These remarks are an edited version of a speech given to the Grand Rapids Area Furniture Manufacturers Hall of Fame on October 5, 2004.
Grand Rapids furniture burst onto the national scene at the centennial furniture exposition in Philadelphia in 1876. By 1900, 40 percent of everyone employed in the greater Grand Rapids area was working in the furniture industry. Grand Rapids was widely known as “The Furniture City.” For 50 years, until the mid-1920s, Grand Rapids was the center of home furniture manufacturing in the United States.
A severe furniture recession began in 1926. The depression that followed wiped out most of the home furniture manufacturers in Grand Rapids. By the 1930s, Grand Rapids lost its dominant position in the industry. The new centers of home furniture manufacturing were North Carolina and Virginia, which enjoyed low labor rates, ready timber, and newer plants and equipment.
Nowadays the furniture manufacturing industry is going through another era of dramatic change. This time the competitive threat comes from furniture plants outside the United States, in places like China. Those of us most affected are asking ourselves, “Is free trade really a good thing? Where are we headed? Is it all just a race to the bottom?”
History teaches us that free trade brings prosperity, growth, and higher living standards, benefiting both rich and poor. The adjustments forced by economic freedom, though gut-wrenching for those of us directly involved, result in the most efficient and effective use of time, talent, and capital in the long run.
That may be, but it's hard to keep in mind when we're rolling through a wringer! Sometimes, a commitment to economic freedom may not seem to be in our own short-term self-interest. Our moral responsibility,though, is not only to look out for our own interests but also to consider the good of our fellow human beings around us and around the world.
The pain of economic adjustments aside, candor insists that we acknowledge the benefits of an increasingly free world. For example,world poverty has fallen more in the past 50 years than in the previous 500. In the past 40 years, average income in the world almost doubled. The poorest fifth increased the most, more than double. The richest fifth also increased but at a lesser rate, 75 percent. World hunger is declining. Undernourished people in developing countries declined precipitously, from almost 40 percent in 1970 to less than 20 percent today.
In the market economies of the world, there is social mobility – and that means opportunity. In the United States for example, those falling below the poverty line only stay there an average of four months. Ninety percent of Americans belonging to the poorest one-fifth in 1975 had moved up to the wealthiest two-fifths 20 years later.
Twenty years ago there were over 400 wood furniture plants in Taiwan.Today there are virtually none. Wages increased to such an extent that high labor content products like wood furniture could no longer be competitively produced in Taiwan. Now Taiwanese factories concentrate on more sophisticated, high-tech manufacturing. Market freedom positively transformed Taiwan in just a couple of decades.
Today China and other Asian countries are bustling with wood furniture plants. A high percentage of wood home furniture production is labor, so the manufacture of wood home furniture has always shifted to lower labor rate areas. Furniture manufacturing has always been at the leading edge of economic renaissance.
In the year 2000, Chinese furniture factory wages were about a dollar a day. People came from the inner provinces by the tens of thousands to earn wages for the first time in their family history. Prior generations had lived off the land. Capitalism is working its magic in China. Wages have already doubled since the year 2000. And in China, economic freedom is arguably the best chance to peacefully break communism's death grip on political freedom.
We can see the good that the globalization of furniture manufacturing is doing in the world. But what about those of us working in furniture manufacturing in the United State? If we are concerned about the poor and those on the margins of society, then we have an obligation to support policies that promote the freedom that enables people to obtain work and better their situation.
A specific example is the issue of dumping. A trade study commissioned by the American Furniture Manufacturers' Association reported in the spring of 2003 that Chinese producers of wood bedroom furniture may be dumping, in violation of U.S. trade law.
Most people think dumping means a factory is selling below cost. But a feature of U.S. trade law figures it differently for China and other countries with so-called “non-market” economies. U.S. trade law says that even if a Chinese factory produces more efficiently than a factory in a “surrogate” country like India, the China price must not be lower than the price would be from India – or if it is, there is dumping.
In the fall of 2003, furniture companies including Bassett,Vaughn-Bassett, La-Z-Boy, Casegoods, and Stickley, filed an anti-dumping petition against China manufacturers of bedroom furniture. The CEOs involved felt sincerely that if there is a law on the books that might help protect their American workers, then they had a moral obligation to press for compliance.
A group of companies including Drexel-Heritage, Henredon, Lane, and Thomasville, disagreed. They claimed that anti-dumping tariffs would be a violation of free trade (by which all people benefit the most), that the U.S. trade laws in this area are ill-conceived, and that anti-dumping tariffs won't save American jobs.
In June 2004, the U.S. Commerce Department announced its preliminary finding that Chinese manufacturers are dumping bedroom furniture in the U.S. The Commerce Department set preliminary tariffs ranging from about five percent to almost 200 percent, but averaging about 11 percent. The corporate petitioners felt that their claims had been validated.
But the petitioners missed the point. Essentially, no American jobs were saved. Bedroom furniture production shifted to places such as Brazil, Indonesia, Malaysia, Thailand, and Vietnam. Chinese bedroom furniture factories shifted to production of other wood furniture products. U.S. furniture factories continued to close. Costs of disruption and transference were high. Actually it looks like nobody won – except, perhaps, the lawyers.
So what's necessary now is what's always been necessary. Any plant – in Grand Rapids or elsewhere – must be world competitive and continually improving in order to survive and thrive.
In reality, free trade is by nature fair trade. Free trade means we each decide where to buy our goods, without extra costs being imposed from on high just because the goods cross an international frontier.
Manufacturers can file petitions, but tariffs harm consumers and retailers. Ironically, tariffs don't even work effectively in protecting American factory jobs.
So, when we recognize the virtues of market freedom, if we are principled in our thoughts and actions, we are compelled to uphold freedom even when it rolls us painfully through the wringer of global capitalism. What we find is that the improvement that we are compelled to make to keep up also ends up helping us in the long run. Acting witht he good of others in mind has a way of benefiting everyone.
Our job is what our job has always been: to change, to adapt, to provide customers with superior value in a way that delivers a competitive financial return. As ever, a daunting challenge. Looking around this room at the talent and dedication of the people here assembled, I have no doubt that the challenge will be met.