A Safety Net Of Alternative Systems - Small-Scale Manufacturing

The global, “official” economy of our modern society is breaking apart. The signs seem to indicate that the breakup is rapidly accelerating. Those who have been trained to rely wholly on that system are increasingly finding themselves in trouble, as the system is now increasingly unable to provide its two staple products – jobs (with income), and goods for consumption – to those who rely on it. Yet there is still a need for meaningful work in the making of the things necessary for everyday life. This post will introduce the role of small-scale manufacturing and industry in restoring our ability to take care of ourselves. This is an especially urgent topic for citizens of the United States, which allowed its manufacturing base to be decimated over the last few decades in the name of globalism.

The Breaking Supply Chain

The availability of goods to the typical “consumers” in industrial economies depends on a long and winding chain of supply. Over the years, the links of the chain have increasingly been held together by easy credit. Here is how it worked: business owners over the years stopped using their own savings to pay for the operation and expansion of their businesses. Instead, they took out loans to cover the costs of acquisition of new equipment, office/warehouse/industrial space, raw materials, vehicle fleets and so forth. The assumption was that they would make payments on their loans with the revenue generated by the use of the goods they bought on credit. For instance, a printing business might borrow money for paper, presses, computers, and related supplies, intending to pay the loan with some of the revenue generated by the use of these materials in the printing business.

This also extended to such things as farming, including large-scale agribusiness. Growers took out loans for seed, mechanized farm equipment and “inputs” such as fertilizer and pesticides, with the intention of making payments on those loans with some of the money received from harvesting and selling their products. And it extended to those who sold finished goods, who purchased these goods from suppliers by means of “letters of credit” issued by lending banks, and who planned to pay back these letters of credit through the commission they earned by selling the finished goods – goods such as textiles, machines, bulk cargoes, cars, tools, consumer electronics, and so on. In fact, the hugeness of the scale of economic activity for the last several years has been due to the easy and widespread availability of credit. The scale of economic activity would have been much smaller, if businesses in the official economy had been required to conduct their activities solely on the basis of their earnings and savings.

But the present economic crisis has put an end to easy credit, not only for individuals, but for businesses. Consumers, cut off from credit and hampered by stagnant wages, are not consuming anymore – at least, not like they used to. This is endangering all the other members of the supply chain, such as manufacturers who are no longer to make payments on the loans they received for their equipment, as well as retailers who bought the inventories of their stores on credit and find that they can no longer sell their merchandise like they used to. Farmers are curbing their planting due to lack of credit. Even shippers are hurting, since fewer people are hiring their ships, trucks and planes to send merchandise from producers to retailers. This is illustrated in a recent Times news article, “Commerce Becalmed Over Letters Of Credit (Source: http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5069065.ece).”

It is not an exaggeration to say that the supply chain is breaking. The links closest to the average consumer – the retail store chains – are the most obvious sign. Circuit City, Mervyn's, Linens 'N' Things, KB Toys and Sharper Image are some of the casualties. The United States has allowed itself to become a place where people get the things they need for daily life from stores which sell products made thousands of miles away. Few people here can make the things they need anymore. But now the stores are disappearing. Retailers can no longer secure the credit to buy things made thousands of miles away. Therefore, shipping traffic has almost evaporated. Many extractors of raw materials and manufacturers of finished goods are shutting down. Some analysts estimate that within the next year or two, many things that are taken for granted in the United States may no longer be readily available – either because they are not to be found in stores, or because there are no longer stores that sell these things, or because the foreign makers of these things are demanding a much steeper price for the things made. Some of these things are things that are useful and valuable in our transition to a low-energy future – things ranging from hand tools to bicycle parts.

The Revival Of Small-Scale Industry

It is quite probable that the United States is facing an impending cutoff of many foreign-made goods, due to the worsening credit crisis. This will not only involve such luxuries as consumer electronics, but very basic tools and means of transportation, as well as other necessities. How will we obtain these necessary tools in a deindustrialized nation, a nation whose natural resource base has been largely depleted?

I believe that the answer is twofold. First, we in this country will have to get used to the idea of living with less. Second, we will have to raise up local (or hyperlocal), small-scale industries and manufacturing in order to produce the basic, necessary things we will need. The types of small-scale industries will be quite varied, as the needs of citizens in each locality will be varied; yet there are certain characteristics which will be desirable in all small-scale industries, such as:

• The ability to produce finished goods from salvaged and recycled materials

• The ability to make things without exposing workers to health risks

• The ability to start business with limited financial capital and small (or no) loans

• The ability to make things without polluting the environs in which the industries are located

• The ability to make things using limited inputs of raw resources, energy, and technologically complex processes and machinery

It would be a mistake for anyone reading this to think of small-scale industries as the “next big business opportunity,” a way to cash in on a get-rich dream during an age of declining energy availability. Rather, as one Kenyan said during an interview on small-scale manufacturing, “Anyone who can be able to provide the basic necessities to his family ought to consider himself successful.” The goal is not profit maximization, but creating security for oneself, one's family, and one's community.

The Third World Pioneers

Much of the work done in starting, running, analyzing, and formulating policy regarding small-scale industries has been done by the citizens of the Third World, who for years have relied on these industries for a large portion of their gross domestic product. Several countries have created formal government ministries to promote and measure the progress of their indigenous small-scale enterprises. Among these are the government of India, which created the Ministry of Micro, Small and Medium Enterprises (formerly the Ministry of Agro and Rural Industries, and the Ministry of Small Scale Industries), and which has entered into agreements with several other countries, including Tunisia, Mexico, Rwanda, and Romania to further the development of small-scale enterprises. Small-scale industries have been extensively studied in Kenya, where researchers have suggested ways to integrate these industries symbiotically into the official Kenyan economy, providing the owners of small-scale enterprises with needed government favor and aid.

Small-scale industries in the Third World have arisen due to a combination of factors, including the existence of a long tradition of craft laborers who were present before the invasion of Third World cultures by the West, as well as the desire of many Westerners and some Third World citizens to “help” the Third World climb out of a supposedly backward existence into Western prosperity. Small-scale enterprises in the Third World have been hurt, however, by globalization, trade liberalization, and free-market policies forced on Third World governments by First World institutions. In addition, the large-scale industrialization of the Third World has been hampered by the exploitation of Third World energy and mineral resources by First World nations.

But now, as the availability of all sorts of natural resources worldwide peaks and begins to decline, the large-scale methods and technologies of the First World are becoming increasingly untenable, and the small-scale approach implemented by Third World citizens is becoming ever-more relevant. This small-scale approach may be the key to the United States quickly regaining its ability to provide basic tools and goods for itself. I shall examine the implementation of small-scale industries in specific countries in a later post.

Additional Sources:

Regarding Shipping:

• “Dryships Suspends Dividend, Dumps Expansion Plans,” Reuters, 22 January 2009, http://www.reuters.com/article/marketsNews/idINBNG42208020090122?rpc=44

• “Credit Tsunami Swamps Trade As Banks Curtail Loans,” Bloomberg, 31 October 2008, http://www.bloomberg.com/apps/news?pid=20601109&sid=aPA4NMYtDIS4&refer=home

• “Shipping Rates Hit Zero As Trade Sinks,” The Telegraph, 14 January 2009, http://www.telegraph.co.uk/finance/4229198/Shipping-rates-hit-zero-as-trade-sinks.html

Regarding Retail And Agriculture:

• “Circuit City Liquidation: 567 US Stores Closing,” The Huffington Post, 16 January 2009, http://www.huffingtonpost.com/2009/01/16/circuit-city-liquidation_n_158474.html

• “Wave of Bankruptcy Filings Expected From Retailers In Wake Of Holidays,” Wall Street Journal, 12 January 2009, http://online.wsj.com/article/SB123171955382272193.html?mod=googlenews_wsj

• “Farmers Concerned About Ag Credit Crunch,” WALB News, 14 January 2009, http://www.walb.com/Global/story.asp?S=9673928

Regarding Small-Scale Industries:

• Ministry of Micro, Small and Medium Enterprises, India - http://msme.gov.in/msme_intcoop.htm

• Memorandum of Understanding between India and Rwanda regarding Small-Scale Industries, http://msme.gov.in/MoU%20Rwanda.pdf

• “Small-Scale Manufacturing In Kenya: Characteristics, Problems and Sources of Finance,” K.R. Gray, W. Cooley, J. Lutabingwa, 1996, http://sbaer.uca.edu/Research/usasbe/1996/pdf/23.pdf

• “An Industrial Solution For Kenya and Africa,” Amollo Lorraine, Changing the Change Conference, 10-12 July 2008, http://www.changingthechange.org/abstracts/abs008.pdf

• “Why Small Scale Industries Deserve Attention,” Henry Muhanika, The Guardian, 24 August 2008, http://www.ippmedia.com/ipp/guardian/2008/08/24/121173.html