Shipping out jobs (A myth pols find convenient)

New York Post ^ | October 27, 2010 | DANIEL GRISWOLD

[expat_panama]

With campaign season comes predictable charges that Candidate X favors "tax breaks for corporations that ship US jobs overseas." It's a bogus claim.

With unemployment still stubbornly high, Americans are rightly worried about the economy. And politicians of both parties -- from President Obama on down -- have seized on US multinational companies as a convenient scapegoat.

The charge sounds logical: Under the US corporate tax code, US-based companies aren't taxed on profits that their affiliates abroad earn until those profits are returned here. Supposedly, this "tax break" gives firms an incentive to create jobs overseas rather than at home, so any candidate who doesn't want to impose higher taxes on those foreign operations is guilty of "shipping jobs overseas."

In fact, American companies have quite valid reasons beyond any tax advantage to establish overseas affiliates: That's how they reach foreign customers with US-branded goods and services.

Those affiliates allow US companies to sell services that can only be delivered where the customer lives (such as fast food and retail) or to customize their products, such as automobiles, to better reflect the taste of customers in foreign markets.

In 2008, US companies sold more than $6 trillion worth of goods and services through overseas affiliates -- three times what US companies exported from America. And, no, those affiliates aren't mainly "export platforms," set up to ship goods back to the United States: Almost 90 percent of what they produce abroad is sold abroad.

It's not about access to "cheap labor," either: More than three-quarters of outward US manufacturing investment goes to other rich, developed economies like Canada and the European Union. That's where they find the wealthy customers, skilled workers, open markets, efficient infrastructure and political stability to operate profitably.

[WVKayaker]

This doesn’t explain why I can’t find American made goods on the shelves at my local stores.

You must not live near or shop at WalMart. I find a plethora of MADE IN AMERICA labels at my local stores, and it isn't just foodstuffs. WalMart has ALWAYS placed American products on their shelves. Customers choose from the shelves. If the Chinese (or ANY foreign made) products are comparable, the customer will usually choose by PRICE.

I will buy anything from anybody, when it comes to my wallet. I'm off to Winchester in a little while, and will stop there after I visit Costco (the hundred dollar store). How about you?

... Or it's another sign of the gulf between cosmopolitans who benefit from globalization and blue-collar workers whose wages have gone steadily downhill because of competition from abroad. Some people appreciate the 24-hour customer service line, regardless of the accent of the person on the other end. Others are strictly "Buy American." Of course, sometimes the same person lost her job last week at the factory and this week shops at WalMart to save money by getting cheap shirts from Sri Lanka, cheap produce from Mexico, and cheap Halloween decorations from China. - John FefferCo-director of Foreign Policy In Focus

[cripplecreek]

I believe Washtenaw county has their own minimum wage now but I’m not sure what it is.

Its kinda funny really, Ann Arbor produces college kids who won’t work for less than a 6 figure starting wage and the factories in western Washtenaw county are full of people from Jackson county. The higher wages of Washtenaw county and the lower cost of living in Jackson county is why I now live in a little town near the county line.

[Non-Sequitur]

We used to make TVs in America. We used to make shoes. Now we don’t. There is some truth to the “myth”.

And where are those shoes and electronics being made? Not in Canada or the European Union. They're being made in China and Malaysia and other low-cost labor countries. Another truth to the 'myth'.

[jboot]

"This doesn’t explain why I can’t find American made goods on the shelves at my local stores."

That is because we don't make consumer goods here anymore, save for a few "boutique" products. Some folks think that is a fine thing, but it frankly scares me to death.

Every US warfighter is using IT hardware built in the People's Republic of China. There is no US vendor who could supply the same products to our warfighters. They are all gone. If the ChiComs ever throw the kill switch-yes, of course there is a kill switch in your son's platoon's Toughbook; you'd be delusional to believe otherwise-our forces will be at their mercy.

[Tallguy]

It’s not jobs so much as entire industries that have moved overseas. Taxes as well as the regulatory environment are the underlying reasons. Those are the jobs that you find moving to China & ‘underdeveloped countries’.

A corporate exec is looking at his bottom line. He can either:

A. Automate to increase productivity, or
B. Move offshore to find cheaper (less productive) labor.

Neither is ‘cheap’ or cost-free in the short-term.

[TopQuark]

Should we start competing with Malaysia on palm oil too?
More importantly, there are no American companies, to my knowledge, manufacturing TVs abroad.

[TopQuark]

", so when a furniture manufacturer closes their American operations and sets up shop in China, it’s not to avoid taxes or to find cheap labor?"

Not necessarily. If your furniture goes mostly to China, you save a ton on shipping by setting up shop there; it was a mistake to open it up here in the first place.

There are many factors that go into the decisions on location choice. Taxes and cost of labor are just two of them.

The true and strongest advantage we have always had but are rapidly losing is our institutions: an investment in America was safe from the government changes, rampaging mobs and extortion by local police. Under Obama, we are considered by many less politically stable than China.

In any event, it is too simplistic to think that oversees locations are chosen to avoid taxes and high salaries. That is what the leftists want you to think and anger you against "capitalists." Don't let them succeed.

[TopQuark]

"I found it particularly interesting that foreign corporations invested more in their US operations in a five year period than US companies invested overseas during the same time frame."

Very true. It's one of those truths in plain sight that remain unknown simply because the leftist scum does not want you to know what the world is really like (you will like it then, and not let them change it). Another telling statistic: 13% of all capital in the U.S. is British? What do you think will happen to these "insourced" jobs if we start putting breaks on "outsourcing?" Aaah, but they don't want us to think --- just to be angry with the "capitalists."

[TopQuark]

"This is not to say that there are no instances of communities suffering due to a company picking up stakes and moving out of the country; it happens all the time."

Does it occur to you that, when it happens, it may be the community's fault?

Also, why is it that you do not think about another community --- that of investors? They must have been suffering while the jobs were located here. Are their problems less of concern?

[TopQuark]

"the taxes in host countries tends to be cheaper so yes of course they are trying to avoid taxes."

Totally illogical. Consider this: "Winter temperatures in Canada are lower than in the U.S.; so, yes, manufactures moving to Canada are trying to avoid the warmer U.S. climate."

The trap you fall into is called spurious correlation. Look it up.

[andy58-in-nh]

While the author is entirely correct about the need for American companies to serve new global marketplaces through foreign production centers, he purposely ignores the effects of labor arbitrage, which has been used by corporations (both domestic and foreign) to produce more competitively-priced goods for American consumption.

High relative American labor costs are a primary driver in the decision to locate jobs abroad, but it is not the only reason. High corporate income taxes, incomprehensible and complex regulations, restrictive union work rules, government monopolies on functions that the private sector could easily assume, legal expenses and economic uncertainty also play a role, as does an absence of qualified technical workers in the U.S.

As a consequence, our economy has grown increasingly dependent on the service and information sectors, where jobs tend to be lower paid and less stable than the manufacturing jobs we have abandoned over time.

The larger problem, I believe is one that is invisible: the absence of new dynamic industries that were never created, severely curtailed or ultimately located abroad because of the aforementioned costs of doing business in America. Hence: lower demand for domestic labor, shrunken consumer markets, educational needs both uncreated and unfulfilled, lower wages and a greatly reduced wealth multiplier effect.

I do believe that Americans would be willing to pay higher prices for a wide array of goods currently produced in places like China, but that opportunity will never materialize as long as we continue to treat business alternately, as a necessary evil, and a cash cow to be milked dry by politicians eager to buy votes with others' money and to create dependency in place of self-sufficiency.

[-YYZ-]

“Hey, we used to make TVs in America with large glass tubes. Now we don’t. Neither does anyone else.”

I got one of the last ones - a Panasonic 34” widescreen CRT - before they shut down the plant in the US. The plant had only been open for a couple of years before they shut it down - apparently Panasonic didn’t forsee how quickly the price of flat panels was going to come down and gut the market for CRTs.

[TopQuark]

" step is to move the corporate headquarters out of the US."

Just an illustration of what you said. Since 1979, Kulicke and Sofa is one of the major players in the semiconductor equipment business. It just announced the appointment of a new CEO following the retirement of Mr. Kulicke, the last of the two founders. In passing, they also mentioned that headquarters will be moved from Pennsylvania to Singapore: most of the customers are there, and this will make the company more agile. But it is also true that the companies are trying to escape the overreaching and instability of the U.S. government.

[BfloGuy]

This doesn’t explain why I can’t find American made goods on the shelves at my local stores.

The explanation is that the American dollar is overvalued and has been since Nixon took us off the last vestige of the gold standard. The result has been to make foreign goods cheaper here and American goods too expensive to compete.

Taxes, union benefits and onerous regulations certainly contribute, but its the Federal Reserve's monetary policy (with, of course, the willing complicity of presidents and the congress) that has hollowed out our manufacturing.

This is why Bernanke and Obama have embarked on a desperate ploy to lower the value of the dollar. They're going about it in the wrong way -- printing new ones to make the old ones worthless.

The correct method would be to stop inflating and to stop playing with interest rates. A stable dollar and interest rates that reflected the true scarcity of capital would gradually allow us to discover our real comparative advantage and to stop jumping through the financiers' hoops.

It isn't destiny that we "progress" into a service economy -- look at Germany. We have only ourselves to blame for having allowed Washington to fiddle with our money according to the latest academic fad.

[TopQuark]

“we seem to be finding less need for “workers”.

Not at all. We find less need for low-skilled workers. There is a huge shortage of workers -— highly skilled ones -— in the U.S. It is somewhat filled by H1B program, but that is a drop in the bucket.

[BfloGuy]

I do believe that Americans would be willing to pay higher prices for a wide array of goods currently produced in places like China

I do believe you're wrong -- and why should we?

[muawiyah]

Amazingly the shelves are crammed with plenty of American made goods, but the standards for labeling refer to "assembly" ~ so those goods made here, or by American companies abroad, get shipped to China for assembly and repackaging, and then you think all of it is made in China.

It's actually far more complex than that, but the label on the box doesn't really tell the story.

[nascarnation]

My Sony was assembled in Mexico, I bought it thru Amazon (avoiding 90 bucks in sales tax) and was delivered by the FedEx guy.

[TopQuark]

Thank you for your post. Yours is a rare voice of sanity on this forum, were great many supposed conservatives aspire to socialist notions.
Your last remark has also caught my attention. For the last couple of years I fear the same thing: the more rapidly the country moves towards socialism, the more it is perceived, correctly, as unstable. Stability is the main reason the world is buying our Treasury bonds. If they stop doing that, our spoiled consumers will not know what hit them. And they will be angry, as intended, at the “capitalists.” I hope the first steps in this direction we have already taken do not become a downward spiral.

[Cringing Negativism Network]

So outsourcing and our massive trade deficit are “myths”.

M’kay...