Economist: Lessons to learn from Beebe’s frustration

There are two primary lessons to learn from the verbal lashing Whirlpool Corp. recently received from Arkansas Gov. Mike Beebe: 1) What the Governor thinks probably doesn’t matter to Whirlpool execs, and 2) the factors behind Whirlpool moving production again forces people to consider the balance between society and economics with respect to government policies.

Or so believes economist Jeff Collins.

During a Monday (Aug. 13) interview with Roby Brock, Beebe chastised Whirlpool for its decision to close its Fort Smith refrigerator production plant and move most of the production to Mexico.

The company in late 2011 announced it would close its Fort Smith plant. The move resulted in about 1,000 lost jobs when the plant closed in June. Whirlpool, which employed more than 4,500 at the Fort Smith plant in 2006, moved production out of the plant for several years prior to the closing.

BEEBE’S BULLETS
Following are Beebe’s comments during the interview:
• “What’s happened in Fort Smith is just heartbreaking to me with Whirlpool.”

• “I think it was short-sighted on Whirlpool’s part. I’m sorry, I’m not happy with Whirlpool. … Going to Mexico for that cheap labor and taking all those American jobs down there, is, in my opinion, very disheartening.

• “And you know they’ve got all kinds of trouble in Mexico; civil unrest, criminal justice issues. You know what’s going on down there with the crime and the drug wars and all that stuff.”

• “I’m very unhappy with companies that pick up and go to Mexico.”

• “I communicated it to them (Whirlpool officials) when they were here and talking about doing it. … I’m pretty candid about that stuff. What are they going to do to me?”

EMOTIONAL RESPONSE
Collins — a nationally known economist based in Springdale, co-founder of Streetsmart Data Services, economist for The City Wire’s The Compass Report, and former director of the Center for Business and Economic Research at the University of Arkansas — said most Arkansans understand Beebe’s frustration.

“From his perspective, a governor who is responsible for the economic well being of the people in his state, from that perspective, I certainly appreciate what the governor is saying,” Collins said.

But that’s an emotional, rather than practical, response, Collins argues.

“On the other hand, people like to buy inexpensive things,” Collins continued. “The biggest problem this country has, is determining, when we offshore employment, how do we recover, or create replacement jobs for those that left? … While his (Beebe’s) point is well made, I think the bigger issue is that we have to take capital mobility as a given. Certain industries are going to go away. We have to be able to accept that.”

Collins said Whirlpool execs and the owners and stockholders of companies large and small make decisions each day based on “their return on their investment.”

ECONOMIC DESTRUCTION
Instead of complaining, citizens and governments must do two primary things to “deal with the destruction that our very dynamic economy” delivers as new products, processes and other innovations come and go.

The first is to create institutions and systems “that buffer the impact” of that necessary economic destruction caused by change. For example, Collins argues that governments at all levels must do more to help the unemployed; not necessarily with more benefits, but in helping with mortgage payments (which protects housing values) and access to workforce development and retraining.

Second, and more important in Collins’ opinion, is that governments must do more to foster business growth.

“The role of the government should not be to complain that capital is mobile,” but to create systems that best foster innovation, entrepreneurship, and research and development, Collins said.