Current Affairs

Productivity and Scrap Steel

After watching Kudlow & Cramer on CNBC last night and their interview of the guy from Schnitzer Steel (SCHN), I was struck by this morning’s announcement of a 9.4% increase in US productivity by the Department of Labor.

Morgan Stanley’s Stephen Roach has an Op-Ed piece in Sunday’s New York Times about this productivity paradox. In particular, he highlighted that it’s not just US worker productivity that’s affecting the numbers:

That underscores another aspect of America’s recent productivity miracle: the growing use of overseas labor. While this may increase the profits of American business — help-desk employees or customer-service representatives in India earn a fraction of what their counterparts in the United States do — the American worker does not directly share the benefits. The result is a clash between the owners of capital and the providers of labor — a clash that has resulted in heightened trade frictions and growing protectionist risks.

In other words, the Department of Labor’s measurement of productivity — flawed in a number of other respects — really doesn’t measure US worker productivity but, rather, the productivity of all labor — including offshored labor — used by US businesses.

Listening to the guy from Schnitzer, he spoke in glowing terms about how his business exporting scrap steel to China was exploding. Separately, another economic report a week or two ago reported that Chinese imports were actually up over 40% year over year. A front page story in today’s Wall St. Journal reports on China’s hunger for petroleum imports — now second in the world only to the US.

The contrast between what we’re exporting (scrap steel — that we can’t put to profitable use domestically) and what we’re importing from China (undoubtedly soon to be automobiles!) is striking. Ironically, the Schnitzer guy commented that it was much cheaper for him to ship his scrap steel to China (via ship) than to ship it to Detroit via US railroad.

We certainly are now living in a global economy — one that feels like it’s become totally globalized over just the last few years. The power of the Internet in enabling this acceleration of globalization has been amazing.

On Monday, I ordered a spare power supply for my PowerBook from the Apple Store. It arrived on my doorstep earlier today — shipped by Apple/Compai via FedEx direct from Taiwan, not Cupertino.

Steel tariffs — imposed about 18 months ago as a crude attempt to protect US jobs — will reportedly be eliminated by the administration tomorrow. In the meantime, we’ve just started tariffing Chinese bras in a fit of administration schizophrenia.

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