Tianjin Again
While the military protects our country and Teach for America recruits people to work in the places most relevant to our future prosperity—our schools—neither does what is essential to sustain the American dream in the future: create thriving businesses and well-paying jobs. Fortunately, though, America’s private sector is also full of people who didn’t get the word. Although the government doesn’t always make it easy for them, luckily many of them are too dumb to quit. Here are the stories of two.
While Tom was standing in the lunch line at the Tianjin convention center in September 2010, an American man approached him, eager to share the story of his energy start-up. He was the kind of person you meet at such conferences, who are invariably full of ideas, Tom recalled. “They all start by saying, ‘Can I just take a minute and tell you about my invention? You see, I have this duck that paddles a wheel that blows up a balloon that issues methane that turns a turbine …’” Some of these ideas seem a little wacky, but what they show is how alive America is, how full of people eager to start things. The man who approached him in Tianjin had a real gleam in his eye, so Tom decided to schedule a lunch with him. His name was Mike Biddle, and he definitely did not get the word.
Biddle’s story captures so much of what is right about America today, so much of what is wrong, and so much of what we have to do collectively to thrive in the world we invented. Biddle is the founder of MBA Polymers, which has invented processes for separating plastic from piles of junked computers, appliances, and cars, and then recycling it all into pellets to make new plastic while using less than 10 percent of the energy required to make virgin plastic from crude oil. Biddle calls it “aboveground mining.” In the last four years, his company has mined about 150 million pounds of new plastic from old plastic. Biddle’s seed money for the research on which his enterprise is based, which took seven years to develop, came from American taxpayers through federal research grants and private investors. Yet today only his tiny headquarters are in the United States. His factories are located in Austria, China, and Britain. “I employ 25 people in California and 250 overseas,” he says.
He would like to have a factory in America that would justify all those research grants, but that would require an appropriate energy bill. Why? Americans collect for recycling only about 25 percent of the plastic bottles they use for consumption. However, most of those used bottles—and nearly all the rest of our used plastics—either end up in landfills or are put out to bid. The highest bidders ship them overseas, mostly to China, where they get recycled into new plastics. In China, however, they often get recycled with crude, low-tech processes that damage the ecosystem and put workers’ safety at risk. Getting people to recycle regularly, and on a large scale, is a hassle. To overcome that, the European Union, Japan, Taiwan, and South Korea—and prospectively China in 2011—have enacted producer-responsibility laws. These laws require anything with a cord or battery—from an electric toothbrush, to a cell phone, to a laptop, to a washing machine—to be collected and recycled, under responsible environmental health and safety standards, at the manufacturers’ expense. These laws give Biddle and his process the assured source of the raw plastic junk he needs at a reasonable price—in Europe and Asia. (Because recyclers now compete in these countries for junk, the cost to the manufacturers for collecting it is steadily falling, so they don’t object to the law.)
“I am in the EU and China because the aboveground plastic mines are there or are being created there,” said Biddle, who won The Economist ’s 2010 Innovation Award for Energy and the Environment. “We are leading the way in China. The Chinese government gives tours of our facility in Guangzhou … I am not in the U.S. The potential mines in America are hands-down the biggest in the world, but there is no national collection law that gives me the scale of raw material we need to make our process economically viable here.”
Biddle had enough money to hire one lobbyist to try to persuade Congress to copy the nationwide recycling regulations that Europe and Japan already have in place and China is drafting. The proposed 2010 clean-energy bill would have similarly required anything with a battery or cord to be recycled at the manufacturer’s expense, but, in the end, there was no bill. It could not garner anything close to a majority in the Senate. So we Americans educated Biddle, we subsidized his technical breakthroughs, and now workers in other countries will get the jobs we paid to create.
“I am a Green and very much a free-market guy,” said Biddle. “My bible is Ayn Rand. It is really hard for me to lobby for legislation [in America]. It is just not in my nature. But I cannot do my business if the rules aren’t fair. I can beat anybody, and so can any American entrepreneur, if we have the same playing field. We’ve had oil subsidies because we thought it was important to have our own domestic oil supply; we have farm subsidies to be assured of our own food supply. Well, what about for technology? To get a technology launched we need the marketshaping rules. I don’t want a subsidy. I want the market shaped the right way by laws, so that Americans will want to adopt this new technology that we invented … We all say we want high tech. Well, then create regulations and standards that will enable our high-tech innovators to create the jobs here.”
Biddle paused for a moment. “Sometimes I feel like I have lost my country. It is just not that exciting to be an American right now. I come back and nothing works, and I have all this stuff in my way and I can’t do business here. I find myself always on planes doing business in other countries—because they get it. If I took those hundred hours I have spent in D.C. lobbying and spent them in China lobbying Chinese officials, I have this feeling they would have listened. But [in D.C.], it is like talking to a brick wall.” How can we be pessimists about a country that in the depth of the Great Recession produces a Mike Biddle—and all those like him who did not get the word? But how can we not be frustrated by a country that produces a Mike Biddle but then doesn’t put in place the laws and regulations that will enable him to locate and expand his business here?
Buffalo Bob
There is one more person who obviously did not get the word whom we’d like to introduce. His firm is the oldest manufacturer in continuous operation in Buffalo, New York. His name is Robert Stevenson. In an era when most manufacturing has moved out of Buffalo—to the South, to Mexico, or to China—Eastman Machine Company, founded in 1888 by Stevenson’s great-grandfather Charles Stevenson, keeps humming along. It is now a fifth-generation family business. Remaining alive and profitable as a small manufacturer—115 employees, $30 million a year—is not easy. Every year it requires Stevenson to become a little nimbler, a little more global, a little more innovative, a little more automated, and a little bit faster—as well as a little bit hungrier for some precisely targeted government help. His story shows why it is important that we remain a manufacturing country and what it takes both to inspire new ideas and to turn them into decent-paying manufacturing jobs in America.
Eastman today is the world’s largest manufacturer of fabric-cutting machinery and the software that manages it. The firm makes machines that can cut virtually any kind of cloth fabric, composite, or synthetic material—from designer dresses, to Kevlar vests, to the carbon-graphite materials that go into building NASCAR racing vehicles, to the fiberglass and composite panels from which the blades of wind turbines are made.
Who goes into such a business? Great-grandpa—sort of. Eastman started out making small electric machines to cut through cloth for sweatshops to make into dresses, pants, and shirts. Its original customers were low-margin businesses that depended on cheap labor, which meant that Eastman had to keep its labor costs down as well, but its workers were unionized. As globalization and the IT revolution opened more labor markets, Stevenson and his father had to decide whether to keep manufacturing in Buffalo and, if so, how to do that with unionized workers. “We realized back in the 1980s that we could have commodity parts made anywhere, but we decided that we were going to assemble the machines and manufa
cture critical parts in the U.S.,” he told us. “And we have a United Auto Workers union! We had to convince the union workers over the years that the concept of one man, one machine, could not be sustained, since all machines today are computer controlled. The worker is the enabler of the machines, but he is not the machine. He sets the specs, loads and unloads things, but the machine runs itself. For us, the big breakthrough was getting our union to agree that one man could run more than one machine. So if that worker makes $18 an hour and runs four machines, that comes down to $4.50 an hour per machine, and that makes us very competitive. It was a continuing education process for us and our union, but they got it.”
That process was not always a smooth one. “Working with our union, UAW Local 936, has not always been a serene relationship,” said Stevenson. “We have fought and negotiated hard with them and in the past thirty-five years endured two strikes. However, my standing principle was that we as a company would be committed to remain in Buffalo, and we would be committed to maintaining and employing as many manufacturing jobs as we could. Fortunately, enough union members understood, and we now have a great relationship. It would at times have been easier for us to give up and move the company, or give in and lose the company. However, the key issue again was letting the employees know that while they may not agree sometimes with our strategic decisions, we always operate under the principle that our community is important.”
Not only is his company five generations old, but members of the families of some of Eastman’s employees have worked for it for that long as well. “When I started working for my father after graduating from Yale in 1973,” Stevenson explained, “he put me to work in the factory in our service department. After a few months he asked me to come to his office and wanted to know how things were going. I told him in the language of the shop, that things were going good, but at times we had some ‘fucking problems’ and that we couldn’t get those ‘fucking parts’ out of production fast enough. He looked at me and responded, ‘I paid for a Yale education so you can talk like that?’ The point is that the factory environment is very different from the front office. But the ability to speak the language of your environment is a must. Connecting with people and understanding where they are coming from is critical. And yes, we did solve that ‘fucking’ issue and get parts moving faster.” And they did solve their labor problems as well.
After labor relations, the second big challenge Stevenson faced as he took over the company from his father was reinventing it for the hyper-connected world. It was quickly apparent to him that doing all they ever did would not ensure all they ever got. The barriers to entry into the fabric-cutting business were too low with China in the game. The fabric-cutting business that he inherited was becoming a commodity, so he redefined “fabrics.”
“We reinvented ourselves by building machines that enabled us to get into markets beyond cutting cloth for apparel and upholstered furniture,” he explained. “Now we sell into the aerospace industry,” because airplanes and wings are now made of woven carbon-graphite fibers. “We sell to the wind industry, because the turbines are also made of high-tech fibers. We sell to the auto industry.” The company set about inventing, in collaboration with hired programmers, a new generation of software for improved continuous cutting and motion control over all automated cutting systems.
Still, the world kept getting flatter and the competition from China kept increasing. “Up until 2001, we were nearly vertically integrated: we manufactured most of our products right here in our Buffalo factory,” said Stevenson. “We brought in the forging and the raw material; we cut the metal, stamped the parts, formed the parts, and assembled them into finished products.” But because of price pressures from globalization, from China, and from China’s brazen piracy, Eastman decided that to improve its profit margins it simply had to subcontract some functions to lower-cost countries.
“In the 1980s we felt we needed to be more global,” he explained, “so my brother Wade and I formed our own company in Hong Kong to distribute our products in Asia and China. That gave us an entry into China. We’ve since established a factory in China, in Ningbo [about an hour southwest of Shanghai], which opened in 2004. The original reason was that they started to pirate our cloth-cutting machines. It was just outrageous. Our company is named ‘Eastman,’ so they called their copy of our machine the ‘Westman.’ It was that brazen. They just completely copied our machine. I am a small company. I can’t afford always to be taking these guys to court. For the Chinese, there is no such thing as piracy. We had the guys there who copied us actually congratulate us on making such a nice machine! And then the Chinese government put a 37 percent tariff on my real machines so I could not export them there. So we said, ‘Okay, we will just establish our own factory in China and we will use Chinese-made parts and copy our own machines and sell into the China market’—and because they like American-made products, they want the quality, they buy from us.”
But Stevenson will not move his main production line to China with his most advanced machines. “If I have a commodity part that can be made cheaper in China, I will source that to China. If you want to sell globally, you have to source globally” and take advantage of all the cost-saving possibilities that are out there. But ultimately, says Stevenson, the world still thinks highly of “American-made” and he continues to manufacture the parts and assemble his advanced machines in Buffalo.
In today’s hyper-competitive marketplace, he added, “speed wins. It is not the biggest companies that always win but the fastest. Adaptability and responsiveness to your customers and your employees will ultimately win the battles.”
That is his company’s “extra.” It is not just the three C’s—creating, communicating, and collaborating—that he is putting to work. He and his employees, he says, are always looking to forge sustainable relationships with their customers by treating each one as an artisan would—as a customer seeking a product tailored to a set of specific needs. That’s his competitive advantage as a little guy.
“We pride ourselves on getting information out the same day that it is requested, parts shipped, machines repaired, and the like,” Stevenson says. “We don’t seek to be the largest. We like knowing our customers. We think we can be very competitive in areas where the customer wants a relationship. People still call up and say, ‘I want to speak to Robert.’” The successful CEO today, he elaborates, must listen to his employees and make sure that he has enlisted every one of them as inventors as well. About half of Eastman’s 115 employees are blue-collar, the rest white-collar. Precisely because he knows how valuable his line workers are as innovators, Stevenson says he is worried about the future.
“We have a lot of workers in their late fifties,” he explains, “and our concern is: How are we going to replace them? Because a factory job is not something people aspire to anymore. There is this concept that you have to go college and not become a blue-collar worker. We pay health care, pensions, all the holidays, and $18 to $22 an hour. I think it is going to be a major issue for this country in the next few years. Our biggest problem is finding factory workers who are going to replace this group of men and women in their fifties who started with us.”
That is especially a problem, he explained, because blue-collar work is not what it used to be. On the shop floor, as is the case everywhere else, average is over.
“We look for a guy who can think for himself a little bit, not like before,” said Stevenson. “We sell an $80,000 to $150,000 computer-controlled cutter, and it has a software program that helps the customer design parts. So when we hire these young guys, I tell them, ‘You are the face of the company. The customer just spent a lot of money and he expects you to know all that there is to know about this machine.’” That means not only that the Eastman employee must be familiar with what the customer’s business is, but he must also understand how any machine can be tweaked for the customer. “So our guy has to be able to do a little engineering on the spot, sometimes even
a little sourcing over at the local Home Depot to get exactly what the customer needs,” said Stevenson. “We found that guys who are the most successful are exmilitary guys, because they have been forced to do the same thing out in the field. In the old days the union guy said, ‘My job is to polish the fork, not shine the spoon.’ We cannot afford to have one man, one job anymore. We need adaptive abilities. So what we are looking for are people who have the ability to say, ‘Today I may be wiring something, tomorrow I am running a machine, and the third day I am assembling …’ I was looking at an advertisement that we created in the mid-1990s. The tagline reads: ‘We sell solutions, not machines.’”
Stevenson offers firsthand testimony about the importance of keeping manufacturing in this country in order to produce innovation and sustain the American dream. If we don’t have people touching the products, we won’t have people improving those products and inventing new ones.
“Innovation comes in small steps most of the time, not giant leaps,” he explained. “We don’t look for the silver bullet that will transform our product line but rather for incremental improvements. Many times our new products or improvements come from customer requests or from our field guys who see an issue and then suggest how to resolve it. For example, a customer wondered why we couldn’t marry a laser cutting head to our regular knife cutting head to create a dual-purpose machine. The request went to one of our field engineers. He adapted a design and, voilà, it worked, and now we have a new product line that is taking off. Listening and then acting was the key.”
For all of these reasons, said Stevenson, the role of CEO has changed dramatically since his great-grandfather’s day. The term “boss” remains, but that is where the similarity ends.
That Used to Be Us: How America Fell Behind in the World It Invented and How We Can Come Back Page 37
