Can Jobs Return to America?

Does the President finally get it? His new campaign strategy seems to be focused on encouraging American business to stop outsourcing jobs, but rather insourcing them.

According to the Huffington Post, “The practice of U.S. companies moving jobs to foreign countries such as India and China, where labor is cheaper, is a source of concern to many U.S. workers.” Is this really a revelation to anyone? Perhaps it is to the president. Of course, this is an election year and politicians always seem to “get it” when they are up for election, but will he remember and follow through with this apparent campaign promise? As we all know, that is often not the case.

It should be clear to those who’ve followed my earlier columns that our economy is confronted with many catastrophic issues. Outsourcing is one of the most critical detriments to financial well-being. Perhaps it would help if we could understand why this has become a problem in the first place and why it is very possible that jobs may be returning in spite of the president's concerns.

Throughout most of industrialized history, the primary focus for most countries is to protect their own industries. England was the first to create factories and primitive mass production facilities with machines that could output more product with only one worker than with multiple workers.

England protected its industries by making it illegal to export the details of any machines to any other country. That effort failed in 1789 when Samuel Slater, an English machinist, accepted a large reward from the American state legislature to defy British law and share knowledge of their machines and industry with America. He did better than anyone could have hoped as he memorized the plans for an entire spinning factory. He fulfilled his promise and introduced the cotton-manufacturing industry to America, thus destroying England’s monopoly on the textile industry.

During the second wave of world industrialization, each country protected their industries with tariffs, trade secrets and fought to prevent foreign workers from doing the jobs that Americans were doing. Industry was already fighting for cheap labor and pushed to introduce unskilled and poorly-paid Chinese and Irish laborers into the workforce. American Labor Unions were able to protect America jobs by supporting laws, such as the Chinese Exclusion Act and the Contract for Labor Law. The Exclusion Act prevented labor from hiring Chinese workers and the Contract Labor Law prevented American industries from making contracts with foreign workers to bring them to America on a temporary basis so that they could work in American factories.

While America practiced protectionism, so did other countries. However, as we have entered the new global economy, the industries of the world are chasing the lowest possible wages. The difference today is that these industries are actually moving the jobs rather than the workers to other countries. This is done in two ways: first, they send work to other countries where the labor is extremely cheap and then ship the product back to America. There are two reasons that this works. First, the labor is so cheap that it offsets shipping costs and allows a large profit.

Of course, more savings are derived from the fact that it is not necessary to provide health insurance or any benefits to these employees. Second, there is a ready market in those countries for many of the products that are being produced. The second way that industry moves the jobs is by building plants and factories in foreign countries. This is possible for many reasons. The countries are willing to pay for the buildings so that they can get the jobs for their workers and taxes are less or non-existent.

Interestingly, these practices have created a new dynamic to the equation. As workers in foreign countries become wealthier, they begin to demand higher wages. For example:

Chinese wages remain cheap relative to American wages. At Apple (AAPL) supplier Foxconn, for example, some workers make as little as $17 a day. In contrast, new auto manufacturing jobs in Detroit pay $19 an hour.

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But the gap is closing fast. According to the Boston Consulting Group, salaries in China are growing 15% to 20% per year. The IMF says that as recently as 1990, average per capita income in China was $350. By 2000, this figure had tripled to $1000, then hit $3,000 in 2008. Today, even a lowly Foxconn worker bee makes perhaps $5,500 a year, and experts project Chinese wages could reach First World levels of $20,000 per person by 2030. http://www.dailyfinance.com/2012/01/25/signs-of-a-new-industrial-age-in-america/

What happens now is that manufacturers continue to search for the lowest possible wages. Since American wages have fallen at a dramatic rate as jobs have become less available, we are in the position of having lower wages and a better quality of work compared with other countries. This is the reason that Japan and some other countries have built car manufacturing plants in America rather than their own countries. To Japan, we are their cheap wage location. They do not have to pay the shipping to sell their cars to eager American buyers. The Japanese prosper and interestingly, so do we, although for the worker, it is not as profitable, but it is better than not being employed. Eventually, as wages increase in other countries, shipping costs increase due to fuel costs, as well as internal instability in other countries, we may eventually see jobs return to America.

Some American industries are already gearing up to begin manufacturing. While this is good news for America, it is also a sign that we have reached the low-wage point compared to the rest of the world. It also means that the cycle of plentiful-to-scarce jobs is likely to continue as long as American industry continues to be concerned about the bottom line rather than the strength of our economy.

John Wayne Tucker

http://johnwaynetucker/congress

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