The 1992 Presidential debate had three candidates on stage, President George Bush, Democratic challenger Bill Clinton, and independent Ross Perot. In one debate questions were allowed from the audience. At the time the Bush administration was negotiating with the leaders of Mexico and Canada with what came known as the North American Free Trade Agreement. It was signed in 1992 and implemented in 1994. Mr. Perot was personally asked about how he would keep jobs here in the United States. He said, “We have got to stop sending jobs overseas.”
“if you don’t care about anything but making money there will be a giant sucking sound going south.”
Ross Perot
Perot then presented a scenario of a domestic manufacturer facing paying $12-14 /hour, with health care versus the same job in Mexico paying $1 /hour with no benefits. Click here to watch the clip.
He addressed business owners saying, “if you don’t care about anything but making money there will be a giant sucking sound going south.”
The Social Contract
The Wharton School of Business recently published an article by Stefano Puntoni titled “Outsourcing vs. Offshoring: Why Consumers Push Back on Jobs Sent Abroad.”
In it Puntoni states that employees had traditionally believed firms should support the ‘Social Contract.”
“When a company cuts domestic jobs and moves them overseas, consumers often view it as a betrayal of that norm — even if the move makes business sense on paper.”
He added that employees have a more negative view of layoffs due to offshoring than by consolidation, automation or internal restructuring.
“A U.S.-based firm laying off workers in Illinois and opening a facility in Vietnam will likely face more reputational fallout than a Swiss multinational doing the same — even if both decisions are rooted in the same logic of cost control.”
Analysis
Companies have closed shops here and located overseas primarily for one reason: cheap labor. Throughout the decades companies have sought out ways to reduce labor costs.
President Trump has stated his tariffs are in place mainly to pressure companies to relocate to the United States. So far I have not read of any announcement from Apple or any other manufacturer planning to do this. Have you?
In addition, I have read of American companies with domestic operations being hurt by tariffs because parts or supplies coming from overseas.
Solution
What should be done is what Mr. Perot referenced in the 1992 debate: raise the wages of overseas employees so they are at or closer to parity with American wages. This also includes benefits. Use tariffs just to put pressure on companies to improve the wages of their overseas workers. Do not use the fact that they are technically employed by someone else there as a cover for not doing it.
This is especially with American companies with operations in China. China is a communist country. It is technically a worker’s state with doing what is best for the working class and peasants. Where are the independent unions? What is a communist country doing with millionaires? Whatever happened to the Marxist wing of the Chinese Communist Party? Seems hypocritical, doesn’t it? But these are questions to deal with another day.
