Here is a news piece from ABC discussing how jobs sent to China previously are returning to America. The news piece cites increasing wages in China, transportation cost savings by building in America, and productivity of American workers. These are huge pieces of why jobs will continue to return. As China’s capacity utilization grows, the employees will be able to demand higher wages since employees are harder to find. Capacity utilization is best described by looking at a factory. If the factory can produce 100,000 widgets a year, and it is currently producing 80,000 per year, then its capacity utilization is 80%. If the capacity utilization on the macro level is high, then employees can ask for higher wages.
http://news.yahoo.com/video/us-15749625/overseas-jobs-come-home-26850542.html
America also has an enormous advantage currently compared to China: property rights and the rule of law. If I was to build a factory, I am taking a big risk by building it in China. The Chinese government could shut me out at a moment’s notice , and I would have no recourse. In the US, we respect property rights, and corporations have recourse in our court system if these rights are violated. Our bankruptcy laws also promote entrepreneurship, which is another enormous advantage for job creation.
If we really want to see the jobs flow home, we need to make two more changes. One, is the tax policy. Our 35% corporate income tax is way too high. Many emerging countries like China have low taxes, but it isn’t just emerging countries. Ireland, which also sports a solid legal system and property rights, has a 12% rate as well as competitive wage and productivity rates. If I am debating between Ireland or America to build a factory, it probably makes more sense to do so in Ireland. We are competing with nations for jobs. We need to entice companies to put jobs here. The tax rate is a huge determinate. Many folks will argue we need more taxes, and that the wealthy businesses should open up their wallet to pay their fair share. All I can say is if we lower the corporate tax rate, the middle class will see more jobs. Isn’t that the bottom line here? Additionally, we would get 10% or 12% of something instead of 35% of nothing – not to mention the savings from no longer paying unemployment and food stamp benefits.
Secondly, we need to lessen the regulations to get business off the ground, especially the environmental regulations. We have too many hoops to jump through to get a business started. I hear cries for infrastructure spending, but it takes 3-10 years to get any infrastructure project approved after dealing with local government boards, the EPA, state and federal regulations. It should take 3 years tops even for sophisticated projects like bridges, tunnels and overpasses. The EPA is out of control. The people harkening for infrastructure jobs point to the Hoover Dam as a project we should be undertaking during these challenging times. A Hoover Dam project would never get approval from EPA today due to some fury or slimly critter like a horned frog or grey mouse. As an example, my hometown, Flint, Michigan, just demolished the Buick plant. I inquired why they didn’t just offer a company the plant at little to no cost in an effort to entice a company to relocate. I was told that the EPA deemed the area hazardous, requiring a $6 Million clean up process first. That $6 Million would prevent any corporation from relocating to the Buick plant, especially a start up. Today, we have an empty lot, and the hazardous clean up will never be done because the local and state government can’t afford the $6 Million price tag. How does this make sense in any way? Rather than having a company use the plant, but not getting the cleanup, we have no plant or jobs without the cleanup. Bravo, EPA, Bravo.
I am not implying that we should become a dumping ground for toxins like China allows. However, we need to relax the ridiculous rules in place today. Besides, the court system is in place to provide retribution if a company harms others through pollution.
So I expect to see more jobs leak back into the US as the third world demands higher wages and transportation costs rise, but that leak could become a stream if we altered our high tax rates and cumbersome regulations.