Sunday, November 9, 2008

Sending jobs overseas

Who sent American jobs overseas? We all did!
Robert A. Hall

The movement of some jobs overseas elicits loud complaints in election years. There are calls to rescind NAFTA, even though after it passed the number of jobs in both the US and Mexico increased. Economics is not a zero-sum game, as politicians would have you believe. The trick is to develop pro-growth policies, such as free trade, which increase the general wealth, even though some people get hurt, as jobs flow to where they can be most economically done.

But, who is really responsible for anti-growth policies that create the economics to make jobs move? George Bush? Guilty. Bill Clinton? Guilty. The Democrats in Congress? Guilty. The Republicans in Congress? Also guilty. Every president back to FDR? All Guilty. Me? Guilty.

Hey, hold on, pal! How can I be guilty? I don’t own a business, never moved a single job. I’ll explain my guilt, but first a simple lesson in economics. Every economically-rational business seeks to maximize revenue and minimize expenses. Even government agencies and non-profits, like the one I manage, try to increase revenue and reduce costs, though they are more subject to non-economic considerations. Businesses that don’t follow this iron law don’t ship jobs overseas. They simply go out of business, as consumers choose the products and services of businesses that act in accord with economic laws. Then the jobs don’t move, they disappear, meaning both the employees and the investors lose. And increasingly the investors who lose are not just rich folks, but you and I with our 401k plans. I seldom hear of unions demanding that their pension funds be invested in USA-only companies, regardless of income results.

Economically-rational consumers seek to obtain products and services of acceptable quality at the least cost. Which is why I have a Korean car and shirts from every third world country except Iraq.

Moving a company is expensive. But if costs have increased to the point where other companies are able to offer products at lower prices, a company has to choose between moving and closing. Bankruptcies seldom benefit workers or consumers.

These facts of economic life have always been true. Sen. John Edwards has lamented the pain caused by the closing of textile and furniture factories in North Caroline, to seek more favorable working conditions overseas. But no one in North Caroline cried for workers in Massachusetts when these same factories relocated in past decades from Lowell and Gardner in search of a more favorable economic environment in North Carolina.

What increases costs enough to cause a company to have to relocate? Wages and the cost of living are one factor, of course, though we can often compete with countries with lower wages, because we have higher productivity. Higher hourly wages can still mean lower labor costs per unit produced.

But, increasingly, well-intentioned government regulations also drive up costs—and drive out jobs. That’s where I’m guilty too.

As a Republican member of the Massachusetts state senate, I was known as a pro-business guy. But I also supported the state equal-rights amendment, and efforts to prohibit discrimination against gays in employment and housing. I’m proud of these stands. But I also recognize that their successful passage made the cost of doing business in Massachusetts a little bit higher.
Look at the wonderful things the government has done in the past few decades. The ADA was passed to help people with disabilities. The EPA was established to protect the environment. OSHA protects workers. The FMLA helps pregnant women and families. Title VII prohibits discrimination on the basis of race, religion, and gender. ADEA protects older works from discrimination. The Equal Pay Act protects women. USERRA protects veterans. And we could name a lot more at both the federal and state level.

These are all good things, intended to protect and help people. I’m not suggesting that we repeal any of them. They were passed with the best of intentions, and supported by presidents and legislators of both parties. None of these things alone drove jobs overseas. But each increased the cost of doing business and made a move overseas just that more necessary for some American companies. As Stanislaw Lem reportedly said, “No snowflake in an avalanche ever feels responsible.”

Protectionism doesn’t work in a global economy, as President Bush found out when he tried to pander to steel workers with import barriers on steel, and was forced to backtrack because of the economic damage it would have done. President Obama will discover the same thing when he tries to reward union contributions with higher trade barriers. The anti-globalization Luddites are having fun trashing cities and protesting trade, but in the end they will be as successful of those who fought the introduction of power machinery in 1811, because it destroyed jobs.

It would help, of course, if Americans were as interested in economic reality as in reality TV. Until then, we may expect candidates to continue to pander to their ignorance. And it would help if each time we asked government to do something good, which increased the cost of doing business, we realized we might be the snowflake that sent our job overseas.

In the meantime, I recommend everyone read "Basic Economics" by Dr. Thomas Sowell. You’ll know when politicians are pandering to you.

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