Sunday, February 05, 2012

(Former) American Manufacturing Jobs Cannot Be Cajoled Home

Wouldn't it be nice if American business would return what President Obama terms "American manufacturing jobs" back to America? Wouldn't it be great if the great labor arbitrage to China would suddenly abate?

The answer to both questions is "no."

In an excellent article reprinted in Reason magazine, Shikha Dalmia observes that "If American CEOs should make business decisions based on their nationality, then shouldn’t foreign CEOs as well? If they did, it wouldn’t work out too well for America. Foreign-owned companies employ close to 5.5 million Americans and generate about $3.1 trillion in economic value. Does Obama want their CEOs to fold their businesses up and return home to do their patriotic duty?" Doubtful.

Yet that is a truth worth consideration as is the inconvenient fact that it is not the Chinese worker who has taken the American manufacturing job, but rather, his job was more likely than not taken by a machine. Daimia notes that ". . . even though manufacturing employment has declined - America has lost roughly 6 million manufacturing jobs since the sector’s peak in the 1970s—manufacturing output has been going up. Indeed, total output today is 2.5 times its 1972 level in adjusted dollars. In 2010, America produced $1.8 trillion in goods (in 2005 dollars) — about $100 billion more than China, but with only about a tenth as many workers, thanks to automation and technological advances that have vastly increased American productivity. Goods that took 1,000 American workers to produce in 1950 now take 177. The choice for American companies, then, is not between American workers and Chinese workers, but between American machines and Chinese workers. Given how much more American workers cost in wages and benefits, U.S. companies that relocate to America would have to develop even more labor-saving technologies or watch the market for their products simply disappear."

Finally, the President's not so subtle threat to punitively tax American companies that open plants overseas will, if implemented, have serious unintended consequences. "The President pledged in his State of the Union to give tax breaks to multinationals that keep “American jobs” in America and to raise taxes on those that move them overseas—as if every job comes endowed by its creator with a domicile. But, far from protecting U.S. jobs, such protectionism will actually kill them by encouraging companies to outsource completely and move their headquarters overseas, especially since the U.S. already has the second-highest corporate tax rate in the world after Japan, which is set to lower its rate in April."

There may be answers to America's employment problem, but the President is looking in the wrong place to find them.

The article by Shikha Dalmia entitled "Obama's Flawed Case For Insourcing" is recommended and can be found here: