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.

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Nikola Tesla, Sheldon Cooper, Inventors & Entrepreneurs, Compromise & Tradeoff, Theoretical & the Practical, GM and Hostess

Posted by PITHOCRATES - December 4th, 2012

History 101

Geniuses strive for Theoretical Perfection which often doesn’t work in the Market Place

There have been a lot of brilliant inventors that gave the world incredible things.  Nikola Tesla gave us the modern world thanks to his work in electromagnetic fields.  Giving us the AC power we take for granted today.  Electric motors.  The wireless radio.  Etc.  But as brilliant as Tesla was he was not brilliant in making money from his inventions.  He died broke and in debt.  And, some say, insane.  Though he was probably more like Sheldon Cooper on The Big bang Theory.  As one character on the show called him, “The skinny weirdo.”  Tesla had an eidetic memory (often called a photographic memory).  And probably suffered from obsessive-compulsive disorder (OCD).  Which when added to genius can be mistaken for crazy genius.

So Tesla and the fictional Sheldon Cooper have some things in common.  Genius.  And some odd behavioral traits.  As well as something else.  Neither was rich.  Their genius did not make them rich.  Which is a common trait of all brilliant inventors.  Their genius gets in the way of practicality.  They strive for theoretical perfection.  Which often doesn’t work in the market place.  Because perfection is costly.  And this is what separates the theoretical geniuses from practical engineers.  And entrepreneurs.

The internal combustion engine is a technological marvel.  It has changed the world.  Modernized the world.  It gave us inexpensive modes of transportation like cars, trucks, ships, trains and airplanes.  But the engine is not theoretically perfect.  It is a study of compromise and tradeoff.  Providing a final product that isn’t perfect.  But one that is economically viable.  For example, pistons need to compress an air-fuel mixture for combustion.  However, the piston can’t make such a tight seal that it can’t move up and down in the cylinder.  So the piston is smaller than the cylinder opening.  This allows it to move.  But it doesn’t contain the air-fuel mixture for compression and combustion.  So they add a piston ring.  Which contains the air-fuel mixture but restricts the movement of the piston.  So they add another piston ring that takes oil that splashes up from crank case and passes it through the ring to the cylinder wall.  The heat of combustion, though, can leave deposits from the oil on the cylinder wall.  So they add another piston ring to scrape the cylinder wall.

Selling a ‘Low Price’ is a Dangerous Game to Play Especially if you don’t Know your Costs

Every part of the internal combustion engine is a compromise and tradeoff.  Each part by itself is not the best it can be.  But the assembled whole is.  A theoretical genius may look at the assembled whole and want to add improvements to make it better.  Adding great costs to take it from 97% good to 99% good.  While that 2% improvement may result with a better product no one driving the car would notice any difference.  Other than the much higher price the car carried for that additional 2% improvement.

This is the difference between the theoretical and the practical.  Between brilliant inventor and entrepreneur.  Between successful business owner and someone with a great idea but who can’t bring it to market.  The entrepreneur sees both the little picture (the brilliant idea) and the big picture (bringing it to market).  Something that a lot of people can’t see when they go into business.  The number one and number two business that fail are restaurants and construction.  Why?  Because these are often little picture people.  They may be a great chef or a great carpenter but they often haven’t a clue about business.

They don’t understand their costs.  And because they don’t they often don’t charge enough.  A lot of new business owners often think they need to charge less to lure business away from their competition.  And sometimes that’s true.  But selling a ‘low price’ instead of quality or value is a dangerous game to play.  Especially if you don’t know your costs.  Because as you sell you incur costs.  And have bills to pay.  Bills you need to pay with your sales revenue.  Which you won’t be able to do if you’re not charging enough.

If Business Operations can’t Produce Cash a Business Owner will have to Borrow Money to Pay the Bills

The successful small business owners understand both their long-term financing needs.  And their short-term financing needs.  They incur long-term debt to establish their business.  Debt they need to service.  And pay back.  To do that they need a source of money.  This must come from profitable business operations.  Which means that their sales revenue must make their current assets greater than their current liabilities.  The sum total of cash, accounts receivables and other current assets must be greater than their accounts payable, accrued payroll, accrued taxes, current portion of long-term debt, etc.  And there is only one thing that will do that.  Having sales revenue that covers all a business’s costs.

The successful business owner knows how much to charge.  They know how much their revenue can buy.  And what it can’t buy. They make the tough decisions.  These business owners stay in business.  They see the big picture.  How all the pieces of business fit together.  And how it is imperative to keep their current assets greater than their current liabilities.  For the difference between the two gives a business its working capital.  Which must be positive if they have any hope of servicing their debt.  And repaying it.  As well as growing their business.  Whereas if their working capital is negative the future is bleak.  For they won’t be able to pay their bills.  Grow their business.  Or service their debt.  Worse, because they can’t pay their bills they incur more debt.  As they will have to borrow more money to pay their bills.  Because their business isn’t producing the necessary cash.

Those restaurants and construction companies fail because their owners didn’t know any better.  Others fail despite knowing better.  Like GM, Chrysler, Hostess, just about any airline, Bethlehem Steel, most print newspapers, etc.  Who all entered costly union contracts during good economic times.  Costs their revenues couldn’t pay for in bad economic times.  Which was most of the time.  As they struggled to pay union labor and benefits they run out of money before they could pay their other bills.  As their current liabilities exceeded their current assets.  So instead of producing working capital they ran a deficit.  Forcing them to incur more debt to finance this shortfall.  Again and again.  Until their debt grew so great that it required an interest payment they couldn’t pay.  And now they are no longer with us today.  Having had no choice but to file bankruptcy.

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LESSONS LEARNED #72: “Moms are a lot like CEOs. Only with more responsibility, longer hours and less pay.” -Old Pithy

Posted by PITHOCRATES - June 30th, 2011

A Genius may have a Brilliant Idea, but it’s an Entrepreneur that brings it to Market

A CEO is a lot like an entrepreneur.  They’re both a cut above the rest.  And can do what few can do.  Bring two worlds together.  The theoretical world inhabited by great thinkers and inventors.  And the practical world inhabited by people who act.  Who take the things the great thinkers and inventors create and give them to us.   There is a difference between the people that inhabit these worlds.  And most can only live in one or the other.  But CEOs and entrepreneurs can live in both.  That’s what makes them special.  Thinkers and inventors possess a genius of theoretical creativity.  But they can do little with their idea.  The action people can build great things (cars, airplanes, buildings, power plants, cell phones, etc.) but only from a construction plan.  Someone else has to have an idea and think and create the construction plan before they can build.  These are the two worlds.  The genius.  And the builders.  And it is the CEO and entrepreneur that bring these two worlds together.

Nikola Tesla was a genius.  A brilliant theoretical thinker.  He created the world in which we live.  But do you know who he is?  What he created?  Probably not.  Unless you’re a Croat.  Because there are probably a lot of statues of him in Croatia. Because he was born there to Serbian parents.  He eventually moved to America.  Got a job with a guy name Thomas Edison.  Who didn’t appreciate his genius.  Or his one particular ‘crazy’ idea.  But George Westinghouse did. 

That ‘crazy’ idea is the AC power we use today.  Thomas Edison was building DC power plants and a DC electric grid.  Despite all the failings of DC distribution (DC power doesn’t travel far requiring lots of generating plants, different voltages have to have their own generating plant, large power loads require very thick and expensive copper wires, etc.).  There was already a DC electrical infrastructure.  And it was Edison’s.  Which he wanted to expand because it would pay him well.

But Tesla’s AC system was better.  Because it could use transformers.  One power generating plant could provide power at a variety of voltages.  You just needed a transformer to get the voltage you wanted.  Also, electrical power is the product of voltage and current.  High power, then, requires either a high voltage or a high current.  High currents require thick, expensive copper wires.  So high voltage was the way to go.  It allowed power to travel farther over thinner wires.  Therefore, it required fewer generating plants.  And a single electric grid (not one for each voltage).  AC power was much more economical than DC power.  And George Westinghouse saw that.  And took Tesla’s brilliant idea and built the AC power generation and distribution system we use today.

The Business of Beautiful, Estée Lauder

You see, Tesla was at home in the lab.  He was a scientist.  Not a salesman.  That’s why he wasn’t an entrepreneur.  Because, just like being a CEO, you need sales skills to be an entrepreneur.  Because you are the number one sales person in your business.  And Edison and Westinghouse were great salesmen.  That’s why they brought a lot of Tesla’s great inventions to market.  And why Tesla did not.  He was just not a sales person.

But Estée Lauder was.  She was always selling.  And creating.  She was the classical entrepreneur.  Her uncle was in the chemistry business making beauty products.  Which fascinated her from a young age.  He taught her the chemistry.  Taught her how to make the products.  How to use the products.  And she did.  Loved them.  And started selling them.  With a passion.

She started creating her own products.  Using her own kitchen as her laboratory.  When not tending to her two sons.  She demonstrated how to use her products.  Gave away free samples.  And sold.  She was always selling.  She started out small.  By herself.  From these humble beginnings she grew to dominate the industry.  She was relentless.  She worked herself to the premier counter space in department stores by redefining the way cosmetics were sold.  Starting with Saks Fifth Avenue in New York.  She visited each counter to ensure they were meeting her high standards.  She gave away free samples.  She demonstrated.  She touched.  Personally applying products on customers.  That’s why when you walk into a department store you’ll see the Estée Lauder counter first.  And you’ll see all the counters selling the same way.  Giving away free samples.  Demonstrating products.  Showing how to apply products.  The Estée Lauder way.

One Smart Cookie, that Mrs. Fields

Debbi Fields liked to bake cookies.  She married young at 19.  To a Stanford graduate.  And aspiring financial consultant.  And about a year later decided to go into the cookie business.  After an incident at a party with her husband and a lot of his snobby associates.  She apparently mispronounced a word.  Said ‘orientated’ instead of ‘oriented’.  A snob pointed out her faux pas.  Sending her home in tears.  Didn’t much like that experience.  And decided to be something more than a ‘just’ a housewife.  Not that there was anything wrong with that.  And she would love being a housewife.  She would raise 5 daughters.  And add another 5 stepchildren in a second marriage.  But the snobs in her husband’s circle did look down on that particular institution.  It was so old fashioned.  It wasn’t progressive.  It wasn’t what people in their circles did.  So they acted like real asses.

Yet they liked her cookies.  Loved them.  Her husband would take them to work.  Where they were a big hit.  Soft and chewy.  Gourmet.  They were different.  When she asked them if she should go into the cookie business, they said it was a bad idea.  The conventional wisdom said crispy cookies were the way to go.  People didn’t want to buy soft and chewy.  They said as they stuffed their mouths with soft and chewy cookies.  And there were others who told her not to do it.  Even her husband doubted her.  But he loved her.  And would support her. She had no business experience.  But she was a hard worker.  And believed in what she was doing.  She got a bank loan to open a cookie store.  Not so much because the banker believed in the business idea.  But because of the good character of her and her husband.  Whatever the outcome, the bank was willing to take a chance.  Because, success or fail, they knew they would repay the loan.

She opened her first store in a mall food court.  Did not sell a single cookie.  Until she used the Estée Lauder sales method.  She gave away free samples.  People tried.  And people liked.  Soft and chewy was a hit.  She grew the company.  Added more stores.  And made a lot of money.  She was very hands on to maintain the quality.  Again, like Estée Lauder.  She visited her stores.  To make sure they maintained her high standards.  Which is why she refused to franchise.  She was too worried about losing that quality.  Which is what made Mrs. Fields cookies better than the competition.  Her husband computerized her operation.  Adding a computer at each store.  All wired to the Internet and tied into her headquarters.  It was state of the art technology.  Allowing more growth.  While retaining full control.  The growth was fast.  Too fast.  The hands-on management didn’t work well with so many stores.  The debt started to pile up.  And then a recession hit.  Her expensive gourmet cookies became too expensive.  And people stopped buying them.  To save the company she had to sell 80% of it.  And the new owners changed the business model.  Franchised stores.  And bumped Debbie Fields from CEO.  But she remained chairman of the board.  And though only a minority shareholder, the business Debbie Fields created continues on.  Her only mistake was being so successful so fast.  And if you’re going to have a fault that’s not a bad one to have.  By the way, don’t forget that she did all of this while raising 5 daughters.  Which probably made the running of the multi-million dollar business the easy part of her life.

Entrepreneurs, CEOS and Moms

Entrepreneurs and CEOs.  They’re a different breed.  They can be both brilliant thinkers like Nikola Tesla.  And aggressive sales people like Thomas Edison and George Westinghouse.  Such as Estée Lauder.  And Debbie Fields.  These mothers dominated their industries.  And set the bar for everyone else.  Lauder built an empire that dominates still.  Fields use of technology to streamline operations is a model for business efficiency at Harvard Business School.  Two of America’s most successful entrepreneurs and CEOs.  And both were moms first.

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FUNDAMENTAL TRUTH # 50: “What do the great entrepreneurs have in common with politicians? Not a whole hell of a lot.” -Old Pithy

Posted by PITHOCRATES - January 25th, 2011

A Mathematician, an Engineer and a Beautiful Woman

Stop me if you heard this one.  A mathematician and an engineer are at one end of a long room.  At the other end is a bed.  On the bed is a beautiful, naked woman.  She also happens to be a brainiac.  And someone who enjoys a bit of fun.  If you know what I mean.

She offers to get intimate with the guy who can solve this riddle.   Cross the room in a series of moves.  Each move shall be one half of the distance between them and her.  Be the first to do that and reach her and she’ll make all of your dreams come true.

Well, the mathematician sits down with paper and pencil and starts scribbling.  He proves mathematically that is impossible to ever reach the beautiful woman.  Because by moving half of the distance each time, there will always be a remaining distance to cover.  Therefore, he concludes, it’s impossible.  He looks up to tell her this.  And when he does he sees the engineer lying up in bed with her.  Smoking a cigarette.

Entrepreneurs Like to Think outside the Box

So what happened?  Well, while being theoretically impossible to reach her, the engineer could get close enough for a bit of fun.  And did.  It’s an old joke.  With many variations.  And depending on who’s telling it the loser is sometimes a physicist.  Or even the engineer.  Of course, some may say it’s the beautiful woman that losers in all cases.  Because smoking hot women don’t hang out with math and engineering geeks.  Until they get rich enough to buy them things, that is.  But I digress.

Entrepreneurs and politicians are a lot like mathematicians and engineers.  At least in this joke (and I apologize to mathematicians everywhere who are offended.  But you shouldn’t feel bad.  I’m sure if you could have been engineers you would have).  Nothing is ever easy for a politician.  Like the mathematician, they feel that they must over analyze everything.  Get a lot of bureaucrats involved. Layers and layers of oversight and control.  Hoops to jump through.  Exhaust every possibility to get to the ‘best’ solution.  Even if it takes weeks.  Months.  Years.  Time is never of the essence.  They have forever.  And they take forever.  No matter the costs.

Entrepreneurs don’t work this way.  They have an idea.  And want to act.  They hate waiting.  Time is money.  They hate bureaucracy.  Because time is money.  And they have an easier way to determine what the best solution is.  Sales.  Those who have the greatest sales have the best solution.  Because thus speaks the market.  So they keep thinking.  Keep creating.  Keep coming up with good ideas.  They see what the market is demanding.  Or what it will demand.  Once they show that market the wonderful new thing they’ve created.  Sales proved the Sony Walkman a success.  And sales proved the Apple iPod a success.  Why?  Because Sony and Apple are a couple of companies that like to think outside the box.  And create things people aren’t even demanding yet.  And you gotta admit that that’s some pretty damn good thinking.

Politicians Fear what’s Outside the Box

Politicians, on the other hand, fear what’s outside the box.  They want to stay inside the box.  They like it there.  It’s snug.  Familiar.  Dark.  Orderly.  No surprises.  No new things to have to think about.  Or worry about.  Like all that uncertainty in an uncontrolled free market.  Yeech.  They don’t like that.  Or understand it. For when it comes to the economy, these progressives are ‘conservative’.  They want to build on the governmental bureaucracy of the past.  The bureaucracy they know.  And love.  It may not have worked.  But so what?  It’s just so cozy.  And makes a [deleted expletive]-load of federal jobs.

Of course, this expanding bureaucracy doesn’t give us anything new.  Anything innovative.  Anything that we’re yearning for.  Or anything we will yearn for once we learn about that next great thing.  Because they don’t create anything.  Other than obstacles to those who do.  Once someone comes up with an idea, though, they’ll then want to take that idea and over think it.  Manage it.  Regulate it.  Tax it.  Because an entrepreneur may come up with a great idea.  But a politician knows best how to use that idea.  Or so they believe.

Of course, when you think of the great inventions, you never think of a politician.  To prove this, tell me who you think of when I mention some famous inventions.  The telephone?  (Alexander Graham Bell).  AC power distribution?  (Nikola Tesla).  An affordable automobile?  (Henry Ford).  The light bulb?  (Thomas Edison).  An efficient steam engine?  (James Watt).  Notice anything about all of these inventors?  That’s right.  They don’t have a ‘Senator’ or ‘Congress Person’ in front of their name.  But Senators and Congress people have been regulating and taxing these great inventions ever since.

Can’t see the Nude Woman on the Bed

An entrepreneur, like an engineer, doesn’t get lost in the theoretical.  They see possibilities.  And they act.  Politicians, like mathematicians, like to crunch numbers.  Prove things can’t be done.  And then call for blue ribbon panels or commissions to further analyze things.  Entrepreneurs are positive, can-do people.  While politicians are negative, can’t-do people.  They can’t see the forest for the trees.  Or the nude woman on the bed.

Politicians can’t not interfere with people.  An entrepreneur can’t stand being interfered with.  He or she is too busy creating stuff.  They’re not sitting around waiting for something to happen.  They’re leading the way.  While the politicians are nipping at their heels.  Trying to catch up with them.  Just so they can slow them down.

Our future is like the nude woman on the bed.  The entrepreneurs know how to get to her.  And will.  If left alone to do what they do best.  To think.  And create great things.  Make the world a better place.  But the politicians haven’t a clue.  They covet the nude woman.  But they can’t get to her.  Because she’s somewhere outside the box.  Smart.  Complex.  Something new.  Waiting to be discovered.  And when her riddle is solved, it won’t be a politician smoking a cigarette in bed with her.  It’ll be an entrepreneur.

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