Discussion

May 7 - M a y 13,2012 Bloomberg BusinessWeek

New Balance's 2011 revenue

Global Economics

the committee number is a $20 million cut in funding for this year's Economic Census, considered the foundation of U.S. economic statistics.

Although the Economic Census hap- pens every five years, its managers say they require continual funding through a six-year cycle. Reamer says that idea ap- pears to be lost on the committee, which reduced funding in part because it says the bureau won't start analyzing the data until the end of fiscal year 2013. Accord- ing to its funding request, the Economic Census needs funds to cover the cost of mailing 4.6 million forms to 3.1 million businesses, as well as conducting about 500,000 reminder phone calls and send- ing 4.2 million follow-up packages.

Some believe the Census Bureau does too much already. "They waste a share of their budget on studies that no one actually uses," says Chris Edwards, an economist with the Cato Institute, who cites periodic surveys on such items as the total hog count in the U.S. to prove his point. "A lot ofthat could be done by the private sector."

One of the most vocal critics of the proposed cuts is the U.S. Chamber of Commerce, a deficit hawk. "The cham- ber is in favor of getting the deficit under control, but you're not going to get there by gutting the statistics agencies," says the chamber's chief economist, Martin Regalia, who last July signed a letter in favor of fully funding the BEA. "The total amount of money saved is relatively small compared to the massive loss of in- formation it would lead to. It's like trying to balance your checkbook by buying cheaper checks."

Some of the biggest users of the data are the in-house economists at big com- panies. "We are total data hogs," says Ellen Hughes-Cromwick, chief econo- mist at Ford Motor. The most recent GDP estimate released by the BEA showed that motor vehicle output made up half of the 2.2 percent i in GDP growth in the first quar- ter, giving Hughes-Cromwick a window into consumer spending habits that directly affect Ford's rev- enue. Says Hughes-Cromwick: "It's cru- cial to keep up with changes ... and you do that with good data. We're screwed without it." —Matthew Philips

The bottom line Economists and business leaders are resisting GOP efforts to cut tunding to the agencies that gather economic data.

T r a d e •''•***««fc.

New Balance Wants Its Tariffs. Nike Doesn't

• A trade deal could finish off athletic shoe manufacturing in the U.S.

• "They're paying 46(t; an hour in Vietnam"

For Brady Chapman, the answer to jump-starting the economy is simple: back the companies that manufacture in America. Chapman and his wife own the Snack Shack, a two-room restau- rant in Skowhegan, a town of 8,500 set amid the maple and pine trees of central Maine along a road locals call Moose Alley. New Balance Athletic Shoe, the last major manufacturer of athletic footwear in the U.S., is the larg- est employer in the area, where one factory after another has closed due to competition from imports.

New Balance workers often stop by Snack Shack, especially on payday, for chicken tenders and clam strips. Like many in the town. Chapman wor- ries New Balance's U.S. factories will be put out of business by the proposed elimination of footwear tariffs under a free-trade deal, dubbed the Trans- Pacific Partnership, that President Barack Obama is negotiating with eight Pacific nations, including shoemaking colossus Vietnam. "If somehow these tariffs were not there, and you bring in all these imports, there's no way they

can compete," says Chapman. "It

\ would be devastating."

A continent away in Bea- verton. Ore., sporting goods be- hemoth Nike is pushing for elimina- tion of the duties, pledging to create thousands of high-paying U.S. jobs, from designers to product engineers. Nike draws support from business groups and home-state lawmakers who say greater access to the Vietnamese market will provide opportunities for U.S. engineering, architecture, and fi- nancial-services companies.

"The question comes down to, is one kind of jol3 more important than anoth- er?" says Erin Dobson, a Nike spokes- woman. "What are the jobs for the 21st century? They're not necessarily jobs that existed 30 years ago."

The debate shows how tricky trade issues are for Obama, who says he wants to reward companies that manu- facture in the U.S. and at the same time craft a comprehensive free-trade agree- ment. "Nobody should pretend that this is easy," says Shaun Donnelly, a vice president of investment and finan- cial services with the U.S. Council for In- ternational Business.

May 7 .-May 13,2012 Bloomberg BusinessWeek

The Footwear Distributors and Retailers of America, which wants an end to

the trade barriers, says tariffs for some types of shoes can run

as high as 67.5 percent, and when the costs get passed on, they effectively triple the price of foreign-made shoes. New Balance, based in Boston, says the duties that help sustain its U.S. athletic footwear production are as high as 20 percent and asks that they be preserved.

The 7 million pairs of shoes New Bal- ance produces each year in the U.S. make up only a quarter of U.S. sales, says Matthew LeBretton, director of public affairs. The rest are made in the U.K., China, Indonesia, and Vietnam. "If this is purely a business decision, then it's very clear that you make more profit by making shoes in Asia than in the United States," LeBretton says. "We aren't purists, but we are doing this for reasons that are other than financial impact. It's the right thing for us to do. We suffer as a country when we lose the ability to manufacture." He adds that

7

producing in the U.S. lets New

Balance react faster to demand from U.S. stores

- ' a n d helps those stores main- tain lower inventory. The company also says local workers maintain better qual- ity control than workers abroad.

Keeping the tariffs is important be- cause most of New Balance's jobs are

^ ^ i n communities where there are few ^ l^^t other options for employment, says

^ S e n a t o r Olympia Snowe (R-Me.). I "They're paying 46<p an hour in

ß Vietnam, and New Balance is paying $10 an hour here, plus all

the benefits," Snowe says. "It's not a level playing field. Our government has to fi- nally wake up and understand that."

Nike has supporters, too. "I really believe that the government should not negotiate agreements for one compa- ny," says Matt Priest, president of the footwear distributors association. Rep- resentative Earl Blumenauer (D-Ore.), whose district is home to Nike em- ployees and the U.S. headquarters of Adidas, says keeping the tariffs taxes millions of consumers to keep a few thousand jobs.

Trade talks will continue this month. Maine lawmakers are applying pressure on the administration to keep cuts in athletic footwear tariffs out of any final agreement. The U.S. hasn't made any decision, says Carol Guthrie, a spokes- woman for Ron Kirk, the U.S. Trade Rep- resentative, in an e-mail. "Footwear is an area of interest for Vietnam and remains a sensitive item for the U.S.," Guthrie says. "The challenge we will face is how to address this product, and we continue to consult with Congress and stakehold- ers on how to do so." —Eric Martin

The bottom line New Balance says it may be forced to give up manufacturing in the U.S. if a proposed trade dea/ ends most tariffs on footwear.

Jobs

Stop! Don't Hire That 50th Worker!

• French companies stay small to escape stifling work rules

• "If you make a mistake in your hiring plans, you can't correct it"

Here's a curious fact about the French economy: The country has 2.4 times as many companies with 49 employees as with 50. What difference does one em- ployee make? Plenty, according to the French labor code. Once a company has at least 50 employees inside France, management must create three worker councils, introduce profit sharing, and submit restructuring plans to the coun- cils if the company decides to fire work- ers for economic reasons.

French businesspeople often skirt these restraints by creating new com- panies rather than expanding existing ones. "I can't tell you how many times when I was Minister I'd meet an entre- preneur who would tell me about his companies," Thierry Breton, chief exec- utive officer of consulting firm Atos and Minister of Finance from 2005 to 2007, said at a Paris conference on April 4. "I'd ask, 'Why companies?' He'd say, 'Oh, I have several so that I can keep [the workforce] under 50.' We have to review our labor code."

While polls show job creation and the economic crisis are the top issues for voters in the May 5 second-round vote for president, neither President Nicolas Sarkozy nor Socialist challenger François Hollande are focusing on Bret- on's concern. Companies say the big- gest obstacle to hiring is the 102-year- old Code du Travail, a 3,200-page rule

book that dictates everything from job classifications to the ability to fire workers. Many of these

* rules kick in after a compa- ny's French payroll creeps

beyond 49. Tired of delays in getting orders

filled, Pierrick Haan, CEO of Dupont Medical (not to be confused with chemical company DuPont), decided last year to return production of some wheelchairs and medical equip- ment to France. The 150-year-old

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