NewPage's Miscalculation affects us all

When it comes to economics and trade, no one knows it better than American companies. If costs can be cut down, they will make sure that it is done either by moving off-shore or outsourcing its labor. No one can beat American companies when it comes to efficiency and innovation in business. Efficiency and Innovation. These two have always been the strongest traits of American businesses and helped them become multinational companies with presence felt all over the world.

And American companies should never give up these two traits. Not even in difficult economic times such as present. Free trade and capitalism has helped the US become the global superpower and proved that is the only viable method that promotes good of all. Globalization empowered with free trade is flattening the world and levelling the playing field for everyone as Thomas Friedman writes in his best selling novel "The World is Flat". And it is a good thing, for US consumers and the world market and for everyone. When rules of the game are fair, everyone can compete on equal ground, that is the essence of free trade. In free trade, everyone gains because of comparative cost advantage.

Newpage, a US company that produces coated paper for brochures, magazines and other publications seems to be defying laws of free trade to further its own interests. It has attempted to restrict foreign competition in paper industry to increase its profits. Capitalism does not restrict anyone from making profits but rules of the game have to be followed. No one can be allowed to act as robber barons of the past anymore. Lobbyists of Newpape have successfully won the battle for the company but whom has it benefitted? According to Paramendra Bhagat, this move has decreased Newpage's revenue and decreased availability of paper in domestic market. He writes,

The NewPage prices have gone up - as predicted - and NewPage revenues have gone down. That is a double whammy.

Now, this is a no-brainer. One wonders how can a company in the US be able to get a move as this one approved that increases price of the good for US consumer without any increase in quality. The argument used must have been about the need for protecting jobs for Americans. Without artificial restriction and keeping out foreign competition, Newpage could not compete in the market. But should US consumers suffer for their incompetency to compete? Protectionism does not work well in a globalized economy such as ours. Market should decide the fate of companies.

Newpage as a company has violated terms of free trade by lobbying against foreign competition. It has also done disservice to other companies that are following free trade principles and making best use of scarce resources. Newpage's website reads,

And our business decisions are made with the utmost care for the world around us.

Their business decision to restrict foreign competition in domestic market so that they can create artificial scarcities and then jack up prices and make enormous profits is unlawful. It certainly is not consistent with their principle of "taking care of the world around NewPage". When foreign competition is restricted, foreign companies would have to decrease their production and shed off workers. At the same time, US consumers would have to pay more to NewPage for printing. Paramendra has also noted that the decision to restrict foreign competition and pamper its domestic paper industry, NewPage in the name of foreign competition has negatively affected whole publishing industry as a whole. He writes,

NewPage has scored a temporary victory by curbing free trade in international paper, but NewPage has been one of the earliest victims, and it has brought down the publishing industry along with itself.

 In another article, he has also shown empirically how the decision to restrict foreign competition was bad not only for the NewPage company but also for other publishing industries and US consumers as a whole. His facts speak a story. They can be accessed from Coated Paper Stock.

Facts

• NewPage overall revenue was better in 2009 than 2010. Foreign coated paper left the US market in 2010.
• NewPage Core Paper Prices have increased $50 per ton.
• Paper supplies are now at an all time low.
• Even though they had better sales in 2010, their debt increased to a whopping $697 million.
  As NewPage net income increased foreign paper (specifically coated stock) was present in the market place. When NewPage net income went down foreign coated paper was no longer being imported. NewPage had better earnings and market share when there was foreign coated paper was present. It is better for NewPage if foreign coated is present in the US market.
• As the ability for printers to buy coated paper has decreased, NewPage raises their price when they have no competition.
• With NewPage’s anti-competitive tactics, they have removed much needed paper from the market leaving printers hurting from higher prices.
• As a result of greed, mismanagement and Cerberus’ business model of running up debt and shutting down mills. This is what happened to the NP Plant in Kimberly, WI.

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