Ohio State Representative O’Farrell has introduced a bill in the State Legislature to penalize Ohio companies which have manufacturing plants overseas. According to the article, House Bill 601 will end tax breaks for Ohio companies which “create foreign positions while eliminating domestic jobs.”
In Washington, Senator Sherrod Brown of Ohio, is proposing similar legislation on the Federal level. Brown also came up with a new word, “reshoring”, which indicates bringing jobs back to the United States from overseas. Like O’Farrell’s proposal, Brown advocates elimination of various tax breaks for companies who have manufacturing facilities overseas or are using foreign manufacturers for the production of products to be sold in the U.S.
These legislative acts are well meaning and made with the best intentions. It would be wonderful were it possible to convince U.S. corporations to bring manufacturing back stateside by withdrawing financial support from companies who are making products abroad. But in fact, such legislation is attacking the symptom, not the cause of the problem.
A number of things must be considered, none of which are addressed by either Brown or O’Farrell. The basic problem is too much government. Laws effecting business operations are made by politicians who lack a practical knowledge of business or how an economy operates
Businesses exist to make a profit for the owners, including the stockholders who invest money in a business for the sole purpose of receiving a return on their investment. No return on investment, the stock becomes unprofitable, and the business goes broke. That’s the first economic law.
If expenses go up, return goes down, investment disappears. The largest expense is that of labor. Obviously, without the hands to do the work of manufacturing, nothing gets done. It was American labor which built this country, and it is American labor which may dictate its decline.
A case in point is Brockton, Massachusetts. Brockton was known for two things, Rocky Marcanio and shoe manufacturing. The Brockton shoe industry was started before the Civil War, At its high point in 1907, it employed 15,000 workers. In 1919, the 39 shoe manufactures in the city employed about 13,000 workers and produced more than eighty one million dollars worth of shoes. In the 1930s, after a violent union strike against the shoe manufacturers, companies started leaving the city for cheaper labor in the South, some moving to the Midwest to be closer to leather sources to lower their expenses. The shoe industry got a little boost during World War II, but that died shortly after when European footwear manufacturers began making shoes with proven Brockton techniques at lower cost because of the availability of less expensive workers. By 1964 there were only ten Brockton shoe factories, and they employed 2,000 workers. A revitalization of the shoe industry was attempted in the 1950s, but it failed. By the 1970s, there were only two or three operating shoe companies in Brockton. Now there is but one.
Expenses which caused the loss of business were government intervention and labor costs. Reports required by the federal government alone amounted to over 1.75 trillion dollars in costs to businesses in 2009. Add to this the ever increasing cost of labor because of government regulations which are favorable to unions especially in the fields of wage and benefit negotiations, and it is easy to see that many industries cannot afford to manufacture their products in the U.S. The combination of high cost to comply with government regulations, repressive corporate taxation, and high labor costs have driven manufacturing out of the country
Granted Brown and O’Farrell recognize a problem with jobs in Ohio and nationwide. What they fail to recognize is that they are looking at symptoms and not the cause of the financial difficulties we, along with the rest of the world, are experiencing. The cause of economic problems is too much government intervention into a field in which government has no knowledge. The bills both espouse will not fix the economy. Both are a threat to international companies who manufacture abroad. A prime consideration of manufacturing is to have a plant near the consumer. It was this reason that Caterpillar built plants in foreign countries, as have other American companies.
Product price is another consideration. When it is less expensive to purchase a hammer made in China rather than in Ohio, there is no question that the average U.S. consumer will buy for less. The steel industry failed decades ago because the unions did not recognize the reality that if foreign steel can be purchased for less than U.S. steel at the plant, the foreign steel would be chosen. The government’s response in these situations has been to increase welfare benefits, to seize private corporations which are failing because of poor management instead of allowing them to go bankrupt, and increasing the spending to the point of bankrupting the nation.
Government intervention in business always fails. Always. But the federal government never gets it
Brown and O’Farrell should have begun by forcing the withdrawal of government from the affairs of businesses and the citizenry. They should have asked for repeal of the minimum wage laws. They should have asked for massive cuts in both state and federal budgets including welfare of all types, including long term unemployment payments. They should have demanded that money stolen from the Social Security Trust Fund, starting with Lyndon Johnson, be returned to it with interest before any appropriations are approved by the Congress with the exception of those specifically mandated by the Constitution. They should have demanded a revised Income Tax Code which includes tax cuts for all individuals and businesses and offers immediate depreciation on all business construction, improvements, and investment in equipment. Such actions would free up investment capital and get the economy rolling again.
Of course, that will never happen. What politician would ever agree to give up the power provided him which comes from government created poverty and unlimited business control?
In Washington, Senator Sherrod Brown of Ohio, is proposing similar legislation on the Federal level. Brown also came up with a new word, “reshoring”, which indicates bringing jobs back to the United States from overseas. Like O’Farrell’s proposal, Brown advocates elimination of various tax breaks for companies who have manufacturing facilities overseas or are using foreign manufacturers for the production of products to be sold in the U.S.
These legislative acts are well meaning and made with the best intentions. It would be wonderful were it possible to convince U.S. corporations to bring manufacturing back stateside by withdrawing financial support from companies who are making products abroad. But in fact, such legislation is attacking the symptom, not the cause of the problem.
A number of things must be considered, none of which are addressed by either Brown or O’Farrell. The basic problem is too much government. Laws effecting business operations are made by politicians who lack a practical knowledge of business or how an economy operates
Businesses exist to make a profit for the owners, including the stockholders who invest money in a business for the sole purpose of receiving a return on their investment. No return on investment, the stock becomes unprofitable, and the business goes broke. That’s the first economic law.
If expenses go up, return goes down, investment disappears. The largest expense is that of labor. Obviously, without the hands to do the work of manufacturing, nothing gets done. It was American labor which built this country, and it is American labor which may dictate its decline.
A case in point is Brockton, Massachusetts. Brockton was known for two things, Rocky Marcanio and shoe manufacturing. The Brockton shoe industry was started before the Civil War, At its high point in 1907, it employed 15,000 workers. In 1919, the 39 shoe manufactures in the city employed about 13,000 workers and produced more than eighty one million dollars worth of shoes. In the 1930s, after a violent union strike against the shoe manufacturers, companies started leaving the city for cheaper labor in the South, some moving to the Midwest to be closer to leather sources to lower their expenses. The shoe industry got a little boost during World War II, but that died shortly after when European footwear manufacturers began making shoes with proven Brockton techniques at lower cost because of the availability of less expensive workers. By 1964 there were only ten Brockton shoe factories, and they employed 2,000 workers. A revitalization of the shoe industry was attempted in the 1950s, but it failed. By the 1970s, there were only two or three operating shoe companies in Brockton. Now there is but one.
Expenses which caused the loss of business were government intervention and labor costs. Reports required by the federal government alone amounted to over 1.75 trillion dollars in costs to businesses in 2009. Add to this the ever increasing cost of labor because of government regulations which are favorable to unions especially in the fields of wage and benefit negotiations, and it is easy to see that many industries cannot afford to manufacture their products in the U.S. The combination of high cost to comply with government regulations, repressive corporate taxation, and high labor costs have driven manufacturing out of the country
Granted Brown and O’Farrell recognize a problem with jobs in Ohio and nationwide. What they fail to recognize is that they are looking at symptoms and not the cause of the financial difficulties we, along with the rest of the world, are experiencing. The cause of economic problems is too much government intervention into a field in which government has no knowledge. The bills both espouse will not fix the economy. Both are a threat to international companies who manufacture abroad. A prime consideration of manufacturing is to have a plant near the consumer. It was this reason that Caterpillar built plants in foreign countries, as have other American companies.
Product price is another consideration. When it is less expensive to purchase a hammer made in China rather than in Ohio, there is no question that the average U.S. consumer will buy for less. The steel industry failed decades ago because the unions did not recognize the reality that if foreign steel can be purchased for less than U.S. steel at the plant, the foreign steel would be chosen. The government’s response in these situations has been to increase welfare benefits, to seize private corporations which are failing because of poor management instead of allowing them to go bankrupt, and increasing the spending to the point of bankrupting the nation.
Government intervention in business always fails. Always. But the federal government never gets it
Brown and O’Farrell should have begun by forcing the withdrawal of government from the affairs of businesses and the citizenry. They should have asked for repeal of the minimum wage laws. They should have asked for massive cuts in both state and federal budgets including welfare of all types, including long term unemployment payments. They should have demanded that money stolen from the Social Security Trust Fund, starting with Lyndon Johnson, be returned to it with interest before any appropriations are approved by the Congress with the exception of those specifically mandated by the Constitution. They should have demanded a revised Income Tax Code which includes tax cuts for all individuals and businesses and offers immediate depreciation on all business construction, improvements, and investment in equipment. Such actions would free up investment capital and get the economy rolling again.
Of course, that will never happen. What politician would ever agree to give up the power provided him which comes from government created poverty and unlimited business control?
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