The Washington Post prominently reported today (http://www.washingtonpost.com/wp-dyn/content/gallery/2008/05/30/GA2008053002534.html?hpid=artslot) on the opening of a furniture factory by the price-conscious retailing giant Ikea. Ikea supplies itself from plants all over the world, so one more wouldn’t be worthy of the page one coverage plus two photos that the Post gave to it. But this one is located in Danville, Virginia, and is the first that Ikea operates in the United States – and that is big news. Bookshelves and coffee tables made in Virginia – bravo!
The article cites a number of factors, including the will power of Virginians, as helping to reverse two decades of job losses. “The weakening dollar,” says the report, “has made the United States more attractive to foreign investors. Companies from England, Canada and India have recently opened operations or expanded in Danville.”
True, Danville has lost tens of thousands of manufacturing, mostly textile, jobs in recent years, and the Ikea plant will eventually employ only 740. True, unemployment in the Danville area still exceeds 7 percent. And true, for many of the new hires, wages are substantially lower than they used to earn.
For several years, I’ve been speechifying that there is only "good" news and better news. The "good" news is that, if we do nothing, market forces will wring the excesses out of the American economy. That will entail a lower dollar, higher inflation, and a lot of belt-tightening by many Americans. That process has now begun in earnest but is far from complete. If allowed to run its course, America will eventually be a highly attractive place for folks with money to invest and produce and a cheap export platform. There will be plenty of jobs, especially for workers with skills. The downside is that our standard of living will be reduced, painfully. What’s happening in Danville illustrates this point very well.
The better news, as I try to argue at every opportunity in this space, is that we can avoid a lot of that pain with smart, globally competitive public policies. Rather than relying on the cheaper dollar (which also contributes to higher energy prices and interest rates), America could achieve a lot of the same gains by making intelligent changes in our tax, energy, infrastructure, and health care policies. Better still, those gains are more likely to endure than market-driven corrections, leaving us better equipped to compete successfully in the global market.
Already there are signs that the US and some of its major trading partners want to reverse the depreciation of the dollar in order to reduce energy costs and ease inflation. That’s understandable, of course. The other side of that coin, however, is that the market incentive for more investments like Ikea’s in Danville will be commensurately lower.
As I tried to argue in “Receding Recession?” relying on market forces to solve structural problems is foolish and subjects us unnecessarily to the whip-sawing discipline of market forces. The Invisible Hand leaves visible scars on individuals, families, communities and nations. We can do better with smart policies.
Saturday, May 31, 2008
GOOD NEWS, BETTER NEWS
Labels: U.S. Economy
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Thank goodness I can now buy a Voorlag end table that was made in Virginia! I agree with your most recent post. America needs to make structural policy changes in order to increase its competitiveness. One way it could do this is by adopting a progressive and green energy policy that would rely more heavily on renewable and domestic sources of energy such as wind, solar, and nuclear. Cheaper energy can only make American businesses more competitive while crowning them with a "Green Halo."ReplyDelete
Don't be naive. American manufacturing is as dead as the Dodo and no windmills or tax scheme is going to bring back John Edward's father's cotton mill. America should focus its energies on the industries of the 21st century; not bemoaning the loss of domestic sock production.ReplyDelete
So, Anonymous, you think that Ikea is foolish for starting production in the US? They supply themselves worldwide (only 22 percent from China), so one would think they would know a few things about international ocst comparisons. Whhere id they go wrong in this case?ReplyDelete
ias group, IKEA is not foolish for setting up shop in the Commonwealth of VA. What IS foolish is pining for the "good old days" of American manufacturing. It's gone. For good. Good riddance. Those jobs were dangerous, dirty, and low-skill anyway. America should focus on 21st century jobs that involve more brain power and special skills.ReplyDelete
I think IAS Group is trying to say that America needs to make itself more competitive IN GENERAL. That is, we should institute structural changes to way we govern, tax, and do business in general to attract a wide range of businesses; from manufacturing to high-tech. While it's true that IKEA pays a pittance compared to the manufacturing jobs of yester-year, I welcome the Swedes to Viriginia. I hope that America will take some of Charles Blum's recommendations so that the Swedes, the Germans, the Chinese, the French, etc. invite some of their high-tech friends to set up shop in the US as well.ReplyDelete
Anonymous also misses the significance of the default setting for the US economy. As a country, we've run up a massive foreign debt (more than three trillion dollars, net of all our assets abroad) that we can't repay without producing goods in excess of our "needs." At some point, the market will do that for us by means of a much cheaper dollar and inflation if we don't act first with intelligence and a sense of national purpose. If we let the market do it, we will be a competitve manufacturing country again -- and a poorer one. And, by the way, anyone who thinks that we have a lot of uncompetitive factories and low-skilled manufacturing workers hasn't been inside a typical American manufacturing plant recently. The subpar facilities have by and large been eliminated. The American steel industry, ridiculed as a white elephant in the 1980s by folks such as Anonymous, is coming off the best five years in its history after a painful (there are those scars again) consolidation and rationalization. Now, new greenfield steel mills are being built in the US by Russians and Germans. If we are to get our policies right for the future, we must stick to observable facts and clear economic logic and shun ideology and propaganda.ReplyDelete