What happens when a parent of twins makes them compete? And what if the better twin is told that he has to remain ahead of his slower sibling? For twin steel factories, one in Burns Harbor, Indiana and the other in Gent, Belgium, the result is more productivity.
Barely functioning, Burns Harbor was in terrible condition. Meanwhile, the Belgian plant, having replaced many of its people with machinery because of sky high wages and benefits, was a model of productivity. So, when ArcelorMittal, Gent’s owner, bought Burns Harbor, they sent its engineers and managers to Belgium and said, “Do as the Belgians do.” Soon the machines arrived, the layoffs, and Burns Harbor was transformed.
Named Gent’s “twin,” Burns Harbor was told to equal Gent’s 900 tons of steel per person per year. And Gent knew that it had to stay ahead of Burns Harbor. Now, both are models of productivity.
Output numbers say it all. The man hours per ton for Gent is 1.25 and Burns Harbor, 1.32. Meanwhile, the US average is 2.0.
Looking at Burns Harbor, I keep thinking of the visible cost and the invisible benefit. Yes, it is obvious that many people were laid off and replaced by machines at Burns Harbor. It is tougher to see that more productivity at Burns Harbor fuels economic growth.
To read the fascinating details of twinning, this WSJ article was excellent. Also, you might want to ponder how steel tariffs, described by Bloomberg here, might impact US productivity.
How to diminish unemployment? The NY Times tells us about a Montana general contractor who plans to use only American-made goods for building his homes. Explaining, he said, “I think we could solve this recession if everyone shifted just 5% of their purchases to U.S.-made products.”
Is he right?
Here, Nobel Laureate Milton Friedman (1912-2006) replies to a similar question during a 1977-78 lecture series. Competing against subsidized Japanese steel, US sales sunk, Japan’s market grew and we lost steel industry jobs. Asked about the loss of jobs, Dr. Friedman was not concerned. Yes, steel workers’ jobs would be lost. However, many of the dollars used to buy the steel would find their way back here through purchases of our exports. The result? U.S. job creation. And furthermore, Japanese steel is a bargain for U.S. businesses and consumers.
Why then do people worry about the steel industry? They belong to a visible group. As steel workers they can be identified. By contrast, if exporting industries lost business because of a buy-American policy, they would be invisible. Located in disparate places across the country, exporters and consumers are anonymous and scattered.
The Economic Lesson
Purchasing imports creates more American jobs than people realize. Correspondingly, buying American can retard economic growth and job creation. Expressed by David Ricardo (1772-18230), by trading, at home and abroad, everyone benefits.
An Economic Question: Milton Friedman explained his position by saying that we could place a high tariff on imported bananas and instead grow them in Utah hot houses. Is this a good way to create jobs? Explain.