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The Yin and Yang of U.S. Energy (or Why We Need a Policy)

Gas Drilling Western PoliticsFirst off, let’s get one thing straight. I take a back seat to no one when it comes to an appreciation for the transformative power of cheap energy.

Sure, re-shoring has been a factor in helping bring about this renaissance in U.S. manufacturing, as are increased costs abroad and a spike in foreign worker demands. But all those things get dwarfed (and then some) by the glut of suddenly affordable energy, particularly oil and natural gas, we now have at our disposal.

So you’d think I’d be an unabashed, unapologetic and dyed-in-the-wool proponent of all things cheap energy, right? And that I’d be so mad I’d be spitting nickels that last week Congress killed the Keystone pipeline that would have brought even more cheap oil from rural Canada to refineries in Texas.

Well, you see, that’s where things start to get a little tricky. Because every time I feel I want to push all my chips toward the center of the table and declare myself “All in” on cheap, domestically controlled energy, the other side of my brain starts chirping.

Fracking 2Because while cheap energy means so many great things for U.S. manufacturers, at least in the short term, those great things, it seems, all seem to come at a price.

For example, cheap energy will mean manufacturers and heavy industry in this country remains wedded to a 20th Century fuel source and remain that much less inclined to research and develop cleaner, more sustainable sources of industrial power, including wind, solar and nuclear – all of which will ensure not only a healthier and more environmentally balanced planet for our children and theirs, but thousands of high-paying, high-skilled jobs in the process.

Cheap energy as its now defined will also mean we continue to burn fossil fuels, continue to destroy what little of this earth’s pristine beauty and wilderness still remain, continue to dump billions of tons of carbon into oceans and the atmosphere, and continue to put our planet in harm’s way, causing it (and us) irreparable damage.

(And, yes Virginia, I am living, breathing proof it is possible to ferociously embrace the tenets of capitalism while still believing in the unimpeachable science behind climate change.)

Fracking 3I call it the yin and yang of 21st Century American energy.

But that’s only one such instance in which some aspect of our industrial power equation is accompanied by a dual cause and effect.

Consider just a few such ironies as they relate to our current energy situation:

  • In a day and age when the call for lower taxes is so strong it threatens to drown out all other debate, now more than ever we must spend billions, if not trillions of federal money to rebuild our country’s infrastructure, the most critical aspect of which is a rapidly decaying and woefully inadequate power grid.
  • The established, traditional power companies that are paying to maintain our nation’s power grid do not get one dime of financial help from all the start up and alternative energy power concerns now springing up from coast to coast, virtually all of whom rely heavily on the very same power that grid makes possible – and at the same time those concerns are selling power directly to (or stealing customers from) the traditional companies whose grid makes their very existence possible.
  • Fracking 4The hundreds of startup companies that have grown up around the concept of fracking are now mining massive amounts of cheap shale oil and natural gas. Yet those same companies have also started to realize they could get a higher return if they sell their product overseas, so the call is growing louder and louder for these American companies to be able to sell much of the oil and gas they’re fracking to our competitors around the globe.
  • And while that overseas market will greatly expand the size of the market for those start up fracking concerns, those entrepreneur-driven companies are even now finding themselves competing in a hopelessly fickle and extremely volatile global marketplace. As a result, many are slowly coming to realize that the same cheap energy they helped make possible is cutting deeply into their margins, threatening to place them under a pile of debt, while putting many at risk of being destroyed by the very thing they created.
  • Just as it seems we’ve weathered the storm of China trying to flood the U.S. market with cheap, Chinese-made solar panels, and solar power has reached a point at which it’s not only practical, but profitable for American companies to produce and sell, our national appetite for solar has come to a screeching halt by the sudden glut of cheap (but environmentally devastating) fossil fuel.

Fracking 6And I could go on and on. But suffice it to say, to feel strongly about any one side of almost any current energy issue is to turn a blind eye to the full picture and the long range view.

What this all means is that, even for someone like myself, who has thrived in the open marketplace and who recognizes and respects the wisdom in that marketplace, the time has come for the government to intervene in the areas of exploring, processing, creating and marketing the energy that fuels this economy.

We need, in other words, a solid and well-developed federal energy policy, one we all buy into and support.

We need a smarter, rebuilt power grid.

We need cohesion when it comes to utilizing existing power sources and a financial and technological safety net when it comes to developing new ones.

We need long range planning more than short-term fixes and profit motives.

Fracking 7And we need to understand that nothing in the business of energy exists in a vacuum. Our planet and our grandchildren must have a say in how business is conducted. After all, we’re not the future. They are.

And all one has to do is to consider at any one variable in today’s current power equation, try to (if only for a moment) look beyond the politics of self interest and the length of one’s own nose, to see that as a country we no longer need motivation or additional profit incentives. We’ve got plenty of those.

What we need now is a plan.

 

Contemplating Open Borders

Open BordersOne of the objectives of my starting this blog was to share with people like you just a touch of what I’ve learned in a lifetime in manufacturing and decades spent running my own company. But you know what? A funny thing happened on my way to all that teaching. I started learning. A lot.

Like this week.

Let me explain. This Monday I found myself stewing as I thought about two long-time employees of mine who had run recently afoul of U.S. immigration laws for some falsehoods and half truths they put on their applications decades ago when, as young men eager to carve our new lives for themselves, they first came to this country. As a result, both were summarily deported and their lives left in tatters. And in the process, I lost two of my best employees and hardest workers, machinists who were as skilled as they were dependable.

That’s why I got on my computer this week and why I started researching. And in the course of my research I stumbled upon a relatively unknown economist at George Mason University named Bryan Caplan.

Open Borders 3As an unabashed and unapologetic libertarian, Caplan has emerged as perhaps the leading and most articulate proponent of a number of radical ideas, not the least of which is something for which he’s becoming especially famous or infamous, depending upon your perspective; opening nations’ borders the world over and granting people to right to move in an out of countries as they please.

He is advocating, in other words, a world – a job market – without any political borders and one driven almost exclusively by market forces and the tenets of free enterprise.

Now, I know what you’re thinking. That would be nuts. As people in dirt-poor countries like Haiti would undoubtedly flock to developed places like America, if only for the health care and quality of life.

Open Borders 6But that’s exactly the crux of Caplan’s hypothesis. His theory is by eliminating geopolitical boundaries we would virtually wipe out the crippling poverty that grips the third world (placing a drag on the overall global economy) and create a level of global wealth, the likes of which man has never known.

Because the difference in salaries between, say, Haiti and the U.S. or Brazil is not 20%; it’s 2,000%. And that money would do more naturally to alleviate global poverty than the trillions earmarked over the years to do the same thing.

What’s more, because jobs would be awarded based on skill level – and those skills in this country would, for example, include facility with the language, ownership of a car and/or real estate, knowledge of the area, and, of course, willingness to work, the current job force in a country would not necessarily be replaced. To the contrary, many workers might qualify for positions supervising such immigrants.

Would some members of the current workforce be displaced? Absolutely, according to Caplan. But only the lowest skilled and least motivated; and they would represent less than 10% of the population. Meanwhile, 90% of the people would benefit as the economy grew and the additional wealth such growth generated got divided among them.

Open Borders 2And as Caplan argues, what kind of system puts the interests of an uneducated, unmotivated and unskilled 10% over a more capable and motivated 90%?

Now, understand, I’m not necessarily buying into the whole notion of open borders. But given how frustrated I am over having just lost two of my best machinists and members of my work family, you can bet I’m more open to it than ever before.

And my sense is the idea of opening the world’s borders is like any radical idea; it may sound insane to some, but there’s more than a whisper of logic to it.

For example, would legalizing the world’s oldest profession be insane? Maybe to many women and those on the religious right. But I’ve also heard it argued that legalizing prostitution would improve public health, reduce crime, free up police assets, ease the burden on the courts, and generate tens if not hundreds of millions in state and local revenues.

20121206_FRCC_SHOP_CLASS_393And, in addition to granting scholarships, would recruiting our best high school athletes with cold hard cash and paying them openly to play college ball be insane? Perhaps. But it would also eliminate cheating, allow them to share, however lightly, in the billions in revenue they help make possible, and allow the poorest student athletes (kids who will most likely never sign a pro deal) to assist their families to not merely watch them play once or twice a year, but often eat, stay warm, and maintain a roof above their heads.

Look, I’m not saying that open borders are the answer. But I will tell you this; I’m sitting here this morning thinking of my two employees and how much both meant to me, both personally and professionally. And right now, the idea of opening our borders to hard working and motivated workers – even those without
Open Borders 5skills – no longer seems that far-fetched.

Besides, lest we forget; such concepts as the emancipation of slaves, giving a woman the right to vote, an economy built entirely on free enterprise and lasses faire capitalism, and the everyday use of the internet by everyday people were once ideas deemed so radical and far-fetched most thought – no, most knew – they would never, ever see the light of day.

The Lessons of Lobster

lobster 2I’d like to talk to you about lobster briefly.  What’s lobster got to do with manufacturing, you say?

Well, hear me out, because that odd little crustacean – and our unique relationship with it – may just hold an important lesson for us manufacturers.

I bring this up because there is something truly special about lobster. Whereas other foodstuffs, including meats like beef and pork, are commodities through and through, and as such experience price fluctuations that vary as the market dictates. Lobster, on the other hand, while still a commodity, never seems to be subjected to fickle marketplace whims like supply and demand.

lobster 3Consider; even though in the past decade the global supply of lobster has exploded, perhaps due to a warming of the waters in which it breeds, the retail price for lobster has not fluctuated accordingly. Even though a glut of lobster at the point of harvest has caused its wholesale price to plummet from around $6 a pound to just over $2 a pound, the retail price has remained steady, and in some cases actually risen.

What’s more, and far more important to my point, is that lobster is still perceived as a high end, highly coveted entrée that carries with it all sorts of implied value and social status.  To say one is eating lobster tonight is shorthand for saying that this evening I am sparing no expense in the pursuit of luxury.

lobster 4Why is that?  Well, that’s a complex question. And part of it, no doubt, has to do with the pricing strategy many restaurants employ. Listing lobster as “market priced” and not posting any set price on the menu, instills in it a certain allure and sense of mystery. And when products carry such things, price becomes more an emotional consideration than a microeconomic one.

In addition, having one item on the menu so much higher priced than the others, it makes all other entrees seem more affordable.  Plus, with the wholesale price so relatively low and the perceived value so high, it is possible to add new kissing-cousin items like lobster rolls, lobster mac ‘n cheese, lobster salad and lobster soup to the menu, and charge a premium for them, even though the inherent costs of such items is comparatively low.

But the fact remains that lobster has found a way to circumvent the whims of the marketplace and to rise above such otherwise bourgeois considerations as price.

lobster 6People buy lobster, and often don’t care what they pay for it, because in the end it has held its perceived value and remained a desired, coveted and even aspirational dinner option.

And how many of us, with manufactured goods to sell in an increasingly fickle global environment, wouldn’t benefit from that kind of relationship with our customers?

Yet, how do we achieve that kind of relationship?  By instilling in our products the kind of visceral, emotional value that lobster has.

And how do we do that?

Well, that too is a loaded question.  But we could start by being uncompromising in our pursuit of quality and relentless in our implementation of quality control.

lobster 7By providing service, maintenance and follow-up that goes beyond what is expected and regularly traffic in the unexpected, while testing the outer reaches of the customer’s sense of what’s possible on our end.

By standing behind our products fearlessly and with few, if any questions asked.

And by viewing any new sale or any new order as the highest form compliment in our sector, and by working to repay that gesture and show our gratitude for the balance of the life of that customer.

lobster 8The long and the short of it is, my friends, as manufacturers we need to start to find ways of instilling in our products the absolutely highest perceived value, and to get our customers viewing what we manufacture with their hearts as much as their minds.

Because once a sufficient number of companies in this country start doing that, and a sufficient number of companies start producing goods, products and components that build an emotional bond with them men and lobster 1women in charge of buying them, American manufacturers will have taken a giant step is making a Made in the USA label mean something much more than a rallying cry for those who would have us close our borders, bury our heads in the sand, and pretend the global market is simply a bad dream.

Enough companies do that, my friends, and I promise you; Made in America will suddenly mean as much to the global marketplace as a certain little crustacean still means to us.