Peter Drucker's latest wisdom

On US jobs going offshore:
The US imports 2 to 3 times as many jobs as we export - the American jobs that are created by foreign companies (example: foreign owned auto-plants in the US). We are exporting low-skill, low-paying jobs but are importing high-skill, high-paying jobs.

On US labor costs:
The high cost of wages is important only when labor accounts for more than 20% of total product cost (like textiles). The proportion of labor cost for typical American products is small and shrinking. It is cheaper to produce in the US when products are skill-intensive.

On moving manufacturing offshore:
For advanced industries, the US remains the cheapest production location in the world, not because our wages and salaries are low (they are not) but because American workers are more flexible. Also, US employee benefits (pension costs, benefits, health-care costs, costs associated with regulations, taxation, labor relations, etc.) are cheaper than Europe and almost anywhere in the world.

On manufacturing & production:
Manufacturing production in the US has doubled in the past 10 years, even as factory employment has gone down. Our productivity improvement has to do with the shift from the old ways of manufacturing to the new, that requires less unskilled labor.

On the impression that the US has an unemployment problem:
America has the highest proportion of population in the workforce, the lowest long-term unemployment rate compared to any Western country, and the highest availability of good jobs for educated people who want to enter the labor force.

On the productivity of the US economy:
The numbers measuring productivity keep going up and up, even in this period of sluggish growth. In manufacturing there are basic changes, comparable to the 1920s industrial revolution. The changes are coming, not by computerizing and automating production in the literal sense, but by systematizing production. And flexible manufacturing processes practically eliminate set-up time; in some cases this has come down from 3 hours to 4 minutes.

On the recent so-called recession:
What we have been going through is NOT a recession - it's a transition, with a lot of incongruities. For example, fewer young people because of lower birth rates, and yet more young people with immigration. For educated young people there is no recession.

On danger signs in the US economy:
The biggest problem is our total dependence on foreign money to cover our government debt. Never before has a major debtor country owed its debt in its own currency. It is unprecedented in economic history. No one know what will happen when we owe so much debt in our own currency and we're forced to devalue the dollar.

On capital availability:
There is an enormous amount of surplus capital in the world for which there is no productive investment. The supply greatly exceeds the demand. So there is a very jittery body of excess money that is desperately in need of returns, and it could become panic-prone. We have no economic theory or model for this.

On the US place in the world economy:
The dominance of the US is already over. What is emerging is a world economy of blocs represented by NAFTA, the European Union, ASEAN. There's no one center in this world economy.

On India & China:
India is becoming a knowledge center, a powerhouse very fast - it has 150 million people with English as the main language. In contrast, the greatest weakness of China is its incredibly small proportion of educated people, and the enormous undeveloped excess rural population.

On the role and status of the CEO:
In every boom there is a tendency toward CEO hero-worship. The compensation inflation for CEOs has done very real damage to the concept of the management team. The top manager's salary should be no more than 20 times that of the rank-and-file worker. Today it is more like 400 times. It's not about the bitter feelings of the people on the plant floor - they're convinced that their bosses are crooks anyway. The mid-level management is incredibly disillusioned. And so the present crisis of the CEO is a serious disaster.

Automation news & views

Automation magazines typically publish company press releases, with no critical commentary - perhaps fearful of losing advertisers. National financial newspapers carry bold and sometimes adversarial news articles; indeed that's how I get much of my news. But, the two worlds don't seem to touch, and JimPinto.com is often the conduit.

I'm uncomfortable about the weblogs carrying only negative views. But even though I have repeatedly invited positive feedback, we get very little, and the rebuttals come quickly. So, we'll continue to be a mirror of what's happening out there, no more, no less.

Here are my latest news & views, at the start of the New Year:

Rockwell:
My commentary (eNews 30 Dec. 2003) on what will happen to Rockwell now that Keith Nosbusch is CEO, got a lot of positive feedback. One European "insider" responded with a fairly detailed rebuttal in the Rockwell weblog (Tuesday, January 6, 2004). It's interesting to note that this employee chose to write to Keith Nosbusch through the JimPinto.com weblog, rather than speak or write to him directly. Hey! My prediction that Rockwell will be acquired this year (2004) still stands.

Honeywell:
Kevin Gilligan, head of the $7 billion Automation and Control Solutions (ACS) business has "resigned to pursue leadership opportunities outside" - which means he was ejected. Most people agree that Gilligan (a legacy from the old Honeywell "Red") is mostly BS, and his lack of results became evident to hard-nosed CEO Dave Cote. Roger Fradin is now ACS President and CEO.

Honeywell Industry Solutions, now called Process Solutions to better reflect its market sphere, was downgraded to become part of ACS with the troubled departure of previous CEOs. But, new CEO Jack Bolick is a good man and has generated good results; perhaps he will soon be reporting directly to the top, rather than through ACS and Fradin.

I still predict that a significant event (buy or sell) will occur with Honeywell PS this year. Siemens is still hovering around, looking for deals in this direction. And GE, Emerson and Schneider are still lurking in the background.

Invensys:
After the sale of a few pieces at disappointing valuations, Invensys is fighting debt default, a big pension short-fall, and inadequate results from the "core" Production Management group. The company is saddled with a CEO who knows very little about this business, and consequently hires too many layers of ineffective management.

The latest news is that Siemens is negotiating a sale of the whole Invensys bag. Indeed, many think that those discussions are already on-going, while both companies tread carefully to placate the banks and avoid lawsuits from disgruntled shareholders.

Meanwhile, guess who may be buying Appliance Controls? An Invensys weblog reports that negotiations were already under way with other buyerswhen they were derailed by the arrival of Allen Yurko, now with Compass Partners. Most people are amazed that Yurko could actually have the gall to show up like this.

It is interesting to read Yurko's bio-brief on the Compass website: "Prior to joining Compass, Mr. Yurko was Chief Executive Officer of Invensys (previously Siebe Plc) where he led the group's transformation from a small engineering group to become a global electronics and automation group, and a member of the FTSE 100." Hmmmm.... Does Compass really expect that no one knows the dreadful disaster that Yurko caused at Invensys? Hey, you've got to admire his sheer guts and gall, to jump in and try again! If he pulls this off, I'll vote for him to be knighted, or raised to the peerage: Lord Yurko of Yurkshire!

Recovery will bring more mergers & acquisitions:
Industrial automation markets will begin to show some growth in 2004. But, this won't really save the companies that are already on the edge of disaster. Indeed, when recovery commences, that is a good time for the strong to swallow the weak. Most marginal companies, weakened by prolonged adverse conditions, will capitulate to a reasonable price. So, looks for lots of mergers, acquisitions and divestitures. The acquirers will expect to look like heroes - buying cheap, and showing a quick turnaround with rising tides.

2004 - top technology trends

After reading several (weblinks provided below) I thought you'd be interested in Forbes.com Top Technology Trends:

• Laptops instead of desktops
• Bluetooth wireless technology
• Megapixel cellphones
• Faster cellphone networks
• Video surveillance everywhere
• Portable music and video
• Video weblogs
• Big, flat, cheaper TVs
• Digital video and DVD recorders

Voter rolls & electronic voting - nasty civil-rights time bomb

The new law is a radical change. Until now, with the notable exception of Florida, voter rolls have been maintained by county officials, and watched over by bi-partisan committees. Now the job of deciding who can and cannot vote will fall to a single official - the 'Katherine Harris' of each state. Remember in the 2000 Florida election, some voters were purged by "error" for felonies committed in 2007; a big majority of the purged voters were black.

The new law will eat up $3.9 billion of taxpayers’ money, to motivate states and counties to adopt computerized touch-screen voting. Several people from all walks of life have been screaming warnings about of the treacherous potential of electronic voting. Who is listening?

Measurements already made have shown clearly that vote-count errors are racially biased. In the presidential election of 2000, 1.9 million ballots cast were never counted by tally machines - "spoiled" in the language of elections officials. The spoilage rate has a distinct racial bias: an objective study showed that it was 50% more likely for a black vote to be "spoiled" than a white vote. In Florida, the US Civil Rights Commission found that a black vote was nearly 10 times as likely as a white vote to be rejected. In Florida in 2000, paper ballots read by optical scanners in the county with the highest black population were 25 times as likely to be rejected as those cast in the neighboring majority-white county, using the same paper ballots but a different automated counting system.

Does this situation sound grim to you? Most of us have become lazy about civil rights, and would rather not think about it as still being a problem. But the old lions of the 60's civil-rights marches remain vigilant. The road they have traveled is long and the sacrifices too many to let down their guard. Expect this new challenge to be met with persistence and tenacity. Please stay involved!

Editorial: Pinto's 2004 Perspectives

The financial indexes all moved upwards at the end of 2003, and the 4-years-in-a-row depression-era record has been avoided. Nasdaq has jumped over 2,000 and & Dow over 10,000. I'd like to predict that Nasdaq will rebound to 5,000 again, and Dow will shoot over 12,000 this year. But, those positive predictions are being made by some, only because everyone is fed up of being pessimistic. Positive outlooks are much more popular.

But, the world and the economy are still fragile and precarious. Don't look for a return to "the good old days", because many things have changed irreversibly.

After a too-close 2000 election (still disputed by many) President GW Bush needs to win by a landslide in 2004. His presidency had barely started when the economic boom got busted by financial scandals, followed by the 9/11 disaster and the omni present fear of terrorism. These events were not of his making, and one can argue that he handled them well. But, then came the pre-emptive war in Iraq, and a half- trillion dollars in military expenditures, while US soldiers continued to be killed with deadly regularity long after their mission was declared accomplished. Bush's tax cuts were supposedly for ordinary Americans, but clearly benefit only the wealthy. Now, if a recovery comes, Bush will claim the credit.

The Halliburton (sole-source contract, excess profits, shallow TV image-advertising) link, plus a few foot-in-mouth fiascos, have made Dick Cheney a liability for the 2004 ticket. So, he will probably retire with an understandable excuse, to make room for new Veep, carefully calculated to balance the polls.

This is election year, bruisin' for a good fight. The Democrats are still bickering over their choice of a leader; but when the race has been run, hopefully the ranks will close solidly behind the nominee. I'm looking forward to a healthy discussion of all the important issues, without someone claiming that the arguments are "traitorous". Let the people decide!

I believe strongly that US democracy is robust, and will prevail!

eFeedback

"Unless America wakes up and realizes that its historical strengths, the technology and manufacturing-based middle class is going to disappear. We need to be investing in keeping jobs and upgrading factories to be competitive in a global market. We also need to realize that a continual quarter-to-quarter increase in revenue and profits cannot be sustained. Wall Street must stop manipulating company value by demanding this type of performance.

"Too many managers are willing to sacrifice domestic jobs to keep their bonuses and kite their earnings. I am also seeing many companies take depreciation to increase profits and not making basic investments in new plants and maintenance to keep factories operating. We need to get serious about being globally competitive! And that does NOT mean setting up a better supply chain to get cheap goods from foreign countries. And it is NOT just exporting jobs to avoid factory investment, and sidestep OSHA or EPA regulations."

"In Europe there are so many nuances in public opinion about very basic things, that there is no remote possibility for something like a unified Internet community. Even with relatively similar social democratic governments, there were very strong pro Iraq war countries (public opinion - not their government's decisions), and there were "moderately pro" (The Netherlands), moderately anti, and extremely anti countries. These were the Internet-connected users, not their governments.

"The same goes for most social issues about which we have controversies in the US - ranging from abortion, the morning after pill, unemployment insurance, government health insurance etc. Unlike the US, and some Asian countries, with one or two dominant political parties, most European countries have 10 or more political parties in their governments. These reflect either socio-economic, religious, environmental, or just social interests. Eg: The Netherlands had 82 political parties that participated in general elections. The major European countries exhibit a larger "splintering" of the major parties every year. And that is just Europe!

"Things like abortion are treated somewhat differently in China for example, and I'm sure you couldn't get much of a discussion going on that topic that would make any sense on a global scale. Add in the Asian countries, and you have a plethora of opinions. No one will ever be able to be able to unify opinions, to generate the "second superpower" you are dreaming about. Anyway, it's good to dream..."

"In spite of bad weather and being out of town a lot, I went just over 1000 miles by the end of the year. I have found the Segway more useful than I expected. I use it for many short (1 to 3 miles) trips instead of the car. It is a great conversation piece and I'm always discussing its aspects with people in stores and on the street.

"I am fortunate to be in a suburb with sidewalks everywhere. There are few people walking so I am able to travel at maximum speed most of the time. I slow to walking speed whenever approaching walkers or in congested areas.

"I have had no accidents, never falling, never running into anything. There was much coverage of the fall by President Bush but (unlike George) I understand that the Segway must be powered up before it can provide stability.

"Segway has not seen the sales they expected, but I still think it will be a success. I know of many people who have found new freedom, being able to enjoy mobility that has been limited due to diabetes and other ailments. I am healthy but still find it helps me enjoy much more fresh air and activity than I would get sitting in the car."