Pointing the Finger Overseas
Exactly Who is to Blame for the Declining Job Market?
by John Matukaitis
The prevailing topic of conversation in almost every business are those nasty people in China who are taking our jobs. To be fair, let’s not forget those “bad guys” in India, Russia, the Philippines, select southeastern Asian countries and elsewhere. It is not difficult to get online, or pick up any magazine germane to our industry, and notice that some door and window manufacturing companies are also beginning to outsource some of their production requirements. Almost daily, U.S. corporations announce U.S. plant closings with production of their products being outsourced to overseas facilities.
Past vs. Present
You might remember “Japan-bashing” during the 1980s. Japanese industry was viewed as a direct threat to the U.S. economy. There was great fear that Japan would overrun the United States with imports that were of higher quality and lower price than those produced in the United States.
Today it is different. Have you seen any organized efforts to destroy foreign-made products in protest, multilateral agreements being signed or concentrated efforts by U.S. corporations to declare their products are “Made in America?” The only event thus far has been a request for legislation (Bill S.1586.IS) seeking a 27.5 percent tariff on products made in China and entering the United States made by a handful of elected officials. That sounds good to their constituencies, but it isn’t going to happen any time soon.
During the 1980s Japan’s production complexes were fairly autonomous, whereas today, integration is the key word. A Morgan Stanley economist estimates that for every $1 in product value China receives from exports to the United States, that same product is resold through U.S. distributors and retail markets for $4 to $5. He concludes by saying more than $1 trillion of U.S. market capitalization depends on inexpensive Chinese imports. Most of China’s $125.2 billion in exports to the United States last year came from U.S. companies such as Motorola and Dell. Chinese companies, those without any ties or strategic alliance with a non-Chinese company, make up less than 20 percent of the goods being exported.
China’s economy mostly serves the demands and needs of foreign-owned firms in foreign markets, being highly dependent on Foreign Direct Investment (FDI).
The alternative to outsourcing is heavy capital investment to increase productivity, negotiate with unions to lower wages (the recent UAW-Big 3 auto makers “new contract” should ring a bell), or lobby for governmental support. It is evident that an increasing number of U.S. companies are searching for greater profitability via the outsourcing route; Carrier Corp., Levi Strauss, Steinway Music and on and on. It is easier and less risky. These companies are reacting, out of necessity, to the way things are today, so they do not follow in the path of the U.S. textile and steel industries. The advantages of outsourcing for corporate profitability far exceeds the pitfalls of closing U.S. plants. Would these companies be doing their shareholders a disservice if they didn’t outsource?
One could argue that, like Japan in the 1980s, China is undermining the U.S. economy. Maybe. However, to stop the outsourcing process is to stop a profit generating strategy from which so many U.S. companies are now benefiting (Chinese labor, per the Feds’ guesstimate, is 96 percent less than a counterpart U.S. worker).
Legislation has passed the U.S. houses of government directed at stopping or slowing overseas outsourcing, but none have been made into law. American authorities do not want to interfere with the rights of business to conduct operations in the most competitive manner available or possible.
U.S. technological innovation has played a role in decreasing the competitive value of skilled U.S. workers (i.e., better equipment/machinery needing fewer people to run it). Innovation and the ever-increasing FDI into China have also played a part. China is not a technologically advanced region, yet U.S. companies are building new plants there that are technologically advanced. The Chinese workforce is not nearly
as skilled as the U.S. workforce. However, thanks to technology innovation, China doesn’t need to have as skilled a workforce to compete, only a less costly one.