John Galt

'Light tomorrow with today.' -- Elizabeth Barrett Browning --

Tuesday, January 16, 2007

Break Out The Bubbly

The following column appeared in the Roanoke Times on Thursday, December 4, 2006

Silver lining in high fuel prices?
By Jerry Fuhrman

I have a theory. Call it the Fuhrman Theory of Southwest Virginia Macroeconomics. Or simply call it crazy.

It's been in development for years and came to me once again after reading two different news articles in The Roanoke Times in recent days -- "U.S. retail gas prices continue to creep upward," (Dec. 5) and "Furniture makers protest rate plan," (Dec. 7). Both articles involve the rising cost of our two most precious necessities -- fuel and electricity -- a circumstance that will undoubtedly be having a disagreeable impact on area consumers and business owners. Disagreeable, that is, unless one looks to the future and sees something of a silver lining.

Let's talk about foreign competition. One of my earliest recollections as it relates to jobs being shipped overseas has to do with baseball gloves. There was a day when Spalding, Wilson and Rawlings ruled the industry -- no Nike, no Mizuno, no Nokona -- with those three U.S. manufacturers producing 100 percent of their mitts here in the United States.

But in the mid- to late-'70s a change started taking place. American companies began seeking deals with plants in Japan and later Korea to provide ball glove inventory for the American masses. Great deals. Such great deals that factories here began to cut back on production and eventually began to close.

What was difficult for me to understand at the time was that the raw materials -- the hides that were used to build the ball gloves -- continued to come from this country, from American beef cattle. Huge stocks of untanned leather would be gathered up at slaughterhouses in Omaha, bundled, put on trains heading to the nearest port, loaded on ships bound for Osaka and trucked over to the baseball glove plants, where our kiddies' ball gloves were made. The finished products would then be shipped back here for sale.

It cost less to ship raw materials halfway around the world and have low-wage, no-benefit employees work them into finished goods that were shipped (halfway around that same world) back here than it did to have those same commodities manufactured here. And the exodus of American jobs began.

The predominant factor in the decision-making over the last few decades has been the price of labor. Villagers in the jungles of Indonesia work cheap and don't demand dental and optical benefits. Far down the list of production costs are -- were -- transportation and utilities.

That's changing. Rapidly.

With the price of oil climbing once again, the cost of transporting raw materials is rocketing skyward, as is the cost of manufacturing itself (due to rising heating, cooling, lighting, energy bills). Thus both are becoming key factors with which to reckon.

It is soon going to be an expensive proposition to ship timber that was cut from the forests of Tazewell County to China where that Wal-Mart bookcase is made and then to ship the finished product back to Tazewell County for sale.

Looking back, it's easily understood why America's leading furniture manufacturers had processing and finishing plants in Southwest Virginia. This is where the raw materials are, and where the productive, skilled workforce is.

Perhaps, just perhaps, until that (inevitable) time when another cheap fuel -- and with it, cheap electricity -- comes along, our furniture companies will see expansion opportunities and prosperity once again.

Gasoline and energy prices are going up. So break out the bubbly.

There is, of course, a downside to all this. Besides the increase in prices consumers will pay, the vast majority of the exports that depart the state of Virginia this year for foreign lands were finished goods. So rising transportation costs and more expensive electricity will be bringing about considerable upheaval on the export side of the equation.

Still, looking to Southwest Virginia, where we are graced with a perpetual abundance of raw materials, that dark cloud that has been hovering over our heads these many years might just have a silver lining once again.