TORONTO, ONTARIO - Sometimes it is nice when the obvious is reported as news. In a recent issue of Chemical and Engineering News, an article cited the Chemjobber blog (right there making me wonder what passes for news these days) which noted that the number of industrial positions advertised in the mid-September issue of the trade magazine for chemists and chemical engineers had dropped from nearly 60 in 1989 and just over five in 2007 to ZERO in 2009. It had occurred to me about mid-September that I hadn't responded to an employment ad or pointed a friend to an ad the entire calendar year of 2009. During the turmoil in which the business I was working for was shutting down in 2005, I don't think a single week went by when I didn't at least forward someone a lead from the magazine's classified ads.
An interesting graph that they didn't print, and I am too lazy to generate myself, would be a graph of industrial positions advertised each month that were outside the United States and Europe. It is my impression that the number of these positions (mostly, but not exclusively in China) has remained essentially steadily since the onset of the current recession. So, when it was broadly reported recently that China's growth rate may be 8% for 2009, that didn't really strike me as big news, either. Yet, the obvious had not yet been reported.
There's no big message here. While it is true that print advertising is suffering relative to on-line job boards, in technical fields, trade journals have been relatively inert to the phenomenon compared with newspapers. The number of academic jobs advertised in Chemical & Engineering News has "slowed too" according to the magazine's director of advertising sales, but not nearly as much. (Funny how the article didn't quantitate that.) If the academic advertising decline served as a baseline for the move away from print, then the trends observed are simply reflective of the current job market. The market isn't as bad in China, so the decline in ads isn't as great. It doesn't necessarily mean that the whole chemical industry is moving to China.
We complain a lot about how the media try to sensationalize stories and try to make them mean something profound. If I did that more often (and I have done it--look through the archives), this blog would probably be more widely read. Sometimes, though, it's refreshing just to see something obvious reported at face value, for the record.
Showing posts with label Chemical and Engineering News. Show all posts
Showing posts with label Chemical and Engineering News. Show all posts
Monday, November 23, 2009
Thursday, October 1, 2009
Economics: Not a Fast Recovery
TORONTO, ONTARIO - Nearly a year ago, buried near the bottom of this post, I presented Canadian economist Hugh Mackenzie's view that recovery from the 1991 recession was slower than from the deeper 1980 recession because factories were actually dismantled in the later recession, whereas workers could simply be called back in the earlier case. He predicted that because the 2008 recession was deep and factories were being dismantled and moved to China that recovery would be even slower than during the 1991 recession.
Place that view in the context of a recent article in Chemical and Engineering News (C&EN; this article is not available on-line). In the piece entitled "Vanishing Plants," staff writer Michael McCoy describes how various sectors, from manufacturers of auto hoses to safety gloves to pond liners, are no longer able to get needed component chemicals in North America because they are no longer made here. Plants closed because of the recession have ended the production of such basic chemicals as formic acid and such specialized ones as chlorosulfonated polyethylene (CSPE).
The bottom line for the affected manufacturers is that without a local source of these chemicals, they are placed at a disadvantage to competitors located closer to remaining chemical suppliers in the Middle East, Asia, or even Europe. Rather than being able to return to business as usual as the economy recovers, their costs will rise and they will recover more slowly, if they can compete with their overseas competitors at all. In some cases, as the article points out, the burden is even heavier, as changing suppliers means re-validating products if they are produced for regulated industries such as the safety gloves.
Why are the plants closing permanently? McCoy's C&EN article presents a lot of opinions similar to this one expressed by Stephen Fitzpatrick: "U.S. managers look at a declining market as something they don't want to be involved with. They tend to turn tail an run." Change the "U.S." to "western" and "managers" to "managers of publicly-traded companies" and I couldn't agree more with this view, based on what I've observed. In some cases, the "declining market" may even still be profitable, but the profits aren't as large as other sectors and hence the decision is made to stop production to avoid exposure to any further declines.
In fact, it's not that different than what's happened in a completely different industry, radio. Rather than accepting "lackluster" profits, even before the recession the radio industry was being decimated by corporate parents that demanded double-digit growth in profits and slashed talent at their radio station to improve their margins, in many cases making their products unlistenable. If a station didn't look like it could give that kind of growth, virtually its entire local staff would be fired and it would start running a satellite-fed format with no local content. Newspapers are another classic example of an industry that in many cases was profitable, but not profitable enough to satisfy its investors, ending up in a downward spiral.
The pressure of today's capitalism is so strong that nobody can justify something that makes only a small profit anymore, or that might take some time to recover in a recession. Instead, those fundamentally riskier things just aren't done, resulting in everything from the loss of local radio to the inability to make innovative new pool liners--and jobs and quality of life go away as a result.
Fundamentally, the incentive structures are messed up here--short-term returns are trumping long-term investment and quality of life. The solutions are not unknown and can even come from relatively small interventions in the market--changing the time scale of executive compensation to force them to think in longer terms and even taxing short-term profits that aren't re-invested at higher rates are things people talk about all the time, but there just isn't enough of a groundswell to actually make these things happen politically, both in government and on boards of directors.
Meanwhile, the market realities make a recovery even tougher to occur, and Mackenzie comes off looking like an optimist.
Place that view in the context of a recent article in Chemical and Engineering News (C&EN; this article is not available on-line). In the piece entitled "Vanishing Plants," staff writer Michael McCoy describes how various sectors, from manufacturers of auto hoses to safety gloves to pond liners, are no longer able to get needed component chemicals in North America because they are no longer made here. Plants closed because of the recession have ended the production of such basic chemicals as formic acid and such specialized ones as chlorosulfonated polyethylene (CSPE).
The bottom line for the affected manufacturers is that without a local source of these chemicals, they are placed at a disadvantage to competitors located closer to remaining chemical suppliers in the Middle East, Asia, or even Europe. Rather than being able to return to business as usual as the economy recovers, their costs will rise and they will recover more slowly, if they can compete with their overseas competitors at all. In some cases, as the article points out, the burden is even heavier, as changing suppliers means re-validating products if they are produced for regulated industries such as the safety gloves.
Why are the plants closing permanently? McCoy's C&EN article presents a lot of opinions similar to this one expressed by Stephen Fitzpatrick: "U.S. managers look at a declining market as something they don't want to be involved with. They tend to turn tail an run." Change the "U.S." to "western" and "managers" to "managers of publicly-traded companies" and I couldn't agree more with this view, based on what I've observed. In some cases, the "declining market" may even still be profitable, but the profits aren't as large as other sectors and hence the decision is made to stop production to avoid exposure to any further declines.
In fact, it's not that different than what's happened in a completely different industry, radio. Rather than accepting "lackluster" profits, even before the recession the radio industry was being decimated by corporate parents that demanded double-digit growth in profits and slashed talent at their radio station to improve their margins, in many cases making their products unlistenable. If a station didn't look like it could give that kind of growth, virtually its entire local staff would be fired and it would start running a satellite-fed format with no local content. Newspapers are another classic example of an industry that in many cases was profitable, but not profitable enough to satisfy its investors, ending up in a downward spiral.
The pressure of today's capitalism is so strong that nobody can justify something that makes only a small profit anymore, or that might take some time to recover in a recession. Instead, those fundamentally riskier things just aren't done, resulting in everything from the loss of local radio to the inability to make innovative new pool liners--and jobs and quality of life go away as a result.
Fundamentally, the incentive structures are messed up here--short-term returns are trumping long-term investment and quality of life. The solutions are not unknown and can even come from relatively small interventions in the market--changing the time scale of executive compensation to force them to think in longer terms and even taxing short-term profits that aren't re-invested at higher rates are things people talk about all the time, but there just isn't enough of a groundswell to actually make these things happen politically, both in government and on boards of directors.
Meanwhile, the market realities make a recovery even tougher to occur, and Mackenzie comes off looking like an optimist.
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