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PostPosted: Tue Aug 16, 2005 9:06 am

<strong>Written By:</strong> jensonj
<strong>Date:</strong> 2005-08-16 09:06:00
<a href="/article/180652805-the-global-challenge">Article Link</a>

As much as economists and even the general public are becoming concerned about the emergence of the Chinese as an economic competitor, the effect is especially chilling for a business when it faces competition specific to its market niche. Wall's sensors went up when he received a report from a Chicago-based sales rep that a Chinese furniture manufacturer with U.S. offices in Texas was prominently represented at a recent trade show. The Chinese firm had a well-respected American product designer and several top-notch sales representatives at the show, and they were familiar figures in the tight world of corporate furniture. Also, their samples were of the highest quality.

But the real buzz on the show floor was that the Chinese manufacturer was coming in 20 percent lower than the competition on recent requests for price quotations. According to the rumor mill, the newcomers had sufficient margins to slash prices even further. Suddenly, the front lines were not 10,000 miles away. They were just down the aisle at the trade show.

Although Wall/Goldfinger was not a bidder on these requests for price quotations, the reports caught John Wall's attention. Like many Vermont business owners his hands are already full wrestling with issues such as the triple bottom line (profitability, community and environment), LEED certification (Leadership in Energy and Environmental Design) and providing what the trade association Vermont Businesses for Social Responsibility calls "a living wage." How would Wall/Goldfinger, a manufacturer of highly customized office furniture, compete with a business that pays the average worker 30 cents an hour, one-fiftieth of what the average employee at the Vermont company earns?

Wall/Goldfinger specializes in jobs that demand innovative design, precision engineering, exotic materials, supreme craftsmanship and intense customer service. (Just consider the details involved in getting a 60-foot table to its new home on the 55th floor of a Manhattan skyscraper without a nick, dent or scratch.) For this reason, Wall thought his business would be one of the last targeted by foreign competition. But he also knows there is scant consolation in being the last.

It's a situation that many Vermont companies have faced in recent years. The companies are being affected in a variety of ways and have different strategies for dealing with a shrinking economic world. And complicating matters is the fact that economic globalization can be helpful to some Americans and U.S. companies while it threatens others.

For instance, IBM sells some of its chip-manufacturing operations to China – that's bad for American workers. But Wal-Mart imports from China and offers everyday low prices – and that's good for consumers. Open storefronts on Main Street – bad. Loss of jobs – bad. But opening new markets overseas for certain American goods – that's good. In Vermont, Ethan Allen plants close – that's bad.

So the issue can be quite complex and nuanced. In fact, Thomas L. Friedman, foreign affairs columnist for The New York Times, has needed two books to explore the subject, and anyone reading them gets the feeling he is still scratching his head. In "The Lexus and the Lotus Tree" his eyes open wide to the new trends and rules that govern international trade. Most recently, in "The World is Flat," he explores the interconnections that draw together the "four corners of the globe."

According to Friedman, technology and greater access to capital has leveled the playing field for Third World countries like India and China and enabled them to become economic powerhouses. Unencumbered free trade will lead to wonderful things for both countries, he says, although in the midst of such dramatic transition the benefits to Americans may be unclear and the transition unsettling.

There's nothing really new about globalization. Since the age of exploration, nations have been searching the world for raw materials and new markets. According to Friedman, globalization has happened in three phases. The first, in which the state was the dominant player, took place from the beginning of time until 1800. The second, in which the corporation replaced the state as the seat of power, was from 1800 until 2000. The third phase, dominated by what the author calls the "brilliant individual," goes from 2000 to today. Even if you don't accept Friedman's specific terms or parameters, it is hard to argue with the basic premise: that economic and cultural globalization is now happening at a mind-boggling rate. Practically every U.S. manufacturer is affected.

Take the example of Vermont Castings, the stove manufacturer. The company's early history roughly parallels Wall/Goldfinger's. Both were started by entrepreneurs in the Mad River Valley in the early 1970s. After some fitful stops and starts both migrated over the mountain range to towns where manufacturing space was going begging. Wall/Goldfinger found a home in the Nantana Mill on the banks of the Dog River in Northfield; Vermont Castings settled into Randolph, one town to the south, in the former Sargent, Osgood, Roundy Foundry on the Third Branch of the White River.

While Wall/Goldfinger grew slowly, Vermont Castings, fueled by the first and second Arab oil embargoes, took off like a rocket. The company story was at once colorful and an anomaly. While many American manufacturers were beginning to migrate offshore, Vermont Castings was building a state-of-the-art foundry right here at home, the first of its type in North America. Then it constructed a 65,000 square foot assembly/enameling plant. The company founders, Duncan Syme and Murray Howell, received flattering media coverage in the Washington Post, New York Times, and Wall Street Journal. The company was honored as Vermont's Small Business of the Year.

Then, in the early 1980s imitations of its famed Defiant wood-burning stove began appearing in discount stores. Although the castings and workmanship were inferior, the Taiwanese-made imports were clones of the original sold at a fraction of the price.

The Vermont company responded quickly and aggressively to the offshore competition. After a bitter court battle, fought on their home turf, Vermont Castings was awarded a multi-million dollar damage award for design and patent infringement. In effect, the court said that Vermont Castings did not have to compete with itself. The euphoria of victory proved brief, however, as no actual damages, not even court costs, were ever collected.

A few years later Vermont Castings found itself in heated competition with another Pacific Rim-originated product. This one did not infringe on the company's design so much as its market position. Under the brand name Consolidated Dutchwest, the new competitor adopted many of the aspects of Vermont Castings' consumer marketing, even to the point of locating their home base (i.e. post office box) in Randolph, Mass. – as opposed to Randolph, Vt.

This time Vermont Castings responded differently, and acquired Consolidated Dutchwest in a highly leveraged buyout as was popular in the 1980s. The move proved to be entirely successful from a perspective of branding, but disastrous to the founders' ownership position. For all their sweat and effort, the founders emerged with nothing as ownership was assumed by the financial institution that enabled the acquisition.

Over the years the company has changed hands repeatedly and has become a smaller and smaller part of larger and larger financial entities. Most recently, when a Canadian parent company filed for bankruptcy, ownership was assumed by that company's largest creditor, the Canadian Teacher's Union.

Meanwhile, Vermont Casting's brands are successful in the marketplace worldwide. The company's stoves are market leaders from Japan to Denmark. Its foundry remains in Randolph and its assembly operations remains in Bethel. They are still operating at full capacity, providing good paying jobs for Vermonters. Its products are more widely available than ever. Does it make a difference that the company is now owned by the teachers of Canada? Is Vermont Castings a victim of globalization, or a beneficiary?

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[Proofreader's note: this article was edited for spelling and typos on August 16, 2005]


Forum Junkie

Posts: 546
PostPosted: Tue Aug 16, 2005 7:47 pm

<blockquote>Is Vermont Castings a victim of globalization, or a beneficiary?</blockquote> <p>Yes. (It’s both.)</p><p>---<br>[The people] will forget themselves, but in the sole faculty of making money, and will never think of uniting to effect a due respect for their rights.

Shatter your ideals upon the rock of Truth.

— The Divine Symphony, by Inayat Khan


Forum Elite

Posts: 1325
PostPosted: Tue Aug 16, 2005 10:39 pm

This article has nothing to do with real economics, but with games between street gangs. This may be difficult to understand for people brainwashed with generations of propaganda, but perhaps it will sink in one day. Let's hope it won't be to late for humanity.

The writer doesn't seem to realize that all forms of so called "economic competition" increase real costs and while monetary games may cover up realities for a while, ultimately they'll come home and destroy the players.

Anybody who quotes Thomas Friedman has real problems. The man is a neocon PR hack without any merits. The main purpose of so called globalization is the creation of incompetence and growing reliance on the lords and masters who control the monetary system, which is then used to exploit and enslave.

While the propaganda leads us to believe that these acts of exploitation "lower costs", in reality, even monetary costs are rising by the day, while more and more wages are cut, more unemployment is caused, longer working hours and less benefits to employees. What is the reason? If neoclassical economics and globalization are supposed to "cut costs", why do we consantly hear the excuse of "rising costs" from the rulers?

We have been in town today for our mid month shopping. Every time we go, my wife, who knows prices by heart, points out the rising prices all over on the shelves. Sometimes a few pennies, sometimes a dollar or more. Each month we have to pay a few dollars more for our usual shopping list.

So, where are the benefits of this phoney free trade? In the 16 years, since the first FTA came in, our living costs increased by at least 2-300%, while wages remained stagnant. Between 1955 and 75 prices increased by about 100%, with corresponding rises in wages. Then the neoclassical competition madness took hold and in the next 20 years prices rose by at least 600% with no real increases in incomes. Now the increases are in the 1000% range. In 1975 I bought a brand new Dodge Tradesman 200 van for my business with all kinds of extras for $5,600. How much whould the same van cost me today? Why ? Where are the benefits of the "competitive equilibrium of the global marketplace", as sung by the choir of neoclassical economists?

Today's neoclassical globalization schemes are a group of drunk surveyors, called economists and politicians, crazily trampling over and destroying fertile gardens, trying to subdivide the land with measuring tapes made of rubber bands, while humanity is forced to stand on the sidelines begging for scraps to be thrown to them. Ed Deak, Big Lake, BC.


Active Member

Posts: 156
PostPosted: Wed Aug 17, 2005 8:47 am

Peak Oil and rising energy prices will put an end to globalisation probably sooner than many expect. Whithout cheap oil to provide the fuel for shipping plastic gee-gaws from China to North American Wal-Marts and Canadian Tires (never mind that oil is the source of plastics as well) or South African oranges to Europe and New Zealand apples to Canada it will be game over for globalisation.<br><br> <i>In 1972 Donella and Dennis Meadows, together with Jorgen Randers and William Behrens, published "The Limits to Growth," which analyzed the interrelated impacts of population growth, industrialization, malnutrition, environmental deterioration, and depletion of nonrenewable resources - in particular, oil. They predicted that the planet would reach its limits to growth within the next 100 years. The first crisis would be the world supply of oil, which they predicted to diminish around the year 2000.<br><br> In the fifties, geologist M. King Hubbert coined the term, "peak oil," to describe the tipping point at which petroleum supply reaches its maximum annual output. Total US oil production reached its peak in the seventies. Now, the question is when the world supply will reach its zenith.<br><br> Recently a number of academic papers have been published that forecast the peak year for world oil production. Most place this event in a time period between 2005 (Princeton Geologist Ken Deffeyes) and 2014 (Germany's Deutsche Bank). Not surprisingly, the most optimistic projection - 2037 - comes from the Bush Administration's forecasters at the Department of Energy.<br><br> When peak oil will occur is more than an academic issue. It represents an important milestone for policy makers because it sets a "drop dead date" for our preparation for a time of oil scarcity. Experts believe that it will take at least 10 years for the economy to make the transition from oil to the various alternatives; the longer we wait to start this, the more extreme the economic turmoil will be.</i><br><br> <a href="">America's Peak Experience</a><br><br> In the 1950's when geophysicist M. King Hubbert predicted continental US oil production would peak and then go into permanent decline by the early 1970s he was met largely by hoots of derision by his peers in the oil industry. However his prediction was quite accurate and US oil production peaked in 1970 and has been declining ever since.<br><br> Today there are more and more geologists, academics and energy industry veterans predicting world oil production is now about to peak (see the Association for the Study of Peak Oil, ASPO ). Once that happens crude oil supplies will be in decline while demand continues to rise so it doesn't take a PhD in Economics to recognise what that means for oil prices, $65 per barrel oil will likely be cheap to what we are paying 5 years down the road.<br><br> As far as alternative sources of oil such as Tar Sands derived oil or alternative energy sources such as hydrogen, wind, solar etc. coming to our rescue so that our econmies and industrialised societies can continue to be fuelled by the cheap energy they need to continue to grow and expand, it doesn't look promissing.<br><br> See, for example, ASPOs report on the Tar Sands: <a href="">Canada’s Oil Sands Resources and Its Future Impact on Global Oil Supply</a><br><br> <a href="">Nine Critical Questions to Ask About Alternative Energy</a>

PostPosted: Wed Aug 17, 2005 9:16 am

Empirically, for western nations globalization has lowered the sticker price on a vast number of items, both in terms of consumer pricing and more basic industrial inputs. However, in lock step with this change is an almost critical increase in debt service and use of credit by a majority of buyers. Thus the sticker price is largely immaterial, the present value of the debt service is the important number. In that light, exactly how much lower are "prices" now?

This doesn't even begin to examine the relationship with trade deficit--the $450 saved on that microwave oven is probably more than accounted for in this ballooning deficit, which makes this all more a monetary sleight-of-hand. I have a hunch that these deficits occur when the comparative advantage causing cross-border trade has no strong thermodynamic basis and is instead based purely on monetary distortion.

Minor elevation changes aside, the Chinese cannot boil water using fewer joules of energy than North Americans. However, I suppose they *can* get a joule of labour cheaper from a Chinese worker than from a North American. This competitive advantage comes into play every time that worker buys food grown with fewer chemical inputs from closer to home, walks or bikes their way around, and doesn't leave the air conditioner at 18 degrees and every single light on in their 4000 square foot bungalow whilst doing so. If a joule of labour can do all this and be just as smart/high quality (i.e. operating efficiency)---look out!

When high paying industrial jobs are exhanged for low paying service jobs, the argument by the wal-marts is that their low prices allow this stagnating/declining income bracket to maintain a decent standard of living. Unfortunately, the major components of affordable lifestyle: homes, fresh foods, transportation and insurance, cannot be outsourced and have not followed this trend--leading to increased use of credit, and eating any "sticker price" offsets.


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User avatar
Posts: 586
PostPosted: Wed Aug 17, 2005 9:45 am

Good points.I could never understand how prices keep rising while wages don`t.If there is so much competition,why are the costs rising?If it is not wages,or transportation costs,then what is it?


PostPosted: Wed Aug 17, 2005 11:02 am

Prices would only rise in response to two factors:

- cost of inputs
- demand

If cost of inputs is decreasing (the pro-globalization argument), then the increased profits must be due to increased demand. Example: the SUV. Profits are (were) up because margins were higher. Are SUVs more "affordable" than midsize sedans? No way, at least not to purchase. But waaiiit.... what about leasing? Wow, zero down and only what per month? Cool, I'm in! And a tax break to boot? And then you're on the treadmill, simply pushing that affordability out into the future by assuming a greater liability in the present.

So increased demand + stagnant wages means one thing: increase liability (ie: use of credit). Hence the current dire consumer/business/state debt situation in Canada and the U.S. But once we're all rich from globalization, we'll pay those debts off, right? Wasn't that the idea?

The switch from wage increases to credit availability to stimulate demand is probably an offshoot of zero-inflation policy, since the former tends to drive up inflation and dilute the relative value of the assets of the "owner class", whereas the latter can be easily controlled, and value as easily destroyed as it is created. The Fed got a taste contrary to this in the 90's when it tried to mitigate the dot-com bubble via interest rate hikes, until they realized that the financing was all equity-based, not debt-based, so poking at rates had no effect.


Forum Elite

Posts: 1325
PostPosted: Wed Aug 17, 2005 11:46 pm

There was a news item on BCTV (Asper Global) tonight, jubilating over some Chinese outfit buying a chunk of a BC gold mine up North near Stewart.

Little Pierre Pettigrew, posing as Foreign Minister with his beautiful coiffeure, was also present gushing over how much foreign investment is welcome and good for Canada.

These people and all who are singing the praises of foreign investment, which includes the whole Liberal and Tory parties, have gone completely bonkers. No country with resources needs any foreign investment. If foreign investment wants to move into a country it is proof in itself that the country doesn't need it.

Looks like Pierre is beginning to feel out for some lucrative directorships. He was a dead loss as Trade Minister, as Foreign Minister, he's a bad joke. Ed Deak, Big Lake, BC.


Active Member

Posts: 301
PostPosted: Thu Aug 18, 2005 5:00 am

"No country with resources needs any foreign investment. "

Ed, while I'm generally sympathetic to your point of view I have to challenge here. Canada was built on foreign investment, or at least foreign lending. MacDonald borrowed massively to build the railroad west, else it could not have been done!

Although: that is better described as debt financing than FDI--I guess under a loan (at least one you intend to repay) you aren't giving up equity.

And: I'm not challenging your assessment that the modern process is not tainted by selfishness and corruption.

You may be correct, but what would be the alternative?


Junior Member

Posts: 60
PostPosted: Thu Aug 18, 2005 11:58 am

>>what would be the alternative?<<

Off the top of my head (I'm no economist), how about bond issues to finance industry/resource initiatives? How about a bigger "cut" in extracted resources (as Norway and Venezuela are doing). How about higher taxation (on foreign corporations in particular i.e. opt out of WTO)?


Active Member

Posts: 301
PostPosted: Thu Aug 18, 2005 1:31 pm

Who issues the bonds?

I don't think the feds should be in bed with industry/resource initiatives at all, that's how we got to where we are now.

Definitely where Crown lands or resources are involved, the price of use (drilling, stumpage) should go up. Maybe we should just switch things around: The public is financing loan guarantees, subsidies and tax breaks for the same companies that use this money to sell their equity to foreign investors. Seems kind of stupid. If the taxpayer chips in the taxpayer should get equity. If the taxpayer assumes a liability, the taxpayer is first in line for the collateral.

Finally, public assets should go on the books at the same value and depreciation rate as in the private world. The fast-public-write-down is the biggest scam out there, dwarfs adscam for bilking the public. In this scam, assets held by the government are written off completely in one or two years and stay "on the books" at a nominal value, sometimes $1 (this includes real estate holdings). Government sells these assets in privatization moves for well-above book value, and the buyer gets it well below market value, and the snakes on all side look like heroes and make out like bandits.

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