Last week, Carrier Corporation (an air conditioner manufacturer) announced that they would be moving their plant in Indiana (where about 1,400 people are employed) to Mexico. While many see this as an example of corporate greed that should be punished, I believe that it is a symptom of the pressures of a global 21st century economy and an indictment of the outdated regulation of business in the United States. In fact, I think there's an opportunity here to dig deeper into the driving factors behind this move and to consider what steps can be taken to alleviate the pressure that corporate America finds itself under today and prevent this kind of corporate flight in the future.
Now, before I go any further, let me say that anytime anyone is laid off this way, it's a tragedy; I found myself in a similar situation just recently, and let me tell you, it's no fun (to put it lightly). That said, there are three points I'd like to make in this post: Why this happened, what can be done to prevent more moves like it, and why I believe the "progressive" approach is mistaken.
First off, the story here is probably one that you've heard many times before: The cost of labor and regulation is the United States high very high, so to remain competitive, Corporation XYZ has decided to relocate operations to country ABC where regulation is almost non-existent and people work for a buck and a quarter. While this may be a tired line, it's still pretty accurate. In Carrier's case, the cost of labor included a minimum $23/hour base wage plus a comprehensive suite of benefits for every worker. That's a pretty high cost (especially the benefits), so when you consider that, by comparison, Mexican laborers will perform the same work for a quarter of the pay and a fraction of the benefits, it's a wonder that Carrier stayed in the United States as long as it did. In addition, when you note the costly regulation that manufacturers must follow in the U.S. (Worker benefits such as ObamaCare and various EPA rules), the capital expense of day-to-day business is extraordinarily high. These factors considered, the move makes perfect business sense.
So, what can be done? For starters, understand that generally speaking, businesses actually like to stay in America as opposed to moving abroad. In fact, the vast majority of businesses will elect to remain stateside even if it means absorbing a somewhat higher cost of operation. However, manufacturers in particular (like Carrier) are under an existential threat from global competition; for them, it's no longer about how good a "Made in the USA" sticker will look on the box of the product, but whether the company is going to survive another 5 years. That said, there are a few things that can be done to lower the cost of doing business in the United States.
First, lower the corporate tax rate. Right now, the base U.S. corporate tax rate is 35%, the highest in the developed world. This rate needs to be cut to 20%, which is closer to what other developed countries charge. Secondly, end double taxation. Currently, profits made by U.S. companies overseas are taxed there, and then taxed again (at 35%) when the capital is brought stateside; the net result is that companies keep profits offshore and invest over there rather than here. Instead, once revenue is taxed once, allow it to move across borders freely. Finally, curb the power of organized labor. In the past few decades, labor unions have grown very powerful and effective at forcing companies to award their members excessive benefits (usually through threat of strike or legal action). Instead, the entire country needs to be "Right-to-Work", making it illegal for unions to force company employees to join as a condition of their employment (as it is already in most states). This step alone will compel labor unions to bring their demands more in-line with real market value.
Finally, the progressive side of this discussion has their own ideas of how companies that move operations overseas should be treated. In a nutshell, they believe that companies who move operations offshore should be punished with fines, tariffs, and other sanctions. That threat, they reason, will keep companies from moving abroad and force them to stay in America. However, the fault in that logic is that no company wants to be kept prisoner by the government. If the government is willing to impose such harsh penalties on a company that relocates, what else would it be willing to do? Such targeting and corporate prosecution does not create an environment conducive to sustained economic prosperity and will instead accelerate the trend of corporate flight as more businesses will seek to escape such tyranny.
In addition, the imposition of tariffs or other protectionist penalties are likewise a folly, a relic of the 19th century. In a global, 21st century economy, protectionism may prevent short-term loss, but at the cost of long-term development. For an example of this, consider Japan: Once the leading figure in the technology sector in the post-World War 2 global economy, the Japan has suffered through consecutive decades of economic stagnation. Tentpoles of the Japanese economy like Sony, Sharp, Nintendo, and Panasonic are struggling to catch up to Korean, Chinese, and American competition and are losing cash and market share at an alarming rate. A major contributor to the economic situation these companies find themselves in are the very protectionist policies that they sought to have implemented; Japan imposes more penalties on imports than any other developed economy. As a result, Japanese corporations faced little domestic competition and in the absence of such, they failed to adapt to foreign competition. Companies like Microsoft, Apple, LG, Samsung, and Google are now selling more products in Japan than domestic companies, who are now playing a very difficult (and costly) game of catch-up. We don't want the same thing to happen in the United States.
In conclusion, the realities of competition in a global economy are putting pressure on U.S.-based companies to make tough decisions to remain viable. However, common sense steps can be taken help corporate America compete effectively in the 21st century without entertaining to the punitive approach of the progressive movement. The United States still is and can always be a great place to do business.
No comments:
Post a Comment