Offshore Splinters, Domestic Planks

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If domestic job woes are India and China's fault, Radley Balko muses at National Review Online, isn't it funny that the states rated as least friendly to business by CEOs are having the most trouble?

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  1. Well simply because they claim that they are the “least friendly,” does not mean that this is actually the case.

  2. Union bosses are not interested in empirical evidence.
    They want JOBS.
    When do they want them?
    NOW!

  3. Why work with the actual numbers of jobs lost or gained, rather than gains or losses relative to the job base of the state as a whole? Would the results be different? This method exaggerates the importance of small relative gains or losses in big states.

  4. As an automotive engineer working in Michigan, the perspective we have is it is largely related to foreign competition. US car companies are bleeding so bad from incentives that if we can save a buck or two by buying parts from China or doing design in India, that’s what we are doing. However some things still don’t make a lot of sense with this scenario. For example, the ‘foreign’ competition (now known as the ‘new domestics’ since they have plants and engineering here) continue to increase their presense in the US, in terms of more plants, more engineering, and more local part production. Now, even the Koreans are coming – in addition to a North American assembly plant, they are building an engineering center in the Ann Arbor area here in Michigan.

    I’m sure the Japanese and Korean car makers get their fair share of cheap parts and low cost tech services from the (farther) east, but we have even seen some ‘commodity’ type parts get sourced locally by these companies. Obviously the gross comparison of wages and prices accross borders can’t be the only factor.

  5. Whether measured in absolute or relative terms, the revealed fact is that state involvement adds cost and reduces employment. The mechanism is the same between States as between countries, although more complex as more borders are crossed. Extending a failed policy from the State to national level is likely to have the same unhappy outcome, but sounds much better in a time of Patriotism. There’s more Presidential election advantage in decrying a corporation moving from Boston to Bermuda than Buffalo to Birmingham.

    Individual States play different sides, too. Massachusetts and Ohio offer benefits to workers from the pockets of employers, while South Dakota and Texas offer benefits to to employers from the pockets of all taxpayers. The politics of each State affect its ability to retain and attract these high-political-value manufacturing jobs. Nationally, the extension of corporate welfare has not been promoted. It is difficult for a Presidential candidate to promise a new factory to a specific district, a standard tactic of Congresspeople everywhere.

  6. CEOs — “Keep Shrugging!”

  7. If the US is such a bad business environment, then why are Japanese and Korean car manufacturers moving INTO the US? Why are US car manufacturers unable to compete with these “new domestic” companies even when playing by the same rules on the same soil?? 🙂

  8. Wait a minute, could NRO be FUDGING ITS FACTS? MMMMMMmmmmaybe.

    Is Mr. Balko aware that there are diffences between Ohio’s economy and Nevada’s economy other than anti-collective bargaining laws? Perhaps he’d like to buy my magic tiger repelling rock.

    How about this gem? “Virginia made a big push in the late 1990s to attract tech firms to its D.C. suburbs and the Dulles corridor.” THAT little nugget must fill the free marketeer’s heart with joy.

    Let’s put these two quotes next to each other and see what they add up to: “Alaska lost only 900 manufacturing jobs over those same four years, which is likely due in large part to its population.” and “According to figures from the Bureau of Labor Statistics, the states of New Jersey, Pennsylvania, Illinois, and Massachusetts also rank near the bottom, particularly when you take jobs as a percentage of the population.”

    And is it just me, or does the complete absence of comparitive unemployment data seem a little fishy to anyone else?

    Lies, damned lies, and…

  9. …state interference.

  10. joe, I tend to think you’re overanalyzing.
    Cato wouldn’t allow this sort of study to be too sloppy after all. Maybe your quibbles are editorial embellishments of National Review.

    No, the simple point is that they don’t call my governor Boob Taft (Ohio) for nothing.

  11. Yes- you must trust the nice think-tank man…

  12. Swamp Justice,
    I might be mistaken, but I think the biggest reason the Japanese started moving their manufacturing to the US is “voluntary” quotas that they assumed would become compulsory if they failed to meet them. It is a lot harder to rail against Toyota and Honda stealing American jobs when your neigbors are making $25/hr at their plants.

    Further, just because our business climate is bad doesn’t mean the climate in other countries isn’t worse. The US at least has the advantage of political stability (Does it really matter whether Bush or Kerry wins the next Presidential election?) and relative security of private property – big pluses when one is spending hundreds of millions on a car plant or paper mill. However, not all manufacturing is so capital intensive.

  13. Sir Real, even the nasty Ruthless worships at the feet of the Cato Inst.

  14. I didn’t notice that the ranking of business-unfriendliness was based on the subjective repsonses of CEOs about their state. Apparently, Massachusetts has a very bad business climate. We also have the worst snow, the worst traffic, the most polluted harbor, the worst drivers, and the crummiest neighborhoods.

    Just ask us. We’ll tell you.

  15. RE: Foreign car makers in US – there is something to Kent’s point. In fact there is still a stiff tariff on foreign pickup trucks – a fact that is promoting Toyota to build plants here to produce them. Worldwide, most pickup truck production by Asian makers is done out of Thailand now. However, Toyota in particular, one of the world’s most successful car companies, has a philosophy of setting up shop in local markets around the world. They are doing this in Europe and China too. There may just be a certain amount of smart business sense in making yourself part of the local marketplace since every country has a certain national pride. I don’t think it is any coincidence that Toyota’s newest truck plant will be in Texas, probably the biggest local market for pickup trucks.

    One advantage that many foreign owned makers have is that they are not currently burdened by huge ‘legacy’ payments that are associated with too-generous retirement benefits that the US car makers have been giving out. GM, for example, has 2.5 workers retired for every worker still working. It costs, on average, $1500 per car to pay for employee health care (retired and current). It has even been joked that GM is a health care system financed by car sales.

    The reason we are in this situation is complex. It has been pointed out that many foreign companies do benefit from socialized medicine and pensions, at least in the sense that the costs are spread out throughout society instead of concentrated on a few larger employers. However I think the main reason is the same reason we are having trouble with social security now, in that when all of these things were put into place many years ago, no one expected people to live for 20 and 30 or more years after retiring. Many workers now live longer retired than they actually worked. The government has played a role in this by encouraging pensions and enacting laws which strengthen labor unions, who have typically resisted any attempts to diminish benefits or pass some of the costs on to workers.

  16. Is anyone else troubled by all the sudden talk about “creating jobs” and “losing jobs”? I’ve never (until this year’s political season) heard these terms before; for thirty years, the critical stat has always been the “unemployment rate” (i.e., what percentage of eligible workers are actually working?), which is at the moment down significantly from two years ago.

    Say, could this in fact be the reason we’re now hearing about “job creation” instead of unemployment rate? Because the unemployment picture looks pretty good, we have to focus on “job creation” to make Bush look bad.

    And ANOTHER thing. Why is it the government’s business to “create jobs” in the first place? As the beloved Friedman has said, if we just want more jobs, why doesn’t the government simply hire 500 people to dig a ditch and then hire 500 more people to fill the ditch up again.

  17. The government creates government jobs and fucks with private jobs.

  18. Paul,
    Another thing they always mention is the loss of manufacturing jobs without mentioning the output of manufactured goods. Admittedly, it is impossible to compare quantities of many manufactured goods over different periods because the products change. But shouldn’t we be more concerned with how much stuff is made than how many people it takes to make it. All we have to do to increase manufacturing jobs is require that everything be handmade and forbid all imports. I wouldn’t want to live in that world, though. Wouldn’t it be wonderful if one person could make everything we need and the rest of us could work as ski instructors, lifeguards, or whatever one’s dream job is? Of course, we would probably have to pay the guy making everything pretty well.

  19. I live in a manufacturing town that has two papers (a daily and a weekly) that are very anti-business. A columnist for the daily thinks that outsourcing ought to be punished by politicians and the weekly is communist (in it’s analysis if not officially) all the way.

    Both of these parpers hate boosterism and any thing that smacks of “letting business get away with policy x”. Of course over the years major manufacturers are leaving town and our biggest firm (aerospace) is moving a piece at a time to friendlier places (Colorado, Puerto Rico).

    And yet they call for more taxes and new punishments. And then they piss and moan that the city is dying. Their attitude is “we called for strangulation of business, we got it, and now the dummies are dying or leaving. There ought to be a law.” Evidently there is a law. It just so happens they haven’t heard of it. It is the law of supply and demand.

  20. M. Simon,
    I was born in a town the main employers of which were a steel plant and a tire plant, both union of course. No one wants to hire laid off employees from the tire plant because of the prevalent entitlement attitude and the inflated pay expectations. When the steel plant closed a few years ago, many employees vandalized the place and made it all the more likely it will never be reopened. When I visit my home and hear politicians promoting “Alabama values”, I wonder to which Alabamans’ values they are referring.

  21. joe: Massachusetts is at least one statistic short of Dystopia. New Orleans has more murders than anywhere in the U.S. We’re working to get businesses to overlook that by funneling tax dollars their way.

  22. “One advantage that many foreign owned makers have is that they are not currently burdened by huge ‘legacy’ payments that are associated with too-generous retirement benefits that the US car makers have been giving out.”

    Actually I think that is a big problem in Japan itself, where many of the workers who worked for the auto companies back in their boom years of the 70s and 80s have lately been coming of age for retirement. How that affects their decisions to locate plants outside Japan, I have no idea.

  23. “The government creates government jobs and fucks with private jobs.”

    Critic, you make it sound too cut and dried.

    Government does liposuction of “hard working people” on one end, and on the other, is like a rookie fireman with the hose out of control.

  24. Mark Fox – Note, I didn’t say anything about legislation or protection. I think that the free market/protectionism dichotomy is a false one, i.e. whomever has reservations about what is currently known as “free trade” has to be a protectionist by default.

    Having said that, someone needs to convince me that unregulated trade between a relatively more coerced economy and a relatively less coerced economy can be considered “free,” particularly with regard to each economy’s labor markets.

    What I mean is, if our labor rates are held artificially high by political fiat, as they arguably are, and China’s labor rates are held artificially low, as they CERTAINLY are, any transactional efficiency based on the differential in cost or price of labor is illusory from a purely economic point of view. It would seem to me that some sort of agreed upon framework to EQUALIZE that differential one way or the other would make businesses in each country MORE free to enact good economic decisions rather than less so.

    I am also less sanguine than you seem to be about management and stockholders’ ability to take these things into account. We seem to have had a rash of short-sighted, tragic and criminal decisions by upper management and stock manipulators of late in favor of short term paper profit as over against the creation of actual value.

    We need to remember that Wall Street is not industry, and that paper profits do not necessarily reflect any genuine creation of wealth. If that were true, then the government truly could pay its bills by printing money.

  25. Jeff Clothier,

    Naturally I agree that the less government interferes with the market, the more free the market is. Still, I don’t see how regulating trade rights any wrongs. Rather it is just an additional wrong, and you know what they say about that!

    As for your recommendations for CEO’s, you should tell THEM what they’re doing wrong, not us. 🙂

  26. “It has even been joked that GM is a health care system financed by car sales.”

    I’ve heard Ford described as an extremely profitable bank with a money-losing auto subsidiary.

  27. Actually, fyodor, I do just that. I have worked in corporate communications, and frequently act as liason between upper management and employees. Sometimes that’s an uncomfortable place to be. I often find myself pushing back against corporate misfeasance of all kinds. Greed and stupidity will out, after all.

    I do understand the Libertarian distaste for any rules whatsoever, but in the current scheme of things, the U.S. is virtually disarming itself entering into so-called “free trade,” particularly trade in labor, with nations to whom freedom is not a bedrock value. I find that ironic in the extreme. The analogy that comes to mind would be if the Libertarian Party merged with the Greens for the simple expedient of gaining more members, thus abrogating its own basic values.

  28. The premise of this discussion’s header bugs me. I, for one, certainly don’t blame China and India, or any other impoverished country from trying to attract our capital, manufacturing and service enterprises.

    I do, however, blame corporations and their CEOs who don’t take into account that the short-term efficiencies they may get from locating in essentially command economies such as mainland China may disappear as those countries liberalize politically. As a stockholder, I’d be concerned about my company locating in politically unstable and terror-ridden regions like the Subcontinent. I’d also be concerned with PR nightmares like Nike went through several years ago regarding slave and child labor.

    In short, I am not convinced that the kind of ourshoring we are seeing today is truly efficient at all.

  29. With regard to productivity, numbers suggesting that productivity has climbed steadily over the past decade or so simply don’t tell us much with regard to cause. It is not enough to say we are more productive without delving into the reasons why.

    Technology is certainly key, but as far as output per person, is it a result of people being incentivized to work harder, smarter, etc.? How much of that productivity growth is due to management simply deciding they must have X output from Y people, cutting staff and doubling the burden of the remainder, who desperately try to hang on to their position out of fear despite productivity LOSS in other aspects of their lives?

    This last is very apparent in local manufacturing here in Iowa, where meat processors have doubled and tripled the speed of their lines, cut veteran staff and replaced them with illegal aliens who are, in management’s view, expendable and interchangeable parts. In manufacturing, rates of injury, staff turnover and the use of undocumented labor ought to be figured into the efficiency/productivity equation.

  30. Jeff: Your concerns seem valid. They are best adressed by management and shareholders, who we must assume are best-informed about their particular cases. To legislate protection limits management’s ability to achieve its goals, whatever they may be.

    Long-thinking managers can hedge against public backlash and maintain a reserve for re-shoring when foreign costs make homesourcing the more effeicient option.

  31. Enough said. http://www.bringithome.us

    Stop sending our jobs overseas.

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