Reply #61: There Are Things That Can Be Done

[ProfessorGAC]

First and foremost let me preface by saying:

Companies that outsource manufacturing jobs are doing so because they are essentially mismanaged. Have any of you looked at the financial statements of the large maquilladora or Chinese impex firms? Moving to Mexico or China has not made them into profit monsters! They are operating like "decently" successful firms despite the fact that they took 11 to 15% off their bottom line expenses in one fell swoop.

This is indicative of mismanagement at the highest levels. It's one thing for a firm to open an overseas location in order to have a presence in the region and access to that market. But, we all know the companies that moved Mfg. jobs there with the intention of re-importing 90% of output to the U.S. That should have made them market titans, but instead had almost a negligible effect on cash flow and net income.

Now, there are things to be done: First, a company should not be able to declare expenses assigned to the direct or indirect costs of any overseas facility from taxable income, if the output of the facility is reimported to the United States at anything over, (just tossing a number out) 1/6th of total output. That gives the truly globalizing firms a fair opportunity to grow but reduce the incentive to move mfg. jobs.

Secondly, any firm that shows improvement in cash flow or profitability that can be shown to be 40% or more due to workforce reductions in U.S. facilities should be forbidden by law from providing bonuses to corporate officers. The decision to enhance profitability by getting rid of people is not a strategic thought. It's purely tactical, and big execs don't get paid to think tactically. If that's the best they can come up with, they should go without any bonus plan.

Thirdly, incentivize firms to accept lower net income by making the corporate tax structure more progressive. Some companies will avoid lay-offs just because it will push net income into the next tax bracket. The net gain will be too small to make it worthwhile.

All of these would be disincentives to move mfg. jobs offshore when the productivity v. direct cost equation still favors american workers in a large majority of manufacturing sectors.

So, it's not just a red herring. There are things that can be done.
The Professor