Banishing Businesses
By William Norman Grigg
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Source: The New American, January 12, 2004
The
burden of socialist regulations here at home, not corporate greed or
even low foreign wages, is the single most important factor driving
U.S. manufacturing jobs abroad. |
In
December, as the Dow crested 10,000 for the first time in over a year
and major retailers came under siege by Christmas shoppers, recovery
seemed to be at hand. But looming behind these glad tidings was the
specter of “outsourcing” as U.S. companies, seeking to cut costs, send
well paying jobs in manufacturing and technology abroad.
While it’s true that the economy has created many new jobs, for the
most part they pay much less than the jobs being lost. Notes former
Treasury Department official Paul Craig Roberts: “In November the U.S.
economy was able to create only 50,000 private sector jobs — almost all
in low-paying services [such as] temporary help, accommodations and
food services (hotels, restaurants and bars), and hospitals and
ambulatory health care services. This pattern has held through the
second year of the ‘economic recovery’ that began in November 2001.
Such jobs cannot support families and most might be filled by recent
legal and illegal immigrants.”
In the two-year period ending in November 2003, the economy created
roughly 500,000 jobs capable of sustaining a middle-class lifestyle.
However, continues Roberts, “all of the income from these 500,000 jobs
is offset by the loss of 549,000 manufacturing jobs in the last 12
months. During its second year of ‘recovery,’ the overall economy
experienced a net loss of 183,000 private jobs....”
Many critics of outsourcing insist that the trend is a reflection of
incorrigible corporate greed and abysmal foreign wage rates. However, a
new report from the National Association of Manufacturers (NAM)
documents that the federal regulatory burden is the single most
important factor behind the exodus of jobs from the U.S.
“U.S. manufacturing has demonstrated the ability to overcome pure wage
differentials with trading partners through innovation, capital
investment and productivity,” comments James Berges, president of
Emerson, a St. Louis-based manufacturer of industrial equipment. “But
when the additional external costs [of government regulation] are piled
on, the task becomes unmanageable, even in the best companies.”
Simply put: Many, if not most, American businessmen who relocate abroad
aren’t abandoning our nation’s free enterprise system. They’re fleeing
socialism.
The Big Five
Using a standardized measurement called unit labor costs, the NAM
report compares U.S. industrial competitiveness with that of our nine
biggest trading partners: Canada, Mexico, Japan, China, Germany,
Britain, South Korea, Taiwan and France. This approach allowed
researchers to calculate government-imposed “structural costs” on
manufacturing in each country. As NAM President Jerry Jasinowski
summarized, the findings demonstrate that “We are essentially shooting
ourselves in the foot competitively by making it too expensive to make
products in America.”
As our trade deficit grows, and high-paying jobs depart our shores,
many American employers and workers have come to believe that we must
enact protective tariff barriers to block foreign imports. But imposing
high tariffs on foreign goods would do nothing to repair the damage
being done to the economy at home. The NAM study illustrates that
American businesses could compete successfully in the international
marketplace — if they were relieved of the onerous burdens placed on
them by Washington.
According to the NAM report, “domestically imposed costs — by omission
or commission of federal, state, and local governments — are damaging
manufacturing more than any foreign competitor and adding at least 22.4
percent to the cost of doing business from the United States.... Once
these underlying cost pressures are understood, it becomes clearer why
much of U.S. production is moving offshore.” In fact, the report
asserts, “the absolute value of the excess cost burden on U.S.
manufacturers (nearly $5 per hour) is almost as large” as the basic
production cost in China.
NAM highlights five critical obstacles to an economic recovery in the manufacturing sector:
- Excessive corporate taxation.
- Escalating costs of health and pension benefits.
- Escalating compliance costs for regulatory mandates, particularly
those related to workplace safety, pollution abatement and corporate
governance.
- Rising energy costs, particularly natural gas.
- Sluggish capital investment (outside of information technology).
Of these factors, the cost of regulatory compliance is the most lethal.
“Compliance costs for regulations can be regarded as the ‘silent
killer’ of manufacturing competitiveness,” observes NAM. “Often
developed without an objective cost-benefit analysis, regulations have
steadily increased in quantity and complexity, regardless of which
political party controls the executive branch.” A reasonable estimate
of the costs inflicted by economic, environmental, workplace and
tax-compliance regulations “is in the order of $850 billion — with $160
billion on manufacturers alone, equivalent to a 12 percent excise tax
on manufacturing production.”
NAM’s estimate of total compliance costs is nearly identical to the
findings reported in “The Ten Thousand Commandments,” a recent paper
produced by economist Clyde Wayne Crews Jr. of the CATO Institute.
Crews’ basement-floor estimate of regulatory costs was $860 billion a
year. To put that figure in perspective, it’s useful to note that in
2002 the federal government collected $949 billion in individual income
taxes and $201 billion in corporate income taxes. Thus the hidden tax
imposed by regulations is at least comparable in size to fedgov’s total
take from individual income taxes, and more than four times as large as
total receipts from corporate income taxes.
According to Crews, “U.S. regulatory costs of $860 billion exceed the
output of many entire national economies.... U.S. regulatory costs
exceed the entire 2000 GDP of Canada, which stood at $701 billion. The
regulatory burden also exceeded Mexico’s GDP of $574 billion.”
Estimated federal regulatory costs also exceeded the total of pre-tax
corporate profits in 2001 ($699 billion). With U.S. regulatory costs
exceeding the GDP of our “NAFTA partners” and dwarfing total corporate
profits, it stands to reason that overburdened American businessmen
would be driven abroad in search of more business-friendly environments.
Our nation’s out-of-control system of tort litigation also plays a
critical role in driving business abroad. In 2001, the costs of the
U.S. tort system climbed to $205 billion, “or just over 2 percent of
GDP,” comments NAM. “A least one-third of this increase has been due to
an upward reassessment of liabilities associated with asbestos claims.”
Asbestos litigation was an outgrowth of the 1986 Hazard Emergency
Response Act, which required “abatement” of asbestos in public school
buildings. Three years later the Environmental Protection Agency issued
regulations effectively banning most uses of asbestos in both public
and private buildings by 1997.
More than a decade ago (see our article “Independent Businessmen, an
Endangered Species?” in our November 19, 1990 issue), THE NEW AMERICAN
warned that the federally abetted asbestos scare — propelled by
now-discredited claims linking the substance to cancer — would decimate
our economy. Unfortunately, the NAM report validates those earlier
warnings.
The economic damage inflicted by the eco-leviathan is hardly limited to
asbestos abatement. NAM points out that “pollution abatement falls
disproportionately on the shoulders of manufacturers,” who accounted
for 83 percent of pollution abatement expenditures in 1999. “On a
trade-weighted basis,” observes the report, “the burden of pollution
abatement expenditures alone reduces U.S. cost competitiveness by at
least 3.5 percentage points.” Of our nine largest economic competitors,
only South Korea spends more on pollution abatement as a percentage of
GDP; this is true even of the so-called green economies of the European
Union.
Congressional Abdication
Congressman Ron Paul (R-Texas) recently recounted an interview in which
several American businessmen were asked why they opened production
facilities in Communist China. Their reply: “It is so much easier to
start a business in China than in the United States, especially in
places like Massachusetts and California.” Given that the external
costs of government regulation are nearly the same as basic production
costs in China, that answer makes tragic sense.
It should also be remembered that the hidden tax imposed by regulations
are passed on to consumers. As cheaper foreign goods become more
available, an increasing number of Americans simply forgoes paying that
hidden tax by choosing the less expensive imports. This contributes to
the outsourcing of jobs abroad, which in turn contributes to the
accelerating erosion of our manufacturing base — the foundation of our
middle class economy and an indispensable element of our national
security.
The dire implications of NAM’s findings were clear even to the
editorial staff of the liberal Christian Science Monitor. Although it
maintained that “some costs — those for pollution abatement is one
example — are the price for a civilized society,” the Monitor admitted
that the study “underscores the importance of weighing the burden of
government policies on the nation’s ability to retain well-paid
manufacturing jobs.... [I]f the U.S. wants to retain manufacturing
jobs, it needs to review how each tax and regulation reduces industrial
competitiveness, and then decide on the tradeoff.”
The federal regulatory apparatus is often described as the “fourth
branch of government.” Unelected and unaccountable regulators not only
devise their own “laws,” but are also empowered to enforce their own
rules, acting as the accusers against violators and functioning as both
judge and jury.
The fourth branch also imposes taxes, albeit of the hidden variety.
CATO Institute economist Clyde Crews refers to regulation as
“off-budget taxation”: “[R]ather than pay[ing] directly and book[ing]
the expense of a new initiative, [government] can require that the
private sector and lower-level governments pay,” comments Crews. “That
process sometimes allows Congress to escape accountability and to blame
agencies for costs.”
Each year, literally thousands of new regulations are emitted by the
Environmental Protection Agency, the Departments of Transportation,
Treasury, Agriculture, Housing and Urban Development, and Interior, the
Occupational Safety and Health Administration, and so on. And as the
regulatory leviathan grows, it increasingly sucks up revenue, resources
and manpower that otherwise would be invested in productive pursuits —
thereby driving an increasing number of businessmen and investors
offshore.
Ending what Crews calls “regulation without representation” would
greatly aid our economy. “Whatever measures Congress uses to address
the regulatory state, dealing with the root of the problem requires
ending excessive delegation, or ‘regulation without representation’” he
observes. “Congress should not have bureaucrats to blame for regulatory
excess that is Congress’ fault.”
During the late 1990s proposals were made to require Congress “to OK
significant agency rules via an expedited process before they are
binding,” Crews continues. “Article 1 of the Constitution grants
legislative power solely to Congress. In that vein, major agency
regulations should be turned into bills requiring congressional passage
and a presidential signature — no more or less than ordinary
legislation. Sensible regulatory policy, as well as constitutional
government, demands that every elected representative be on record for
significantly costly regulations. Some might complain that voting on
regulations would bog down Congress. But do we want Washington making
so many laws that lawmakers can’t even pass them all during their
waking hours?”
Actually, having Congress get bogged down in the process of enacting
new regulations would be a very desirable outcome: The longer Congress
takes to pass such bills, the likelier that they will wither and die
before becoming laws; fewer laws would mean a reduction in the hidden
tax that is suffocating our business economy and steadily undermining
our standard of living.
And as Congress actually assumes the burden it has unconstitutionally
delegated to unaccountable bureaucrats, politicians will start
absorbing the political costs of regulating productive citizens. This
should radically reduce the size and expense of the regulatory state —
which is the only real hope for reviving our battered manufacturing
economy.
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