Tuesday, March 28, 2006

Of socks, lighters, chicken and fish

After WWII, a watch or toy inscribed with "Made in Japan" meant a product that was cheap and possibly disposable. Into the 60's and 70's, a made-in-Japan car was cheap to buy, cheap to run, and generally just cheap. Today, Toyota is closing in on GM as the world's largest car maker by producing quality and reliable cars that range from the entry level cheapie car for your kids to the Lexis that makes companies like Mercedes and BMW worry for their future.

The entry of Japan in the world market after years of self-imposed and war-imposed economic isolation changed thewayt we look at industriall production and business operations in general.

China is in process of making a similar impact with a few differences - it's coming on faster, harder, and with more impact than any single country has ever had on the state of the world economy. That includes us in Newfoundland and Labrador.

We've already heard about it. FPI says that they can catch fish locally, ship it to China for processing and then ship it back here for sale for cheaper than doing it all here at home. Hence the closure of local fish processing facilities.

The primary reason is that wages and the general price of doing business in China is a fraction of what it costs here in this province.

To be fair, wages are going up in China too. Their economy is becoming so overheated that there are national labour shortages (sound familiar?), high worker turnover and rising wages. Before you think that China will grow out of being our problem, there are a couple of things to consider. First, the wages are rising from a very low base of US$150-200 per month. Not per day or per week but per MONTH. Compared to local fish plant wages of 10 times that, you can see that it's going to be a long time before China prices themselves out of the fish processing market.

Second, Chinese industrial production has become so big in is such a short time that it's hard to conceive. The Economist reports that in the city of Wenzhou, 3,000 small firms have clubbed together to concentrate on making cigarette lighters, some specialising in components, some in final assembly. Production is flexible, fast and competitive: in 2002, Wenzhou made 750m lighters, the equivalent of 70% of world demand. Companies elsewhere in Wenzhou manufacture nothing but pens or low-voltage electrical equipment.

Cixi is a base for kitchen-equipment makers. Datang turns out 8 billion pairs of socks a year from 8,000 factories - one-third of all socks sold worldwide.

That's just a few cities of hundreds.

The attached picture from the Globe and Mail shows a chicken processing plant. Imagine if just that plant re-tooled to process fish. Would there be any need for any kind of fish processing anywhere in Atlantic Canada?

We see the effects of all this. Harbour Breton is gone as a fish processing facility and many more will follow. In spite of the never-say-die rhetoric vilifying FPI and it's business decisions, the Williams administration has rightly been reluctant to step in and subsidize these operations with provincial money.

They have been correct to stay away from that tarbaby and to avoid the single-minded entreaties of Earle McCurdy and his ilk as they continue to protest vainly against the loss of every single fish processing job without providing anything other than transparently shortsighted and self-serving solutions.

The problem is not FPI - FPI is reacting to changing world conditions. The current noise and smoke coming from Rideout and others mask the fact that government has fallen into a vicious cycle of short-sighted crisis management and populist damage control instead of realistic appraisals and sensible solutions. If they have a plan, it is well hidden.

The sooner the unions and government get off their high horse and start to approach the real roots of the problem instead of attacking the local symptoms, the sooner the people of Harbour Breton and the other communities where more plants will inevitably close can look forward to a productive future.

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