New manufacturing in the United States

From The Wall Street Journal:

The Mill That Right-to-Work Built

An entrepreneur is bringing manufacturing jobs back to Kentucky—without protectionism.

By Allysia Finley | May 19, 2017 7:01 p.m. ET

In April the CEO of Braidy Industries, Craig Bouchard, announced his company would build a $1.3 billion aluminum mill in Ashland, Ky., creating 550 jobs. Within the past few weeks, he has received 2,600 applications—many with heart-wrenching personal anecdotes.

Ashland, a small Appalachian town on the Ohio River, was once an industrial powerhouse. Fifty years ago, nearby coal mines churned out cheap energy and raw materials for steel production. But in recent decades the region has suffered a series of blows. In 1998 Ashland Oil relocated to the Cincinnati suburbs. Two years ago, AK Steel laid off 600 workers. Last year CSX Railroad cut 100 jobs due to reduced traffic from the coal mines. Unemployment in Greenup County stands at 8.9%.

This story caught my eye, because my wife, of 38 years and two days, is from Ashland. Her late father retired from what is now CSX Railroad. And while the article is correct that the unemployment rate for Greenup County was 8.9% in March, according to the Bureau of Labor Statistics, Ashland is not in Greenup County, but Boyd County, adjacent to Greenup’s southern border. The ‘official’ unemployment rate for Boyd County stands at 8.3% It is possible that the new plant will be built north of Ashland, in Greenup County, but the article did not specify that.

Last month President Trump —who won the county with 71% of the vote—ordered an investigation into whether aluminum imports were jeopardizing national security. It’s a step toward the tariffs that protectionists hope will revive America’s Rust Belt. But the best hope for towns like Ashland is innovation and investment by men like Mr. Bouchard.

He’s the kind of businessman who might appear on a union hit list. The CEO cut his chops in derivatives trading before buying the scraps of a bankrupt Chicago steel company in 2003 with his brother James. Within five years, the Bouchard brothers had built their company, Esmark, into the nation’s fourth-largest steel conglomerate.

They sold it for $1.2 billion to the Russian steelmaker Severstal in 2008, shortly before the stock market and steel industry crashed. Thousands of workers subsequently lost their jobs. Mr. Bouchard blames the United Steelworkers. He had first tried to sell a partnership stake in Esmark to the Indian company Essar Steel. But the United Steelworkers sought to force a sale to Severstal, which the union perceived as more labor-friendly. Had the Essar deal been consummated, Mr. Bouchard says, “every one of those people would have their jobs today” because all of the company’s debt would have been paid off.

The episode soured him on organized labor, and it’s one reason he was determined to build his new aluminum plant in a right-to-work state, where workers can’t be compelled to join a union. Before choosing Ashland, he drew up a list of 24 potential sites. The logistics favored Ashland, and Kentucky offered $10 million in tax incentives as well as low-cost electricity. But Mr. Bouchard says he was prepared to build elsewhere had Kentucky’s Republican governor, Matt Bevin, not signed right-to-work legislation in January.

Pay at the plant, which is expected to be up and running in 2020, will start at $50,000 a year and average $70,000—about twice the median household income in Ashland. Workers will also have access to health insurance, fitness facilities and a day-care center.

There’s more at the original, but one thing has to be remembered: while Kentucky is now a right-to-work state, the workers at Mr Bouchard’s plant will still have the right to unionize; it’s simply that if a union election is held, and the workers choose union representation, individual workers cannot be compelled to join the union or pay dues.

The logistics around Ashland are very favorable, with both a large railroad depot and well-used river traffic on the Ohio and Big Sandy Rivers.

Mr Bouchard stated that the only sensible way to get into these types of industries in the United States is to start from scratch; buying out existing companies also means buying into legacy pension plans, and the CEO is unwilling to do that. The pension decisions of decades in the past are still weighing down American manufacturers today. Those decisions cannot all be blamed on unions; management too frequently took decisions concerning pension plans and funding which worked fine for the individual managers in the fifties and sixties, but are unsustainable today. Defined benefit plans are being replaced by 401(k) plans, and the like, plans which do not depend upon the company’s future contributions to those plans. The defined benefit plan, if not properly funded as the company moves along, is, in effect, paying retired personnel a wage for no longer working.

This is the kind of thing that the United States will need for American manufacturing to see a revival. There is no reason we cannot manufacture the things we currently import, but we cannot do it by holding on to the policies of the past.