It hits home

The first day that I was in Klaipeda, we visited a couple of different corporations.  Both were located in the Free Economic Zone that Lithuania established in order to attract Foreign Direct Investment.  The second tour that we took was of a multinational wiring corporation that makes electronic equipment for clients all over the world.  Their location here had one client: Renault (a French car company that is popular in Europe).  They have been making wiring harnesses for Renault since 1994 and at their peak, they employed over 4000 people.  The factory that we visited was very large--24,000 square meters and for the most part, the building was completely empty.  There were only a handful of workers putting together wiring sets, and the warehouse was, quite literally, empty.  They told us that beginning about 2 years ago, Renault began to cut their demand and this branch of the company cut their labor force by 3,800 people over the period of about a year.  Lithuanian labor laws are far more restrictive than American laws--companies are obligated to pay 5 months salary and benefits which added to the misery of the company.  The local unemployment rate has jumped from roughly 4% to well over 10%.

We were told that this was a lesson in "crisis management".  Our professors told us that last year when IBI visited the site, the place was full of workers busily preparing orders, and putting them into trucks for shipment.  The company desperately hopes to secure a contract from Volvo, which will preserve a very small portion of the company--about 200 workers.  But as of now, the plan is to sell whatever they can and shut down operations within the next year.

The experience of this company is hardly rare--plants close nearly every day somewhere in the world.  But seeing it really made the economic crisis real, even though we didn't get to meet any of the displaced workers.  We learn about the effects of monetary and fiscal policy in the classroom, but I had never seen anything quite like this before.