This Fall the Republican presidential candidates are in the news with their jockeying for top position in the race for the Republican nomination. The economy and job creation are always a top rhetoric at the debates these days. There has been lots of finger pointing at the past and current administrations and we have heard the cheers and jeers in reaction to grants, tax cuts, and stimulus packages all in the name of job creation.
Now the “Occupy (insert favorite city)” crowd is out there trying to accomplish something, I’m not sure what, (and not sure they know either), but at least they are trying.
The situation we find ourselves in has been building for a long time. We have become a nation of buyers, sellers, and servicers. There has been much talk of companies that have “sent jobs overseas”. Why has this happened? Profit is the simple answer. In many cases it is cheaper to use foreign labor for manufacturing. Labor is cheaper, taxes and benefits are lower, there are fewer safety regulations, no unions (or a smaller presence), less government intrusion, and in many cases government subsidies to prop up the local manufacturers and dump products in the U.S. for less than it costs to build them.
We, as consumers, are demanding cheaper and cheaper products. We want the world but don’t want to pay for it. So business has done what it can to increase its own profits for its shareholders while feeding consumer demand.
What is our problem? We buy it and we sell it, but we don’t make it.
We are great consumers and we love to spend our money. We have sent away our manufacturing jobs and have become a nation of importers. We don’t make anything, but we have become really good at importing and selling cheap product. This has become a vicious cycle for America. Here is a simplified look at what is happening: An example retailer might have a margin of 35%. Of that 35% margin, the retailer pays its fixed and variable costs (payroll, insurance, electricity, etc), and distributes a couple of percent for its shareholders. What happens to the other 65%? It pays for the product that was assembled overseas. By moving the production of goods overseas, the associated raw materials market has moved as well. Entire communities have been ruined with the loss of textile and steel production.
When we choose (or are forced) to purchase foreign made goods, a large portion of our wealth is drained overseas. That sucking sound is jobs being pulled out from under us, by our own purchasing habits!
According to the Bureau of Labor Statistics, in August of 1990, there were more than 897,000 apparel manufacturing jobs in the U.S. Compare that to the current August 2011 count of 154,000! I challenge you to go to a department store and try to find an American made pair of shoes or jeans. Recently I was talking to an elderly man who was saying he would never buy a power tool from a big box store because their products are all made overseas. He was seriously upset about it. I didn’t have the heart to tell him that probably every stitch of clothing he was wearing was foreign made, as was most of the vehicle that brought him there.
So how do we fix this mess?
It took a long time to get here, and will take a long time to get back. But one thing I am sure about. All of the stimulus plans that our government can throw at us won’t do a bit of good because the jobs they create are temporary and we will just keep spending that money on overseas products. So what do we do? We have to take back control of production. If we do that we should see a reversal of the trend in the table above. If we started manufacturing our own products, then more of our money would stay in the U.S. That money is then used to buy more product, made in America, which is what makes the economic wheels turn.
But how do we get the jobs back?
This is where I think the Republican presidential candidates are missing out. Nobody wants to anger the Chinese (or any other country) by raising taxes on imported goods, creating a protectionist situation and starting trade wars. I believe the answer is internal to the U.S. We shouldn’t fault the foreign manufacturers because our own companies are the ones hiring them with our money!
I believe the answer lies in encouraging those American retailers to hire American manufacturers. How do you encourage them? By making it cheaper through tax reductions. If a company uses American manufacturing muscle to build the product it sells, then it should pay a lower tax rate. The taxes on its profits should be lowered enough to encourage on-shore manufacturing. Perhaps we as consumers should pay a higher sales tax on goods that are manufactured overseas. I believe the American consumer would suddenly become very interested in U.S. made products if they paid a lower sales tax for those products. This is not penalizing foreign manufactures, but simply encourage U.S. manufacturing. Can you imagine what this alone could do for the textile industry? What if suddenly half of the clothes available in Dillard’s were American made? Can you imagine the economic impact?
If we could accomplish this then the vicious cycle that we have created would slowly come to a halt and begin to reverse itself. We would see cities revitalized, people employed again, and a stronger economy overall.
I’m really interested to know what you think about this. I’m not an economist, (obviously). But I really believe that this is just good common sense. We have to stop the drain on the American economy and encourage American businesses to use American manufacturing to build the products we as Americans consume. It is just the American thing to do!
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