UNDERLYING CAUSES--UNEMPLOYMENT AND OFFSHORING JOBS--PLUS A WHISPER OF HOPE

My friend Howie visted us recently sporting a fine red and gold baseball cap which blared out in bold red letters in the gold crown “Espagna”.

“It’s a gift from my daughter!” he stated proudly. “She brought it back for me from the Ebitha, in Spain, where she was vacationing,” he explained.

But when the proud dad turned it over, he was surprised to read “Made in China” on the inner band.

“Oh, I guess, it came from China via Spain!” quipped Howie.

But no one else was really surprised. The cap was just another bit of hard evidence we see all around us everyday of how and where things are manufactured these days.

“You’d think they could make their own hats in Spain,” mused Howie, a bit disappointed in the provenance of his gift.

"Don’t feel bad my friend,” I assured him, “Everything is made in China or Asia these days—where labor is cheap.”

But the cap did have a story to tell. The yellow and red hat, like many other manufactured products was made in some Chinese busy, Chinese manufactory. It was packed up with thousands of others, shipped out and spent some time on a vessel on its way to Spain. There it set on some shelf in a trinket store in Ebitha for a few months. Finally, it was purchased by a young American woman to bring home to her dad, and wound up in Southampton, New York.

Not long ago I wrote a blog lamenting the fact that we do not make anything here in the US any longer and that is why today,two-and-one-half-years since the market collapse and Great Recession of 2008, we still have 14 million people out of work. But perhaps the story is more complex than simply cheaper wages.

Today, March 27, 2011, I read a piece by Robert Kuttner entitled “American Industrial Rennaissance” (which appeared in the Huffington Post) which helps to explain the underlying reasons why most American business find it profitable to “offshore” so much of their manufacturing. It goes a good way to explain as well, why we have an unemployment rate here in the US which remains so intractable years after the Recession of 2008.

Kuttner explains that US businesses are attracted offshore “to take advantage of lower labor and environmental standards in foreign countries.” Its cheaper to make things in countries where labor has no rights, and companies can freely pollute their host country’s environment with little cost or worry to themselves.

“Then too, foreign governments offer US companies subsidies to encourage them to locate production in their country . These subsidies are illegal, in principle, under the World Trade Organization. But China's entire industrial system depends on subsidies intended to attract western companies to shift production to China.

And finally offshoring makes it easier to book profits in such a way that avoids national tax liability. It was recently reported that GE, with worldwide profits of $14.2 billion in 2010, paid no US taxes. In fact, the US ended up owing GE $3.2 billion.”

But according to Kuttner, the recent tragic events in Japan, aside from the Iodine 131 and Ce 137 raining down on us, have caused some companies to rethink aspects of their policies regarding the advantages of their offshore operations.

Japan is right now, and for sometime to come, going to be off-line. It will not be able to produce the large number of computer “chips” and other products it manufacutres and sells abroad. Many of its automotive products, components of vehicles which are “manufactured” here, will not be available either. Those companies which depend on these component parts will not be able to put their products on the shelves or in the showrooms of the US.

Modern US industries (and many of those in Spain too) have long and fragile supply lines. Raw matierials travel long distances to a manufacturing site and then more long miles to the place where they are sold. These long-distance supply lines have their weaknesses. Wars, natural disasters, hurricanes, tsunamis, pirates and earthquakes can easily disrupt the supply line somewhere along its course—as in Japan—and the longer the line the more it is subject to interdiction. There are advantages to producing component parts closer to home. Furthermore, there are increasing energy costs to bear when production is “offshored”. Today with the costs of fuel rising rapidly (a barrel of oil is well over $100 dollars theres days) it is becoming increasingly expensive to move manufactured products, their component parts and raw matierials from place to place over the earth’s surface.

With the high cost of eneergy and increased mechanization the relative advantage of cheap labor has been partly nullified. The fact that mechanization has decreased the number of workers needed, lowers the cost of labor in that product. So that in the past, on an assembly line where forty or fifty workers were needed, now there are only five—pushing buttons on a big surface-active screen. Thus, the relative advantage of cheap Asian labor has fallen. Kutner states: “labor represents a dwindling share manufacturing costs”, while the energy costs of production have risen. “So even if a Chinese worker is paid just one-twentieth the wage of his or her US counterpart, there is only so much that can be saved by moving production abroad. “

Kuttner states: “As energy and the cost of shipping become expensive, and production becomes more automated, the logic of production shifts back in favor of more domestic manufacturing.” However, don’t expect a renaissance of US industry or vast increases of US jobs, because there remain those other advantages of "offshoring". But the hope lies in the fact that those aspects or advantages to business can be addressed legislatively. Why should we permit GE and other giant coprorations to manipulate the tax code and offshore jobs so they pay zero taxes? Why continue to provide businsesses tax relief and other subsidies when they offshore jobs? Products which arrive on our shores should have been produces in ways that do not pollute the environment of abuse basic rights of foreign workers. These issues may be addressed if President Obama screws up some gumption to tackle the reactionary forces. Perhaps as a start he should dump some of the rabidly pro-business people in his cabinet and begin to look at these problems with an eye for the needs of the nation as a whole. Perhaps, he might even give voice to a new more just industrial policy, that which will bring back manufacturing jobs to the US and save energy as well.

Get the picture?
rjk