Compmanies damaging Americans

First, a distinction needs to be made between offshoring and outsourcing. They are two different things. Sonny S. I doubt you object to outsourcing, you object to offshoring. You can do one without the other.

So what are you proposing? Legislation to keep jobs here? You are going to drive prices up and/or run business out of this country, just like the manufacturing firm I mentioned that left to Bermuda.

Again, I maintain you are ignoring the reality of the global economy. Reread the article I posted by Ms. Fiorina, she hits the problem on the head.

The United States can not ignore the global economy, nor can we ignore the global competition. Isolationism and protectionism are dead concepts.

You make it sound like I want to see Americans lose their jobs. Hardly. I am a realist that understands that “the good old days” are long gone, and to keep jobs here we need to change the way we think.

Do you know how much American companies earned from foreign consumers last year? An excert from the Wall Street Journel:

More Work Is Outsourced to U.S.
Than Away From It, Data Show

March 15, 2004 9:24 a.m.; Page A2

WASHINGTON – Despite the political outcry over the outsourcing of white-collar jobs to such places as India and Ghana, the latest U.S. government data suggest that foreigners outsource far more office work to the U.S. than American companies send abroad.

The value of U.S. exports of legal work, computer programming, telecommunications, banking, engineering, management consulting and other private services jumped to $131.01 billion in 2003, up $8.42 billion from the previous year, the Commerce Department reported Friday.

Imports of such private services – a category that encompasses U.S. outsourcing of call centers and data entry to developing nations, among other things – hit $77.38 billion for the year, up $7.94 billion from 2002. Measuring imports against exports, the U.S. posted a $53.64 billion surplus last year in trade in private services with the rest of the world.

Under government accounting, when a U.S. company opens a technical-support center in India that handles inquiries from the U.S., that is considered a U.S. import of services. When a U.S. lawyer in New York does work for a German auto company or a New York investment banker works on a deal for a Japanese company, that is an export of services.

The numbers suggest that congressional efforts to restrict outsourcing by U.S. companies may backfire, if they provoke retaliation by U.S. trading partners. Economists also say that U.S. service exporters – insurers, for instance – might lose some competitive edge if they can’t use foreign suppliers for call centers or other back-office operations.

“If you try to protect and limit outsourcing, you will have a negative impact on the exports of service activities, which generate a lot of jobs,” said Catherine Mann of the Institute for International Economics, a Washington policy research group.

The fact of the matter is, if we don’t make America a competitive place for American business, foreign firms will be happy to take their place. There are plenty of ways to compete, and low cost is just one way. Not every business is in the same game wall mart is in. We need to face the reality of global competition, or the global competition will out pace us. Protectionism is not the answer.

Yes, Friedman writes about the stockholder theory of business ethics. Currently, it’s not a very politically correct theory, because it states that firm managers have a fiduciary duty to act in the interest of the firm’s stockholders. Acting otherwise is a self imposed tax on the firm.

In contrast, Freeman, says that to act ethically, firms must take into account their stakeholders.

So this discussion really becomes about if American firms have an obligation to their community to keep jobs here, or do they have an obligation to their shareholders to maximize shareholder value.

In general, I believe in the invisible hand proposed by Adam Smith and backed by Friedman, firms acting in their own self interest will be of a better benefit to the community. Regulating firms through protectionism and coercion will not serve the best interest of the domestic economy in the long run.

I don’t object to the concern over jobs being shipped to India. I think we should be concerned. However, I think that we need to change our priorities and realize that firms will pack up and leave this country if we try and restrict them by ever increasing regulation. It is already happening.

We’ve seen manufacturing jobs go from Japan, to Korea, to Taiwan and now to China. As market forces raise the price of production in each of those countries, the production leaves to go somewhere else. What we need to realize is that we will never be able to compete as a workforce on wage rates. We need to compete on things like productivity and technology. Sure, wage rates may make up a bulk of production costs, I’ll take your word that it is 70% (I’ll try and do some research to confirm that), but like I said earlier, not every company competes in the low cost arena. Dell, for example, moved a call center to India for cost reasons, only to find that the service quality was reduced, so they moved the call center back here. Dell doesn’t produce computers as cheap as they can; they compete in a different arena, customization and service.

“Wages account for 70% of the price of any product/service.”

My experience in manufacturing in the US is that wages typically comprise less than 50% of the COST not the price of a product, and that includes the labor inherent in raw material and component parts. Now, if that product has to be sold to generate a 50% gross margin to cover such non manufacturing cost as insurance, legal fees, returns, etc, then labor only constitutes 25% of the selling price of the product. Furthermore, typically, products also go through a distributor who also want to make a profit. Therefore if a product that costs $1.00 to make is sold to a distributor for $2.00 who then passes it on to the retailer with a 33% margin for $3.00 who then sells it to the consumer with a 25% margin, you have labor only comprising $.50/$4.00 of the final selling price or about 13%. Offshore sourcing is a way to partially combat the ancillary costs built into companies manufacturing products now due to our legislatures allowing the lawyers to ruin this country. Don’t blame the manufacturers for trying to survive. Blame the government for allowing a breed of white collar criminal to chase ambulances.

As an aside, I am a partner in a company that has never used asbestos. However, I have had 25 asbestos lawsuits filed against my company in the last 4 years. Of course, we have no ultimate liability but it still costs us about $5,000 to get dropped from each of these suits that name thousands of defendants. Am I supposed to put a “lawyer” surcharge onto my selling price? Nobody would accept that. It is up to me to find ways to lower the cost of us making that product. Can I do that by giving it to a UAW factory with a fully loaded labor rate of $50.00 per hour or from an offshore facility that is cheaper, more sophiticated and makes a better product which also helps to lower my insurance premiums? Not a tough decision unless you happen to be a rich liberal that “cares” about the little guy. Give me a break!

Anderson, respond to my comments before adding new ones. Thanks

AvoidsRoids- The first part of the post is all over the place. What are u trying to say?
At the end of the post though, I realized you were going on an anti-lawyer, anti-legal system rant and I feel for you, it is out of whack.
It is terrifyinhg in this country that if you cannot afford a lawyer, on the civil side you are screwed financially, and on the criminal you are up the f’n creek my friend, w/ Bubba’s dick to keep you company.
I shouldn’t make a joke out of it, though, it really is scary. People go into bankruptcy to pay for private lawyers because if they don’t, the public defenders aren’t going to protect you, in fact they won’t give 2 shits about you.

Check out this article about a black man w/ a law degree from harvard and president of his class at Columbia who spent a weekend in NYC jails:

Avoids, I agree with you somewhat on the issue of $50 an hour factory workers. It is out of whack . Its what we’re left with in this country, all manufacturing jobs either pay little or too much, there is no real in-between.

Here in NYC, after 5 years on the job a garbageman makes 5 gs a year more than a teacher w/ a Masters, and at the 20 year mark…well, let’s not get into that, its too depressing (and don’t forget, garbagemen can work OT at time and a half).

“We have the worst unemployment rate in 60 years”. Ummm…no we don’t. Not by a long shot. That is just an idiotic statement. The unemployement rate is nowhere near what it was during the early 1980s for example. It’s about 6%, the same rate that it when Clinton was re-elected. Back then it was considered “low”.

Trade makes the US richer, bottom line. If you want to close off the US, then prices for clothes, shoes, manufactured goods will soar. You’ll be paying 2-3 x what you currently do. What do you now do with your savings? You end up employing Americans.

Look at it this way. What if China, etc. agreed to provide all kinds of goods not for “cheap” but for FREE. Would this be a good or bad thing? Using your logic, it would be bad. So if someone gives you something for free, that’s bad. We should be thanking them. They’re doing a bunch of menial work for low prices.

Another aspect of free trade is that the US benefits greatly from it. All kinds of jobs from drugs to computer chips are designed in the US. Those jobs would be less without trade. It’s true that there are some industries where people can say “I lost my job due to trade”. But the jobs trade creates are more diffuse and thus the people who benefit aren’t as vocal.

Another question. Why is trade bad between the US and other countries but good between US states? Maybe every state should be self sufficient in automobiles, clothes, food, etc. Make sense? No. Back in the early 1900s the clothing mills left New England and went South for cheaper labor. Things were bad for a while, but those jobs sucked (very menial) and the northeast was better without them eventually. People went to higher value added jobs. Now the mills are leaving the south and going overseas, and that’s a bad thing? People should say “good riddance”. Those jobs sucked. Dead end, menial, boring jobs.

Another aspect, education and labor. I work with some mainland Chinese. They work their asses off in school, studying things like math, science, etc. In the US we’ve moved away from those. They’re too hard, minorities don’t do as well in them so they’re racist, etc. Instead we’re into “condom educaiton”, “sex ed.”, “racism education”, etc. If those people are better educated, then of course they’re going to get some good jobs. And wages in China are about $2 an hour not .25 cents an hour.

Another aspect is labor. The labor unions and trial lawyers (both big Democrat constituencies) used to brag about ruining companies. Companies can be sued out of existence for asbestos, even if they never made it and stopped using it years ago, when it was found to be harmful. Very few people get sick from asbestos, but the legal costs are huge. Lawyers sue on behalf of people who are “scared they MIGHT get sick”. There are millions of those, so companies can and do get sued out of existence. Labor unions used to like to brag about how they had the power to break a company “shut it down!”. Well, overseas competition is now throwing these overpriced union thugs out of a job, and I say “good riddance!”.

Trade is part of freedom. If you want to be able to buy something from overseas, who is the government to stop you? With the money you save you can buy more good, some of which will be produced by people in the US. Overall people will have MORE goods and thus be richer.

Furthermore, typically, products also go through a distributor who also want to make a profit. Therefore if a product that costs $1.00 to make is sold to a distributor for $2.00 who then passes it on to the retailer with a 33% margin for $3.00 who then sells it to the consumer with a 25% margin, you have labor only comprising $.50/$4.00 of the final selling price or about 13%.

I see it otherwise. Your distributor stil has some human resources (HR) to pay along the way, and so does the retailer. Bottom line HR adds, once again, to the cost consumers pay.

Same thing for lawyers and expenses like lobbying, special taxes, etc. Each human involved in the production process, directly or indirectly, jacks up the price. Nobody works for free. HRs come with a price tag.

I got my 70% by AIM (Amvescap Investment Management) a couple of years back. Mutual fund companies are usually accurate for statistics, which I could not say for their views of the market.

Trade makes the US richer, bottom line. If you want to close off the US, then prices for clothes, shoes, manufactured goods will soar. You’ll be paying 2-3 x what you currently do. What do you now do with your savings? You end up employing Americans.

Take overpaid management out of the equation, and I doubt you would end up paying 2-3 x current price levels.

These stock options have to be paid by someone. They get away with it precisely because cheap labor gives them a big enough financial margin of maneuver too.

Suddenly, co-ops and fair-trade seems more interesting than greasing hotshot Xs bank account with millions. Im sure you`re better off with 5 $150K competent VPs than one 750K$ CEO. Just for starters, you have 5 * 40-to-70 hour-a-week people working instead of just one who delegates.

Furthermore, does our $750K CEO really need it? Is he really worth it? My hunch is that at these levels its all vanity-and-parade caprices. He can be replaced by less expensivealternatives. And 5 families benefit from this move, not just one. And, while moresocial than the current model, theres still enough incentive for anyone. I`d take $150K anytime.

Sonny, unfortunately, my posts have been going over your head. I’ve been trying to explain offshoring and offer solutions and you have offered nothing. I realize this is a highly emotional topic, but I don’t think you are thinking this one through. Good luck.

Anderson, my first paragraph was a rebuttal to Dan C’s comment in regards to labor being 70% of the PRICE of products/services. He may be correct on services but he is incorrect on manufactured products. I merely showed the math going from the manufacturing of the prodyct to the price the consumer pays for the product. I don’t find that confusing at all but perhaps it is if you are not in the manufacturing sector yourself. However, the counterpoint of saying it is all over the place is weak, at best.

As to attacking the legal system, you are absolutely correct. Ask the average American on the street what they think of our sytem. Are you familiar with the English system of Common Law? It is far superior to ours but not as lucrative to the barristers and solicitors in the UK. It also precludes the filing of suits such as I have against me in regards to asbestos by requiring the losing plaintiff to pay for my legal costs of exoneration. However, Bubba did not put our system in place. Decades of past legislatures, both democratic and republican, allowed it to be put in place. Why? Because most of them are lawyers. Lawyers are no more suited to set public policy than the ordinary citizen and are obviously more inclined to aid their given profession. What a different world we would be living in if our public policy had been set by doctors or a representative cross section of our population instead of a bunch of ambulance chasers.

Not all corporate litigators are scumbags just as not all doctors are bad. But they sure do get more than their fair share.

Anyway, people can quote Milton Freidman, Kenneth Galbraith and all the others they want. The facts are indisputable though. To survive the high cost doing business in the US, going offshore is a reasonable, albeit somewhat short term, solution.

Sorry if you find my posts confusing. It is as big an emotional issue with us manufacturers, and consumers by extension, as is strip mining in Montana, the BLM is in the western states and conscription is to the average 18 to 35 year old male when it is activated.

Avoids, you got me and Sunny S mixed up. I’m hurt.

“Sonny, unfortunately, my posts have been going over your head. I’ve been trying to explain offshoring and offer solutions and you have offered nothing. I realize this is a highly emotional topic, but I don’t think you are thinking this one through. Good luck.”

Anderson, stop being an arrogant ass. That doesn’t seem to be your style-usually.
You stated why outsourcing is done. I responded to every single one of your points - you on the other hand, did not respond at all to my counter-arguments. You simply began another argument. Let me know why you disagree w/ my counter-arguments . Show me the same respect I showed you.

This happens almost every time there is a debate on these boards: someone either ignores the original point COMPLETELY,
or refuses to acknowledge counter-arguments and tries toc hange the direction of the thread.

Anderson, you are 100% correct. My comments were directed at Sonny. Sorry for the confusion.

Brian B, nobody is saying trade is bad. Read the posts more carefully next time.

Dan C, overpaid management is a big part of the problem, but it will never change, IMO. First of all, nobody can tell companies what to pay their employees, other than minimum wage.
Second, the people who decide the salaries are the same ones making most of the money. Would you give yourself a massive pay cut?

Prob. not.

SONNY S.: I have to agree. Idealism has its limits.

And, quite frankly, I think wages and pricing are the probably the most inefficient systems on the market.

In other words, its not what its really worth that counts (value), it`s what the suckers are willing to pay for it. Or what price you can sell it to the next sucker.

How else could one explain stupidities like overpriced clothing which has no value (fashion), cosmetics (sold at markups beyond belief) and cars in the 6 figure range? And how many other examples…

Irrational exhuberance. The currency of life. GUARANTEED.

Fair enough Sonny. When you told me to send a postcard from China it rubbed me the wrong way and I wasn?t being very mature in my response. However, I wasn?t ignoring your points, but trying to show the overwhelming evidence that the best way to keep jobs here is not to complain about big business or attempt to legislate it to stay, but rather to offer changes to the current system that is causing them to leave. Believe me, we are on the same side, we both want a thriving economy for this country.

The title of this post should not be [quote]Companies Hurting America[/quote] but rather [quote]America Hurting Companies[/quote]. We are driving business out, and that?s the simple truth.

But anyway, without further ado, I?ll respond to your points.

I agree short of any means necessary. That was the point of my post about stock holder vs stake holder theory for the firm. The stock holder theory, as I said earlier, says that a firm is obligated to act in the interest of its stockholders. To do otherwise is a tax on the firm, and is in effect, stealing from the stockholders who have invested to maximize value.

So what I am saying, is I have said right from the beginning that off shoring is about increasing stockholder value, I have never claimed otherwise.

Other people and I would assume you would be one of them, believe that firms should abide by a stake holder theory. As I mentioned earlier, stakeholders believe that firms have an obligation to all of the stakeholders in the firm, which would include the old industrial towns you mention. While I want to see those towns thriving too, I think if you try and force a firm to stay there when it is against its economic interest, the firm will be run out of business in the face of global competition. The better solution is to offer incentives, by either improved productivity of the workforce, improved tax codes, or what have you, to act as an incentive to keep the firm hiring Americans.

I’ll grant you that wage rates are an important consideration, but I maintain you are ignoring other factors that may be equal or even more important, depending on the firm. As Avoids said in his post about the asbestos lawsuits, regulation, insurance, taxes and litigation have made working in this country extremely unprofitable when one must face global competition. To boil this whole thing down to wage rates is an oversimplification, and further, as I have mentioned multiple times, I have witnessed a company move to Bermuda first hand because of taxes. Believe that they saved far more in taxes than they did in labor by moving.

You have so simplified the capital budgeting process here. To just assume that there are no risks involved or that it is a simple two year payback is ridiculous. I agree that if all you are comparing is wages, than yes, it is a major savings. However, there are many additional factors involved that affect the bottom line. All of the expenses and risks I mentioned are real.

Look, let’s put all this aside for a second and get down to the issue here.

Do we wants jobs in this country? Absolutely.

How do we keep them here? It has been proven time and time again that regulation and legislation will drive up the cost of business and further exasperate the problem.

There are some things that we will not be able to compete with, and that’s fine. We need to focus on areas that we can compete in and create a climate that favors domestic employment.

Interesting post Anderson.
An aside: I agree absolutely that the legal system is out of whack, as Avoids said in his post. 1 reason why insurance costs are high is because fraud is high.
From what I understand though, Re British common law, wherein if the accuser loses they have to pay for the defendant’s expenses…that seems almost as bad as our system. What if a poor woman is raped, and accuses a wealthy man, who can afford the initial payment to a great lawyer who has the skills to get him off; for ex. OJ SImpson could afford lawyers most black men could not afford . What if the case is blown on a technicality? THe accuser then has to pay money she can’t afford…seems like that’s not the best thing either. Or what if, regardless of social class, the prosecutor simply blows the case? Or the jury acquits even though there is enough evidence to indict?
Back to subject- I read, and I wish I could remember where, that most of the Fortune 500 companies did not pay 1 cent in taxes!
Not only that, many of them are heavily subsidized by the gov’t!
So there is a huge disparity betw. what is being said by top coprs about moving abroad and what exactly are the REAL reasons.

And, if corps are moving offshore, they ought to be taxed for doing business in this country. It seems absurd a corp can move its “official” HQ to another country, while retaining all of its employees here, and save money.

And let’s not forget, companies have all kinds of tools available to escape paying taxes.

But what about us, the private individuals? THe people making well under 100gs a year, the average worker?

We lose about 28% of our money to the Fed Gov’t before we even touch it.
THen many states have state taxes, and some cities even have city taxes.
That’s another 3,4,5% gone w/out even touching it.

THen if we buy stocks and invest in the market, which is what our econ. system is based on, and make Good money, we can’t withdraw more than (I think) 2gs a year or we pay capital gains tax.

Same w/ out IRAs, where the tax is deferred, which is a GOOD thing, but we still ahve to pay it in the end!

We save our money in the bank and get taxed on the profits we make off the measly bank interest, while the bank makes money hand over fist by lending it out in the form of CCs, loans, etc.

We buy a house to rent out as an investment, and we get taxed on that
rental income at a high rate. And if the house appreciates in value so much we decide to sell it, we pay high capital gains on that!

ANd then we pay sales tax, gas tax,…its so frustrating.

SONNY S: You just described parasitism at its best.

Long live cash in offshore accounts! Switzerland here I come!