in fact, still struggling with costs at a much more primitive stage: VW’s average labor input per car, according to one industry authority, was reduced from 40 hours to 36 hours, and its near-term goal was 32 hours. In other words, before the Germans surpassed the Japanese, they would have to catch up with the Americans .5 Lopez’s central idea—assembling autos from modular components built by suppliers elsewhere—also did not sound altogether new, but merely an intensification of an approach the Japanese and others had already ex plored. Still, VW and GM thought enough of the man’s talent to conduct a very nasty legal controversy over his abrupt shift in employment. If Lopez’s vision should prove to be right or even half right, VW might clip 20 to 30 percent off the Japanese system—an accomplishment that would doubtless set off another global round of competitive improvements. Meanwhile, the other companies were not especially nervous. They would wait and watch and, if necessary, borrow freely from Lopez’s playbook, just as they had borrowed from Toyota and other Japanese companies. Oscar B. Marx III, a former Ford vice president for components production and now president of an independent global supplier, Electro Wire Products, explained: “There’s an inability to keep a process advantage for very long. We’re just too nimble. I’m not saying we always were, but we are now.” The American scramble to catch up had already produced striking accomplishments, as the Big Three reorganized production during the 1980s to counter the Japanese imports. In 1979, Ford’s average labor input for all of its North American cars and trucks was just under 40 hours per vehicle. By 1993, it was down to 25.4 hours. Chrysler reduced its average from 45 to 29.5 hours. GM improved from 41 hours to 32.5 hours. The Japanese average still was lower, about 20 hours per vehicle, but the U.S. companies had substantially closed the gap. To illustrate what this great leap meant, a page 110 -------------------------------------- page 111 Ford plant in 1979 made 960 Granadas a day with 4,270 workers. By 1990, a Ford plant was making 1,200 Escorts a day with only 1,880 workers.6 (((that is a concrete example of the dilemma of oversupply how are people going to earn the money to buy those escorts? not by flipping hamburgers!))) Chrysler, the smallest and weakest of the three, became the most profitable, car for cal; by the mid-1990s. It had devoted less capital to automating production and concentrated instead on drastically reducing its fixed costs and the time and expense of design cycles. Its reformed system could design a new model nearly twice as fast and with one fourth as many people. More important, the design process was integrated with the manufacturing process so a new model would be easier to assemble, and as old models were replaced, the cost reductions would continue steadily. The Harbour Report on industry productivity observed: “Chrysler is literally designing people out of the manufacturing process.” (((that is the ultimate reductio ad absurdum---no production workers at all, just design, merchandizing, distribution, financing and governance specialists in tomorrow's global consumer corporation))) Chrysler’s triumphant chairman, Robert Eaton, liked to say: In the past, it was the Big swallowing the Small. Now it’s going to be the Fast swallowing the Slow. Yet, despite these advancements, the chase must continue because there is no finish line. The competitive imperative is sure to intensify not only for the Americans and for the Germans, but also for the Japanese. The reason was obvious to the industry: After fifteen years of dramatic adjustments, relentless modernizations and scores of plant closings, the global market for motor vehicles was still grossly out of balance in supply and demand. The industry’s unused capacity to make cars was not gradually diminishing. It was growing much larger. Engineering brilliance might help an individual producer protect its market share and restore profitability, but it did not lead to a stable industrial structure. Some companies would have to eat the surplus—that is, shrink or fail, So anxieties continued, as did the planning for the next new stage of competition, like the so- called global cars that some companies planned to produce. While automobile executives lamented this reality, they had more or less learned to accept it, and they regularly warned business audiences not to expect the storm to abate. (((this describes a state of perpetual war, where there are no long term stabilities, not long enough for workers at any level to count on staying in one place nor having enough income to raise children, not to mention--to provide for their own retirement.))) “Overcapacity will cause the consolidation and restructuring of the auto industry worldwide,” Alex Trotman predicted when he became Ford’s new CEO. “Not everyone will be around by the end of the century, certainly not in their current configurations.”7 The dimensions of overcapacity were roughly stated in these terms: In 1985, if operating at full tilt, the industry’s potential production was about 25 percent more than the market’s existing demand. That is, if companies had been running every plant at three shifts, they could have turned out about 60 million cars and trucks for a global market that bought only 44.8 million that year. A decade later the condition of oversupply was worse: about 30 percent. Worldwide demand had risen, but so had the gap of Overcapacity (((that is also a gloomy predictor that things are going to get a lot worse as production "efficiency" increases and plant capacity expands. and it is driven by global finance capital investing in short to medium term export consumer goods at low wages to sell in those areas still rich enough to have a mass market. there is no private finance capital available for low return longterm community investments which produce higher standards of living for the inhabitants and higher wages. global corporatism and finance capitalism are structurally set up to erode wages, not to raise them.))) These estimates, like most statistics on industrial capacity, were page 111 ================================= page 112 necessarily inexact, in part because companies typically underreported their true production capabilities. If anything, these numbers probably erred on the conservative side. They were derived from confidential projections on global supply and demand prepared by the planners at one of the U.S. auto companies (made available with the understanding I would not identify the company). The point was not to claim great precision for these estimates, but to give readers a concrete sense of the industry’s gathering problems. The explanation for this trend was straightforward: Overcapacity grew because productive supply was expanding faster than demand. Based on the U.S. company’s market projections, the global demand for motor vehicles grew by about 20 percent from 1985 to 1995, while the productive capacity grew by 25 percent. Thus, even with the burgeoning new consumer markets emerging in Asia, the global auto industry was digging a deeper hole for itself. Nor was there any expectation that this trend would somehow be reversed. On the contrary, the production base was expanded, not only by the technological competition, but also by the global dispersal of auto plants, as companies raced to secure a foothold in the growing new markets. Many new nations were entering the field as future producers. Korea, Tai wan, Thailand, India and China, even Vietnam, were forming joint production ventures with the major companies from Japan, Europe and North America. Indeed, in 1995 the major American car company recalculated its supply-demand projections as so many new producers were entering the global market and it found the imbalance much worse—a worldwide productive capacity that would exceed demand in 2000 by 36 percent. With expanding production expected in Korea, China, Eastern Europe and Latin America, the world auto industry would be able to produce 79 million vehicles. But worldwide demand would provide buyers for only 57 million vehicles. The gulf was staggering. The global overcapacity in cars by 2000 would be equivalent to the entire North American industry—only larger. To bring supply and demand into balance, the industry would have to discover a new consumer market that was bigger than the United States. Put another way, one quarter of the world’s auto factories were redundant —unneeded by the market and unable to sell any cars they produced. Yet more new auto factories were in the works. Honda was building new capacity in Mexico and Thailand. India had signed deals with GM, Chrysler, Ford, Peugeot, Daimler-Benz, Volvo, Hyundai, Mitsubishi, Daewoo and Volkswagen. VW planned to expand U.S. sales by 30 percent with cars produced in Puebla, Mexico.8 Whether these new cars were targeted for domestic markets or export, the effect was the same: more capacity was added to an already glutted market. A new auto factory in Mexico, it was true, might be less efficient than many in the United States or Japan, but the workers were also much, much cheaper. And some Mexican plants were already first-rate. page 112 ------------------------------------- page 113 Ford's Cuautitlán plant made Cougars with a labor input of nearly 50 hours per vehicle, but Ford produced Escorts at Hermosillo with only 24.8 hours’ labor per car—more efficient than twenty U.S. assembly plants. Moreover, developing nations recognized that a national auto industry would help them generate a broad, mature economy. Korea, building on its new, muscular industrial base, was using its own multinationals like Dae woo and Samsung to launch an aggressive drive for global auto exports. Korean companies intended to produce five million cars by the year 2000, about twice the size of Chrysler and five times Korea’s own domestic market. “It boggles the mind—Korea will someday be making more cars than Germany,” said Maryann Keller, an author and automotive analyst at the Wall Street brokerage of Furman Selz. “Korea has the No. 1—selling car in Peru and Chile, they are selling cars in Romania. They’re going where nobody else wanted to go, heading off the Americans. Do they really care what happens to us? The car industry used to be a Western Hemisphere business and it’s becoming an Eastern Hemisphere business and we don’t understand that. It’s not going to be answerable to our wonderful Western economic philosophy.” (((that is a very interesting statement, because everything we have seen about asian production which is controlled and financed by asians is that it is quite different from trade customs and expectations in the west, particularly in expectations of reciprocity.))) The larger implications were described by Wynn Van Bussman, chief corporate economist at Chrysler: “The big question you may ask is, gee, isn’t this going to mean too much new capacity? I would answer: yes. What everybody wants to do with their excess capacity is export it, but it is still the case that in a lot of Asian countries there are substantial restrictions on imports because those countries want to develop their own domestic auto sectors. So what you have is a permanent situation of excess supply and downward pressure on prices and wages. That’s certainly still true in the United States.” (((PERMANENT DOWNWARD PRESSURE ON PRICES AND WAGES. gee that sounds like it is going to be really good for the 90% of humans who sell their labor to earn their living. but it will be heaven for finance capital owners and lucky stock owners.))) The consequences of this permanent oversupply have bounced around the globe unevenly during the last twenty years, visiting crises on different companies and countries, but the first, most devastating encounter was in the United States. From 1980 to 1994, thirty-two car and truck assembly plants were closed in North America, wiping out 5.4 million units of production capacity. Another thirteen plants were either scheduled for closing or considered likely candidates. During this onslaught of creative destruction U.S. auto employment shrank by 180,000 jobs, most in assembly work. Yet, the oversupply problem actually grew worse for the American market—roughly doubled—during this same period. Demand increased but slightly, while millions of new units of production were added, targeted at American buyers. This was driven mainly by the influx of Japanese companies locating factories in the United States to protect themselves against the threat of American import barriers. But the American companies also contributed significantly with the new, more efficient factories they were building. Bottom line: the stunning transformation of North American auto production had greatly improved efficiency, displaced many workers and page 113 =================================================== page 114 crippled some communities, but it left the producers still fighting over scarce buyers. eco.ind 18: Globalism, Free Trade, and the WTO #177 of 178: katie@imt.net (mirmir) Sat 14 Oct '00 (05:17 PM) page 114 crippled some communities, but it left the producers still fighting over scarce buyers. 88888888888888888888888888888888888888888888888 The storm visited Europe next, and it was continuing there. The waves of retrenchments were accompanied by a vigorous expansion of more efficient production, just as in the United States. Marcello Malentacchi, general secretary of the International Metalworkers Federation, expressed the bewilderment of organized labor: “We know the European auto industry has a 22 percent overcapacity,” he said. “We said that three years ago. We knew it six years ago. But we waited for the governments to act, we waited on the companies. What can you do now when Mercedes lays off 25,000? What can you do when Volkswagen lays off 28,000? It’s too late. I wonder also why the Japanese companies and the Korean companies have so much interest in investing in Europe while, at the same time, the European companies are moving production from here to Southeast Asia. Why?” One reason, as Malentacchi knew, was that producers everywhere feared that the glutted markets would lead to regional protectionism, so they built new factories to get in the door before it was closed. (((this is a very real fear, i think. in the end the ties of land are stronger than the ties of money, and the ties of blood stronger than the ties of ink. and titles to stock and bank accounts are whatever the controlling government says they are. as we see now, within 10 years, russia has undergone the greatest and most wrenching change of title of factories, infrastructure, and resources from the government to murderous thieving oligarchs, and now back again to a large measure of government control. so "title" and "property rights" have no inherent shape or definition, nothing elastic they will snap back to if you stop pulling on them. Property rights are what you make them -- right there on the ground.))) Next was Japan. By 1995, the supply problem was stalking the Japanese auto industry too, forcing even the strongest companies like Nissan and Toyota to accept the unprecedented (and deeply embarrassing) measure of closing assembly plants at home and perhaps laying off some Japanese workers. Japan’s producers were said to be over capacity by as much as 50 percent; its nine companies were simply too numerous for a stagnant domestic market. The weakest among them were imperiled. The triumphant Japanese were themselves hurting.10 This ironic turn of events contained an element of rough justice: After all, for two decades Japan had provided considerable fuel to the global problem of oversupply. Operating from a market sanctuary that foreign rivals could not penetrate, the Japanese auto companies vastly overbuilt their own productive capacity and aggressively exported the surplus into the U.S. and other foreign markets, grabbing market share from the domestic producers. Now the global problem was at their doorstep: as output fell, Toyota’s capacity utilization dipped below 80 percent. (((this points out that the last 20 to 30 years of globalization have merely been an infant stage, a feverish stage of a disease process, where there is high temperature, excitation, delusions, visions of grandeur, and great strength and seemingly endless energy.))) Two things happened to undermine the market dominance of Toyota and the others: First, the collapse in 1989 of Japan’s booming, easy credit era known as the bubble economy had severely depressed their home market. Car sales in Japan were flat for four straight years. Second, every Japanese foreign sale suffered as the U.S. dollar steadily declined in value against the yen, sharply raising the cost and price of made-in- Japan exports. The Japanese, it could be argued, had partly done this to themselves since it was Japan’s huge, persistent trade surpluses with the United States that centrally contributed to weakening the dollar in foreign exchange. In any case, when the dollar sank to 80 yen in 1995, Japanese car companies started looking in earnest for factories to close. Engineering brilliance would not solve this problem and, indeed, may page 114 ---------------------------------------- page 115 have compounded it. The appreciating yen automatically raised the cost of their homebased production, but Toyota and others had just sunk vast amounts of capital in the new highly automated plants like Tahara. When the cheap capital of the 1980s boom vanished, those investment decisions increasingly looked selfindulgent, at least in hindsight. Toyota’s ability to make a luxurious Lexus with only 18 hours of labor was valuable only if it could sell them. (((this is not quite the entire picture: yes, capital was cheap in japan in the 80's but it is even cheaper now. in japan, the interest rates paid to bank borrowers are at most .25% - .50% that is one quarter to one half of one percent of the principal deposit. and there is plenty of money available to industrial/commercial borrowers for expansion of plant capacity, etc. but there are few takers, because there is no expectation of an increased cash flow to service the new debt -- they are already at overcapacity relative to global demand, if they build more plants, make more widgets, they go deeper in debt. so what we are seeing is the way the febrile delusions of a bubble stock or real estate market, get trapped by non-performance in unrealized cash flow, unrealized sales, unrealized rentals, unrealized market share. what is ironic about the extremely highly capitalized robot car plants, is that the interest must be paid on the money borrowed to finance that huge capital investment, even while the machines sit idle. but the workers could have been layed off without further obligation -- this is the great advantage of wage slavery over absolute corporal slavery. you dont have to feed the wage slaves when they are not working. and even if the japanese car makers financed the robot factories from their own pocket, they are still not making a return on their investment comparable to what can be made elsewhere where the market is still in full fever, so this is forfeited income and loss of earnings in the sense of competitive finance capital.))) The Japanese strategy of emphasizing hightech content also had its downside. When the yen was at 150 to the dollar in the 1980s, Toyotas could be loaded up with advanced engines and elaborate automatic features and still be highly profitable. When the dollar sank below 100 yen, so did Toyota’s profit per car. James Harbour the Detroit industry analyst, calculated that by 1995 Toyota was making only about $50 on each car it sold in the United States, while Chrysler’s profit margin was about $1,200 per car. “Toyota loaded up with high-technology production and equipment,” Harbour said, “but when the dollar took a dive, they’re sitting there sucking gas. ((($50 per car!!!!! $50 per average price $12,000 widget. that rocks my world. that is such an enormously disproportionate profit vs. risk and capital commitment that it is like an asteroid on a collision course.))) Americans who found shortsighted pleasure in Toyota’s come-uppance were misguided, however. In the global system, Toyota’s problem would eventually become everyone’s. Toyota, a wealthy and brilliantly managed multinational that would make the necessary adjustments, was already moving to do so. Production at its American transplants was to be doubled, Toyota announced. Meanwhile, it was breaking the traditional understandings of Japan’s domestic market and aggressively going after greater sales at home—threatening the market shares of other, weaker Japanese car companies. (((doesnt this look like a hurricane forming: some giant self-feeding cycle of sucking destructive uncontrollable energy, a vortex that cant be stopped till it uses up *all* available resources and energy. that's what it looks like to me.))) An adroit producer could make the surplus become the other guy’s problem. As Toyota and others repositioned their production, that would create new jobs for some Americans while some Japanese auto workers were prematurely retired, but it could also intensify the surplus problem for the American companies, displacing their production and adding to the downward pressures on American wages and prices. If there were too many auto factories, there were also too many auto workers, especially the kind with high wages. The larger consequence for the global system was to keep the surpluses moving around, adding and destroying, renewing the desperate chase. In Clermont-Ferrand, France, headquarters of Michelin, the world’s largest tire manufacturer has made a great leap forward. A new and secretive plant went online in early 1994, producing tires with an integrated system of automation so advanced that rival companies rushed to check out the patents. Michelin would not reveal the factory’s capacity, but it employed only fifty workers. The design was said to approach the futuristic vision that industrialists liked to call a “lights out” factory: The last worker to depart turns out the lights. (((the last worker, is also the last consumer.))) page 115 ========================================= page 116 François Michelin, the sixty-seven-year-old patriarch and grandson of the company founder, told an audience: “Tires will never again be an industry of manual labor.” Clermont-Ferrand had lost half of its Michelin jobs and the company’s worldwide employment was shrinking from 140,000 to 125,000, with more losses to come. The global tire industry, dominated by six companies, had already invested billions in modernized plants but was operating worldwide in 1994 at about 70 percent of potential capacity.” (((well we have one less company as a viable brand, but all that will do will be to cause the other 5 globals to turn on some currently unused plant capacity.))) Chemicals struggled with a similar imbalance, driven less by technology and more by the new production sources coming on stream in so many new places, from Asia to Eastern Europe. Bayer of Germany was investing one billion deutschemarks in new Asian output; its chairman, Manfred Schneider, was warning European politicians that they did not yet grasp how brutal the international competition was about to become.12 (((at this point, it is clear, why those global workers who have grasped the dimensions of the impending catastrophe of global finance capitalism/corporatism, are out in the streets shouting at their deaf and dumb politicians. and this is entirely apart from the environoment impacts of consumerism.))) Allen J. Lenz, economics director at America’s Chemical Manufacturers Association, described his industry’s dilemma: “With everyone trying to build their own chemical industry, we have in many basic industrial chemicals a global oversupply. That has kept prices down and profit margins low.” Individual companies could survive, he said, but the most advanced economies, like the United States, will probably continue to lose production to other parts of the world where wages were much lower. (((in another part of this wonderful book, he discusses at length how the US is the world's buyer of last resort, and how this is going to bring us down.))) “It seems safe to predict,” Lenz reported, “that generally the world supply of many basic industrial chemicals will, from the standpoint of producers, trend toward an oversupply situation during much of the rest of the decade and perhaps beyond. That’s because every developing country wants to have its own chemical industry to obtain the value-added and technology transfer benefits of domestic production. (((can you guess what will be the most likely solution to this destructive market dynamic which is now in motion?))) “Inevitably, as the number of producers grows, the tendencies toward global oversupplies will be enhanced, competition will get tougher, rates of return may decline and U.S.based production and the production of other major developed-country producers will become an even smaller portion of total world production.... [T]he tendency toward a diminished role for U.S.based production in total global production seems quite inevitable. . . . "18 The pharmaceutical industry was experiencing its own shakeout, a flurry of global mergers among leading drug companies as they tried to shore up their consumer base by acquiring discount distributors. Overcapacity in drug manufacturing was expressed in somewhat different terms, not as idle factories but as the over-investment in research and development that leads eventually to new products. The competitive R&D spending by pharmaceutical companies had risen from $5.4 billion in 1981 to $26.5 billion in 1993. Then the optimistic expectations gave way to reality and the multibilliondollar mergers began. Professor Jurgen Drews, head of research at Roche, the Swiss firm, told the Financial Times: “Global prescription sales would need to reach about $280 billion a year within 10 years [more than twice the current sales] to page 116 ----------------------------------------- page 117 justify the present levels of investment. The chances of reaching that figure are more than low—they are nonexistent.” Dr. Leon Rosenberg, president of Bristol-Myers Squibb’s research institute, described the outlook: “The worst case scenario would be that the pharmaceutical industry as we know it disappears because companies no longer believe that there is a likelihood of generating a reasonable return on money put into research.”14 (((what is even more interesting, is that drug profits are driven by intellectual property rights, which are the most fragile and ephemeral and illusive property rights to protect either by law or by force. an intellectual property regime is extremely vulnerable to piracy, and with very little effective recourse, since there is a positive feedback loop for the pirates and the regions which shelter the pirates and the consumers of pirated goods. a pirate can imitate the manufacture of a new drug, at pennies per hundred, and sell the pirated drugs for dimes per hundred, while the research costs---which are for the most part related not to research but to making drug certification too expensive for small entrants---is kept at dollars per hundred. and this is quite a different matter from developing stolen manufacturing processes and finding adequate raw materials and trained labor to produce high-tech consumables. this is why an intellectual property regime without a strong centralized legal system of enforcement is the weakest and most vulnerable of all forms of property.))) Or the example of steel, where global capacity exceeded demand by 20 percent. Or commercial aircraft, where the capacity was approximately twice the market demand. Or consumer electronics. Or textiles. Or computers. The facts varied in each marketplace, as did the driving elements. But the overwhelming condition of the global system was oversupply. The major exceptions were the fast-developing advanced technologies, like semiconductors or communications, where the old products were rapidly eclipsed by new inventions, and the demand for them rose so steeply that producing companies could hardly keep up. Across most industries, however, the fact of surplus was the revolutionary storm cloud that never went away. (((and of course, as new generations of product are invented or engineered, then the current product and the current manufacturing plant and the current warehouse supply are quickly obsolesced. so no one can count on longterm stability or even longterm economic existence unless they are so large that they know their governments will bail them out with tax payer resources.))) Some multinational managers responded to the reality with admirable pluckiness. “Consumer electronics suffers from overcapacity, but that’s why we are living in an interesting world,” Yasunori Kirihara of Sony remarked. “Somebody is winning and somebody is losing. If there’s no overcapacity, we would have a less exciting capitalism.” Or managers responded with resilient optimism, a conviction that somehow or other things would work out. Dean Thornton, as Boeing’s president for commercial aircraft production, lamented that Boeing could turn out forty-five to fifty airliners a month but would produce and sell only half as many. “If something doesn’t get better before the end of the century, do we have a big risk? The answer is, hell yes,” Thornton said. Still, he expected things would get better though “not dramatically better, not 180 degrees better.”15 Meanwhile, these surpluses were a driving force behind the capital migration. Multinationals moved production to new locations (including within the advanced economies) in part to offset the risks created by the permanent overcapacity. A new location might protect their market position by introducing more efficient technology or by employing cheaper labor or by avoiding the possibility of protectionist import barriers or by hooking up with a national industry to exploit a fast-developing market. Over time, the net effect of all these motivations was a gradual, geographical shift of industrial structures, usually from old places to the new, from high wages to low wages. (((and as he points out elsewhere, a huge factor in plant siting is tax concessions by the local government, actually, in many instances, the gross value of all of the local wages earned at a new plant do not equal the value of the tax concessions granted to the corporation to build it there. talk about a race to the bottom. so who makes up the additional tax burden of government costs of providing streets, infrastructure, police, fire, hospitals, schools, etc., etc. for that plant and its workers???))) The U.S. steel industry, for instance, was booming in 1995, newly modernized and operating at close to its full capacity, but it was about one third smaller than its peak size twenty years before. Japan’s steel production was now shrinking, too. The steel industry was gradually moving to Korea, Taiwan, India, Brazil and, above all, China. This transition was generally regarded as a natural evolution for a basic industry (unless you happened page 117 ======================== page 118 118 • ONE WORLD, READY OR NOT to be an American steelworker). The process was devastating for some, but roughly consistent with industrial history across several centuries. But the implications became more difficult to absorb—and more threatening to the longterm prosperity— when the same general trend was observed across so many sectors, both the basic industries and the advanced. The fashionable futuristic view was that the wealthier nations would simply cease manufacturing things. Their people would move onward and upward to a postindustrial age where the work was cleaner and more rewarding, less muscular and more cerebral. The vast literature devoted to this sunny vision had so far not succeeded in persuading most people or nations to believe in it or welcome the consequences. If Americans or Europeans surrendered their manufacturing industries and jobs, what exactly would replace them? Across two decades the main answer for most people appeared to be greater risk of unemployment, declining wages and parttime work. (((exactly, exactly. that is what has happened, and it has to do with the basic change in distribution cycle from worker to consumer. the problem of global finance capitalism (aside from using up the planet and polluting it) is that it continuously withdraws wealth from the distribution cycle, so that demand falls and the living standards of the great masses of workers fall. this is the inevitable outcome of prohibiting protectionist tariffs, forbidding disclosure of conditions of manufacturing, prohibiting local communities from regulating that any goods *sold* in their cities must be made by fairly priced labor, and worst of all, by prohibiting capital controls in and out of national borders -- and allowing the banks to operate in global secrecy, and permitting the global corporations to determine their own tax status and their internal accounting and pricing of components produced in different countries.))) In a sense, that was the global impasse the freemarket economists failed to acknowledge, the reason their theory failed to match the reality. Just as poor countries made special efforts to acquire a steel industry or auto sector, aircraft or electronics, the citizens and governments of wealthy nations naturally wished to hold on to theirs. The surplus capacity was, therefore, bound to grow as a function of the accelerating globalization, sure to produce more wrenching consequences. If everyone would just cooperate with the freemarket theory and accept their fate, then markets might come effortlessly into balance. The global industrial structure could be reallocated to this place or that to achieve maximum efficiency of production, based on the market requirements of the multinational corporations. But, in the here and now, people generally did not acquiesce to abstract theories, not when they could see that the tangible outcomes for themselves were starkly different from what the theorists had promised. (((sort of like what happened to soviet communism, only worse, actually, because russia may have had lousy living conditions but they still fed their people and gave them medical care.))) The historical portents of oversupply were visible, but unacknowledged by authorities. Perhaps things will work out, as the managers assumed, but twentieth-century history taught that the accumulating surpluses could also lead to a general breakdown. A Canadian economist who did not share the orthodox view of things, J. H. Hotson of the University of Waterloo, succinctly described the situation: “The central irrationality of the Great Depression years has reappeared in our times. In a depressed world of inadequate demand, each firm, industry and nation attempts to save itself by competitive deflation. Some can 'win' in this struggle by cutting their costs and boosting their efficiency the most. However, the more the winners win, the more the losers lose as this is a negative sum game.”16 Peter Schavoir, the IBM director of strategy before his retirement, was one manager who saw similar gloomy outlines in his industry and expressed anxiety about the larger system: “I’ve been worried for a long time that page 118 ----------------------------------- page 119 there’s too much capacity, and as a result, there are very few people in the computer industry making much money. It’s true in other industries, too— they are all losing money. The computer industry is like that and yet people are pouring into it. They figure they can make money if they find a niche that’s protected for a time, while IBM or Unisys are stuck with the losses. “Don’t get me wrong. I believe in competition, but when you get too much of it and it’s just a matter of price, price, price, it’s very difficult to keep yourself afloat. For those whose jobs are destroyed in the process, they aren’t ever going to get them back. You can’t become so efficient that all this stuff is made without any labor content. Because then you have nobody with the money to buy anything.” (((ahah, a moment of clarity.))) Consumers were the winners in this revolution. Or so it was said. Consumers were presumed to benefit because the same technological contest that hammered labor wages and corporate profits also delivered a plentitude of cheaper, better products to the people who buy things. The global surpluses created a buyer’s market for nearly every good; the producer’s loss was a customer’s gain. Thus, it was claimed, the global system really was positive sum. This was a frequently expressed article of faith that appeared to be both true and not true at the same time. Certainly, the technological revolution had generated a wide variety of remarkable products, from video recorders to advanced microprocessors, that became dramatically cheaper to buy, especially for newly developed products riding the steep growth curve of a new market. Around the world, people in many places were able to buy things unimagined in their societies only a few years before. The main reason pirated compact discs were sold so freely on the streets of Beijing or Kuala Lumpur was that so many citizens of China or Malaysia now had CD players in their homes. (((this is the nature of a crises in demand, or a failure of monetary distribution.))) Yet, if everything was cheaper, why didn’t the consumers feel better about it? Their usual complaint, at least in advanced economies like America’s, was that prices were too high and rising, that it was more difficult, not less, for them to acquire the standard things of modern life. As it happened, this complaint was also correct. People felt this way because their incomes were on average losing real value faster than any price benefits delivered by the marketplace. Indeed, their ability to purchase things was gradually shrinking relative to the price of things. Mass consumption, in other words, was generally not able to keep pace with the new abundance. That was the meaning of the industrial surpluses and inadequate demands, the consequence of declining real wages. (((this we have seen in the recent reports that the average worker is working about 160 hours or 4 weeks longer, per year than 30 years ago. and that the average household/family is putting in greatly increased hours of work, to maintain the same standard of consumer goods and housing.))) This general paradox was illustrated explicitly by the auto industry itself: the industrial revolution depressed prices and profits, yet nonetheless most people found it harder to buy a new car. In 1975, an average American family needed 18 weeks of earnings to buy an average-priced car; by 1995, the cost of this new car consumed 28 weeks of income. People typically page 119 =================== page 120 coped with the growing gap by borrowing more: an average new car loan ran for 36 months in 1975, and twenty years later it was stretched out to 54 months.17 (((this is a partial explanation of the extraordinary and extreme levels of personal debt and mortgage debt and commercial debt which is the secret worm of our lifestyle and our economy.))) Part of the explanation was in the improved quality: The companies often protected profit margins per car by adding options and refinements (and new safety features required by law), all of which allowed them to charge higher prices. Thanks to the production innovations, the automobile manufactured in the 1990s was also better made and longer lasting. Probably, it was also true that without the global competition, car prices would have been even higher than they were. Still, the residual fact for most consumers was “sticker shock” and a growing recognition that they could no longer buy as much as they had previously assumed. Meanwhile, auto companies, from the quick to the slow, were confronted with a relentless squeeze of their own—the downward pressure on profit margins. The fortunes of individual companies might rise or fall from one season to the next, according to their own nimbleness, but the general longterm reality was that making cars was a less profitable enterprise than it had been during the auto industry’s halcyon years, the robust and stable decades after World War II. Around the world the companies struggled to restore a condition of dependable profitability and thought they knew the way: by lowering the breakeven point in their capacity utilization—that is, restructuring so they would make a profit even in bad times, if one fourth or one third of their productive capacity was unused. The main way to do this was to shrink themselves: sell off fixed assets, trim down managerial and factory-floor employees, write off the weaker investments. If market demand expanded, it could be met by hiring temporary workers, easily shed when slack times returned. Unprofitable Volkswagen’s breakeven point had been above 90 per cent of its capacity utilization, but VW was rapidly reducing this by shedding redundant workers, shooting for a goal of 70 percent. Toyota and other Japanese companies, used to operating profitably at very high capacity levels, were reluctantly beginning to shrink some of their base. Americans, for a change, appeared to be at the head of the chase.18 “Every manufacturer would like to reduce their breakeven point as far as they can,” said Van Bussman, the Chrysler chief economist. “For us, our target in 1993 was 70 percent. In 1994, it was 65 percent. We are shooting for 60 percent in 1996. You keep restraining fixed costs and you strive for more efficiency increases. You can only do that by lowering your fixed costs in relation to everything else, and, of course, you don’t do that by building new plants. Everyone is now attuned to that reality. . . . The shortrun effect is some pain because one of the ways to reduce the breakeven point is to trim the workforce and eliminate redundant tasks.” Something similar was occurring across other sectors, as companies wrote off disappointing investments and slimmed down: going for profit page 120 ---------------------------------- page 121 margin instead of growth. Charles I. Clough, chief investment strategist at Merrill Lynch, called it “a sea change in corporate behavior.” “There is too much of everything and returns on investment are declining,” Clough explained. “If a surplus persists in everything from auto plants to retail selling space, writeoffs will not cease. Increasingly, managements will realize that growth in this sluggish world is out of the question unless they are willing to risk sharp declines in profitability. Going for market share means giving money away. Particularly in liquidating industries, such as department store retailing and mainframe computer manufacturing, it is critical to salvage cash flow by downsizing the corporation before revenues run down. Even in less threatened situations, it makes more sense to manage a mature business for cash.” 19 (((except that debt loads are so high, that they cant be serviced at lower production levels, even if the workers can be layed off.))) If Clough was correct and this represented a new strategic response to the revolutionary pressures of constant surplus, then the implications for longterm prosperity in the global system were bleak, particularly for the mature economies. The essence of this strategy, after all, was companies’ learning how to live with weak markets. Individual enterprises might find the ways to do this and prosper, in effect restoring the “virtuous circle” that had existed in the postwar boom for themselves and their shareholders, though not for their employees and communities. (((exactly, the execs and the owners will keep themselves afloat by triaging everyone else.))) The larger economic meaning was ominous: If the companies succeeded, it meant a system that routinely accumulated a reserve of idle people and unused production, that found a profitable operating level far short of the economy’s full potential. These blighted conditions—inadequate demand, oversupply of goods, permanent underemployment, falling wages and lackluster investment—already existed in many leading economies, but no one was ready to congratulate the self-correcting markets. (((yes, the invisible hand of the market, is not only invisible, it is non-existent, exactly like the angels dancing on the head of a pin. but what is worse is that these low wage communities can no longer afford decent infrastructure, decent common goods, and cannot afford to apply and enforce humane work standards, and protective environmental standards. the entire freemarket edifice sinks into a global cesspool.))) Ordinary people sometimes described these circumstances as recession. Economists, who employ a narrower definition, always corrected them, explaining that recession could not exist so long as the overall economy was expanding. But the popular understanding was not wrong in the broader sense: something fundamental was amiss in the global system. If such conditions persisted year after year the period might eventually be described, more accurately, as depression. page 121 ------------------------------- ============================================ ============================================ ok, the reason i have gone on so long with this extract and my comments, is that this is the best short text i have ever read which absolutely and clearly nails down the overcapacity cycle of global finance capitalism with real life statistics and proofs. this is how it works and this is how it is engineered to fail. but now, here is the conclusion i draw about this failure cycle--that it will inevitably lead to major world war because a major world war will do three things to bring the overcapacity cycle back to the starting gate: 1. major world war will destroy excess production capacity by destroying plants and/or extraction processing and refining centers, as well as transportation infrastructure; 2. major world war will increase demand immediately for a great many consumer goods which can be altered slightly for military use, or used as is for military use, and also the manufacturing plants can be converted easily to produce military goods, as shown by the example of Toyota converting from autos to military vehicles during WWII; 3. major world war will decrease the supply of workers both by drafting many for the war effort and by killing many others, so that the now underemployed and parttime laborers which are the increasing bane of the industrial world will experience fulltime employment and the satisfaction of useful and needed work and the status that comes with it as well as joining the wage-earner distribution cycle, and having the money to spend on goods. so world war will solve the terminal problems of global corporate overcapacity: physically destroy excess production capacity, immediately and dramatically open a huge new market demand, and reduce the oversupply of labor and bring this labor back into the wage earning monetary distribution cycle, so that they can create demand again. Q.E.D.