The Rise and Fall of the American Textile Industry

Posted by PITHOCRATES - July 2nd, 2013

History 101

Inventions and Innovation gave the United States a Burgeoning Textile Industry

The American textile industry was founded by businessmen.  And inventors and their inventions.  Not by any labor movement.  For before there could be a labor movement there first had to be industry to employ laborers.  And laborers weren’t creating these industries.  They were just selfishly waiting for others to do this so they could get a job in them one day.

We may never know which came first.  The chicken or the egg.  But we do know which came first when it comes to industries and laborers.  The mind came first then the muscle.  Rich people with a keen eye to judge a good investment.  Businessmen and entrepreneurs unafraid to take a risk.  And who will throw their body and soul into their business.  Then the non-risk taking people come along.  The laborers.  Who have no skin in the game.  Who wait until the minds come together to create something in which they can apply their labor.  And get a paycheck.

Samuel Slater built cotton mills in New England (1800ish).  Slatersville Rhode Island, the town he established, bears his name.  Francis Cabot Lowell and Paul Moody created a more efficient power loom and a spinning apparatus (early 1800s).  Elias Howe invented the sewing machine (mid 1800s).  And the lock-stitch.  Throw in a few more inventions, some improvements on past inventions and some innovation and you have a burgeoning U.S. textile industry.

The Luddites went about England smashing the Machines of the Mechanized Textile Industry

Cloth-making used to be a labor-intensive activity of highly skilled artisans.  For those who had the money to afford the costly clothing they made.  Many could not.  And made their own clothing in the home.  Women would spin fiber into yarn.  And weave the yarn into cloth.  Which was very labor intensive.  Allowing only a meager production of clothing for the family to wear.  Which meant a lot of darning for worn out clothing.  Hand-sewing patches to cover holes.  Sewing ripped seams back together.  And sewing together rips and tears.  Until the clothing was so worn that it couldn’t be darned anymore.

It is hard to fathom how important this was during early America.  A time of a mini ice age.  In the north the winters were long and they were cold.  This homemade clothing may not have been pretty.  But it could keep you from dying of exposure in those brutally cold winters.  The mechanization of the textile industry changed all of that.  Smart inventors and business owners used machines to automate the cloth-making process.  Allowing less skilled people to operate smart machines.  Producing more clothes for less.  Bringing the cost of clothing down.  So anyone could afford to buy clothing.

Of course, this did not make everyone happy.  As those machines replaced the need for highly skilled artisans.  Who demanded high prices for their craft.  Allowing only the rich to afford their wares.  They didn’t like these machines cutting into their high wages.  And did something about it.  A group of people called ‘Luddites’ went about England smashing the machines of the mechanized textile industry (1811-1817).  Hoping to force a return to the old ways of making clothing.  By skilled artisan.  Where only the rich could afford to buy clothing.

Unions have Exported Entire Industries to Emerging Economies to Escape Soaring Labor and Regulatory Costs

Just as the textile industry was modernizing and mechanizing two seamstresses formed the first all-women’s labor union in 1825.  The United Tailoresses of New York.  Protesting 16-hour workdays.  And the lack of a living wage.  Strikes followed.  The Lowell, Massachusetts, mill women’s strike in 1834.  The Manayunk, Pennsylvania, textile strike in 1834.  The Paterson, New Jersey, textile strike in 1835.  And the Llowell, Massachusetts, mill women’s strike in 1836.  In 1844 women formed and ran the Lowell Female Labor Reform Association.  Then more strikes.  The Cohoes, New York, cotton mill strike in 1882.  The Fall River, Massachusetts, textile strike in 1884.  The Augusta, Georgia, textile strike in 1886.  The Fall River, Massachusetts, textile strike in 1889.  In 1890 New York garment workers won the right to unionize.  Close their shops to nonunion workers.  And fire any nonunion workers on the payroll.  In 1900 the International Ladies’ Garment Workers Union was founded.  In 1901 the United Textile Workers was founded.  Then came the New York shirtwaist strike in 1909.  Massachusetts passed the first minimum wage law for women and minors in 1912.  Then came the Lawrence, Massachusetts, textile strike in 1912.  Giving us the walking picket line.  Then the Paterson, New Jersey, textile strike in 1913.  The Amalgamated Clothing Workers union was founded in 1914.  Then the Fulton bag and cotton mill strike in 1914.  The Passaic, New Jersey, Textile Strike in 1926.  And so on.

The Luddites hated the machinery of the modern textile industry.  As they didn’t like the idea of replacing many highly skilled and well-paid artisans with automated machinery operated by fewer low-skilled laborers.  So they tried to smash the automated machinery.  To try and save their jobs.  Which the labor movement was happy to see go away.  For they would rather pack as many low-skilled laborers into those Dickensian factories as possible.  For the more members they had in their unions the more powerful they were.  And the more they could demand from the business owners.  They demanded a lot, too.  Higher wages, shorter hours and better working conditions.  So much so that the cost of labor rose while productivity fell.  Throwing the door open to foreign competition.

The big labor movements used their friends in government to protect their generous union contracts.  By passing pro-union legislation.  And placing tariffs on imported textile goods.  Keeping clothing prices high.  So business could earn enough to pay those generous union pay and benefits.  But this left these businesses uncompetitive in the world’s markets.  Which they wanted to sell in.  For it wasn’t only Americans that wore clothes.  Those union contracts increased labor costs so much that businesses found it hard to remain in business let alone remain profitable.  So they started leaving the United States during the 20th century.  Which is why today there is no U.S. textile industry.  Because of the high cost of labor.  And costly regulatory policies.  Where is the textile industry today?  In the emerging economies.  Where labor and regulatory costs are lower than in America.  While the standard of living for those employed in these factories are often higher than their fellow countrymen.  Which is what unions have often done in the United States.  Create good jobs in emerging economies.  By exporting entire industries from the United States to these emerging economies.  Where they can escape soaring labor and regulatory costs.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , ,

The U.S. and Japan assailed Argentina’s Mercantilist Trade Policies at the World Trade Organization

Posted by PITHOCRATES - August 26th, 2012

Week in Review

International trade can be a funny thing.  For mercantilist ways of the past are hard to give up.  Especially the misguided belief that a trade deficit is a bad thing.  Some nations are better at some things than other nations.  And have a comparative advantage.  And it would be foolish to try and produce something another nation can produce better.  It would be better for nations to do the things they are best at.  And import the things that others are better at.  Just as David Ricardo proved with his law of comparative advantage.  Still everyone still wants to export more than they import.  Still believing that their mercantilist policies are superior to the capitalistic policies that are characteristic of advanced economies.  While mercantilist policies can rarely advance beyond emerging economies.  Case in point Argentina (see Argentina says to file WTO complaint against U.S by Tom Miles and Hugh Bronstein posted 8/21/2012 on Reuters).

The United States and Japan assailed Argentina’s import rules as protectionist at the World Trade Organization on Tuesday, putting more pressure on the country to revamp policies that many trading partners say violate global norms.

The two complaints mirrored litigation brought by the European Union in May and triggered a swift reaction from Argentina’s center-left government, which vowed to challenge U.S. rules on lemon and beef imports.

Argentina is seen by many fellow Group of 20 nations as a chronic rule-breaker since it staged the world’s biggest sovereign debt default in 2002. It remains locked out of global credit markets and relies on export revenue for hard currency.

They have inflated their currency so much that it is nearly worthless.  They can get little of foreign currency in exchange for it.  So they depend on the foreign currency buying their exports for their money needs.  For they can’t destroy foreign currency with their inflationary policies.  Only the wealth and savings of those in Argentina who don’t have access to these foreign currencies.

In the old days the mercantilist empires brought gold and silver into their countries.  They had their colonies ship raw material back to the mother country.  The mother country manufactured them into a higher valued good.  Then exported it for gold and silver.   Today we don’t use gold and silver anymore.  So Argentina just substituted foreign currency into the formula.  While keeping the rest of it in place.

Argentina began requiring prior state approval for nearly all purchases abroad in February. Imports have since fallen compared with last year’s levels, boosting the prized trade surplus but causing some shortages of goods and parts and sharply reducing capital goods imports.

EU and U.S. officials say Argentina has effectively restricted all imports since the new system came into place…

On Monday, Argentina hit the EU with a separate WTO complaint, alleging discriminatory treatment by Spain against Argentine shipments of biodiesel.

“This measure, like others taken by the European Union and other developed countries for decades, effectively aims to keep our industries from rising along the value chain, limiting the role of developing countries to the provision of raw materials,” the Foreign Ministry said in a statement…

Latin America’s No. 3 economy relies heavily on a robust trade surplus, which is used to help fatten central bank foreign reserves tapped to pay government debt. The government has also moved to curb imports to protect local jobs, while imposing capital and currency controls to keep dollars in the country.

“Import growth has halted, which we should have done long before,” Foreign Trade Secretary Beatriz Paglieri was quoted as saying on the presidential website last weekend…

Argentina has also been criticized for a policy of “trade balancing,” which forces an importer to guarantee an equal value of exports. That has spawned offbeat deals whereby a car producer, for example, must ship a large amount of rice out of the country in return for a consignment of vehicle components.

Mercantilist to the core.  Which will forever trap them into being an emerging economy.  For they’ve been doing this for decades.  And they’re still an emerging economy.  Juan Peron rose to power with the same mercantilist arguments.  He was a Justicialist.  Today’s president is a Justicialist.  President Cristina Fernandez.  And little has changed since World War II.  Argentina is still an emerging economy.  Thanks to their mercantilist policies.  If they’d only give capitalism a chance their economy would explode with economic activity.  At least, based on history.  For the most advanced economies today are NOT based on the current Argentine model.  They’re based on the free trade of capitalism.  And David Ricardo’s comparative advantage.

In countries with free trade people enjoy higher standards of living.  Their governments give them this good life by doing as little for them as possible.  Letting the free market shower them with wealth and happiness.  Which brings us back to the funny part about international trade.  The countries that try to do the most for their people by restricting free trade give their people a lower standard of living.  Except, of course, for the few in power.  Or for those connected to power.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , ,

BRICS are taking on the United States, the Eurozone and the World Bank

Posted by PITHOCRATES - March 31st, 2012

Week in Review

BRICS are on the ascendant.  Producing healthy economic growth while the old dogs who taught them everything they know are wallowing in economic despair.  Then again, the old dogs aren’t what they used to be.  For they are nothing like their former selves.  Or BRICS.  Who are embracing economic growth.  Instead of worrying about income redistribution and environmental policies that are killing the old dogs.  And these new dogs are looking to teach the old dogs a new trick (see Bank tops agenda at Brics summit of emerging nations posted 3/29/2012 on BBC India).

Brazil, Russia, China, India and South Africa (the Brics group) are proposing an alternative to the World Bank.

Leaders of the five nations, which now account for nearly 28% of the global economy, discussed closer trade links…

“The Brics countries have agreed to examine in greater detail a proposal to set up a South-South development bank, funded and managed by the Brics and other developing countries,” Mr Singh later said.

The Delhi Declaration expressed concern over the current global economic situation, especially in the euro zone…

The countries also resolved “to promote greater interaction among the business communities of Brics nations and easier visa facilities for businessmen”.

Mr Singh said the Brics group must speak with one voice on important issues such as reform of the UN Security Council.

President Hu said Brics nations should “enhance co-operation and intensify communication in international trade”…

The Brics nations have radically different economies and political systems and have often struggled to find common ground in the past.

But, they have been looking at ways to increase their trade links and decrease dependency on Europe and the United States.

Speak with one voice and improve international trade?  To compete against Europe and the United States?  Other than that part about Europe this sounds very familiar.  Oh, yes.  I remember.  This is what the Europeans said when they set up the Eurozone.  Which is struggling to survive.  Because they can’t speak with one voice.  For the individual nations may have surrendered their currency.  But they won’t surrender their sovereignty.  Which is why uber responsible Germany is continually frustrated by spendthrifts like Greece and Spain.  Not to blame Greece or Spain.  A common currency without a political unity was just a bad idea.

I suppose as long as BRICS don’t do anything foolish like try to set up a common currency to compete against the US dollar or the Euro they may do all right.  Being as they have such “radically different economies and political systems.”  But let’s just hope they don’t follow the “institutions of global political and economic governance created more than six decades ago” and ruin their emerging economies by turning them into social democracies.  Perhaps they can take a lesson from the Chileans.  Who have done a remarkable job embracing free market capitalism.  Thanks to their Chicago Boys.  And a little Milton Friedman.  Even privatized their social security system.  They’re doing pretty well now.  Unlike the nation that helped create them.  Spain.  Who is struggling with riots in their streets as they try to implement austerity to get their social spending under control.  So they can remain in the Eurozone.  And save the Euro.

Perhaps BRICS will be able to help bailout the Eurozone, too.  You know, as long as they don’t follow the Europeans down the Road to Serfdom.

www.PITHOCRATES.com

Share

Tags: , , , , , , ,

China Strengthens the Yuan against the Dollar

Posted by PITHOCRATES - February 12th, 2012

Week in Review

Well, this should please Donald Trump and Mitt Romney.  And others.  Who are hopping mad about China’s currency manipulation making American exports uncompetitive in China.  The Chinese have strengthened the Yuan on the eve of China’s Vice President Xi Jinping’s U.S. visit (see China’s Yuan Rises to 18-Year High Ahead of Xi’s Visit to U.S. by Kyoungwha Kim posted 2/10/2012 on Bloomberg Businessweek).

The yuan traded at 6.2916 per dollar as of 9:42 a.m. in Shanghai, after touching 6.2884, the strongest level since the country unified the official and market exchange rates at the end of 1993. The People’s Bank of China fixed the reference rate at a record 6.2937 per dollar.

Countries like a cheap currency because it makes their exports cheap.  I mean, inexpensive.  And if your economy is driven by exports you definitely want a cheap currency.  Which is why the Chinese have been keeping the Yuan weak.  To boost their exports.  Which they need more than ever what with her export markets wallowing in recessions.  They need to keep those Chinese exports cheap.  I mean, inexpensive.

China is also seeing some price inflation inside their country.  Caused by that cheap Yuan.  And those low interest rates.  So maybe it’s to help battle inflation on the home front.  Or it’s just to shut the Americans up a little on their currency manipulation talk during their state visit.  Whatever the reason, there is now a Yuan stronger than it has ever been in the past 18 years.  The U.S. economy is saved.  Yeah.

Or is it?  Only about 11% of U.S jobs are in manufacturing.  Most of those in aviation.  With Boeing leading the pack in U.S. exports.  So this stronger Yuan will probably do little.  No, it will take more than that to bring back manufacturing to the U.S.  For the U.S. to manufacture all those things the Chinese are manufacturing either the U.S. has to get cheaper labor.  Or China has to get more expensive labor.  Ditto for all that cheap labor in emerging economies around the world.  (Cheap by our standards but rather well-to-do in those emerging economies).  As none of this is likely to happen the stronger Yuan is not going to bring back much manufacturing to the United States. 

Sorry Donald.  Mitt.  And others.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , ,

Price Inflation has led to Wage Inflation in the Eastern Manufacturing Cities in China

Posted by PITHOCRATES - December 25th, 2011

Week in Review

Inflation has arrived in China.  Wages are going up.  Increasing the cost of their manufactured goods.  And the cost of living (see China province raises minimum wage by 23% posted 12/22/2011 on the BBC).

Sichuan province in southwest China has increased the minimum wage sharply to try and attract workers amid a rapidly rising cost of living.

Sichuan raised the minimum monthly wage by 23.4% starting on 1 January, state news agency Xinhua said on Thursday…

Severe labour shortages in Chinese cities have prompted wage rises in many provinces this year and last.

An example of the role prices play in supply and demand.  Life is good in the Eastern manufacturing cities.  So good that there is a lot of economic activity.  And prices are rising to allocate scarce resources that have alternative uses.  Even labor.  But inflation isn’t always good.  Higher prices eventually will lower sales as people can’t afford to buy as much as they once did.  And those cheap exports become not so cheap.  Which means those factories eventually will cut back on production.  As a recession settles in to readjust those prices.

Rising wages have prompted analysts to predict that China, previously known for its low cost of labour, could lose its edge as a manufacturing hub.

Manufacturers could look to countries such as Vietnam, Bangladesh and Cambodia where wages are still low.

However, Chinese authorities have been trying to boost domestic consumption and be less export dependent, and a rise in wages will encourage spending.

Before China it was Mexico.  Remember that great sucking sound as all those American jobs went to Mexico?  Mexico was chopping in high cotton for awhile.  Until they heard that great sucking sound as their jobs went to China.  And now China may hear it next.  As some of their jobs go to Vietnam, Bangladesh and Cambodia.  Who will lament one day the loss of their jobs to some other low-wage country.

This is economics.  And consumerism.  Consumers are always looking to get the most value for their money.  So manufacturers are always trying to undercut the competition to give these consumers what they want.  Good for consumers.  But not good for countries whose poor get a taste of the good life.  And don’t want to be poor anymore.  Thus raising the cost of production.  And eliminating their low-cost advantage.  At least for their export markets.

Eventually all emerging economies will be emerging no more.  And the low-cost advantage will not be attained the easy way.  With cheap labor.  For these once emerging economies will go to the next step in their economic development.  Capital investment in plant and equipment.  To lower their cost of production through economies of sales.  By doing more with less people.  With people leaving the low-skill assembly jobs in massive factories.  And instead design, build, run and maintain the equipment that replaces them at their old jobs.

Socialists and communists (as well as Big Labor) say this is a bad thing.  Replacing people with machines.  Even though they help to relieve chronic labor shortages that labor just can’t meet.  Lowering the cost of living for everyone.  And increasing the standard of living for everyone.  It’s happened everywhere through history.  And it now appears to be happening in China.  Which should ultimately be a good thing for the Chinese.  Especially for the masses who don’t live and work in the Eastern manufacturing cities.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , ,

If it weren’t for High Labor and Regulatory Costs there would be no need for Currency Manipulation

Posted by PITHOCRATES - October 2nd, 2011

Minimum Wage Earners only become Valuable after Costly on the Job Training

Minimum wage jobs are entry level jobs.  And they’re starting to get that in the UK (see Minimum wage harming job opportunities for young by Richard Tyler and James Kirkup posted 10/2/2011 on The Telegraph).

Firms may be reluctant to create jobs by recruiting inexperienced staff because they are put off by the increased wage bill, the Low Pay Commission has suggested.

The Commission’s intervention comes amid calls from businesses for minsters to freeze or even cut the rate to enable more young people to find work…

Official figures last month showed that almost 1 million of the 2.5 million people officially counted as unemployed in Britain are aged between 16 and 24.

Almost 220,000 have been out of work for more than a year and some economists fear a “lost generation” of young people who never learn the habits of work and face a lifelong struggle ever to find employment…

“The concern is that the current rate is discouraging some employees from taking on young people and giving them a chance to get into the workplace,” he said. “Some companies are finding the rate is a real problem.”

The New England Patriots pay Tom Brady more money than the Detroit Lions pay Mathew Stafford.  Stafford was the number one draft pick.  Brady wasn’t.  But Brady has 3 Super Bowl rings.  Stafford doesn’t have one.  Yet.  He may have one soon, though.  He’s having a very good season.  Undefeated through 4 weeks.  But Brady is better.  Because of his 3 Super Bowl rings.  And his experience.  It’s that experience that makes him worth more.

What’s true for quarterbacks in the NFL is true for workers everywhere.  Experience makes a worker worth more to an employer.  Inexperienced workers are worth less.  So they’re paid less.  Just like in the NFL.

The New England Patriots pay Brady a lot of money.  But they can’t pay everyone that amount of money.  Most players will make less than him.  Just like in the workforce.

Key employees are paid more.  And less critical employees are paid less.  Entry level workers with the least skill and the least experience get paid the least.  These are the minimum wage workers.  Who are just starting their working careers.  Most of who are grateful for the work experience.   Because they know if they show ability they can move up.  Gain more experience.  And earn more as they become more valuable to their employer.  Or to their employer’s competitor.

So of course employers oppose high minimum wages.  Because minimum wage earners only become valuable after costly on the job training.  That’s why they’re paid the least.  They come in with nothing.  And don’t provide any value until the employer gives them value through training.  Mentorship.  And experience.

If you Protect your Markets too much from Imports you will Hurt your own Export Markets

Costs are costs.  And labor costs are some of the more expensive costs.  Because there are a lot of other costs attached to wages.  They add up.  And often are a percentage of an employee’s wages.  The higher the wage, the higher these other costs.  Which makes it harder for a business to be competitive.  And in today’s competitive global economy, nations will help their businesses be competitive any way they can.  To try and make up for all those onerous regulations they impose on their businesses (see One more such victory posted 10/1/2011 on The Economist).

A YEAR ago Brazil’s finance minister, Guido Mantega, declared that the world had entered into a “currency war”. He worried that in a depressed global economy, without enough spending to go around, countries would sally forth and grab a bit of extra demand for themselves by weakening their currencies. The dollar, for example, fell by 11% against Brazil’s real in the year to August 2011, much to the chagrin of Brazil’s manufacturers. Like other emerging economies it fought back by imposing taxes and other restrictions on foreign purchases of local securities…

A cheaper real, zloty and rupee will help emerging economies win a bigger share of global spending. But that is small consolation if global spending declines…

Falling export orders was one of the complaints voiced by Chinese manufacturers in a preliminary survey of purchasing managers published by HSBC last week.

Yes, a cheaper currency gives you an advantage.  So a nation wants it.  But so do other nations.  And what’s more, these other nations don’t want your nation to have a cheap currency.  Because a cheap currency means more exports.

But a currency war is a double edged sword.  If you protect your markets too much from imports you will hurt your own export markets.  Yeah, you may succeed in having a cheap currency but little good that will do if your primary export market slaps a punitive tariff on everything you sell there.

And then there’s the danger of releasing the inflation genie from its bottle.  If you devalue your currency too much your own manufacturing costs will rise.  It’ll take more dollars to buy the stuff you need to manufacture the things you sell.  Which means you’ll have to raise prices.  And anyone who buys from you will have to raise their prices.  And so on until this inflation ends in a recession.  Which will slash overall consumer spending.  Making any win in a currency war a hollow one.

The Senate Bill to Punish China for Currency Manipulation is nothing more than Pandering to a Recession-Weary America

So rational thinking bets against any currency war.  Or antagonizing any trade relationships.  Of course, in an election cycle, rational takes a back seat to winning an election (see Senators court 2012 voters with China currency bill by Doug Palmer posted 10/2/2011 on Reuters).

For lawmakers eyeing their re-election prospects next year, this week provides a chance to show they mean business about cracking down on China’s currency practices and returning jobs to America…

“It is very easy to say that China is the bogeyman,” said Doug Guthrie, dean of business at George Washington University. He said the bill would do little to help U.S. jobs and would raise U.S. import costs, but said it might yet pass…

The Senate bill is the wrong approach because most of the goods the United States imports from China are no longer made by U.S. industry, Frisbie [president of the U.S.-China Business Council] said.

“I’ve always been of the view that, if the Chinese currency were to appreciate, we’re not going to get those jobs back in the U.S. They will migrate to Indonesia or Vietnam or Bangladesh perhaps Sub-Saharan African — the lowest next lowest cost place,” Lardy [a senior fellow at the Peterson Institute for International Economics] said.

So this Senate bill is nothing more than pandering to a recession-weary America.  It won’t help the economy.  And probably will end up making things worse.  By making life that much more expensive for the American consumer.  By replacing those cheap Chinese goods with almost as cheap goods from Indonesia, Vietnam, Bangladesh or Sub-Saharan Africa.  All the while creating zero American jobs.   It will just make life more difficult.  But it may elect a politician or two.  And really, now, isn’t that what’s really important?  I’m jesting, of course.

Why Exactly is the ‘Made in USA’ Stamped Stuff more Expensive?

Perhaps it isn’t the Chinese.  Or the other emerging economies.  Perhaps it isn’t the weak currencies of our trading partners.  Maybe it’s us.  I mean, why do we play with the currency in the first place?  To make our goods cheaper.

So the issue we should be addressing is why are our goods more expensive in the first place.  Why exactly is the ‘Made in USA’ stamped stuff more expensive?  Higher labor and regulatory costs.  Such as the minimum wage.  And the hundreds of other costly regulations American businesses have to comply with.  Remove these and America can be competitive again.  With anyone.  Anywhere.  And in any industry.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,