Tuesday, January 24, 2006

Forgetting the most important people: the owners

This news article tries to tug at readers' heartstrings but forgets certain truths about business:
Ford Workers Upset About Plant Closures

HAPEVILLE, Ga. - Mark Gilmore moved with his teenage son from Ohio to Georgia 18 months ago in a quest for more stable work at the Ford Motor Co. assembly plant outside Atlanta. Now, he's regretting the decision after the automaker announced Monday it is shuttering the plant along with 13 other facilities in a major cost-cutting move.

"It's a shame when you can give your whole life to something and then it crumbles right in front of you," said Gilmore, 34.

Other employees at Ford plants in North America slated for closure reacted with emotions ranging from anger to disappointment to surprise. The company said 25,000 to 30,000 jobs will be lost.

"Their hopes and dreams and aspirations and secure future are gone for now," said Ken Dearing, president of the local union that represents Ford workers at the Hazlewood, Mo., plant outside St. Louis, which also will be idled....

In Michigan, James Crawford said he is too young to retire and might not have enough seniority to get hired at another plant, even though he has worked at Ford for 18 years.

"This really hits me hard," said the 39-year-old car painter, who listened to the announcement on the radio in a white Ford Probe parked across the street from the Wixom plant. "It looks like I'm starting over."

Crawford's sentiment echoes the uncertainty that is just beginning for most of the workers.

Those old enough will retire, but are worried about the security of their pensions.

Younger workers are hoping to land jobs at other plants, but they're not optimistic. Ford said it will make efforts to place some workers at other facilities....

Hapeville Mayor Alan Hallman called the news "a setback for the state" and the community of 6,200 just south of Atlanta. Tax revenue from the plant accounts for 9 percent of the small city's budget.

"We've got hundreds of man-hours and thousands of dollars invested in various plans to keep them here. The fact that they've elected to idle the plant is very disappointing," Hallman said....

Georgia officials had worked with Ford for four years to study ways to keep the historic Hapeville plant in production, but "market forces beyond the control of government have caused it to succumb," Gov. Sonny Perdue said Monday.

Perdue said Ford had considered retooling the plant for assembly of a new model of vehicles. "Unfortunately, global market conditions have forced Ford not to pursue that option," he said.
I've been laid off before, so I know what it's like to scramble for a new job, but never with 25,000 or 30,000 others. However, there's so much emphasis on workers, and no one remembers the owners -- in this case, company shareholders. Are Ford's owners in the business to lose money? No rational person would argue that they are, but people think that if they believe it's "unfair" for Ford to lay off employees.

A company loses money by keeping more employees than it needs, especially when business is poor and mandates layoffs. So when the workers criticize a company for layoffs, they're effectively asking owners to be philanthropists, not businessmen. When municipalities ask companies to keep unprofitable plants and factories open, they're asking the owners to throw away money. It really does not matter how much the company has poured in; if it can't salvage its investment, it has no choice but to shut it down. Local governments frequently offer tax incentives and the like to lure businesses, which are simply the use of taxpayers' money to encourage businesses by making their operations artificially cheaper. What if the business still cannot remain solvent? Well, that's a good incentive to let the free market work the next time around, and let a business come because it sees a genuinely profitable opportunity.

Am I the only one who questions how a 34-year-old man can say he gave his "whole life" to a company? If he started working at 18, then he hasn't even worked there for half of his years. Even if we consider strictly his adult life, 14 or 15 years is not long compared to a normal American life span. He's still quite young, and if he has any reasonable skills and good references, he should be able to find another job. Even the 39-year-old painter is still young. Perhaps they can move to Indiana, where Toyota is hiring. It's not the easiest thing to move across the country, but as I've said before, "Okies" did so during the Great Depression. I myself moved 2000 miles (from Utah to New York) for a better college and better employment opportunities.

Life does not always turn out the way we plan, and in our modern economy, one shouldn't expect to stay within the same career, let alone the same company. One of my friends was 42 when he entered the retail brokerage side of the industry. He had his own light construction company, and when it didn't survive, he found a job as a financial advisor. But turnover happens even at the upper echelons. Top investment bankers switch firms often enough, lured by better packages, that Citigroup now requires its investment bankers to give 50 days' notice or else forfeit their bonuses.

It's a great risk for a municipality to depend so much on one company for employment and tax revenue, just like an investor risks a great deal by focusing on one specific venture. I wrote a bit on Sunday about Flint, Michigan, which is being hit hard by GM's disappearing act, and also Schenectady, my father's hometown. Like many others, my father found a good job at the GE plant, but when GE's presence declined, so did the city. When trying to lure a business that will be an important part of the local economy, a government must ask itself, "Will this company always be here?" If not, then it's perhaps not so wise to hand out tax incentives (and occasionally use eminent domain) and act as if the sun will always be shining.

If you want to eliminate the possibility of an employer laying you off, there's no substitute for working for yourself. Similarly, there's no substitute for saving for your retirement yourself, instead of relying on a company's continued good revenue. By not trading with others, you limit your maximum earnings potential -- the price of reducing risk.

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