MetalMiner is pleased to introduce Mr. Sam Kinney, a personal friend and co-Founder of FreeMarkets the granddaddy of eSourcing platforms. Sam is currently incubating a couple of small technology businesses now.
We are presenting this guest column as a two part series. You can read the first post here.
To a certain extent, we’re letting the same thing happen to us. When a factory opens in China rather than the USA, it’s not just a few people whose jobs disappear. It’s the forgone income tax and social security tax revenue on those jobs that disappear. It’s the taxes on profits and capital gains that disappear. It’s the upstream suppliers and their jobs and taxes that disappear. But the demands to pay for social services for those people don’t disappear. So when that business executive does the math and locates the factory offshore, we’re forced to pay a higher percentage of our GDP in social services (social costs, the numerator, rise, while taxes, the denominator, falls). So just like we forced the Soviet Union into paying higher-than-affordable defense costs, competition from China et al is forcing us to pay higher-than-affordable social costs.
In microcosm, we’ve watched California show us the way to ruin. Executives uniformly count California as among the USA’s least friendly business climates. So they take their jobs to Arizona and beyond. So as its numerator grows and denominator shrinks, we behold our future.
How do we fix this? First, we can’t take the attitude Seattle took during the Sonics departure. Oklahoma had every right to compete for our NBA team, just like workers in China have every right to work hard and compete for our jobs. We need to wake up to that and compete back.
Second, we need to focus public policy on feeding, not bleeding, our economy. While it will take a lot to get me to relinquish my citizenship and take my economic activity elsewhere, corporate activities are fungible. Executives make decisions every day about where to focus growth. Unfortunately, our public policies make the math pretty clear, and the clear choice is offshore. To fix this, we need to lower corporate taxes, where we’re clearly among the highest corporate tax rates in the world. It’s just math. We need to pursue an energy policy that recognizes our interconnectedness to other economies. The current cap-and-trade legislation is the economic equivalent of unilateral disarmament, except with little uncertainty about the outcome. That energy policy is an economic double whammy, simultaneously raising our numerator while decimating our denominator. We need to turn our immigration policy on its head, welcoming every engineer and scientist who cares to come, bringing with them the brainpower that will design and run those factories. We need to reduce the unfunded mandatory burdens on corporations that take armies of lawyers, dozens of weeks of delay, and millions of dollars to overcome. It’s just math.
While we debate health care, let’s make sure we give the Golden Goose a thorough checkup. The only way to fund any of this is to build the world’s most competitive economy.