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By Phil Brennan: Trustee of the Lincoln Heritage Institute and Editor of Wednesday
on the Web
A friend stopped me the other day and asked me why I haven't written about the "outsourcing" of jobs - the PC way of saying jobs previously held by Americans have been sent to all sorts of exotic places where worker's weekly salaries would buy you nothing more than a couple of Big Macs in the U.S.
On the face of it, shipping somebody's job off to India or China or Katmandu to save money looks like an unforgivable offense against human decency - the kind of sin that should be punished by scourging of the greedy capitalists responsible for stripping our fellow Americans of their livelihoods just to save a few bucks.
But it's not that simple. What we are going through at the moment is a re-play of the kind of consequences the civilized world endured as a result of the industrial revolution, and in revolutions people get hurt. If you doubt that, ask the descendents of any of those thousands of people involved in the carriage trade who were displaced by the advent of the automobile if their forbears were hurt in the transition from power supplied by horses to horsepower supplied by cars.
The current upheaval is what is known by friend and foe alike as economic globalization, and like it or not it is inevitable - it's happening and we cannot stop it. But we have to learn to deal with it in a way that minimizes the damage it causes here at home. If we can't stop outsourcing we simply have to take care of those victimized in the process. We have no choice - they are after all, our fellow Americans.
Writing in the February 1st edition of the New York Times, Daniel Akst says that although "everyone seems worried about an exodus of high-skill jobs from the United States to third-world countries," those fears "are probably misplaced."
He explains that while it is true that some jobs are moving overseas, "the American economy will generate many more at home. And a lot of the jobs that go overseas will be more in the nature of 4 a.m. technical support for personal computers. Americans benefit from that, too. The savings from that phone center in India are built into your new $350 PC.
"There is no great shortage of jobs in this country anyway," he insists.
"Unemployment is at a level that, a generation ago, would have been considered hard to achieve without significant inflation. Immigrants continue to pour in, and to find work. Well-educated Americans will do just fine; foreigners are so confident in our economy that it is the beneficiary of huge capital inflows."
One argument advanced to explain why the U.S. Widget Corporation moved their widget making operations abroad is the effect of costs and restrictions on operations conducted in the U.S. as opposed to those overseas. If economic and government policy realities render the company uncompetitive and threaten its survival it has only two choices - go under or go elsewhere. If it goes under all of its employees are jobless, their stockholders lose their investment and the workers whose 401Ks are invested in the company lose a share of their investments.
Writing in the current issue of the American Spectator, economist Brian S. Wesbury reports that research by the National Association of Manufacturers (NAM) revealed that the extra costs for "corporate tax rates, employee benefits, tort litigation, regulatory compliance and energy" amount to a staggering 22 percent of the price of production.
He quotes NAM President Jerry Jasinowski as saying that these costs "are twice the size of the average direct labor costs of U.S. manufacturers." Thus, it's not the cost of labor that's the problem - it's all those add ons.
It is essential, Wesbury insists that "Washington understand the burdens of taxation, regulation and litigation undermine the ability of U.S. companies to compete." If consumers can buy foreign-made widgets for 22 percent less that they'd have to pay to buy widgets made in the U.S. they are going to go for the bargain. The next time you go to Wal-Mart take a look at where many of the products originated. They were made overseas and sell for far less than they would have had they been made here at home. In every case, the hands that make them were Chinese or Malaysian or Indian or some other offshore hands and they represented some lost American jobs.
This is the reality and it has to be dealt with. The question is how, and there are many answers and, unfortunately, some are worse then the problem they are aimed at. There is, for example, the history of the Luddite movement. According to Wesbury, faced with the advent of knitting machines, followers of one Ned Ludd simply destroyed the machines that were replacing their hand labor. The machines, which rendered knit goods cheaper than hand-made goods thereby supplying them at lower costs, won the battle, just as the automobile ran over the horse drawn carriage.
The real dilemma here is the politiization of the problem, which lends itself to the most destructive kind of demagoguery. The almost automatic response to the problem of American jobs lost to offshore entities is to level the playing field by imposing tariffs that would in effect destroy the low price advantage enjoyed by foreign producers. The first and obvious victim is the U.S. consumer who is going to be deprived of the lower cost goods that would otherwise be available. That shirt made in Taiwan and priced 22 percent lower than the U.S. made counterpart would, thanks to a tariff, now cost the same as the American made shirt.
Centuries ago, Catholics going to confession were, as now, given penance to perform. In those days it was not called penance - the punishment was called a "tariff." Tariffs may benefit some workers, but they punish all consumers. Check out the effect of President Bush's recent imposition of tariffs on imported steel - a lot of U.S. consumers of steel were severely punished and the President was forced to repeal the tariff.
As Wesbury noted, the main reason why American workers are losing jobs to foreign producers are the extra costs imposed on American companies by taxation, government regulations, and nearly out-of-control litigation. If the problem is to be solved a first step has to be to make U.S. products competitive with foreign made products by modifying to the greatest possible extent the level of taxation of industry, getting rid of all the unnecessary regulations such as those imposed on the grounds of junk science and socialist-inspired radical environmentalism, and enacting real tort reform that reins in the excesses of greed-driven trial lawyers, especially in their use of class action lawsuits that enrich them, as typified by the lawsuits against the Tobacco industry that made them huge fortunes.
The advocates of economic globalism aim at leveling the playing field in a way far different than the tactic of imposition of tariffs. Briefly put, they believe by internationalizing the world economy through creation of jobs all over the globe they can create vast new markets for American goods - in other words a rising tide lifts all the craft afloat. They salivate over the prospect of exploiting the vast untapped Chinese market with its hundreds of millions of potential consumers, and insist that by creating new industries and the jobs and salaries that go with them, they will enable Chinese consumers to flock to stores to buy our products.
That may be, but in the meantime creating all those new Chinese jobs is depriving some American workers of their own jobs.
So we're back to square one. What's to be done to soften the blow aimed at Americans by the realities of a global economy.
Avoiding that blow is impossible. But Wesbury has a few common-sense answers that are worth looking at. He sees the reemployment accounts proposed by the Bush administration as "a fabulous idea" and explains that "by giving the unemployed worker a lump sum that would allow individuals the freedom to move or go back to school." The current alternative of paying a weekly stipend [unemployment insurance], he writes, encourages static behavior. He doesn't add that those payments can't go on forever. It's something like giving seed to starving people to grow crops that will provide food for them and then being eaten rather than planted.
He cites France as an example of where the failure of the "static ideal of a 1960s-style social welfare state still exists" The unemployment rate there is 9.6 percent he notes, and adds that "despite the burdens outlined by the NAM, the unemployment rate is below 6 percent."
What else can be done? Wesbury suggests that:
- The Bush tax cuts must be extended now and not be allowed to unwind in 2010.
- The alternative Minimum Tax must be fixed now before it swallows millions of taxpayers.
- Corporate tax rates which are still too high must be lowered.
And, he adds, "None of the Democratic presidential candidates seem to understand this and following their prescriptions would be a disaster." He concludes "We need more freedom, not less. A dynamic economy can withstand any storm."
As for the Democrats, like the French whose anti-war-against-terrorism they so admire, they are stuck in "the static ideal of a 1960s-style social-welfare state."
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