Chrysler & Small Town USA, a love story
Once upon a time there was a company called Chrysler. Chrysler made cars. Popular cars that were made and sold in the wealthiest nation on Earth - the United States. Chrysler built factories in small towns that were glad to have the business. So glad that the local government subsidized most of the cost of building the factory, and whoever offered the best deal won the contract.
So this small town starts doing extremely well. Chrysler is a very rich company and rewards its workers well by paying them well. Joe Employee takes his large paycheck and goes to the market to buy bread, shoes, and see a movie. Bob Grocer, who opened shop on the same day as the Chrysler factory is glad for Joe's business, and they greet each other by name.
Joe's co-workers know how rich Chrysler is, and organize a union. "We're not going to work unless you pay us more money, let us work fewer hours, and in better conditions." Chrysler pays them more money, lets them work fewer hours, and makes sure the employees are safe, comfortable, and well cared for. Chrysler even pays them after they retire, so nobody needs to save. Newspapers write about how tense union negotiations are, but things work out in the end. Auto workers are among the highest paid factory workers in the world. It's a victory for the employees, the unions, and the working class in general.
Because of all this, Chrysler's operating costs go up, and they charge more for their cars, but this is okay because all the automobile manufacturers are subject to the same problems - the UAW (United Auto Workers) makes sure that everyone who makes cars gets payed well.
Things are fine for a while, but this becomes a problem when foreign automobile manufacturers come in and sell cheaper, more reliable cars. People start buying those "Jap" cars and Chrysler has to adjust. Looking at their costs, they see where they can cut corners, and one category comes up over and over again - the human capital.
So Chrysler closes it's factory and goes where the labor is cheaper (not to mention where there are less stringent environmental laws). Mexico. It's is on the same land mass as the U.S. so they don't need to put anything on a boat to ship it from one department from the other. Parts can be made in the U.S., sent to Mexico for assembly, and then shipped back to the U.S. to be put in to cars. They get to say the cars are made in America, but large components of it simply aren't.
Chrysler even goes to Japan to learn from Japanese workers, and to operate factories there. They even buy cars from Japanese auto makers to sell under the Chrysler label. Movies are made about this (like Gung Ho), and it's written about in business textbooks. For an entire decade newspapers write stories about how Japan could beat us at just about everything. They say things like "The Japanese have learned everything we taught them after WWII and improved on it. They work harder, and the average Japanese worker is more productive than the average American worker. Employees are much more loyal to the company, and they take any defects in the products they make personally."
In the early 90's NAFTA - the North American Free Trade Agreement - is passed so that Chrysler doesn't have to pay import/export taxes on goods they ship between America and Mexico. Unions protest, but NAFTA passes, and lowers Chrysler's operating costs a little more.
Back in the small town, without the factory everything starts to dry up. Joe Employee can't buy as much, so he buys cheaper bread, and waits a few months or years longer to buy shoes. He skips the movie altogether. Documentaries are made about this once thriving town and songs are written.
Allentown - by Billy Joel
Well we're living here in Allentown
And they're closing all the factories down
Out in Bethlehem they're killing time
Filling out forms
Standing in line
Every child had a pretty good shot
To get at least as far as their old man got
But something happened on the way to that place
They threw an American flag in our face
Well I'm living here in Allentown
And it's hard to keep a good man down
But I won't be getting up today
And it's getting very hard to stay
And we're living here in Allentown
Interestingly, a small town in Mexico starts doing well for itself. The working conditions aren't up to the American standards, but the Mexican's know that Chrysler can - and has - moved if market forces change, so they're greatful for the work.
The circle of life starts anew south of the border.
Mein Korporation: Increasing Globalization
In a strange twist of fate, Chrysler is bought by a German company. DaimlerBenz, maker of the Mercedes Benz, buys Chrysler, and in keeping with the German fashion of making really long words out of smaller ones, names the company DamilerChrysler.
Car enthusiasts aren't sure whether or not to remain loyal to the cars they grew up with, or buy another car not manufactured by a German company. When the new better looking, better handling, more reliable models come out, they get over it pretty quickly.
Back in that poor, depressed town, a new mega corporation moves in to save the day. Wal Mart. They promise "lower prices" and to create dozens of new jobs. Some people applaud Wal Mart because it will create jobs and give them more for their money. Other people stidently oppose Wal Mart because it's the death knell for local business, and the jobs it creates are all minimum wage.
Joe Employee who used to pride himself on being able to drive a late model Chrysler takes a job at Wal Mart and now has no other choice but to shop there too because it's the only place he can afford to buy anything. Back in town, Bob closes shop because nobody visits his store anymore.
All the business capital that was pumped in to Small Town U.S.A. by Chrysler is sucked out by Wal Mart. Money isn't coming in anymore, it's going out. Chrysler sends its capital to Mexico, Germany and Japan. Wal Mart's suppliers send their capital to China. All the profits go to the same place they've always gone... Germany?
In truth, no publicly traded company is owned entirely by one group. Even before the takeover, some of Chrysler was probably owned by German companies. Currently (as of year end 2003), 55.4% of the shareholders are in Germany, and 16.5% are in the United States. Interestingly, The Emirate of Kuwait a small nation in the Middle East between Saudi Arabia and Iraq, right on the Persian Gulf, a country that owns 10% of the world's oil reserves and with easy access to shipping lanes, owns 7.2% of DaimlerChrysler. That's The Emirate of Kuwait, not it's citizens, the country itself owns 7.2% of DaimlerChrysler.
Something tells me DaimlerChrysler's interests don't really lie in making more fuel efficient cars.
Robert X. Cringely, in his article "The China Syndrome" on IBM's selling of their PC business to a Chinese manufacturer Lenovo for much less than it's market value hits on a few points about globalization. Even though IBM doesn't own their PC business anymore, they do have partial ownership of the company they sold it to, and have opened a door in one of the largest potential markets in the world. One that is about to explode in a big way - China.
Wal Mart (I don't know who owns them) was started by Sam Walton in a small town called Newport, Arkansas. Wal Mart now operates over 4,900 stores, and what might surprise you is that 27.6% of them are not in the United States. Wal Mart operates stores in Argentina, Brazil, Canada, China, Germany, South Korea, Mexico, Puerto Rico and the U.K. In fact, I just saw a BBC news report stating food retailers in Europe are selling 46% more than just 4 years ago. This growth is driven by non-food products, and Wal-Mart is leading the way.
So when people talk about the declining dollar, the trade deficit, and other economic factors, I think they're taking a narrow view of things. Our business is, increasingly, not in dollars anyway. We sell things in British Pounds, and pay for them with the Chinese Yaun. I don't think many economists talked about the "trade deficit between New York City and Detroit Michigan," but we talk about the trade deficit between America and China. In this increasinlgy global economy, I don't see how one distinction is much more important than the other.
So what happens to the people of America if less and less of the business of America is conducted in America? Well, like that small town, we buy fewer groceries, wear our old shoes a few more months, write songs, and make documentaries about the way things used to be.