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(01/21/06) Clyde Prestowitz Quoted by Joseph Nocera in the New York Times

New York Times (NY)
The New York Times.
January 21, 2006

The Cufflinks That Went To China

By JOSEPH NOCERA


LAST June, my brother-in-law, Frank E. Williams, took his first trip to Asia. Along with a sales executive who worked for him at Visa Jewelry, Frank traveled to Hong Kong, which is where all the mainland Chinese costume jewelry manufacturers have their showrooms. Frank wanted to see if there was any way he could save his small costume jewelry business in Rhode Island.

Frank recently turned 70, but he's one of those people who is happiest when he's busy; as his wife, my sister Rosemary, wrote in an e-mail message to our family, "forced retirement is probably the only way Frank would consider it." He's been in the costume jewelry business since 1957, starting as an apprentice on the shop floor and rising over time to become a salesman, merchandiser and designer. He bought his own company in 1978, and named it Visa.

Although Visa never got bigger than 50 employees and $2.5 million in revenue, it has been profitable for most of the time Frank has owned it. The last five or six years, though, have been rough. "If we broke even," my sister recalled recently, "we considered ourselves lucky." By 2005, the business was steadily losing money. Frank and Rosemary drew down the company's line of credit, and then began using their own credit to keep it going. "Customers weren't buying, and if they were buying, they were pushing us hard to lower our price," my sister said. And there wasn't much doubt about why this was happening. Globalization was taking its toll, as Chinese manufacturers have pretty much taken over the costume jewelry industry.

What Frank saw in Hong Kong only drove home the obvious. "Ten years ago," he said, "Chinese imports were terrible. But in every showroom we visited, we saw a quality product." Frank has long specialized in men's jewelry, particularly studs and cufflinks for tuxedos. "My average pair of cufflinks, taking into account overhead and a 10 percent profit, costs $6.50," he said. "I could get the same pair of cufflinks from China for $2 and change." Peter Jernquist, the Visa executive who made the trip with Frank, said, "There was nothing we could make in the U.S. that couldn't be made far less expensively in China."

After returning to Rhode Island, Frank thought he might try to become a distributor of Chinese costume jewelry. But that required additional capital, and he and Rosemary were worried they might be throwing good money after bad. Besides, becoming an importer would still mean letting go most of the company's employees, and a large part of the reason Frank wanted to stay in business was to preserve their jobs.

In August, after a long weekend of soul-searching, Frank and Rosemary succumbed to the inevitable, and decided to shut Visa. And Rhode Island lost one of its last remaining costume jewelry manufacturers.

When I was growing up in Providence, the city was known as the Costume Jewelry Capital of the nation. There were literally hundreds of jewelry factories, not just in Providence, but across the state. Many were tiny, but some had as many as 500 or 600 employees; at its peak, costume jewelry provided jobs for 40,000 to 50,000 people, and many more in satellite industries. In high school, having a summer job in a jewelry factory was practically a rite of passage.

"We thought it would be there forever," recalled Jack Reed, Rhode Island's Democratic senator. But the industry peaked sometime around 1978, and today, according to Rich Youmans of the Manufacturing Jewelers and Suppliers of America, there probably aren't more than 500 costume jewelry jobs left in the state. What jewelry-making still exists in Rhode Island resides in the higher-margin precious metals.

High-end jewelry is different from the costume business, though, not least because it is not as cost-sensitive. Costume is fundamentally about two things: design and price. Which is to say, it is exactly the kind of American industry globalization destroys. Over the years, Frank worked hard to control costs, but there was no way he could even come close to Chinese labor costs. As everyone knows, cheap labor is one of China's competitive advantages in the global marketplace.

As for his design skills, which Frank always thought of as his competitive advantage, globalization rendered them less and less useful. Customers would buy some of his new pieces, and then send them to China to have the designs reproduced. "Three or four months later," Mr. Jernquist said, "you'd see the same design on a Chinese Web site." Senator Reed told me that he tried to help with intellectual property issues, but conceded that it was hard to rouse much interest. "The loss to the industry is huge, but to the federal government, this is pretty small stuff," he said.

Indeed, the main reason Frank's company lasted as long as it did was that he made the shrewd decision to stick with men's jewelry, which is a niche business compared with women's jewelry. China wiped out the much larger women's costume jewelry industry first, before turning its attention to the men's side of the business. "Frank did everything right," said Peter M. DiCristofaro, who runs the Providence Jewelry Museum. "The times were against him."

The American economy will not rise or fall on the fate of the costume jewelry business, of course, but it does make you think about the real-world consequences of globalization. There is no question that when Americans can buy cufflinks for $2 instead of $6.50, it's a net plus for consumers. Nor is there any question that globalization is profoundly good for the people of China and India and other emerging economies.

But does it matter that, in the process, as Senator Reed put it, "a great source of wages and employment" is being lost? Frank and Rosemary certainly think so; my sister told me that she worried about whether there would be any manufacturing left in this country if the government didn't step in. "There have to be some industries in this country that use nonskilled labor," said Frank.

Clyde V. Prestowitz Jr., the president of the Economic Strategy Institute and a leading critic of globalization, worries that the government lacks "a sense of urgency" as not only manufacturing jobs but service jobs move overseas.

"The theory has long been that we are going to make up in service jobs what we lose in manufacturing," he told me. "If you look at our own trade figures, you'll see a small and declining surplus in services."

Most mainstream economists, though, believe that globalization is not something we should fear, even if it does eliminate low-wage industries like costume jewelry. "People panicked when consumer electronics moved elsewhere," said Diana Farrell, the director of the McKinsey Global Institute. But, she said, that move not only gave consumers lower-priced goods, it also spurred innovation here and led, eventually, to better-paying, higher-value jobs. "The process of globalization," she added, "is wealth-creating for the economy."

But she conceded that there were people, and industries, that were inevitably going be left behind. The trick was not to protect the jobs, but to protect the people -- by stressing education and retraining, "delinking health care from employers," and, in general, helping people make the transition from a declining industry to a growing one. No matter how you feel about globalization, you'd have to have a heart of stone to disagree with this sentiment. Which is also, I think, the most discouraging part of this story.

In the months since Visa went out of business, Frank and Rosemary have worked hard to find new jobs for their workers. They've scoured the help-wanted ads and talked to anybody they could think of who might have a job to offer. They haven't had much luck. My sister told me of one woman who found a job; the wages were lower "but at least she has health care now." Most of the other employees, however, remain out of work.

For a while, she thought she had found a great way to help them: the Department of Labor's Trade Adjustment Assistance program. In a meeting with the program's Rhode Island representative, she got more and more excited as she heard about the benefits. They included not only job search workshops, but cash to pay for faraway job interviews, tax credits to help cover health insurance premiums, money for school, up to two and a half years of unemployment benefits to someone who was in the process of learning a new skill, and more.

Then she came to the line on the application that asked which country's imports were responsible for failure of the business. The Labor Department's agent tried to steer her answer. "If you mark down China," he told her, "it disqualifies you."

She couldn't believe it. Neither could I. But I looked it up on the Labor Department's Web site, and sure enough, it was true. The assistance was available only to workers who could show that they'd been laid off "as a result of a shift in production to a country that is party to a free trade agreement with the United States" -- like Nafta. In other words, if you've lost your job because of imports from, say, Canada, you can get the benefits. But if Chinese imports are the culprit, you're out of luck.

Thanks for nothing.

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