Reality check

Reality check

We aren't reassured by promises of future stability, because it's clear that in order to get to that point everything has to be leveled.

Brooks
Robert E. Brooks, Editor

There is a drama playing out at one of North America’s highest-profile forging operations, a circumstance that reflects strangely on our all-consuming financial crisis. Last fall, Alcoa Forged & Cast Products in Cleveland revealed that its 50,000-ton press has some cracks in its base, endangering its ability to supply forgings to some customers. The key customer is Lockheed Martin, for whom Alcoa produces components for the F-35 Joint Strike Fighter, a defense contract reported to be worth $360 million to Alcoa over 10 years. Repairing the press is estimated to cost $68 million, so it’s a difficult but obvious choice for Alcoa: fix the press.

To that end, Alcoa has sought some cooperation in the form of contract concessions from the United Autoworkers union that represents workers at the plant, and here the details are less clear. What’s known is that the UAW objects to Alcoa’s approach, even though the JSF contract is critical to the company’s business, and the workers have a long-term stake in the future of the operation.

This might be an ordinary labor-management dispute, but obviously we’re not in ordinary times. Alcoa lost $1.2 billion in the fourth quarter of 2008. It is closing some business lines, selling off some assets, and cutting costs everywhere. It is laying off 13% of its workforce worldwide. Though the Cleveland operation will continue, Alcoa is in a tough spot, and the UAW “stakeholders” are in a position to stabilize things just a bit.

Instead, there is an impasse. The press isn’t fixed, and no one seems to be giving an inch, but spokesmen and elected officials are stating their positions in news reports. It’s the same approach at work in the domestic auto industry. It’s been used in virtually every labor-management conflict in recent years.

If the facts of our economic collapse were not so grim — the latest breathtaking numbers are 598,000 U.S. jobs eliminated in January, over 200,000 of those in manufacturing industries — then it would be fascinating to ponder all the theoretical explanations and long-term implications of what’s happening “macroeconomically.” We could be encouraged by observing that the decades-long paradigm by which value is determined on the basis of transactions, rather than hard assets, is being reversed. Assuming that to be true, we could look forward to a time when assets — real things — would have more stable values (as opposed to speculative values.)

This has been the wish and recommendation of many manufacturers and their supporters in recent years. They’ve objected to monetary policies that make capital widely available. They believe it puts their enterprises at a global disadvantage and strengthens foreign competitors, because more available cash results in the value of everything being determined at the point of sale, not by the accumulated cost of production and delivery.

Making credit harder to obtain and controlling the money supply might reverse this. Manufacturers, and those who rely on manufacturing, might prosper when long-term investments become more reliable and capital-goods purchases become more attractive. Alcoa, Lockheed Martin, and such enterprises might be the hot stocks and their stakeholders might thrive.

But, watching this inversion in process is a wholly different experience. We aren’t reassured by promises of future stability, because it’s clear that in order to get to that point everything has to be leveled. Then, everything will be revalued, and maybe we’ll arrive at time when “real things” matter.

Maybe. But, until then we have real things like a cracked forging press and unfilled aerospace orders, and supply contracts disrupted and jobs in peril. All those theoreticians hailing the demise of billionaires and anxiously waiting for a revival of capital spending are still playing the speculators’ game — waiting until the other side cracks and gives them the terms they want.

They’re not yet dealing with “real things” because they want to ensure that their theoretical, tactical advantages are maintained.

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish