SCDigest: FedEx's Fred Smith Agrees U.S. Needs to Return to a 'Product Economy'
Through a special arrangement, presented here for discussion is an excerpt of a current article from Supply Chain Digest.
In a recent interview with The Wall Street Journal, Federal Express founder and CEO Fred Smith crisply summarized how things have become so out of whack in the financial sector versus the rest of the product economy that has to play by traditional rules. Mr. Smith covered similar ground offered by SCDigest editor Dan Gilmore in his recent column, "Back to the Product Economy?"
"Rather than in our business, where you have to have a dollar of equity for 10 cents or 15 cents of debt, it's exactly the opposite in the financial sector where you have one dollar of equity for 10, 25, 50 times risk," Mr. Smith told the Journal.
Mr. Smith said a key part of the problem is that U.S. tax and other policies are unfair to asset-heavy businesses, such as manufacturers and the service providers like FedEx, with its fleet of 300 planes and thousands of trucks.
"The United States has a completely uncompetitive tax structure in general and it has a particularly onerous tax structure for firms that are asset-intensive," Mr. Smith said. "If you run an industrial company like FedEx, which employs 290,000 folks, most of whom are blue-collar people, the way we have to run this business is to equip those workers with billions of dollars of assets that allow them to pick up and deliver millions of things around the world."
Mr. Smith also cited, as did Mr. Gilmore, that the potential for vast salaries and bonuses in the financial sector siphoned off too much of America's top talent in recent years, especially those coming out of college.
"Not too many young people coming out of school are studying to be production managers at General Motors," Mr. Smith said, adding that most of FedEx's first-line managers come not from the topflight universities, but out of community colleges and the military.
"The top talent has wanted to go to Wall Street," he said.
The Journal article said Smith "views the heroes of the U.S. economy as the companies that actually produce real goods and services. He sees the Wall Street collapse as an inevitable byproduct of investment bankers building multi-trillion dollar debt pyramid structures."
Discussion Question: Do you think we can - or should - focus more on the "real product" economy? What can the U.S. and European countries do to put more vigor back in the manufacturing sector? Is U.S tax policy harmful to manufacturers here?
[Author's Commentary] Dan Gilmore's "Back to the Product Economy?" column concluded: "We can't rely on the financial sector any more to be the world economic leader. The U.S. still has by far the largest GDP, but I believe we will need to rethink where our attention, resources and investment go. Our manufacturers have among the highest tax and health care costs in the world. We are the about the only country that adds duties on offshore components coming into Free Trade Zones for final assembly. Most of the Harvard Business School graduates have been looking at Wall Street or consultancies instead of companies that actually make things. We're giving too much intellectual property away to China and others, and often ignoring the 'cost innovation' that is increasingly the basis of Chinese competition - not just low wages.
"We just need to re-assess and act based on what adds real value to the economy. It isn't an endless series of derivatives and other new financial instruments. The design, innovation, and (where it makes sense) actual production of real products needs to move up the priority list - in a hurry."