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Among certain folks it is received wisdom that businesses have been going overseas because the United States (and other Western countries) imposes onerous taxes and environmental regulations. Some folks even note that American and other Western workers are paid more than workers in certain other countries, such as China.
To remedy this problem a standard proposal (endorsed, for example, by Michelle Bachmann) is to lower taxes and reduce (or eliminate) regulations. Politicians, including Bachmann, generally do not talk about lowering wages. After all, “if I am elected I will see to it that you make less money” is hardly winning rhetoric. In contrast, claiming that Americans or other Westerners are losing jobs to other countries because “the government” is driving away companies with regulations and taxes is a smart approach from a rhetorical standpoint. After all, Americans and some other Westerners tend to think poorly of their government (which is made up, ironically, of people we picked) and Americans often look at taxes and regulations in a negative light, seeing them as impositions on freedom.
This proposal does, obviously enough, have some merit. If corporations could get the same conditions here that they enjoy elsewhere, they would probably be more inclined to stay here. It is, however, important to dig a bit deeper here.
In general, it would seem that corporation are not sending jobs overseas because they would go out of business if these jobs remained here. After all, there are business that do quite well despite operating entirely or largely in the United States. This is hardly shocking since corporations are generally adept at reducing their taxes (see, for example, GE) and circumventing even the rather limited regulations that exist (see, for example, how “constrained” coal mining companies are in West Virginia). While they do have to pay a minimum wage, this wage is fairly, well, minimum.
The main reason that corporations go overseas would not seem to be survival or even because they cannot make a profit in the United States. Rather, they go overseas because they think they can make even more of a profit than they can here. Given that some other countries have lower taxes, laxer regulations and far lower wages, it is easy to see why other countries can be more appealing. However, it is important to note that these corporations re not having their jobs forcible driven from the United States. Rather, the decision makers are electing to send jobs overseas so as to increase profits. While this might seem to be a minor point, it is actually rather significant.
To use an analogy, imagine that Bill is telling a sob story about how he was “driven out” by his wife, Sally, cruelly limiting his freedom and now he is “forced” to hang out with a girlfriend because she allows him to do what he wants. You ask Bill about her cruelty and he lists her crimes: she made him pay some of the household bills, she would not let him dump the oil from his truck in the flower garden, she made him pay for some of the expenses relating to the children and so on. Inquiring about his new girlfriend, you learn that she lets him dump his truck oil in her yard and while she does expect some gifts, he doesn’t have to do anything for her kids and so on. In this case, one should be inclined to think that Bill was not driven out. Rather, he chose to leave because he wanted to get away with more and do less. Now imagine that Bill’s buddy Sam goes to Sally and says that Bill will come back if she stops “taxing and regulating” him. Otherwise, Sam says, Bill will have no choice but to stay with his current girlfriend (at least until she wises up and “drives him away”). Sally, it would seem, would be foolish to take Bill back under those conditions. After all, he just wants to get away with things at her expense while pretending that it is her fault. The same would seem to apply to corporations.
In essence, corporations and their allies who argue that taxes must be lowered and regulations reduced so that jobs will remain here (or return) are arguing that the rest of us need to bear the cost of ensuring that corporations get the profits that they want. After all, if corporations pay less taxes then the rest of us need to pay more to make up for that shortfall. Alternatively, there would have to be spending cuts-and it is rather obvious who would bear the burden of those cuts (hint: not the corporations). Also, if the regulations are reduced (Bachmann wants to eliminate the EPA, for example), then the rest of us would be harmed by what those regulations were intended to prevent. For example, allowing more pollution means that we would probably suffer more health problems and would thus be paying more in medical expenses. To preempt a possible attack, I am not saying that all taxes are fair or that all regulations are good. Rather, my view is that corporations (like Sally’s husband) should contribute to the society in which they exist (and benefit from) and that at least some regulations do protect us from harms.
In sum, the proposals to lower taxes and reduce regulations so as to keep jobs here seems to be largely an attempt to shift costs to the rest of us so that corporations can make more profits. I have no objections against corporations making money. I do, however, object against being forced to bear the costs of their profits. They need to carry their own weight and act in responsible ways. That is, pay taxes and live within the laws as the rest of us do (or are supposed to do).
But maybe there is some merit to this approach and I should give it a try: “Buy my latest book or I’ll be forced to go to some other country.”
Corporations are a collection of people called shareholders; it’s the job of the managers of the corporation to maximize the earnings for the shareholders. To knowingly forego an opportunity to increase profits would be to fail those people.
““if I am elected I will see to it that you make less money” is hardly winning rhetoric.” – Or stated another way, “if I am elected, the country will operate more efficiently and the cost of goods will decline”. Economics is a two-way street.
“But maybe there is some merit to this approach and I should give it a try: “Buy my latest book or I’ll be forced to go to some other country.””…and the downside for the US would be what?
This is always presented as a moral issue: But it isn’t.
I wont speak for the USA, but for Europe.
A huge number of people in Europe are essentially unproductive, and their ‘labour’ if it can be called that, is paid for by taxing the very few productive workers left.
This is a double whammy on the cost of labour in the EU.
Taxation as a means to tilt the playing field, has tilted it in this case firmly in the favour of the public sector, including those who exist on welfare, which is more lucrative and less stessul than working.
Likewise all the generous rights enjoyed by ‘workers’ – lack of discrimination for being useless, (just play any minority card you have in your hand), paid maternity leave, minimum wage and working time directives.
All these mean that the EU is a great place to not work, a great place to spend money and a great place to borrow money, and a great place to work but only in the public sector.
Its a terrible place to try and start a business, or save money.
The whole system is geared to force people into the public sector, one way or another. Under the guise of protecting peoples rights.
Whether this is guileful, or incompetence, is hard to say.
However it is in the limit, self destructive, as we are now seeing.
The tax take from the productive workers is down and borrowing is at an all time high. The brightest and best are leaving, the most useless are flooding in.
Socialism has built a society, by the losers, for the losers.
And the price of it is slowly becoming apparent.
The Sovbloc collapsed under its own incompetence, and the apparatchiks had nowhere to go but Brussels. Where they thrive, and are busy killing the next golden goose.
All in the name of Liberty, Equality and Fraternity.
Admirable sentiments, but the net result is an equality in misery, lack of opportunity and ultimately poverty and idleness.
I don’t have a solution. Well I do, but it necessitates the crash and burn of the two institutions that are most in control of the system that exists: Centralised political bureaucracies and their friends, the international banking cartels. Plus not a few members of the large corporate class.
Hitherto this has not been a price worth paying for productive efficiency. But I suspect that shortly it will be.
However the change will not come from within those structures: They have nothing to gain and everything to lose.
The European Spring will be when the mass of the population simply doesn’t pay their taxes because they cant afford to, the enforcement agencies, in no receipt of wages, vanish, and the banks and the governments simply dissolve into ineffectiveness.
I arrived at this site after reading a book called ‘why truth matters’ and discovering it’s authors were here.
I recommend this book as a perspective on this: We can define human rights anyway we like, and make what laws and directives we like, but if the net result is that its more profitable to move a business overseas, or sit in a flat watching TV all day, rather than pick potatoes , then I am afraid no potatoes will get picked.
By and large, productive work In the EU has been outlawed. Its too stressful, too dangerous, too low pay to be of any interest to the EU citizen.
The fact its now done elsewhere, under conditions of appalling poverty, zero safety regulation and intense pollution is of course not the EU’s problem until and unless it manages to get its world government going.
At which point doubtless it will apply unversal minimum wage across the whole world, and no work will get done at all.
It will have finally, by utterly restricting freedom, have enforce a universal equality. No one will get an education. Everyone will be dirt poor, (except the apparatchiks) and everyone’s lifestyle will downgraded to the point where the can be no aspiration, as there is nothing left worth aspiring to.
Now lets forget the morals, and make the next article on this wonderful site…
‘In Defence of Inequality’
… and show ho it is precisely that inequality so reviled by the Liberal Left that has allowed progress and indeed driven progress in the social condition. And to attempt to remove it is to stifle and stagnate the forces that drive societies forward.
I remember somebody once saying corporation don’t pay taxes. They just pass that expense onto consumers.
Anyway, I am of the view that it is a good thing that corporations move to developing or under developed nations. This institution has helped develop nations. Corporations being abroad have helped integrate the world, making it saver and a more peaceful place.
Imagine if corporations didn’t set up shop in underdeveloped economies? I think those economies would be quite resentful with those of developed economies for not sharing their wealth and technology. Without this kind of distribution, the movement of corporation to lesser developed places, I think in time you would have a ‘barbarians at the gates’ situation where poorer countries would be clambering in a threatening fashion for a piece of the action.
Corporations in less developed lands introduce rules of engagement between people that thus were unknown. Corporations have been reservoirs where peoples of different backgrounds learn to integrate and mesh with each other. In America the corporation has been a platform for the sexes and races to integrate. Corporations there did not oppose female or gay rights but sponsored them. Corporations have been the wedge behind which numerous governing legislations and laws have been constructed as to how individuals and society should conduct themselves. In America the end to racism started at the corporate level, when corporation began hiring blacks and integrating them with whites on the shop floor.
With time the corporate structure has helped topple despots and tyrants like we are seeing today with the ‘Arab Spring’. Some corporations have developed the technology by which people can network with one another so as to come together in achieving freedom.
Overall, corporations have had a liberating effect on the world.
The Bush administration gave corporations tax cuts to set up shop abroad. After 9/11 this seemed a good idea, a way to further integrate the world and strength its interdependence. The idea was that this could help protect America from future attacks. The argument: It would be in the interest of the rest of the world that America remain secure and safe because it had grown dependent on America for its livelihood.
A while back, I wrote a paper in which I argued that weakness of will would be an acceptable reason to restrict imports (“Import Bans and Tying One’s Hands.” Public Affairs Quarterly). Yes, corporations can make more money if they move to countries with lax environmental and worker safety laws, and where worker pay is low, even given local living expenses. And yes, they can pass (some of) the savings onto citizens of countries with more stringent environmental, worker safety, and pay laws. But when we buy those cheaper products, we are supporting a system that eviscerates the very protections that we deemed important enough to pass into law. We are buying products that unnecessarily damage the environment, imperil workers, and result in the exploitation of workers. So, knowing that we are bad at making moral judgments when buying items, we could decide, as a society, to say “no” — no, we won’t buy products produced in ways that undermine environmental protections, worker protections, etc. *That* would create a level playing field. Maybe workers in China will still be more productive, such that the (real) costs of shipping are still small compared to the gains of moving overseas. But maybe (probably) not.
On the other hand, we might decide, as a society, that we don’t give a damn about worker safety, that people getting killed on the job is OK (and, with enough “tort reform,” not very expensive, either), that environmental damage doesn’t matter, that the minimum wage and worker’s rights aren’t valuable to us, even that child labor is an OK place to go. If we decide that, as a nation, well, I think we will have made the wrong decision. But let’s make it clear what the decision is. It isn’t “getting government off the backs” of businesses who would otherwise be just as safe, just as environmentally conscious, etc. It’s turning our backs on what we used to believe was a moral matter — reasonable pay & safety for our workers, and a reasonable environment for ourselves and our children.
Leo —
Your claims are misleading in places, false in others. Germany has very high wages, a very strong social safety net, reasonable degrees of inequality, and is doing *fine* economically. So are most of the Scandinavian countries.
Levels of inequality such as we are seeing in the U.S. — where the top 1% control over 40% of the wealth — are not necessary for innovation or economic prosperity. Indeed, historically, very high levels of inequality have been associated with economic downturns.
High levels of inequality are associated as well with unhealthy outcomes in societies — both in term of literal health (mortality and morbidity), and standard measures of social health.
This is not to say that inequality isn’t inevitable, or even desirable. But the outrageous levels of inequality we are seeing today undermine the fair value of political liberty, undermine the fair equality of opportunity, and indeed undermine the very rule of law that makes society function.
Whatever you think of the taxation schemes in the EU, there is no denying that with the radical cuts in the Federal income tax in the U.S., especially for the highest income earners, the burden of paying for necessary infrastructure and the social services we all depend on has gotten shifted to the states, and from there, to the people that can least afford it. No one can seriously argue that someone who would have innovated and made a fortune if the marginal tax rate was 30% would refuse to do so if the marginal rate was 40%. Any such argument is simply absurd and offensive.
We can do better than this. No, Americans aren’t going to do dangerous, difficult work for $5/hour. Nor should we. Nor should anyone (relativized to local standards of living and pay scales, etc). Refusing to do business with corporations that pay as little as possible and cut as many corners as possible is one way to work towards a world where no one has to do dangerous, difficult work for less than a living wage.