News from the Tennessee Valley Business

Goodyear sale may be sign of better days

By Eric Fleischauer ∑ 340-2435

With deference to the theories espoused by our nationís economic gurus, globalization has been a disaster for Decatur. South Korean Hyosung Corp.ís purchase of the local Goodyear plant may be a harbinger, though, of a more balanced impact.

The negatives visited upon the area by legislation forcing free trade with Mexico and Central America, and reduced restrictions on trade with Asia, stare at us.

The closure of Solutiaís Acrilan textile plant was a direct result of cheaper operating costs — mainly labor and environmental — enjoyed by China.

Delphiís belly flop is attributable in significant part to cheap labor in China and India, especially in the building of halfshafts. Wolverine Tube, whose recent delisting from the New York Stock Exchange is ominous, is getting good news only from its joint ventures with companies in China and Mexico.

The major drivers for North Alabama economic development have been in a category largely isolated from globalization.

Huntsvilleís booming defense business, with its significant benefits to Decatur, is for national security reasons almost entirely domestic.

Earthquakes expected

In fairness, free-trade advocates expected the economic earthquakes that are shaking Decaturís industrial bedrock. The mantra justifying the free-trade movement is the efficient allocation of resources.

Whatever one can say about a company that pays twice the money to make a halfshaft in Decatur that it or a competitor pays to make the same product south of the border, one cannot argue the practice is efficient.

The unfortunate fact is that capital committed to inefficient endeavors cannot be applied to efficient ones without tumult, usually in the form of bankruptcies and layoffs.

Whether NAFTA, CAFTA and other trade-barrier reductions will benefit Decatur, or even America, remains an unknown. Globalization is a long-term concept with undeniably negative short-term consequences.

All of which is why the rare positives that arise locally from globalization deserve attention.

Globalization is a two-way proposition. Not only does it ease the movement of capital seeking to exit the local economy, it facilitates foreign capital seeking to come here. The problem in recent years is that Decatur, compared to foreign locations, has lacked the advantages that permit investors to enjoy a higher profit margin. Compared to developing countries, Decatur is anathema to profit. It has high labor costs, massive regulatory burdens and expensive social-welfare programs.

Reduced shipping costs

Decatur fares better in that comparison when the choice is between it and South Korea, a country saddled with American style labor and regulatory costs. To that fairly level playing field Hyosung could add other advantages by locating in Decatur.

It is close to market; that is, many people buying the tires in which Decaturís tire cord fabric is used are within hailing distance of the plant.

Two-thirds of the U.S. population is within 750 miles of Decatur. That is important because it reduces shipping costs, an advantage that becomes more significant because of the plantís location on the Tennessee River, adjacent to railroad lines and on Interstate 65.

The proximity of auto assembly plants, several in Alabama and Tennessee, also gives Decatur an advantage not shared by most foreign locations seeking to serve American consumers.

The timing of the sale could not be better in terms of demonstrating the benefit of low barriers to capital flow.

The Decatur plant jumped ship at a time when Goodyear is dealing with massive and debilitating labor strife — a 12-week, 12-plant strike ended one day after Hyosung signed on the dotted line — and is struggling with internal costs and inefficiencies that have been a century in the making.

Goodyear estimates the strike cost it $35 million a week, a cost that because of its timely sale to Hyosung will not impact the price of tire cord fabric.

Keeping a textile mill and the 80-year structure that houses it is hardly the success story that free-trade advocates will feature in the next issue of Globalization Monthly, but it is a good sign nonetheless.

The free flow of capital is not always a one-way ticket from Decatur to Asia.

When Decatur has a comparative advantage over foreign companies, a world with minimal trade restrictions permits capital to flow to the banks of the Tennessee River.

That same free flow of capital, if the free-traders are to be believed, eventually will bring Decatur sweeter fruit.

If Decaturís slight comparative advantage as the location of a textile mill can attract capital, then its more dramatic advantages — a well trained and technologically proficient work force, for example — promise to attract the high-paying jobs and improved quality of life that globalization proponents have advertised.

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