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Why, Caterpillar, Why?

By JAMES PEELE 

Special to The SWT

With the local economy already feeling the effects of a five-year downturn in economic growth, the announcement last month that Caterpillar was closing its Pulaski plant and laying off 240 employees is a blow to the solar plexus.  The closing does not just affect the employees and their families, although they will feel the full brunt of the closing and resultant unemployment, but it will ripple through the local economy as well affecting many local businesses.

In an email interview with James Koch, Professor of Economics and President Emeritus of the Department of Economics at Old Dominion University in Norfolk, when asked about the ripple effect to the local economy, Koch wrote “I’ve completed several dozen economic impact studies and therefore can state that there is virtually no question that this will have a negative ripple effect that will be felt throughout the local and regional economies,” although he added that he would  “have to see the precise numbers to go further.”

James Koch is co-author with Craig Bouchard, a former student of Koch, on a book titled “The Caterpillar Way” in which they chronicle the fall and rise of Caterpillar.  “CAT went three consecutive years losing approximately $1 million per day. They were in serious trouble and the company’s continuing existence was in some measure of doubt. Today, the company is the dominant leader of its industries on a global basis. CAT may well be the best-managed company in the world. To achieve such a turnaround required a series of successful strategic and operational changes,” wrote Bouchard in an article announcing the book.  This may well be true and it may point to the reason for the demise of plants like the one in Pulaski as well as plants in Tazewell and Beckley, W.Va.  Their book details the economic studies within Caterpillar to determine its market presence.  Many factors are considered but one must also consider the economic climate of the nation and the impact the Environmental Protection Agency (EPA) policies may have on their analysis.  When Senator Obama was running for President in 2008, he said, “if someone wants to build a coal powered plant, they can, and it’s just that it will bankrupt them …”

The EPA has taken the lead on regulating power plants and has essentially legislated coal fired power plants out of business.  When Caterpillar adds this calculation to its economic formula on where to operate plants that specialize in mining equipment, the impact is fundamental to the outcome – consolidate and minimize the risk to the company.  When I asked this same question of Koch, he responded, “Once again, while I don’t have a precise answer here, it certainly seems likely that EPA guidelines relative to the mining of coal had an influence on caterpillar’s thinking.  However, so also would other factors such as lower natural gas prices, etc.  In my view, EPA guidelines aren’t the only things that count in Caterpillar’s thinking.” While several major factors are influencing the decision made by Caterpillar to close the Pulaski plant, nothing will ease the pain of unemployment for families facing economic havoc or the impact to citywide businesses and their families with another major driver of economic activity closing their doors.  The sting is magnified at this time of year when families want to celebrate the holidays with loved ones without the fear of unemployment looming in their lives.

When I asked Professor Koch if he believed that the current administration intends to keep its promise to kill off the coal industry in the near term, his response was, “I have not heard anyone such as President Obama make such a statement.  I believe this is the interpretation of others.  That said, this administration is not seen as coal friendly.  We need to recognize, however, there are other moving parts in this situation.  We live in a world characterized by much lower natural gas prices and declining KWH costs for some alternate energy sources such as solar, etc.   Plus, we now have burgeoning U.S. oil production because of fracking and other techniques.  And, finally, we have the onset of increasingly restrictive environmental regulations at both the state and federal levels.  Hence, I would not lay all of the blame for the relative decline in coal production on the Obama administration – though its policies certainly have had an effect.”

While Koch analyzes this issue strictly from an economic viewpoint, I take an alternate view.   I think the decision by Caterpillar to close plants in Pulaski, Tazewell, Beckley, W.Va., and London, Ontario is a direct result of this administration’s war on the coal sector, as well as other energy producers in the United States.  The ending of the story is yet to be told, but there is sufficient evidence that the people who bear the cost of this decision are hard working, honest, middle class blue-collar families, and the central core of small town businesses that depend on those paychecks.  When government enters the marketplace to influence production of any commodity, it distorts the free market.  Companies, like Caterpillar, are forced to make decisions not on free market principles but on government edicts that devastate families, communities, towns, and eventually the Commonwealth.