Sometimes a quote comes along that just sums things up so neatly that it’s impressive. I saw one yesterday that demonstrates the difference between manufacturing and the rest of the economy.
An article in the newspaper discussed Dominion Virginia Power’s request for an electricity rate increase. A spokesman for the company said that it was likely to ask for an increase next year and the year after that. It’s no surprise because energy prices have been rising and utilities have rising costs.
So do manufacturers. They buy that electricity as well as natural gas to run their factories and to make their products and get them to you and me and other customers around the world. So when that Dominion Virginia Power spokesman later in the article says,
Fuel costs are a pass-through cost. We make no profit on these increases.
I could not help but see it as priceless.
You see, manufacturers would love to pass on those energy (and other) cost increases too. But generally they can’t because they compete in a global market. Raise your prices too high and your competition in Canada, China, Germany or somewhere else will grab your market right out from under you. Companies with a purely domestic market like utilities, hotels, insurance companies and restaurants don’t compete internationally, so they have the luxury to keep raising prices. In the past 20 years, overall US prices have risen by more than 50 percent, but manufacturing prices have edged up on 4 percent over that same time.
Energy is just one of the structural costs bedeviling manufacturing. Higher corporate taxes here than in the rest of the developed (OECD) world, health care, pollution abatement costs and litigation all add up to a mountain of costs that can’t be passed on. Unlike that utility, manufacturers who want to stay in business have to raise productivity, invest in technology or move abroad. If you want to know about this choice and this dilemma, read The Escalating Cost Crisis which we released last fall and you will be amazed that all these costs add over 31 percent to the cost of manufacturing in the United States, when compared with nine major trading partners like Canada, Japan and Germany. Click here for the report.
Is anyone in Congress listening?
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