Serious question ... why does the American management of American companies send some jobs overseas?
Because labor is cheaper, and the US has the highest corporate income tax in the world...35%
“Serious question ... why does the American management of American companies send some jobs overseas?”
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Because American companies are wildly overtaxed and overregulated here in the US. The cost of doing business overseas is much, much less.
In turn, the high taxes and regulation have been put in place by politicians bought and paid for by the Ruling Elite who want to dissolve borders and exploit low-wage workers, who are for all intents and purposes slaves.
“Serious question ... why does the American management of American companies send some jobs overseas?”
This perspective may be helpful:
1) Pre 1970, most CEO’s came up through manufacturing or sales/marketing and understood product, production, and customers. They also worked with employees in the operations. They were producers, not beancounters. In the 1970’s the financial MBA’s and lawyers took over the executive suite. Their experience was not producing things or serving customers, it was analysis and financial manipulation. To the beancounter CEO, workers are an expense, not an asset. From their perspective eliminating people through outsourcing simplifies the management process. Cost reduction, not craftsmanship, creativity, and quality is the goal.
2) Well into the 1950’s US businesses and manufacturing were primarily local or regional in scope. CEO’s lived in the communities where the operations were located. Their children went to the same schools as the children of workers, their wives shopped in the same stores as the wives of workers, and their families worshipped in church alongside the families of workers. These corporate leaders were members of the community and personally invested in the success of the community. With the mergers and aggregation of business on a national and global scale, corporations emerged with headquarters in large metropolitan areas far distant from the operations of the company. CEO’s and executives were no longer invested in the workers and communities. A factory or field office became a simply a line on the profit and loss statement.
3) In the 19th and early 20th centuries, the purpose of the stock market and Wall Street was to provide a marketplace where companies could raise equity capital (i.e. exchange partial ownership in the company for large sums of money) to finance major corporate investments which would deliver income streams over decades (factories, railroad lines, aircraft, mining equipment, ships for example). Both investors and managers took a long range view with respect to the investment. In the 1980’s the speculators class took over Wall Street aided with technology facilitating trading by computer and the management of millions of transactions in a short period of time. Large pools of money from the pensions and savings of the middle class were managed by investment firms with a short term horizon. Investors buying and selling stocks were no longer interested in the payout of a factory over 30 years, they became focused on management’s ability to increase earnings quarter over quarter. As a result, executives became short term focused in decision making. In many instances the payoff was quick for offshoring production while the payoff for modernizing an older factory, or building a new factory domestically might take several years.
4) The lowering of tariffs and quotas through the free trade agreements of the 1990’s and 2000’s reduced the cost of imports by as much as 30% (the amount of the tariff). Most companies did not lower prices commensurate with the lower costs of production. Instead the elimination of tariffs resulted in higher profits which in turn resulted in higher increases in quarterly profits and higher stock prices.
5) Until about 1980, senior executive pay packages were much more modest than today and were heavily weighted toward salary plus a much smaller bonus. The pay incentive was to look at the long run prosperity of the company. In the 1980’s lucrative incentive stock options became major components of executive pay. By taking short term actions to boost profits (i.e. outsourcing jobs) the value of executive stock options increased exponentially. As a result, the focus of management shifted from long term growth of companies to short term cost reduction and financial engineering. Eliminating people from the payroll was a major contributor to cost reduction. Hence waves of corporate downsizing and consolidation in the 1990’s and 2000’s.
6) China targeted entire industries during the 1990’s offering incentives for US companies to move production to Chinese owned factories. Chinese factories involved in capturing foreign production received tax abatement and generous export rebates from the Chinese government. In addition, the Chinese government owned banks often fully subsidized the construction of new modern factories. A US executive in 1995, faced with the cost of modernizing or replacing a US factory built in 1965 to make US workers cost competitive would have to raise capital to finance the replacement at a cost of say 12% when the cost of capital in China was zero. In addition, the Chinese production would be effectively subsidized by the Chinese government through export rebates and tax abatement. In many instances the incentives were strong enough to shift the production to China, even if US workers were more productive and could be cost competitive with updated equipment.
7) Government regulation in the US was becoming more strict. In China the regulatory environment was very loose. In some industries, regulation can have a significant impact of cost.
8) Taxes. Foreign factories do not pay taxes to the US government. US factories are heavily taxed at the federal, state and local level. Often foreign factories are not taxed by their home government on profits earned through exporting.
9) Unions. High cost, and work rule restrictive collective bargaining agreements may have provided some incentive for jobs to be outsourced. However, it should be noted US corporations closed many factories in the southern US where wages were low and there were no union contracts.
To summarize there were many factors, all of which together made it easier for executives to send jobs overseas.
Fixing the problem is simple:
1) Exit the free trade agreements of the last 25 years. Slap a 30% tariff on all imported goods. Call this an access fee to the US market as well as an offset for the export subsidies of foreign governments.
2) Lower the US corporate tax rate to 0% on profits made by US factories producing goods made 100% from US sourced components and raw materials.
3) Real regulatory and tort reform. Have a 3 year sunset on all regulations. Require Congress to vote to extend regulations. Institute a “loser pays” rule for tort litigation. This will reduce frivolous lawsuits and shakedowns.
4) Education reform. Focus community colleges on vocational education. Create local training partnerships where community colleges provide skilled and certified workers for modern manufacturing.
5) Strict country of origin labeling requirements for all goods sold in the US. Make it easy for the consumer to determine where a product is made so she/he can make an informed purchase decision. The Chamber of Commerce should then promote “buy American”.
Very good question and I will try and give you an answer.
It began almost 30 years ago when the general opinion in the business community thought Japan was going to be the next financial superpower.
The feeling was to compete with Japan, the USA needed to reduce its cost of doing business by sending non-technical assembly overseas.
Japan then did the same thing moving much of its electronics/cars to Taiwan or South Korea.
Now it is taught at US business schools that the USA can’t make a profit building anything here.
The .com boom was taking the off shore manufacturing to the next level.
Lots of jobs and key managers originally from China/India/Taiwan began to actively hire ONLY people from their home country.
First it was friends/family but then it morphed into something much bigger.
You could easily see it.
A manager from India would give poor reviews to USA employees and then next open req cycle, suddenly he would have 10 new employees from India and none from the USA.
This is the BIG secret Apple, Intel, Microsoft and the rest refuse to look at. High tech companies are becoming LESS diverse and they are only hiring people on approved lists by managers from approved lists.