By John F. Di Leo -
How would you react to the following news stories?
“Former Shoppers Fined $5,000 for No Longer Frequenting Nearby Mall”
Residents of Anytown, USA were surprised to receive invoices in the mail from their local county government Friday. The county identified people who used to shop in the local mall but, due to reports of muggings, rapes, and vehicle theft at the mall, switched to shopping at other, safer malls, or just doing it online. The thousand dollar a year fine was based on the estimated amount of revenue the mall says it lost due to their departure. Professional economists, when asked about the new approach, called it “creative” and “visionary.”
“Former Theatergoers Arrested for Switching from Cinema Attendance to DVD Purchases and Cable Watching”
The local movieplex, having raised its price by fifty cents a year for the past four years, persuaded the city council of Anytown, USA to punish the residents who used to attend the cinema but no longer do. The new $500/year “Economic Avoidance Penalty” is designed to dissuade people from the unhealthy choice to stay home. This new trend, usually blamed on the steep prices of tickets and drinks, costs the community important resources, by depressing the employment of ushers and cashiers, and by reducing critical sales tax revenue. Economists, when notified of this new charge for non-attendance at the cinema, laughing hysterically, unanimously said “Ha ha, that’s a good one,” before being notified that it was for real, and then correcting their comments to call it “creative” and “visionary.”
Fiction or Non-Fiction?
As you can certainly tell, these are not real news stories, at least not yet. The United States doesn’t fine a person for failing to go to the movies because it’s become too expensive, or for sensibly making the decision to stop shopping in a once-safe neighborhood or mall that has become a severe crime zone.
But the United States IS on that path. If you used to receive health insurance from your employer, but you lost that job, or the employer could no longer offer you the benefit, the U.S. government will now fine you for failing to buy your own health insurance, so you must buy incredibly overpriced insurance on your own from the government to avoid the fine. In many states, if you used to be a member of a union, but you choose to drop the union without dropping the job, they fine you – often the same amount as the union dues had been – as a penalty for having the nerve to quit the union. There seem to be more such approaches every year.
The American economy has always been capitalist, at least at its core, if not in every detail. The right of contract is enshrined in our legal system and our culture; if we want to do business with someone, we do; if not, we don’t. But recent generations, and in particular, recent years, have begun to reverse that freedom. Today, if the government favors a purchase, a membership, or a vendor, the Leviathan will consider finding some way to force the transaction to occur against your will.
That’s not American. Not in the least. But it’s how more and more people in politics think these days.
Corporate Inversion and the January Jobs Report
One of the biggest stories of recent years has been the loss of American corporate headquarters to foreign countries, especially as American firms merge with foreign ones, often locating the new joint headquarters (for tax purposes at least) in Ireland, Switzerland, or other more business-friendly locales.
Many in America’s chattering class – from business reporters to politicians – take every such opportunity to make the case that these transformations – known as “corporate inversions” – are somehow a terribly unpatriotic move, and the companies should never be allowed to do it… though they never seem to identify the reasons for this flight to be unpatriotic.
So, the Leviathan in Washington has dreamed up penalties, and built them into the tax code… and they want more, ever more. Politicians speak of banning the practice entirely – “once a US company, always a US company” – much like the islamic belief that all land that was once part of the caliphate must forever be considered part of the caliphate, even if it’s been centuries and centuries since the muslims controlled a place.
They can’t build a physical wall around the country to keep people in, as the East Germans did with Berlin, so they’ll build walls into the tax code to accomplish the same result, where corporations are concerned.
But what they accomplish instead is a very different result than the one intended: they just add to the reasons WHY a company might want to leave in the first place, on top of so many already present in the marketplace, and add reasons to do so sooner rather than later!
The January Jobs Report, issued by the Department of Labor on Friday, February 5 – nicknamed #NowHiringBusboys, was chock full of examples worth analyzing.
- Of the 151,000 new jobs (net) allegedly created in January, 44,000 were in leisure and hospitality, an area with among the lowest potential for career growth in the economy (not zero, but the well-paid jobs in this industry, such as hotel managers and head chefs, are few and far between, compared to busboys and maids).
- There were 58,000 new jobs allegedly created in the retail sector. Store management can be a good career, but again, there aren’t a lot of great mid-level careers in that family of specialties if you’re aiming to reach the American Dream. The vast majority of these jobs are cashiers without much career growth potential. For most people, this sector’s positions ought to be part time jobs en route to a better career, not careers in themselves.
- The pain point is actually in one of the better numbers; we allegedly saw 29,000 new jobs in manufacturing. Since manufacturing is – and must be – the core of the economy, it’s this number that should have everyone terrified. January presented us with the most new manufacturing jobs in a year, and even so, 29,000 is a paltry sum for such a key sector of an economy.
Our economy is still stuck in a ten year tailspin that began with Nancy Pelosi’s takeover of the House of Representatives in 2006. Despite the great gains the GOP has made in most states since then, and even though she only controlled the House for four years, that and the ongoing eight-year mismanagement under Barack Obama’s White House has left our economy in a shambles.
A decent economy would generate 400,000-plus net new jobs every month, with a good percentage in manufacturing. Manufacturing isn’t just important because we like to see US-made goods on the store shelves; it’s important because manufacturing – more than any other single sector – creates truly broad career opportunity for everyone.
A lawyer or accountant might prosper just as much in an environment of imported goods as in an environment of domestic-made goods. One can go to college, get that CPA or law license, and be almost assured of a decent career and a middle class life.
But only manufacturing provides opportunities for virtually everyone to rise in numerous directions. Only in manufacturing can a person start out with only a high school diploma, as an assembler on the line or an inside sales rep in a call center, and find a path on which to rise beyond his or her station.
- From the plant floor or the customer service department, one can get company-paid training, sometimes even company-paid college, to become a mechanical engineer, a marketing rep, a designer, a graphic artist, a chemical engineer.
- From the plant floor or the customer service department of a manufacturer, a young person can rise, without a prior degree, to be transportation manager, sales manager, engineering manager, quality manager…
- From the plant floor or the customer service department, a person can stay and climb the ladder, and become a vice president or CEO, or he can strike out on his own as an entrepreneur.
But all this only happens if he gets that necessary first start. That factory has to be there, in order for that career ladder to have a first step. And every time that factory succumbs to economic pressures, to move a line, or many lines, or the whole plant to a foreign country, those opportunities disappear and surface overseas.
What has happened in America in recent generations?
- The payroll tax and other corporate taxes have made America a fundamentally costly place to do business, even before considering our income taxes, which are, cumulatively, the highest in the world, with an effective tax rate of about 38%.
- The regulatory environment, having mushroomed in recent decades, is a millstone around the neck of every company. A guitar maker must fear buying hardwood, or Fish and Wildlife could shut him down. A snack maker must hire labs to determine the calorie and fat counts to populate an ever more complex FDA-mandated label. A proud manufacturer of a US product must hire expensive attorneys to guide him on his markings, because just saying “Made in USA” – even when true! – can get you an expensive lawsuit from some state attorney general or a class action filer, because of the restrictions enforced by the Federal Trade Commission.
- The labor market is ever-more skewed against the employer, with Obama appointees filling the courts and the various “labor boards.” After years of public opinion finally recognizing the need for fairness in labor relations, the jackboot of government has stomped on the scale to return the unfair advantage to Big Labor.
So the result is that manufacturing flees the country, moving abroad at a depressing clip. And many of those that don’t flee aren’t here because they don’t even get started. Without getting your start on a production floor, you can’t launch out on your own; one needs the experience to learn how. So businesses never get started in the first place.
Populist politicians and jabberers blame duty-free programs like NAFTA – as if the difference between a 4% tariff and a 0% tariff is substantial enough to make companies relocate abroad.
They blame our high salary costs, as if the difference in salary alone would suffice to drive a company to pull up stakes and rebuild in a country 14 hours away by airplane, necessitating a lifetime of 2:00am conference calls and constant airfreight costs and ten week leadtimes.
No. The reason that companies move overseas is that the United States is kicking them out. Intentionally, consciously, purposefully, kicking them out.
Companies would happily stay here, despite a somewhat higher salary cost than abroad, if that were truly the only challenge. But the challenges faced by American manufacturing are entirely created by the political class: a litigious society, a regulatory state, and a tax code that punishes each employer for his very existence.
If we want to bring about a jobs renaissance – and yes, we must! – then the only way is to engage in a standard conservative program of regulatory reduction, corporate tax cuts, and legal system reforms.
We need to stop kicking companies out, and then trying to fine them for understandably fleeing an inhospitable environment.
We can prosper again in America, but it won’t happen with anti-inversion bills or public shaming. We just need to cease the incessant socialist practice of beating up the goose that lays the golden eggs, and then complaining when it finally dies and stops laying them.
Copyright 2016 John F. Di Leo
John F. Di Leo is a Chicago-based Customs broker and writer, who has worked in international commerce since childhood and American manufacturing for twenty years. He has seen the Leviathan’s attack on the factory sector first hand, and regularly writes about the fight in Illinois Review.
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