A Jobless Recovery or The Road to Long Term Growth and Prosperity
By Kevin Fobbs
March 17, 2004

The common mantra being heard among Democrat candidates for president this election season is "outsourcing" which encompasses service jobs moving overseas to India and the loss of manufacturing jobs to Mexico and China.

The presumptive Democrat nominee for president proclaims, "Benedict Arnold companies and CEOs" of exporting American jobs.

From a recent Op-Ed in the Wall Street Journal: "If the Democrats really want to call free-traders immoral, perhaps we should look at the rights and wrongs of employment in America. A National Association of Manufacturers study two months ago found that the primary competitive challenge facing manufacturers was not competition from cheaper foreign workers, but the extra cost of doing business in the U.S. The costs contributing to the loss of jobs were high corporate tax rates, mandated employee benefits, tort litigation, regulatory compliance, and energy." -Wall Street Journal-2-26-04.

There are those, including the governor of Michigan who recently advocated on national television a desire to hold other countries to the same obstructions and regulations that are, to a large degree, causing corporations to flee to other countries. As cited in the Wall Street Journal article:

"This year the two Democrats argue that trade pacts that don't require other countries to adopt First World labor and environment standards either force the U.S. to lower its standards, as Mr. Edwards claims, or create an unlevel playing field on which American workers cannot compete, as Mr. Kerry says. Both want to close tax "loopholes" that supposedly encourage companies to move jobs overseas."

Who's right in this argument? What is the true job creation reality, forecast and solution? One side is leaning toward protectionism, the other accused of being unilateralist, and costing Americans jobs.

Also of concern are statistics cited in financial circles of the softness in the job creation market in creating permanent jobs. A large percentage of the jobs created in the last year have been in the temporary market. Some detractors in the financial market claim President Bush's own incentives may have added to that problem with his tax credit incentives that allow companies to invest in new equipment rather than new employees. But that makes sense because employers typically upgrade equipment needs first because they are one time costs and improve production efficiency in the short and long term, than move to adding more permanent employees.

What does this all mean? Well, for starters it means that companies are investing in equipment and personnel. What it doesn't mean is that the recovery has translated into an expansion of permanent positions.

Another important statistic affecting Michigan and other industrial states is the loss of manufacturing jobs. An encouraging development over the last month was the new willingness of the UAW to take concessions with American Axle to keep jobs in the state. Finally, the dawn is breaking and a new day is born. It's no surprise to union officials in this state and others across the North, that more and more car companies are moving their plants to Right to Work states in the South to stem the tide of their overburdening costs. The economic numbers in the South are far better for manufacturing than they are in our neck of the woods. It's time to reassess and it looks like the UAW with their ever dwindling enrollment, is finally getting it.

But what is the big picture? The big picture, is that we're climbing out of the hole business was in during the dotcom boom where companies over-hired, overspent and overextended. It also means that with productivity at an all time high, we have finally learned to do more with less and are being cautious. These components translate into a steady, long term growth economy with major global trade components that will continue to benefit our own picture here in America in very short order.

When we do realize serious permanent job growth, it will be long lasting and real. It will not be on the whim and a prayer of big profits based on no real earnings.

Another aspect left unsaid about all this is the benefit to American workers and consumers by our free trade policies. Our DVD players have dropped from $500 to $150 in three years, HDTV televisions costs were out of sight just two years ago, and now are priced at less than $2000.00, or the readily available produce, no longer seasonal, but available every month of the year, Asparagus, anyone? Not to mention the fact we are now exporting millions of dollars of goods to other countries. We make BMW's here that are exported to Germany, our California wine goes to France and we are selling computer chips to Japan. Who would've have thought that after the 80s when Japan was buying up 5th Avenue in New York and outselling us with their automobiles?

Another fact missed by the protectionists is that many of the companies in India, for example, are largely owned by American investors or corporations, and are using American technology and equipment that we are exporting and saving us money in the product or services, they provide.

Large corporations today are buckling under the weight of an ever-growing bureaucracy created by our legislators, both state and national. Fear over needless litigation has created a plethora of rules and regulations by corporations to forestall frivolous lawsuits, which are overwhelming their legal departments.

Environmental activists have also contributed to the rising cost of doing business in this country. While some of their actions have had merit and have improved certain environmental conditions, many more have been over the top and have become costly boondoggles for companies to adhere to and provide little benefit to the environment.

We certainly don't need more over burdensome rules, regulations, paperwork, lawsuits, and tax hikes for those companies we seek to work for. And we certainly don't need to extend those same burdens to companies in other countries.

Large corporations are also the favorite whipping boy for taxes big and small. Add it all up and it equals a bottom line struggling to stay above the red line.

Is it possible that but for all these over-burdensome requirements, more companies would choose to stay in America? We won't know until we try but in the meantime, we should never go back to the protectionist ideologies being advocated by those who seek the current president's job. A lesson learned by our friend, Israel, is very instructive in what we should not do.

As reported by The Institute for Advance Strategic and Political Studies (IASPS.org), Israel consumers and businesses have suffered economically employing protectionist policies. In 2002, they published an in-depth study by Moria Katz wherein this article on IASPS.org was gleaned; they cite the same Wall Street Journal article we cite above:

"The purpose of the Israeli policies analyzed by Katz was the same "moral" purpose of this year's Democratic protectionists: to save local jobs, enhance local industry, prevent the closing of local plants, and so forth. In Israel, the means to achieve these ends included and include tariffs, taxes, regulations, standards, prohibitions on imports and state subsidies to local industry.

What were the results of protectionism in Israel? According to Katz, Israeli consumers were asked by the government to pay 7 percent more for their furniture in order to protect the local plywood factories. Figuring in all the actual and planned state protection for plywood, almost 40 percent of the cost of imported plywood was state imposed. Every percent increase in the cost of furniture was estimated to cost 70 Israeli jobs as consumers bought less furniture. Ironically, the plywood factories being protected and subsidized employed 310 people; that is less than the number who probably lost their jobs as a result of the protection; and in any case, since the local factories could not compete in the long run, and were living off their taxpayer subsidies, they ended up bankrupt.

Similarly, Katz quotes a study showing that locally produced sneakers cost almost twice as much as imported ones; the government at one point banned imports to protect the local industry. .

As WSJ notes concerning the U.S., In Israel, too, high corporate tax rates apply, as well as mandated employee benefits, and an incredible amount of state regulation of every industry in the country. Israeli CEOs are now sending jobs to Jordan, Hungary and elsewhere, sending corporate headquarters to Delaware, sending themselves to California.

The current Finance Minister, Bibi Netanyahu, is the first to act to counter these trends; he has slashed tariffs, cut VAT, and recognizes the need to reduce the corporate income tax.

It is too early to say whether he will succeed; but it is not too early to see that Israelis overpaid for housing, clothing, banking, cars, energy, and everything else as a result of protectionism, and the result was a country of noncompetitive industry kept alive only by the protection and taxpayer handouts, and people who could not afford to make local purchases unless they too were supported by taxpayer handouts."

A very instructive lesson. The bottom line in all this is that we are a leaner and more productive nation that has endured many challenges over the last three years. We are benefiting from free trade policies and creating new trade partners for our exports every day.

We are coming out the other side, of the dotcom bust, a shallow recession, the worst attack this country has ever seen, and corporate malfeasance to be a stronger, leaner, and more productive nation.

At 5.6% unemployment, we are not there yet, but with the historical skill, determination, and entrepreneur spirit this country was founded on, we'll get there, sooner rather than later, safer, stronger, and on a much more even keel than the dotcom boom of the nineties.

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Note -- The opinions expressed in this column are those of the author and do not necessarily reflect the opinions, views, and/or philosophy of GOPUSA.