Labor and Outsourcing

Here again Dr.North explains a bit of history:

The main strategy was this: companies build new plants in southern states, which had "right to work" laws. (These should be called "right to bid" laws.) They also moved plants off-shore to nations in which trade unions are weak or non-existent. Then they exported these goods back into the United States at low prices, forcing out of business companies that were saddled with trade union contracts and the NLRB.

Now all this is very true, but I doubt it is significant.  The component cost of labor of virtually anything imported is less than 5%.  Labor costs simply to not rise to the level of being a factor in international trade.

There are two other commonly cited aspects to outsourcing, yet people miss, and they are tax avoidance and money laundering. Tax avoidance is the motivation, money laundering is the means.

Take a USA auto maker who is earning 100 million profit in USA, taxable at 35%.  Now say Big Car, which also imports cars, does not care to pay this tax, (and why should they?)  Anyway, what they do is jack up the price from the maker overseas on the next 500,000 cars by $200 each, and then that $100 million cost in USA eliminates the profits in USA, and at the same time the $100 million ends up as “profits” to the maker overseas.  Voila!  No profit in USA, no taxes.

Now the government i well aware of this scam, so it is illegal.  When the cars come into the USA, importers must declare if the supplier is related in any way to the importer, ‘related transaction.”  So, legal fictions are employed to make these companies not related. No, but the directors of this corporation are directors of that corporation too.  And money is fungible, and what would have been mulcted to the use of uncle Sam is now directed to where the capitalists would most like it to go.

Now, when they get this wrong, and do turn a loss, not to worry, the taxpayers will bail them out. Or experience inflation, which is another means of corporate bailout.

How to solve the problem?  Get rid of IPR and subsidies which both protect the abusive big business.  eliminate the incentive to avoid taxes and launder money by getting rid of the taxes.  Then we will see a renaissance in small business introduction and innovation, and we can move up and beyond.

As it stands now, there is nothing being done that can help the economy recover.

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