Why Are Profit-Making Factories Closing Across England?

Yves here. Even though this post focuses on manufacturers in the UK, the underlying dynamic applies to altogether too many companies that subscribe to the Anglo-American version of capitalism. For instance, one of my brothers works for a coated paper mill that should have been a world class efficient producer for his career and longer. Instead, it has been traded repeatedly, in a portfolio that consists mainly of uncompetitive mills, with a revolving door of multi-milion dollar executives (when paper mill operators go for much less) while skrimping on maintenance, cutting supervisory staff, and reducing the workforce while putting the remaining workers on punishing schedules in the hopes of driving out the more senior union employees who can’t handle the physical demands.

While this article focuses on the role of underinvestment, as in capital investment, management can underinvest in other ways too, such as cutting service levels or marketing budgets. Over the holidays, I visited the 35-employee factory of a Naked Capitalism reader who is a specialist in a particular niche manufacturing technology and whose customers are mainly in the auto business. Many of her customers and contacts are small to medium sized private companies. She and they regularly get calls from private equity firms, which she rejects with prejudice. She described in detail how they would come in and wreck the business in less than two years by firing senior employees who were critical to the business because the new owners deemed them to be paid too much, and the MBA or other generalists they would install in their place had no clue as to what it took to serve customers well or run an efficient operation.

In keeping with the sort of profit-squeezing that has become common, she had some customers ask her for a 5% rebate off her contract price after she had completed the order. There was no legal basis for doing that, and even more perversely, at least one of these requests came from a customer with a cost plus agreement. It took some doing for her to get through their heads that no one would give that concession on a successfully completed job, and the only way they would get that in the normal course of events would be if they had indicated that desire up front, so the vendors would build extra margin into their contracts.

By Sara Mahmoud, the Senior Economist at New Economics Foundation. Originally published at openDemocracy

There are more than 660,000 fewer people working in manufacturing in England than there were in 2005. But these plants are profitable – and their closure should be avoidable.

The closure of the Britvic factory in Norwich is a huge blow for the 249 Britvic and 113 Unilever workers who share the site. Sadly, this comes as no surprise – across England there are over 660,000 fewer people working in manufacturing than in 2005, with some regions like the West Midlands being hit harder than others. Talking to workers in factories in areas such as East Anglia reveals not only the lack of public and private investment driving these closures, but the impact on those losing skilled and well-paid jobs across the country.

Like many towns, Norwich has a history of manufacturing that is now largely constrained to food and drink. Unlike the food plants run by the likes of scandal-hit 2 Sisters, drinks factories like Britvic are home to some of the more productive, higher paid manufacturing jobs in the area. So why is a site which the company admits is profitable being closed?

Britvic claim it’s because of transport costs – and that does chime with what people in the area had to say to us. As a local pointed out: “the closest bit of motorway is in Holland”. For Britvic, it is more expensive to transport Fruit Shoots out of Norwich, so locating to cities on the M1 corridor offers a chance to boost profits.

But remember: this plant is currently profitable, and the decision to close it is not unavoidable. It is just the latest example of a corporate model too focused on maximising short-term profits over investing in a stable future, and a lack of government commitment to mitigate this damaging trend.

Most headlines about the modern workplace focus on the impacts of automation. But automation requires investment, which hasn’t been forthcoming. As one worker told us: “If they can’t be bothered to introduce canteen machinery… they are hardly going to introduce robots!” Rather than investment in productivity-boosting skills or machinery, we found a pursuit of profit via cost-minimisation and labour standards being driven down. Everyone we spoke to referred to the increased use of agency workers, many on zero hours contracts.

In a sector like food and drink, where demand for products is seasonal, companies often claim they need a more flexible workforce. But agency workers make careful trade-offs on whether extra hours will affect the benefits they need to top up erratic pay, ironically making them less flexible. And we heard how for some, food banks have been the only option when hours were scarce. In addition, temporary staff are often less experienced, putting enormous pressure on the rest of their colleagues on a factory line.

Crucially, it is impossible for workers to take collective action if a sizeable portion of the workforce can be sacked in a day. This makes advocating for important things like health and safety or productivity improvements almost impossible. As a result, manufacturing in places like Norfolk and Suffolk is in a grim state. The majority of workers we spoke to said that firms hire agency workers instead of permanent staff to avoid having to pay redundancy when the inevitable closures happen.

Options for Britvic workers in Norwich are limited. One worker “didn’t know anyone who’s come out [of a factory] and is better off… or on the same level”. Their most likely destinations are low-skill, low-wage jobs in service industries on part-time or zero-hour contracts.

And that means losing a wealth of transferable skills. Food and drink workers explained how they could apply their experience to manufacturing turbines for the huge wind farm expansion planned in the region. But there isn’t enough time or money to retrain. In the words of one worker: “I couldn’t go back and go into college or anything like that and not earn any money… otherwise I would lose my house”.

Where private companies are failing us, the government’s industrial strategy could be turning these situations around. But their current approach focusses on the shiny bits of the economy – high-tech, high-growth industries like artificial intelligence and biotech. Granted, these sectors will play an important part in the future of many parts of the country. But if the rest of the local economy is ignored, it will mainly benefit those brought into the region, and do little for the people already living in places like Norwich.

Industrial strategy should start by making the most of existing assets in an area: whether that’s coastlines for tourism and fishing, or, crucially, the local people who need investment and support. We found that those working on the front line are fizzing with ideas on how to move their area forward. They should be listened to, not abandoned.

Print Friendly, PDF & Email


  1. John Richards

    Makes all the more sense for Labour’s promise to allow workers to have first refusal when a business is sold and a government loan to buy the enterprise. Lord, it must have he oligarchs quaking in their boots at the idea!

  2. The Rev Kev

    What can you say? Grifters gotta grift. A health, profitable company is only good for the people that work there, the local community, their customers and suppliers, the country and society in general. For private equity firms, such a company is only valuable in what assets can be strip-mined out of it, what fees can be charged to it, and what any machinery can fetch in prices as it is shipped overseas. In their constant dash for cash, they will always be there.
    Just being petulant, I did have one idea. How about when a private equity firm contacts a company, their call gets redirected to an answering service. A female robotic voice comes on the line and offers the following menu-

    ‘If you want to buy this company to crash and burn it, press one.’
    ‘If you want to fire all the executives who know how to run the company and use the money saved to give yourself a bonus, press two.’
    ‘If you want to fire all the staff and ship the machinery overseas, press three.’
    ‘If you are a believer in the theories of Ayn Rand, press four.’

    It does not matter what button you press as it always put you on hold with tinny jazz music playing with that robotic voice intoning every 30 seconds; ‘You’re call is important to use – please hold the line until someone becomes available to take your call’. If someone were to press the fourth option, however, the call would be immediately terminated.

    1. ambrit

      Nice set of options.
      I would have those pressing 4 have their call redirected to the local Chamber of Commerce offices.

  3. PlutoniumKun

    I’ve made a few rants before about the impact of MBA’s on business, but I do think there is something about business training that encourages this mindset. We know, after all, its not the only profitable model – everyone knows how Warren Buffet made his billions and it wasn’t through short term asset stripping.

    An example I know of is the Irish dairy processing industry. Back in the last boom there were a wave of closures of small town milk processing units. The driver was property prices – managers reckoning they could boost profits by selling the land for development while driving up productivity at a smaller number of plants. The result was almost childishly easy to predict. When property went bust they found they couldn’t sell the sites, but the sudden rise in dairy prices meant that they had a huge shortfall in dairy processing capacity, so they had to rush around spending millions bringing run down and empty plants back into production. I doubt if any manager was held responsible for such idiocy, but the damage done to many small town economies was long lasting (some plants were beyond repair).

    1. John Wright

      I took a finance class in the 1970’s and the professor was quite proud of a student’s paper that projected how much money IBM would have made had it used leverage to “grow faster” in the past.

      At the time IBM was self financing its growth, and they were using little borrowed money (with its tax deductible interest the finance professor recommended).

      I worked for HP after leaving school and it was well known that Bill Hewlett and Dave Packard did not want the financial risk of corporate debt and financed growth internally with little debt.

      Times are different as corporations buy external company revenue streams with borrowed money pursuing “growth”.

      The HP I remember has been split up/merged and loaded up with debt as it embraced modern finance.

      Companies go bankrupt, the assets are written down and the cycle continues.

      As the UK’s Paul Woolley suggests, the financial industry in the USA and UK may be 2 to 3 times the size it should be for optimal societal benefit.

      The financial industry is much like the US military, too much political power to ever suffer a serious permanent downsizing.

      There should be a wing in the Obama library from a grateful financial industry.

    2. MyLessThanPrimeBeef

      With an MBA degree, it’s business education, not just business training.

      And the problems we see with MBAs are features, not bugs in education, which grades the mind, not the heart…from the first grade all the way up to post-doctoral work.

  4. Thuto Bhunu

    These closures would make Milton Friedman proud. Admittedly profitable factories closing down because the profit margins are out of whack with the Friedman doctrine of maximizing shareholder value (as per Friedman, and lest we forget, shareholders are the only stakeholders whose interests matter). So it comes as no surprise that boosting said margins through these closures should come at the (dire) expense of factory workers, their interests sitting as they do at the bottom of the pile.

    The long, destructive shadow cast by the economic/business doctrines espoused by Friedman and his ilk will continue to rain down financial ruin on generations of working class people until business education is radically overhauled and reframed to take on more just and egalitarian leanings.

    1. Thuto

      To add to my point above, one isn’t hopeful that business education will undergo the sort of reforms it needs to stamp out predatory, rapacious, greedy business practices that we see all too often in the real world outside academia. Tenured professors “consult” for corporations that undertake these practices as a matter of course and being a dissenting voice would be tantamount to a consulting career suicide.

      PS: I do tip my hat to the Michael Hudsons of this world (and other principled academics) for their courage in disseminating the type of educational instruction that will perhaps uproot the rot within the orthodoxy one day.

  5. Jen

    Local, profit making company in our area is winding down. Astute NC readers will pass over the blather about online sales to find the money paragraph towards the end of the piece:

    “In 2010, North Castle Partners, a Greenwich, Connecticut, private equity firm, acquired a controlling stake in the company and three years later, [company founder] Fernsell left the company over what he called “irreconcilable differences” with the new owners.”


  6. John A

    Where private companies are failing us, the government’s industrial strategy could be turning these situations around. But their current approach focusses on the shiny bits of the economy – high-tech, high-growth industries like artificial intelligence and biotech

    Yes, Hammond seems to want to bet the ranch of driverless cars.

  7. ambrit

    I’m suffering the effects of a “buy out” of a profitable company myself.
    Background: The Chicken Palace was “invested in” by a large multinational “Investment Firm,” whose initials, as per the transposition cypher used by Clarke and Kubrick to name their fictional AI in the film “2001”, I’ll call “JJQ Enterprises. This happened in 2015. Anecdotal evidence suggests that most of the old line store managers were removed early on in the process. The well liked, (according to the few holdovers from the previous workforce,) general manager from my store was sacked, along with almost everyone else, late in ’16. a new, much younger, and lightly experienced in retail, manager was bought on board.
    So, to proceed with our story.
    General Manager the Younger mandates that everyone be at the store the morning of New Years’ Eve day to take part in the yearly inventory. Many of those who showed up were sent home after a few hours. The actual counting was done by mercenaries working for a company specializing is such a process. I stayed a full day, and extra.
    The next day, New Years, is a regular day for the store, so, I show up in the morning to work. General Manager the Younger unlocks the door and lets me in. Then the greeting.
    “Happy New Year. Things are going to change around here.”
    “Oh, I wasn’t aware of it. How are things going to change?”
    “I now have a smaller labour budget to run the store. I have to get more work out of everybody. Efficiency has to increase.”
    “Hmmm… You weren’t kidding about change.”
    “Yes. So, what I need from you is a more productive work ethic. Instead of just picking something up from over here, say, and walking it over to there, I want you to hurry up. Run if you have to, but you’ll have to get more done in the same time than before.”
    “No more lollygagging, is it?”
    “Exactly. And, there is way too much chit chat between the workers here. I want no more of this, ‘Yes, the Bulls are great’ kind of exchanges. ‘Hello’ in the morning and anything needed to get the job done are all I want to hear out of you all from now on. there will be no personal conversations on company time from now on. It takes time away from doing the job. You are here to do a job, and nothing else.”
    “So, it’s the Vow of Silence then.”
    “Don’t be flip. This is serious.”
    “Are we having a truck today?”
    “Don’y worry about that. Whoever is here if and when it shoes up will unload it. Yes, you’re supposed to be able to unload the truck, and reload the trash in an hour and a half. You’ve been taking three hours or sometimes more.”
    “Now wait a minute. I have to clean up the previous days mess and prepare the trash, cardboard, and other things for loading. That takes time.”
    “Don’t be so particular about the trash anymore. Just slap a Trash sticker on any mixed boxes and send it off.”
    “What? Most of the stuff is lying around in piles, or in those rolling trash cans, all mix and match. I have to gather it together and cartonize it just to load it.”
    “That’s not going to be an issue. We’ve got an hour and a half, roughly, to get the job done. That’s that. Get it done or we’ll have to figure something else out to accomplish it.”
    “I’m generally back to doing furniture now, right?”
    “Yes, and you have to get ten to twelve pieces done a day to justify your being here. I’ll be timing you.”
    He was not kidding. Every time General Manager the Younger came back into my work space, he looked at his watch, with a look that our Cousins Down south would characterize as “Con Significa.”
    More later if acceptable.

    1. The Rev Kev

      Man, I for one would definitely like to hear more. Not to be flippant but with little effort you could turn the whole story into a sort of comedy episode (something like from “The Office”) though I am sure that it did not strike you the same at the time. Where do they find people like this boy blunder?

      1. ambrit

        Thanks. This is definitely a laugh so you don’t cry situation. The generation who bought us “Slackers” and “Mallrats” and “Clerks” must now look back with affection at the dreamstate they inhabited then. I do, and I go back a few more years than they do.
        Our modern dreamstate is in more of a “Nightmare on Wall Street” sort of milieu. Check that. It’s more “Nightmare on Main Street” and Wall Street is “Boulevard That Breaks Dreams.”
        Today was even more fun. I’m getting all of twelve hours of work next week. Three four hour days no less.
        What is so funny, in the classic sick way, is that General Manager the Younger is trying mightily to hold on to the meritocrat illusion. Also, he is really scared. The Corporates cut his labour budget for running the store by 9%. It’s hit him like a ton of bricks. Sadly, it is “marginally productive” s—s like me who get to suffer the fallout. Oh, I’m not the only one who is having their work hours cut. the wish above about a general strike might come close to true in a few weeks. Training replacementys for those who quit in disgust will bite him in the wallet, very closre to his butt, thank the Gods.
        I’m seriously hitting the bricks tomorrow.

    2. cyclist

      It is really unfortunate that you all couldn’t just leave and let Johnny Stopwatch run the place by himself.

    3. Objective Function

      Great discussion here, utterly fundamental for Marxians and Burkeans alike.

      For a quick evisceration of Taylorism (time and motion studies) whose quackery became the foundation of the management consulting industry and now the ‘turnarounds’ of today’s private equity pirates, I highly recommend “The Puritan Gift” by Ken Hopper.

      That classic book unbundles the capitalist engine and ‘Puritan’ ethic which made the Industrial Revolution and the American Century. While not especially lovable within the social contract or the ecosystem (dark satanic mills, triangular trade, monocropping, etc.), that ethic lionized frugal frontline proprietorship and patient hands-on ‘mechanics’, who apprenticed up from the mailroom, and never ceased tinkering with the machines and the business. But after 1960 pretty much all these Great Engines were bureaucratized by pure administrators, with the core business serving the book keepers and the lawyers. While those lumbering herds in turn are now being predated by quick buck artists in the name of shareholder returns.

      And far from the Jeffersonian hands on ideal, we ‘symbolic analysts’ (remember when that was the future according to Clinton guru Robert Reich?) ‘manage’ blindly using the remote control tools of the incapable: spreadsheets and dumbed down PowerPoint bullets, yet can’t change a tire (Taleb’s ‘Intellectuals Yet Idiots’), and have no wish to learn how.

      The cold comfort here btw is that the Asian 20 percenters are quickly following our lead, putting their (unclean lower caste) mechanics to work making goods as cheaply (shoddily) as possible, while their Harvard MBA princelings chase margin and yield with the best of them….

      1. ambrit

        Thanks for the suggested reading. In the mood I’m in, it sounds like just what the Doctor ordered.
        As for the “shoddy” part of the equation. My Gods! The pure D junk we get in on every truck! What really grates on the ethical nerves is that the store dares to charge nearly full price for returns and factory seconds! And, really, the ways that one can permute sawdust into a facsimile of furniture. If even a part of the ingenuity used to cheat the public were to be purposed for pro social tasks, the Millennium would soon arrive!

  8. RickM

    Why are factories closing? Because 8% a year in perpetuity is much less attractive to “Management” than a mandated 16% a year, including the loot they extract for themselves, until the predictable crash and burn a few years down the road. Your numbers may vary, but the principle remains.

    1. a different chris

      And the government will nurse them thru said crash and burn so what else would they do?

  9. ltr

    A superb essay. This is all of course self-defeating on a national level, but what sort of national intervention might there be?

    1. Nell

      I believe the option Labour (UK) is looking at is provide a loan for the workers to buy the factory/business and run it as a co-op. Keep the vultures out and the community safe and hearty.

      1. ltr

        I believe the option Labour (UK) is looking at is provide a loan for the workers to buy the factory/business and run it as a co-op. Keep the vultures out and the community safe and hearty.

        [ Surely so, and I am thinking beyond this fine possibility. ]

  10. JerryB

    I worked in the injection molding industry for over 20 years and have seen the changes brought on by the corporate short termism (starting in the 80’s), the China effect (starting in the late 90’s), and the increased predatorial behavior of businesses in the current day.
    After getting a degree in plastics engineering in the late 80’s and getting a “career” job at a medical device company I thought I was set for a while. But three years later I was laid off in a corporate restructuring and have known nothing buy instability since.

    What bothers me more though is the increasing predatorial brutal nature of workplaces. Humans treating other humans like animals. I left injection molding three years ago due to the fact that at age 55 my body could not keep up with the inhuman pace and brutal treatment of workers. Jeremy Brecher has mentioned this in most of his work on globalization and in competition with China the increased focus on costs. In my experience there is a distinct difference between pre China (mid 90’s) and post China, Mexico, et al ( post 2000). And it does not matter whether the company is big or small, it is like they all read from the same book or something.

    A large local hospital system is rumored to be in the midst of being acquired by a larger hospital system but the local hospital has to reduce its debt load. So what do they do? The have cut staff, services and costs down to the bone. Makes sense right? But wait for it. In anticipation of being bought the executives at the local hospital have been getting promotions and large salary increases!

    I recently was getting my hair cut at a local hair stylist shop and mentioned to the stylist that about two weeks before my appointment with my previous stylist at another shop I was called and told that she no longer worked there. No advance notice. Just gone. My current stylist told me that many beauty salons, hair stylist places, barbers, etc. now have their employees sign non compete agreements. Non Compete Agreements at a Hair Salon???? The world has gone insane.

    We need more sites like Naked Capitalism and more people like Michael Hudson to counter the orthodoxy, dogma, ideologies, and brain washing being done in education, media, and politics or its over. Sadly I do not see this ending well. In an increasingly competitive world we are taking our anger out on each other instead of uniting and taking our anger out at corporate America and our dysfunctional government. And we don’t have decades or centuries to evolve. Our planet’s clock is ticking.

    1. wilroncanada

      Re Jerry B, with a shout out to ambrit above
      ambrit, I’m looking forward to part B of your story.
      Jerry B
      My oldest son-in law took his engineering degree to a firm (complete campus, with bicycles for staff to go to various buildings, and gourmet cafeterias, at first) in the plastics injection molding business outside Toronto, while my daughter was obtaining her PhD in a Toronto university. He soon saw that almost all engineers over the age of forty were being let go, as well as those who had been working there beyond a ten-year tenure.
      The owner’s bleeding-heart environmentalism was masking a cutthroat CEO wanting to suck everything out of employees before disposing of them. The company was listed on the NYSE, I believe, and had a patent for plastic water bottles.
      He took leave to move with my daughter to where she was to her internship, and resigned during that year. They moved out to the west coast to be near us, and his family, and he joined the FIRE sector.

      1. ambrit

        More coming tomorrow. Thanks to one and all for the encouragement. This can become verrry depressing if you (I) let it.
        Oh, more tomorrow because I was “given” Friday off.
        Keep the ‘Great White North’ great!

        1. The Rev Kev

          Stay strong, mate. As the Brits say, who have much experience in this area:
          “Never let the bastards get you down!”

  11. Enquiring Mind

    The name Romney keeps appearing before my eyes.
    Even a second cup of coffee won’t make it disappear.

    1. MichaelSF

      Possibly to be Senator Romney in the not too distant future, as it appears he has designs on Orrin Hatch’s position.

      1. Enquiring Mind

        That was among my concerns. Interstate grifting by Romney (MA to UT) is a mutation of the Clintonian (AR to NY) model. They’d probably say that the market called away their talents and that they’re adding value on behalf of a grateful populace. Next we’ll learn of politicians who once had connecting flights that sat on a tarmac somewhere as support for a local candidacy. They aspire to become more like pro athletes, and who can’t wait for the politician free agent trading cards, gotta collect the whole set.

  12. Ralph_Nadar

    Nice article.

    It seems to me that the U.S. (And increasingly the U.K.) are driving profit (and capital) as the ‘only’ source of truth. Thus, all else must crumble before it. We can see this in the reduction or destruction of social protection programmes and privatisations. This needs to be reversed or society will crumble, with the rich holding out in their private enclaves and private security services, but succumbing anyway. Sounds a bit pessimistic right? Well, it’s obviously happened to countless civilisations before this one, so we need to do something about it and fast.

    1. Synoia

      It seems to me that the U.S. (And increasingly the U.K.) are driving profit (and capital) as the ‘only’ source of truth.

      Perhaps The Love of Money is the Root of all Evil was not so trite.

  13. Altandmain

    It is all about greed.

    The destruction of the manufacturing industry is completely unnecessary and has been rationalized by neoliberal propaganda.

    Notice the endless talk of robots.

    1. First productivity growth has been really bad since 2008, which defies the automation is taking people’s jobs narrative

    2. Second companies don’t invest their profits into research and development, capital investments, or employeee training much these days. They hoard the money (I believe that the term is “dead money”) or they use it on share buybacks. This has been documented pretty extensively at NC.

    3. There is an emphasis on the importance of driving down costs as much as possible. That’s especially true when it comes to labour costs. Permanent employees with middle class salaries and benefits are being eliminated in favour of a lot of insecure workers with precariously low salaries. There are tons of anti union efforts too.

    4. Manufacturers damage themselves this way. Loss of key process engineers, valuable institutional memory, and lessons learned goes away. Plus people who are working there are not as motivated, having an adversarial relationship with management that only cares about looting the company to make themselves rich. Turnover grows among the top employees as well.

    5. Manufacturing relies on iterative design and the next generation of products applies the last generation of products used. It is also very capital intensive and requires investment in research. None of that pays off in the short term. It requires planning years and sometimes decades into the future.

    6. Then there is the matter that there are nations that do well in manufacturing. The East Asia nations like Japan and South Korea, even with their higher wages now do well. Among the Western countries, Germany, Switzerland, the Nordic nations, and the Dutch stand out. They are often unionized, paying good salaries, and their work life balance puts Americans to shame.

    I have become increasingly convinced that they are much more long term oriented than the Anglo nations. I find that private companies generally have a better long term orientation than publicly traded ones, but even they are dependent on having a good management team. The East Asian model is flawed in how it treats its workers too, but at least they spend on capital investment and are long term oriented.

    7. Then there are the Private Equity companies. They are basically in the business of looting companies to make themselves rich.

    8. Another problem is that many people in the Anglo world tend to look down on manufacturing, especially the upper middle class Liberal Elite that made up Clinton’s base and the right wing economic conservatives. It means that manufacturing is less prestigious and less attractive. Notice how Germany for example treats its labourers better than the US.

    There is also the matter that for ideological reasons there’s no desire to build a industrial strategy amongst the government. Of course the government is largely in the control of the plutocrats now so there is that too.

    I work in the automotive industry myself and I have seen how this mentality has damaged so many people.

    1. rd

      At least once a week, my spouse or children inform me of some really stupid action or memo emanating from management that is totally divorced from the real world of doing the work. I keep telling them, we are living in an age of bad management which is the primary cause of poor productivity growth.

      The economists have been baffled by why productivity growth has been poor for the past couple of decades. They clearly don’t work for organizations with managers and administrators sending them vacuous e-mails and memos with multiple reorganizations of people whom you have have no idea who they are or what they do. Periodically some vanish into the ether in a “cost-cutting” exercise driven by the last round of “strategic envisioning” re-organization.

      One of the things I started doing a couple of decades ago is just typing in key “strategic” terms from the latest memo from management. If it shows up as a common fad term in Forbes etc. over the past couple of years, then this latest idea is most likely doomed for failure.

      1. JBird

        It’s rather like public schooling in which there is always another reorg, another five year plan that only goes for three years to “fix” whatever needs improvement in the school system.

  14. Mike

    Hmmm, a posting along the rutway that is manufacturing in the “advanced” capitalist countries, and not a mention of the dreaded word “Brexit”. Could the process seen here be speeded up in dread of trade sanctions and the more-dreaded Corbyn? Just asking…

    And, further, is there any option to fix this “problem” short of nationalizing industries and running them profit-less to compete globally, unless of course the ultimate dread “global government” irons out the labor cost issues and plunks down dreaded rules for manufacturing that allows nations (or regions, as they would become under global rule) to control and keep the facilities they do have? Really, just asking whether we have graduated from criticism to a replacement, as offering good things to the citizenry.

    1. Yves Smith Post author

      No, corporate decision making isn’t that fast. Readers have said that companies will start pulling the plug in the first half of 2018 when it becomes apparent that the UK is firmly on the way to a hard Brexit, and it will take place either March 2019 or December 2020. Remember the press reporting in the UK is awful and the Tories are sloganeering like crazy. Moreover, in some industries, like auto manufacture, there is excess capacity in factories in Europe, so it may not even take much in the way of lead time and costs for some manufacturers to shift production out of the UK.

  15. doily

    I am relatively new to NC. I’ve found the topics posted and discussed here very valuable and the site has absorbed my interest to the point where it has crowded out other trajectories of reading and thinking, particularly strands of left political economy (David Harvey’s work for example, or Monthly Review) which are not often mentioned here. I wonder about this. Time is short, and I am not clued into how discussions about how capitalism works have gone on this site in the past. What I see in this thread is something of a consensus that there is some least bad way to do capitalism out there, but that “Anglo-American” capitalism is a mutant variant where “grifters gotta grift”, where an MBA bubble has produced a generation or two of Friedman-infected drones instead of the enlightened captains of industry they might have been, where “it’s all about greed and propaganda”, where “the US and the UK are driving profit (and capital) as the only source of truth,” and where this might be put right somehow with the right B-School curriculum, or the right industrial policy. What’s missing here is what I might like to call basic Marxist common sense: that the problem with capitalism is not located inside our heads (nor, perhaps, is its solution). This is a global system that will not anywhere ever stop forcing upon capitalists decisions like the one recently made in Norwich. Capitalists who do not take the decisions to continuously drive profits higher, one innovative or tried-and-true way or another, are quickly replaced. This system does not sustain all profitable operations, only those that are above the average. This system is not greedy, it doesn’t care, it doesn’t think. Contra Ralph_Nader, profit (and capital) is the truth of capitalism, and it is driving the US (and the UK), not the other way around.

    1. Yves Smith Post author

      Thanks for your interest in and readership of the site.

      However, I feel compelled to take issue with your view. I’m relatively old and have done business in other countries. Capitalism comes in many flavors and the Marxist view is simplistic. Where we are is an unfortunate historical accident.

      Europeans are much less enamored of capitalism, and contrary to US propaganda, Europeans have much better lifestyles than Americans (but smaller houses). As Hudson has stresses, Marx himself didn’t expect financial capitalism to win out. It did, and the US after WWII set out to make the world safe for US multinationals, and starting in the 1970s, for US banks and later investment banks (the World Bank pushed for developing economies to have capital markets, for instance).

      The German economy is dominated by the Mittelstand. Those privately-owned companies have a distinctive culture, which includes a long term orientation and believing in having highly trained workforces, which means treating them decently (you don’t want to lose trained workers). In Japan, creating employment is revered, not getting rich.

      In the US, before the Milken era led to the made-up theory that corporations exist to maximize shareholder value became accepted as dogma, the political and economic orthodoxy was that corporations existed to serve all of what is now called stakeholders, in particular, the communities in which they lived. There were always bad actors, but they were looked down upon by the local elites. There was a sense of noblesse oblige which has been lost.

      1. dk

        My family was, one one side at least, both aristocratic and wealthy. They talked about the responsibility and doing the right things for everyone. Noblesse oblige.

        But they basically just indulged themselves and rewarded their favorites, and punished those that offended or failed to impress them. All the while saying it was either not important in the particular case, or part of some greater plan (like building a luxurious house or something). Not that they weren’t nice now and then.

        Noblesse oblige was a buzzword to them, a token of their class and their self-esteem.

        As I got on in life, I found out that intention is not enough to make a choice or action appropriate and effective. One should really understand how things work in depth and over time. It’s not just that details matter, but the people who can execute those details repeatedly and reliably have value to others for that reason. Those skills are needed, and need to be retained and passed on. It’s recognition, but not particularly for the sake of recognizing in the social context alone.

        Leadership isn’t just about “recognizing” people, or rewarding them. I’ve been a part of teams that achieved remarkable hings, through our various skills. And these teams didn’t operate through arbitrary hierarchy, their forms followed our functions. Then we were “recognized” and “rewarded” and the teams scattered and the skills displaced.

        Expressing these things is not a skill of mine :|

        “Obligation of power” is phrase; the obligation of power is a complex function. If it doesn’t support and assist the cultivation and delivery of skill, that obligation isn’t being met.

      2. doily

        Thank you Ives.

        I fully understand the reality that there are different flavours of capitalism out there, some bad and others worse, and I have read with sympathy and interest the NC threads about how to live a decent life and keep the wolf from the door in various parts of the world. I’m lucky because I inherited the right to hold an EU passport, and seized the opportunity to leave the United States and raise my family inside the EU. But my two sons have returned to the US, the land of opportunity, to live and work. It’s all complicated, unfortunate, and accidental, without a doubt.

        What I would say in response is that Marxist views are not necessarily “simplistic”, as anyone who has tried to work through the literature (Harvey again, for example, or Jameson from another perspective) will realise. It’s also evolving, against the odds, having been almost entirely excommunicated from economics departments in the West (I’m a refugee). As a Christmas present to myself, I ordered a new book by Fred Moseley which apparently disrupts a century of debate about Marxist macroeconomics. Its 400+ pages long, and I’m not sure I’m up to it. A daily dose of NC is easier to digest.

        More specifically, I would argue that it is not simplistic to view capitalism as a totality, to begin the analysis from there, and return to that view after exploring the varied evidence. So yes, thank you for pointing out the crucial differences between German, Japanese, and US variants. But why do the Japanese and German alternatives even exist? They were built up from a scorched earth post-1945, largely by the US, which in 1950 owned well over half the capital stock and produced half the output of all the advanced capitalist countries combined. It was surely the intention of US policy elites to fashion capitalism in its own image, but it was not at all clear to them at the time that “financial capitalism would win out, ” because of the actual existence of socialist states that controlled half of Germany and were expanding all around Japan. Nicer capitalist states in these regions were built in response to an existential threat to the system. I’m cribbing from Eric Hobsbawm here, so I may as well quote him:

        “Aggressive expansion was plainly in the minds of American policy makers as soon as the war was over. It was the Cold War which encouraged them to take a longer view, by persuading them that helping their future competitors to grow as rapidly as possible was politically urgent. . . American aid was decisive in speeding up the transformation of West Germany and Japan. No doubt those two countries would have become great economic powers in any case [what kind of economic powers, Hobsbawm refrains from saying]. . . Nevertheless, we have only to ask what would have happened to the German economy if its recovery had depended on the Europeans, who feared its revival. How fast would the Japanese economy have recovered, if the USA had not found itself building up Japan as the industrial base for the Korean War and again the Vietnam War after 1965?”
        Age of Extremes: The Short Twentieth Century 1914-1991, pp. 275-6

        From the systemic necessity of building planned and mixed economies which supported and inclduded non-communist labour movements in these regions at the coalface of the Cold War came different cultures of capitalism, ones that are obviously superior to the present US variant. This is where the noblesse oblige came from. That war is long over. Across Europe many of those socialist institutions persist, as do employers whose plans for the long term benefit their employees. I see from a quick online skim of links to “Mittelstand” that it has also been part of the UK landscape I have benefitted greatly from cheap higher education and the NHS here in the UK, both legacies of the Cold War. But for how long will they last?

        1. Yves Smith Post author

          The cultures of German and Japanese capitalism considerably predate World War II. The Sumitomo zaibatsu, later reconstituted as a keiretsu, goes back to 1600. The youngest zaibatsu, the Mitsibushi group, goes back to the 1910s. German capitalism developed in concert with Bismark’s social welfare programs. As Michael Hudson describes, it was an industrial capitalism, as was Japan’s and grew on very different lines than US/Anglo capitalism.

          After the financial crisis in Japan, banks kept companies that should have been shuttered alive to preserve employment. Japanese companies saw their senior executives take pay cuts and greatly compress the pay differential between the most junior and most senior staff, which was low by US standards to being with, to preserve jobs. They reluctantly reduced the number of annual full-time hires and implemented “freeters,” basically part-time contractors, again to preserve employment. How do you reconcile that with your claim that capitalism is basically monolothic (a “totality”)? How about cooperatives like Mondragon?

          1. doily

            A totality is not monolithic. I think I have done my best to explain the Cold War origins of the Japanese and German differences within that totality which still persist, and produce different reactions to financial crises. Granted, those political economies were rebuilt using some of the historic organisational styles you mention. At my first glance, Mondragon, which was founded in 1941 and grew rapidly in the following decades, fits the Cold War picture very well too.

            Perhaps another way to put it is that it is useful to identify fundamentals about capitalist accumulation, while recognising the range of ways across the globe in which capitalist classes exploit those fundamentals and the rest of us resist them. My point in posting on this thread was that the ugliness of capitalism is manifested particularly strongly in the US in the various cultural phenomena mentioned, but it is ugly primarily because of what it is. I hope I am not splitting hairs. You have referred to Hudson twice, and I have not read him, so I will go away and do some homework and see is there anything useful to say about these fundamentals, their prevalence, or about capitalisms (financial, industrial, Japanese, etc…).

            Thanks again, and stay warm over there.

    2. Ralph_Nadar

      Essentially I was saying there are different ways to do capitalism, hence the social-democratic ‘Keynesian’ version that dominated after WW2 until the early-70s when neo-liberalism kicked in. It is possible to constrain Capitalists.

      “This system does not sustain all profitable operations, only those that are above the average. This system is not greedy, it doesn’t care, it doesn’t think. Contra Ralph_Nader, profit (and capital) is the truth of capitalism, and it is driving the US (and the UK), not the other way around.”

      I would disagree, as above, you can structure your society in a way that constrains capital, regulating it and not allowing monopolies to develop etc. However, the U.S. and U.K. through neoliberal policies have decided to let the markets (and capital) be as ‘free’ as possible, resulting in these types of problems that we’re discussing.

  16. Paul

    This short termism is everywhere. I’ve been through several IT service provider suppliers (UK) who eventually (because the founders wanted to exit, or because they need more capital investment) get bought into by private equity. As soon as this happens all customer service ethic disappears out of the window and the sole focus is sales growth. The process of dealing with these suppliers sapped my will to live, the sales driven ethic came from the newly installed CEO and permeated its way down through the business, endless problems and spent my time dealing with staff who just didn’t care.

  17. c_heale

    I think a big question is what will be the culmination of these years of short-termism. Imo, I think we are heading straight into a permanent great depression (permanent due to resource depletion – water and oil come to mind). BA’s won’t have much use in this future world.

    An unrelated point is that the UK unemployment benefits system is now very tough, especially in the areas they have rolled out the ‘Universal Credits’ system. The UK is a relatively small country and I think Brexit (because this is also causing companies to relocate and not invest) is going to be the straw that breaks the camel’s back (the U.K. has had nearly 40 years of neoliberalism). I think there will be serious political unrest in the UK in the very near future.

  18. James Trigg

    Sure MBA’s are stupid. But do you want the morons to be government bosses doing stupid things or be private and do stupid things. Private capital can reinvest an correct stupid people. Government ownership is harder to correct. Morons are morons. At least private enterprise can adapt. A government business would demand MBAs. At least with freedom guys can get together work, make money and share the wealth.

  19. ambrit

    With the kind indulgence of the site administrators, I shall continue the “Tale of ambrits’ Bad Week.”
    (Conversations are reconstructed from memory, hewing to the truth.)
    Firstly, I was “given” Tuesday off after a four hour workday on Monday. Whan I returned on Wednesday, I found that someone had been mucking about with the furniture building tools, and that the back warehouse space had been cleaned up and a truckload of “new” merchandise installed.
    General Manager the Younger, (GMtY for short,) actually bragged to me about how he had done all of this work. And two trucks!
    First, what manager of a well run establishment does his or her own donkey work? Second, I was immediately suspicious when no mention of how long it took to accomplish this Herculean labour happened. Third, and this might me being paranoid due to to the preceeding events, a distinct aura of “anyone can do this” surrounded GMtYs’ demeanour. Questioning of workers who had been there at the time uncovered several fun facts. First, GMtY was very upset on Tuesday when it ended up taking three hours to accomplish the task. Second, there was only one truck to unload. Third, this truck was not loaded up with that days refuse. (I ended up doing this task Wednesday.) Fourth, the reason I ended up with the onerous task was because GMtY couldn’t do it himself. Other, more managerial level tasks, demanded his time and attention. (I heard this from him in passing.)
    Ah, but what an education in Corporate Think I was to get next!
    I slunk back to my furniture cave to resume work. Several chairs later, chairs being fairly quickly assembled, and so creating a buffer for those time consuming pieces like chests of drawers, I was working on a medium sized “Entertainment Cabinet” where one can stack objects and place things like TVs, stereos, and the like on top. Basically a purposed side table. In waltzes GMtY to, I’m assuming, ‘reeducate’ the geezer in his work habits.
    Some cabinet background is in order. Besides the frame, most cabinets and chests have a larger thin backing piece that acts as a stiffener for the whole piece. Somewhat like the hull on a boat or the skin of an aircraft. This sheet, often folded in half, or third for shipping purposes, is attached around the perimeter of the piece by many small nails or screws. This ‘back skin’ often holds the entire piece together and in shape.
    I was screwing the little screws into this back, going around the piece.
    GMtY: “That’s taking way too long. From now on, just do every other hole. We need production.”
    Me: “So, you want me to do crappy work?”
    GMtY: “No, no, no. the thing will hold together with less, and the customer will never know.”
    Me: “Well. I do this under protest. It goes against the grain.”
    GMtY: “Don’t worry about that. Just get the piece done.”
    A very short time later, I’m finished.
    GMtY: “Here. Help me get this down on the floor.”
    In some puzzlement, I do so. GMtY then takes a picture of the piece of furniture with his iPhone and sends the picture on off into the aether. GMtY then hurries out of the room.
    Encounters with other workers during the day reinforced my belief that I was living in a “Store Under Siege.”
    One worker I usually converse with said that he was actively looking for other work.
    “Who wants to work in a place where you can’t count on anything staying the same from one day to the next?”
    Another said that her hours had been slashed in half and that she was looking to jump ship at the first good opportunity.
    “I’ve got bills to pay. You think the light company will cut you some slack just because you work for a–holes? If no one here cares about me, why should I care about them?”
    Another, very productive employee, put it succinctly.
    “I worked my a– off for them over the holidays, and now this. I’m doing the very least that I can get away with from now on.”
    Finally, some time after the cabinet building episode, GMtY returned to again exhort the masses, (me.)
    During this episode, I tried to educate him about the predatory ways of the Vulture Funds, JJQ in this case.
    GMtY: “Yeah, I don’t know, you throwing all of these big words at me.” (I remember this verbatim because I was truly shocked to hear such an admission come from anyone.) “It’s just that I have bosses whose orders I have to follow, just like we all do.” then, near the end of the day, he drops the bombshell. “I’m going to have to cut you back to twelve hours next week. Three four hour days, 9 to 1. Maybe later, when sales volume picks up, I can justify more hours for everyone.”
    I just waved sadly, like I was pulling away from dock on a boat heading out to the great deeps.
    Enough for now. Time to find something better, or failing that, (family blog) all.

Comments are closed.