America’s economic engine is compromised. Forces at work over the last 30 years have sapped our nation’s vitality. How did it happen?

I eventually learned how those China factories were able to sell at such low prices: after all was said and done, they were simply selling at a significant loss. Apparently the Chinese government was pumping money and credit through its banking system into their manufacturing base, without regard to profitability. No matter what it actually cost to produce, prices were arbitrarily set as low as necessary to get U.S. business.

Earlier this year, newspaper reports suggested that Chinese banks would withdraw their support and allow as many as 50,000 manufacturers of no-tech/low-tech goods to go out of business. That, at last, answered my question.

[Post 10 of 21]

America’s economic engine is compromised. Forces at work over the last 30 years have sapped our nation’s vitality. How did it happen?

In 1992 I had a series of in-depth conversations with the CEO of a leading maker of consumer scales: bathroom, kitchen, small office and medical. He was an accountant by trade and had, some years earlier, come upon an opportunity to buy a fast food chain out of bankruptcy. That leveraged buyout led to another buyout of a service business and finally to the acquisition of the scale manufacturer.

He impressed me with his focus on revenue and deal making. He hired excellent sales and marketing people, and barely tolerated manufacturing. Manufacturing cost him money; something was always going wrong.

His company had earned its leadership position and reputation, prior to his acquisition, by virtue of the quality of its products. During one memorable conversation he bragged that no one could buy quality steel the way he could. And that since his products were 85% steel, that gave him a distinct competitive advantage.

I thought it strange when, not forty minutes later, he began to extoll the virtues of buying from China. Something did not make sense. Since steel was 85% of his product cost, he could not account for their low prices. Even with a near-zero labor cost and lower quality China steel you could not account for the low, low price. And how did he account for the fact that he charged the factory back for defective products?

He had no answers to these questions and furthermore, he did not seem to care. He was buying products that were good enough, and at a price so low that he could afford to rent a separate warehouse to store the defective scales. And there the conversation ended.

[Post 9 of 21]