Re-Employing America Won’t Be So Easy

07/07/2011 7:30 am EST

Focus: MARKETS

Paul Goodwin

Emerging Markets Specialist and Analyst, Cabot Heritage Corporation

While politicians talk about job creation, there’s no compelling reason for the private sector to bring jobs to the US, notes Paul Goodwin in Cabot Wealth Advisory.

This is a rant. I'll admit it. And it's all a result of hearing political candidates promising that all we have to do is elect them, and all of our economic problems will go away.

I don't believe it, and I'm sick of hearing it from either end of the political spectrum.

Everyone in the US is worried about jobs, wants to save jobs, and wants to keep US companies from shipping "our" jobs overseas. They're right to be worried.

That's why I'm being realistic when I foresee that the protection, creation, and nurturing of US jobs will be one of the favorite issues of the coming presidential campaign.

But what I don't expect to hear from politicians is the truth, which is that legislative remedies are largely symbolic, and probably futile. And that's a shame, because it makes voters targets for demagoguery and silly, unworkable answers to a complicated, serious problem.

Here are three clear-eyed perspectives on the issue:

Job Migration and the CEO
If you are the CEO of a publicly traded company, your ultimate responsibility is not to your customers—although your marketing department will certainly say that your commitment to your customers is your top priority.

Your customers are your revenue source, and you have to please them to stay in business. But as CEO, you're trying to make as much profit as you can from your customers. Period.

Similarly, your responsibility is not to your workers (although you will no doubt describe them as your "greatest asset," and work hard to retain the best of them). Your workers are a cost, and the dirty little secret behind efforts to boost productivity is that the more production you get with the least expense, the more your company makes.

It's not a coincidence that the first thing turnaround specialists look at when faced with a new client is reducing the labor force. It's no accident that the management jargon "rightsizing" often amounts to a euphemism for layoffs.

As CEO, ultimately, your primary responsibility is to your shareholders, the people who have (indirectly) hired you to run their company. And if you can increase shareholder value by lowering labor costs and outsourcing certain tasks, that's exactly what you have to do.

The term "outsourcing" is pejorative in many quarters. It's seen by its critics as a way for companies to ruthlessly cut costs, by relying on low-wage jobs in developing countries—at the expense of higher-paid workers in more developed areas, such as the United States and Europe.

But that's a misleading simplification that doesn't take into account the way in which outsourcing reinforces the generation of value-added jobs in advanced economies, while lifting the aspirations and living conditions of the world's poor.

Outsourcing helps create in emerging markets a new middle class of consumers, who in turn obtain the wherewithal to purchase our products and services.

NEXT: Job Migration and the Consumer

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Job Migration and the Consumer
It's a tough time to be a salaried worker in the US. Unemployment is high, so raises are hard to come by, as are jobs with great health care, job security, high pay, and pension plans.

But one factor that has been benefiting US consumers for the past six or eight years has been the tidal wave of cheap goods that were a result of inexpensive labor costs in Chinese factories. Wal-Mart may proudly display their "Made in USA" labels on a few products, but low prices on Chinese goods have been more helpful in keeping household budgets on an even keel.

Job Migration and the Candidate
If you're a candidate for public office in the US, you'd better have a plan to create, retain, and even recover jobs, because that's likely to be the issue that will resonate with the most voters.

And it's also likely that a rousing pledge to create and keep jobs, jobs, jobs for your constituents will make a great sound bite for the evening news.

But how, exactly, can a national, state, or local legislator pull jobs out of a hat?

The usual answer is they will either:

  • try to woo them away from some other US state, region, or city with a package of tax breaks, free real estate, or direct subsidies;
  • or they will initiate or support programs that attempt to incubate new businesses in their municipalities or states, including cutting onerous regulations and red tape that make life hard for small businesses.

In the first case, the net benefit to US unemployment is zero. In the second, the lead time is likely to be years before the payoff comes.

As always, the easy part of solving the problem is promising to make it go away. Candidates are always talking about how they'll "fight for our jobs," or "make companies keep jobs here."

But do we really believe that the people who fill our elected offices now haven't been paying attention? Or haven't thought of something?

There's nothing easy about keeping jobs in a high-wage country.

A recent story online pointed out that the $7.2 billion San Francisco-Oakland Bay Bridge project (repairing damage from a 1989 earthquake) would realize savings of up to $400 million, if it were to contract with a Chinese company for giant pre-fab segments of roadbed.

But that $400 million is money that won't pay US taxes and won't put wages in the pockets of US workers.

High US unemployment is like a fishhook in the cheek of the body politic. But the barb in that hook is the money that outsourcing or "offshoring" saves for companies and consumers.

And anyone who thinks they have an easy solution will have some very tricky explaining to do before they get my vote. Because, personally, I'm tired of people trying to sell me easy answers to complicated questions.

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