A fool-proof plan for economic recovery: [modified]

[Lost User]

Then take a look at "Profit & Loss Forecasts". Labour costs fall into essentially two categories. Fixed AND variable. Variable labour costings that appear in said P&L is in the cost of Manufacture. Piecework is a kind of variable labour cost. Fixed labour costs by the definition of the word "fixed" don't often change these you can equate to office staff.

[73Zeppelin]

Richard - if a domestic company knows that a foreign company has a high barrier for import, why would the domestic company produce higher quality products? That costs more, so the domestic company would have every incentive to produce lower quality goods and receive a higher price for them. Companies are profit-maximizing and have every incentive to lower quality for increased price knowing the foreign competition does not have equal access to the domestic market.

[Lost User]

Companies do indeed operate for profit. But if the MTBF is too low, this is tantamount to defrauding the buying public. And the buying public have long memories. Yet if you attempt some degree of protectionism, you could be substituting higher quality imports for lower quality "home grown" and subsequently your distant profit (x years down road) could suffer because of the view by your buying public that the product is a lemon. So MTBF is important if you are striving for quality and happy customers.

[Lost User]

John, if the quality of the home grown product is lower than the imported object in the short term they may indeed sell huge quantities. Yet, if the quality is poorer, the reputation becomes tarnished. So an immediate saving of £x may in the long term prove to be a false saving. Earlier failures, poor quality service will no doubt accompany lower quality items. Like I said to Stan, above, customers have long memories. If a home grown object is of lower value and lower quality the perception of value dropped to the point where the customer may think they have bought a lemon and the taste of that lemon is remembered. Companies who sole aim is to maximize profit without considering their long term future, and that includes the perceived happiness of their customer base, are doing themselves a dis-service and are likely to be a failed future company. It would be interesting to see how these home grown companies manage risk in such scenarios.

[Rob Graham]

Exactly. The U.S. automobile manufacturers are a case in point. Until they were faced with competition from higher quality product (mostly from Japan) they cared not a whit about quality. This was compounded by their labor unions, who were only interested in job protection and compensation, and not in either the compamy nor the product. Although the companies began to turn the quality issues around in the last decade or so, they are now reaping the rewards of that legacy, particularly the non-market cost of labor. It is likely that GM will not survive, no matter how many times the government bails it out.

[Stan Shannon]

Rob Graham wrote:

This was compounded by their labor unions, who were only interested in job protection and compensation, and not in either the compamy nor the product.

ANd that is precisely what I meant by 'internal competition' that I mentioned above. THe competition between manufacturers is one thing, the competition between laborers themselves is something else entirely. If the laborers have no incentive to produce quality, they won't. If the companies cannot fire them, cannot cut their salaries for poor performance, etc, there is no reason for one worker to try to do a better job than another will. In fact, he will get in big trouble with the entire union if he does.

Chaining ourselves to the moral high ground does not make us good guys. Aside from making us easy targets, it merely makes us idiotic prisoners of our own self loathing.

[Lost User]

You have given the perfect reason for trade union reform. This was a problem in Britain before Thatcher. But no longer is it a problem. Thatcher's policies essentially forced trade unions to modernize their practices and disputes are no longer the problematic issue they once was. And by and large, there is now a happier workforce as the result of these policies.

[Stan Shannon]

The problem I have with all this is that it minimizes the real problems we are faced with. There simply is no easy fix. The notion that tariffs are some kind of economical magic wand that was taken away from us by evil corporations and politicians is ludicrous.

Chaining ourselves to the moral high ground does not make us good guys. Aside from making us easy targets, it merely makes us idiotic prisoners of our own self loathing.

[73Zeppelin]

Richard A. Abbott wrote:

John, if the quality of the home grown product is lower than the imported object in the short term they may indeed sell huge quantities. Yet, if the quality is poorer, the reputation becomes tarnished. So an immediate saving of £x may in the long term prove to be a false saving. Earlier failures, poor quality service will no doubt accompany lower quality items. Like I said to Stan, above, customers have long memories. If a home grown object is of lower value and lower quality the perception of value dropped to the point where the customer may think they have bought a lemon and the taste of that lemon is remembered. Companies who sole aim is to maximize profit without considering their long term future, and that includes the perceived happiness of their customer base, are doing themselves a dis-service and are likely to be a failed future company. It would be interesting to see how these home grown companies manage risk in such scenarios.

I understand your argument, but with high import barriers, foreign companies will export their products to countries with less protectionist policies. So while customers may demand quality, if the domestic market offers low quality products at high prices, it's not like the customer can go elsewhere. With foreign imports discouraged from high trade tariffs, domestic companies have every incentive to offer low quality products (i.e. low manufacturing cost) at high prices. To who does the dissatisfied customer turn?

[73Zeppelin]

Yep.

[Oakman]

Richard A. Abbott wrote:

And to the time when it fails, often it is cheaper to replace rather than repair.

In both TV and shoe repair, there are very few shops left - because no-one bothers to repair those products any more.

Richard A. Abbott wrote:

any object is an asset, they use a depreciated value of an object so that after a period of time the depreciated value of the asset becomes £nil or very close to £nil and is tax efficient to replace.

That's easy - change the accounting rules. Make it a generally accepted best practice to hold onto your stuff for twice as long as its present life.

Jon Smith & Wesson: The original point and click interface Algoraphobia: An exaggerated fear of the outside world rooted in the belief that one might spontaneously combust due to global warming.

[Lost User]

73Zeppelin wrote:

foreign companies will export their products to countries with less protectionist policies

Yet, if that occurs the loser will be the domestic marketplace. There are other downsides as well. Such as, the efficiency of an organization will be much reduced if they are compelled to work with sub-quality objects irrespective if that object is an item of machinery or a poorly educated worker, which will increase their costs in a non-specific way. And I don't necessarily mean their costs in terms of dollars. But Dollars, Pound Sterling, Euro's etc., the bottom line counts.

[Oakman]

Stan Shannon wrote:

Yes, and they will grow until we can no longer afford our own manufactured goods

Sure we will. Just as creating all those terribly expensive manufacturing plants during WWII fueled prosperity by creating new, high-paying, jobs.

Jon Smith & Wesson: The original point and click interface Algoraphobia: An exaggerated fear of the outside world rooted in the belief that one might spontaneously combust due to global warming.

[73Zeppelin]

Richard A. Abbott wrote:

Yet, if that occurs the loser will be the domestic marketplace. There are other downsides as well. Such as, the efficiency of an organization will be much reduced if they are compelled to work with sub-quality objects irrespective if that object is an item of machinery or a poorly educated worker, which will increase their costs in a non-specific way. And I don't necessarily mean their costs in terms of dollars. But Dollars, Pound Sterling, Euro's etc., the bottom line counts.

Exactly. Which is why protectionism is not a good economic policy.

[Lost User]

I am unaware of taxation policy in the USA. But ... for UK business taxation ... now, you might find this unbelievable - BUT IT IS TRUE If you lease an object - say a photocopier - it has a value. The object is not owned by you. You pay a quarterly bill to a finance company who are the owners. The owners and you agreed a 5 year deal. The value of this over time reduces in its asset value to the point at the end of 5 years its worth is £zero or close to £zero (anyhow a nominal value). It is tax efficient for the leasing company because they are receiving quarterly payments from you, the assessed value of the object is written off against tax. You, the company leasing it has been paying this quarterly bill. It is tax efficient for you as items that are leased are claimable against tax. Consequently, over a 5 year term, you have had the services of a photocopier and your costs are nil as this is claimed against taxes and for the company who leased it to you, their costs are written down and are a taxable claim so their costs will be minimized with the exception of the resale value which as stated above would be nominal. So, the tax payer is essentially subsidizing the business through tax efficient means. But it is not all a one-way traffic. The manufacturer of the photocopier employs people so tax revenue is collected, and other revenues are collected along the way such as VAT. The manufacturer of toner and the supplier of service engineering (it will breakdown and need servicing from time to time) and insurance on the leased object will all attract some government taxable revenue. So, for a business, it is tax efficient to lease. And thus to replace equipment regularly. I said photocopier - but it could be a computer system that you replace/upgrade every 3 years. It doesn't need to be 3 or 5 years but these are the norm. And the taxman is happy as he doesn't lose out. He just gets his cut from a variety of sources that keeps that photocopier working. When Dalek Dave gets on-line, he is an accountant, I'm sure he can give a better fuller explanation. But I'm not far wrong.

[Lost User]

Thank you John. You have confirmed what I said in a thread below.

[Oakman]

Stan Shannon wrote:

What makes you assume that quality would be better?

What makes you think it wouldn't be? The truth is, of course, that in some cases, foreign manufacturers have realised that quality sells - compare the reputation of of GM versus Honda, for instance. But the vast majority of product coming out of the sweatshops of China and India and Central America are produced by illiterates who are actually or practically chained to their workplace twelve hours @ day. It would be hard not to produce better goods. For instance, I recently bought two water pistols for young relatives. Both made in China, both depositing more water on the shooter than the target, I, on the other hand, still have a 1968 phaser water pistol made in America - it can knock a fly out of the air at 20 paces.

Jon Smith & Wesson: The original point and click interface Algoraphobia: An exaggerated fear of the outside world rooted in the belief that one might spontaneously combust due to global warming.

[Lost User]

Oakman wrote:

it can knock a fly out of the air at 20 paces.

So your eyesight has not depreciated :) [I ducks the water jet]

[Oakman]

Richard A. Abbott wrote:

I'm sure he can give a better fuller explanation. But I'm not far wrong.

I am very aware of the tax advantages of incorporating. You have described the rough equivalent of what I understand about the accounting practices in this country, especially those in the books the IRS gets to see.

Richard A. Abbott wrote:

So, for a business, it is tax efficient to lease.

That's why I used to drive a BMW. ;)

Jon Smith & Wesson: The original point and click interface Algoraphobia: An exaggerated fear of the outside world rooted in the belief that one might spontaneously combust due to global warming.

[Oakman]

Richard A. Abbott wrote:

So your eyesight has not depreciated

Actually, I have cataracts starting up and we are just waiting until they are bad enough to warrant peeling my eyeballs and gluing in permanent contacts. I didn't say I could hit the broad side of a barn with one. ;)

Jon Smith & Wesson: The original point and click interface Algoraphobia: An exaggerated fear of the outside world rooted in the belief that one might spontaneously combust due to global warming.