Loss of manufacturing in a
country is not only shutting down of factories. Its repercussions are far
deeper and wider. Factories are run over by nature, machines and assembly lines
jam up, corrode, rust and crumble and can never be revived. Industrial towns
are abandoned; one only has to look at the fate that befell once celebrated
industrial cities of USA – Detroit, St. Louis, Pittsburgh, Cleveland and many
more, where populations have declined to half or a third of their peak. People
move out to seek other avenues of earning. Shops and restaurants, schools and
colleges, town halls and parks, hospitals and offices, car dealerships and cab
companies, all shut down. The loss of jobs is several times larger than just
those of shop floor workers. All this is only because some unknown city across
the ocean can sell cars and steel, televisions and toys a few percent cheaper.
What is worse is that the very
backbone of the affected industry is broken. Skilled workers, who could make
the finest cars and implements, toys and gadgets scatter, never to come back
together under one roof to recreate the magic. The entire supply-chains, which
typically come from the Medium and Small Industries (MSMEs), dry up since the
bulk buyer has downed its shutters. MSMEs are the major job creators in any
country and economy. Shutting down of these smaller units is devastating though
not as spectacular as that of a car company. The latter’s loss of business is a
subject of headlines and debates but not of the feeder small industries even
though the impact on jobs and livelihood of workers of these MSMEs is far
bigger. Entire capital is wiped out and bankruptcies are more common among
MSMEs. Their employees often have lower levels of social security and entire
families are driven to penury.
What Happens When a Car
Factory Shuts Down?
Let’s take the example of a
large car factory with US$10 billion in sales and the cascade of job losses and
misery that follows when it shuts down. Such a car plant would typically be
manufacturing 5,00,000 cars per annum.
The factory sources its parts
and sub-assemblies as follows (only material cost taken here):
In-house production:
10-15%
Tier 1 (large)
Suppliers: 50-60%
Tier 2&3 (MSME)
Suppliers: 25-30%
When the factory shuts down:
- Main Plant: 7500 direct employees of the company are laid off
- Tier 1: 30,000 workers are laid off (These suppliers typically employ 3-5 workers per every worker in the main plant). Tier 1 companies typically manufacture engines, transmissions, brake systems, and electronics.
- Tier 2: 75,000 workers lose their jobs. (Tier 2 suppliers typically employ 2-3 workers for every one worker in Tier 1). They manufacture sub-components such as wiring, seats, rubber-parts, and smaller assemblies.
- Tier 3: 1,12,500 employees are rendered jobless. (Tier 3 suppliers typically employ 1-1.5 workers for every one worker in Tier 2). They typically produce basic components, such as metals, plastics, rubber and small parts.
- Indirect Job Losses: 5,60,000 work hands lose their
livelihood. As a multiplier effect for every manufacturing job lost
2-3 additional jobs are lost. They are typically in activities such as
logistics, sales, dealerships, maintenance, catering, janitorial,
services, security, transportation, schools, city-workers and all other
local businesses that rely on factories and factory workers as customers.
Let’s summarise these job
losses:
Total manufacturing
jobs: 2,25,000
Indirect
jobs: 5,60,000
Total Estimated
Layoffs: 7,85,000
A disclaimer: Not all job-losses will be in the same country, state, or
neighborhood. The ripples of a major factory shutting down will be felt across
the world given the way supply-chains are established. One should look at ghost
cities of China as a result of supply-chain dislocation let alone major
factories closing down.
Knee Jerk Reaction
Loss of factories, large and
small, their equipment, skilled manpower, market-lines of their products, the
service and after-sales business, all happen slowly, over years, decades or
sometimes over the span of an entire generation.
Governments, policymakers,
captains of industry and occasionally the affected population suddenly wake up
one day and begin to talk in fuzzy terms like reshoring, onshoring, tariffs,
China+1 etc. Little do they realise that in a deindustrialised country,
bringing back factories must take the same long route in reverse. You can’t
simply bring back blast furnaces and rolling mills to Pittsburgh, or cotton
mills to Mumbai. Re-industrialisation is a generational project, not to be
achieved in a few years of a government’s rule span. Remember these industrial
centres were built by the blood and sweat of generations of entrepreneurs and
workers.
What Needs to be Done?
Some of the unavoidable and
quick action plans may include:
- Policy changes that facilitate easy
creation of industrial units, large and small
- Easing of regulatory control
- Easy access to banking and capital
- Infrastructure Development – Highways,
ports, power plants and power grids
- Easy availability of land and permits
- Low energy cost
- Healthcare and social security
- Education – Engineering and Research
Oriented. Universities to take a relook at their programmes.
- Training – Entrepreneurship, Vocational
and business practices
- Above all, nurture a culture of
innovation.
Unless these and many more
necessary steps are taken by the governments of those countries that have seen
deindustrialization no significant job and wealth creation is possible slogans
and statements of intent notwithstanding.
Even after that it will be a long haul.
