July 1, 2012

Activism as an Investment in the Future

Bill Hickey explains why he got political and the policies we need to make manufacturing and the country stronger.

Bill Hickey, in Lapham-Hickey's Chicago Service Center,
is one of MSCI's most politically active members.

William “Bill” Hickey is clear: “The three best ways to build wealth,” he says, “are to manufacture it, to mine it or to grow it.”

It's no wonder, then, that he is on something of a personal crusade to protect the industries that he sees as the core of American prosperity and growth. Hickey is the president of Chicago, Illinois-based Lapham-Hickey Steel Corp., a metals service center co-founded by his grandfather in 1926. He is also one of the most politically active executives in the metals industry.

His activism is fueled by a deep desire to provide a better standard of living, and a better country, for future generations. Hickey proudly talks about leaving his four grandchildren with a better America. And whether in Washington or elsewhere, when he presents his views on manufacturing and the economy, his PowerPoint talks always end with a picture of those grandchildren.

Hickey spoke with Forward about the challenges that come with convincing leaders in Washington of the importance of strong manufacturing and economic policies.


Was there a particular event that prompted you to become politically active?

HICKEY: Not exactly. But you know the old joke in Washington is, 'If you aren't at the table, you're on the menu.' I had been in MSCI leadership roles for six years when, in 2003, we decided to become more proactive about policies that were detrimental to the steel industry and steel consumers. So I testified in front of the Congressional Steel Caucus. Because of that, I was appointed to an industry trade panel, which is now called the ITAC, Industry Trade Advisor Committees. When the U.S. government enters into a trade agreement, we are chartered to write a recommendation or overview of what we think are problems with the trade agreement. I've been doing that for 15 years.

My motive [for getting involved] is that if we don't have an opportunity to talk to these people, we're going to get killed. This country has provided the greatest standard of living of any nation in the history of the world. I look at the people around me and I say, “Do I want my children and my grandchildren—along with everyone else's children— to have a standard of living that's lower than what I had?” No. But the policies of many administrations have ignored domestic manufacturing, which accounts for a huge portion of wealth creation in this country.

What do you see as the biggest problem facing manufacturing?

HICKEY: The problem is nobody in Washington knows how to handle a state-owned enterprise, which is what we're up against in China. Nobody understands their cost structures; nobody understands if they make any money. There's no way to compete against the Chinese government. I'm not sure there is a way to handle them right now, except for maybe severe tariffs.

I remember the first time I talked publicly about Chinese currency manipulation. I was vilified. We did a town hall meeting at a steel mill with a U.S. senator and a couple of congressmen. The Chicago Tribune published the comments the next day. They painted us as protectionists, as dumb manufacturers who couldn't compete in a world market.

Everybody says, “Chinese labor is cheap.” But labor is such a small component of steel manufacturing today. Steel manufacturing is capital-intensive and raw-material- intensive. The Chinese don't have a competitive advantage in those unless the government is subsidizing it. And the government is subsidizing it.

How would you address the subsidizing problem?

HICKEY: We can change the China problem by leveling the rules and enforcing our trade laws, and recognizing their currency as a subsidy, which is what it is.

Here's what it comes down to: We ran a $299 billion trade deficit with China in 2011. That trade deficit is made up of manufactured goods, which would mostly be produced in the United States if they weren't being produced in China. At Lapham-Hickey, we have customers who are highly impacted by Chinese products that are subsidized by state-owned enterprises, subsidized by the currency, and subsidized by the value-added tax rebates they receive for exports.

Is the U.S. government doing anything about Chinese currency manipulation?

HICKEY: In 2010, the U.S. House passed a bill—with bipartisan sup- port—that imposes duties on imports from countries with undervalued currencies. In October, the U.S. Senate voted on a similar bill, which also passed with bipartisan support, 63 to 35. There are 220 co-sponsors of this legislation, which is more than enough to pass a reconciliation bill in the House. But it's now sitting on the House side of Congress. We'd love to have Speaker [John] Boehner call it for a vote, but he's holding it for some reason. [Forward note: Neither the White House, nor the Congress have been aggressive on the currency issue, refusing to sanction China in ways that many in the metals industry would advocate.]

What other priorities should Washington be focusing on?

HICKEY: We need a better energy policy that develops the sources of energy that are here. There are many hurdles to that. California, for example, has the potential of producing more oil than anybody, but can't because of the state environmental regulations. We have to have an energy policy that makes use of the natural resources we have here, like natural gas.

We also need a tax system that stops rewarding consumption over investment. That would probably mean instituting a consumption tax, which would be a national sales tax or a value-added tax, while substantially lowering the income tax. Look at states that don't have an income tax—they have much higher growth rates over the last 10 years. The problem with our tax system is you can be a drug dealer and make all the money in the world, and you're not going to pay taxes because you don't file taxes when you're doing something illegal. But if that drug dealer bought himself a $100,000 Mercedes, under a 5% national sales tax, he would pay $5,000 to the federal government.

And we have to do something more effective to make sure that we don't have a banking crisis like we did in 2007 and 2008. You have to get the banking business back to its fundamental business. We've still got all these crazy financial instruments. If there's somebody left who wants to deal in these financial instruments, that's great. But they just better not be insured by the FDIC. You have to split apart the commercial and the investment banks.

More than that, Washington needs to stop this culture of spending. We're basically selling our children and grandchildren to a life where they're going to be slaves to debt, and it really makes no sense. No matter how high taxes are, the government is always going to find ways to spend more revenue.

What would you say to leaders in the metals industry who avoid activism for fear of offending customers?

HICKEY: It's an individual choice. If we don't create wealth for the next generation, why are we here? Are we just here to consume for ourselves? If that's the case, then we're in trouble. There are too many multinational corporations in this country that have outsourced their manufacturing because it was cheaper. And they destroyed towns across the country. Ohio, Illinois, Wisconsin, Michigan, Pennsylvania, Missouri are full of these little towns that had a factory, but were decimated when the local factory that employed 300 or 400 people closed the doors. The social cost of that and the cost on the economy as a whole is horrible.

I think the metal service industry provides a very unique window into the manufacturing and industrial economy of the United States because we have so much integration with the consumers and producers of steel products. We've got a tremendous opportunity to use those resources to get policy processes changed in Washington. We may have a service center in every congressional district in the country. It's amazing how effective it is when you write letters [to representatives] saying, “Why aren't we doing this?”

At town hall meetings I stand up and tell everybody in the room: “Put your hand up if you've had a congress- man or senator in your plant.” Maybe only 5% or 10% have. It surprises me, because I guarantee that every congressman and senator loves to tour plants and shake hands with voters. Most elected officials on either side of the aisle are decent people who are trying very hard to do what they think is best for the country. A lot of them are just misinformed. For example: All we ever hear from people in Congress or in the administration is that [our problem] is cheap wages in competing countries. We know that isn't the whole story. When you're making steel it's not wages that's driving the cost structure. It's the cost of iron ore, it's the cost of electricity, it's the transportation cost. But they don't think that through.

Shifting away from politics, have you implemented Lean practices to make your process more efficient and precise?

HICKEY: Truthfully, Lean was just a hybrid of what we were selling for years: We'll take care of your inventory, we'll do your pre-production processing, and we will be your steel source.

But yes, we do a lot of process flow analysis. A part of our plant in Chicago has been 5Sed. 5S is a system of making sure everything is in its place and that everybody understands where tools are. We're now trying to 5S all of our facilities. It makes us more efficient internally, but one of the problems with implementing Lean is you can get immersed in the system versus the results. One day, for instance, we were working on something in the computer system and we had emails going back and forth about something that, no matter how it was settled, wasn't going to affect anything.

I'm not sure six sigma works in our industry. I think the cost of doing it would outweigh the benefits. Lean, on the other hand, is a way of analyzing what you're doing and knowing that no matter what you're doing there's probably a way of improving it. At some point you come back and say, “Is my improvement window worth the cost of the improvement?”

Three of your four children work with you at the company. What perspective do they bring?

HICKEY: Youth always brings impatience, the desire to get something accomplished faster. Sometimes it is certainly a great desire, but maybe thinking about it for another day may give you another insight into the question.

What do you envision for the metals industry in the next 10 years?

HICKEY: I believe the metals industry is going to have a wonderful resurgence because we have a tremendous backlog of infrastructure that needs work. We need to spend lots of money on water infrastructure like sewer pipes, drinking fountains and old locks systems in the Mississippi River, where we transport a tremendous amount of agricultural commodities. A lot of ports, bridges, interstates and railroads have to be worked on, as well. I'm not sure how exactly we're going to pay for it, but we will. Maybe it will take another 10 cents on the gas tax, and that's just got to happen.

Ashley DeVecht joined the MSCI team in June as its new Director of Communications.