Houston We Have A Productivity Problem

Over the years I have been a proponent of buying American. However, actually buying American is a bit more difficult today than in previous years. Honda, Toyota, and Nissan all build their cars in the U.S. of A. They employ American workers and pay a livable wage with good benefits.

Andrew Liveris, CEO of Dow Chemical, and Andy Grove, retired CEO of Intel, have both made the case for making things in America. President Obama has made many comments about the value of American competition and wanting companies to move work back to America. However, this is not as easy to accomplish as it is to declare the need from the housetops.

Stanley Furniture wanted to get on the USA bandwagon and build its cribs here rather than in China or Vietnam. “The move four years ago, was a gamble that Americans would pay a hefty premium for U.S. made baby gear.” For $800 new parents could buy a Young America crib, however, competitors who had their cribs built in China would sell theirs for half as much. We the people did not see the value in buying American, thus Stanley is shutting down its Robbinsville, NC plant and looking for a buyer of its business. 300 workers will be laid off, and the facility will probably be liquidated.

Is it just baby cribs that Americans have decided they won’t pay premium prices for? Bruce Cochrane, founder of Lincoln Furniture, “attended the 2012 State of the Union Address as an example of a manufacturer bringing back jobs from overseas.” He reopened a plant in North Caroline and started building dining sets and wooden furniture. The problem, we wouldn’t pay the prices, so Lincolnton, shut down its plant last January due to a lack of orders. They couldn’t compete.

I could go on an on with blaming the consumer for this fiasco, but it is not just our buying habits that are problematic. There is the high business taxes that our businesses pay, the number of regulations that a company must adhere to, to do business in the United States, and our work force does not have the skill needed to do manufacturing work. Chesapeake Bay Candle owners, who provide scented candles to Kohls and Target, have found that employees and supervisors have problems with math. “Not middle-school math, elementary school math.” And don’t get me going on the fact that the number one reason people are unable to get hired at temporary agencies is the inability to pass a drug test. We have a plethora of problems associated with our economy. Is it any wonder why our GDP has detracted during the first quarter of this year by 2.9% at an annual rate?

One issue behind this productivity reduction is fewer business startups. When I read this in my morning paper I thought, how can they draw this conclusion? First, using the latest information available, “the creation rate of new businesses, as well as new plants built by existing firms, was about 30% lower in 2011 compared with the annual rate for the 1980’s.” Then, adding to the above, a 3.5% decline in worker productivity, has led to a loss of $1 trillion is business output. This is problematic because new startups become stronger and replace aging businesses that are no longer relevant. If this doesn’t happen then we don’t advance.

Why are startups becoming more infrequent? Surveys of small business owners indicate it is current economic policy driving this detraction. “Chamber of Commerce surveys show that roughly 80% of small-business owners believe that the U.S. economy is on the wrong track and that Washington is a major problem.” Added to the problem list is the inability to find skilled labor, a complex tax code that penalizes small business, regulations that raise the cost of doing business, and the lack of available financing, and you have why start-ups and productivity are declining.

The complexity of our system of commerce in the United States is not just hamstringing startups, but is also pushing larger established companies out the door to other countries. With a 39% basic corporate tax rate, the U.S. has the highest cost of business in the world. This has led to 20 major American companies over the last two years to reincorporate in other parts of the world. Eaton Manufacturing merged with Cooper Industries in Dublin, Ireland. “Substantially lowering its tax liabilities.”

Medtronic “announced recently that it planed to acquire the Ireland based firm Covidien and relocate headquarters to Dublin.” Medtronic is the largest company to escape, but it may be just the beginning of the escape, unless we change some things. We can argue that this is not very patriotic, but the fact of the matter is companies that are leaving are paying a premium to leave, which demonstrates the value they see in escaping the complexity of our tax systems.

Another by-product of this scenario is the vulnerability to takeover for American companies. Anheuser-Busch was “absorbed by Belgian firm In Bev in 2008, leading other American brewers to merge with international brewers for tax savings purposes. Unless we get our act together we will continue to lose business to the world, and lose our standard of living.

I have heard people complain about businesses, I have heard people complain about the rich, and I have heard people complain about inequality. But I don’t see a lot of people really trying to look at all of this from a systems perspective. If we are going to repair this situation we need to see how all of this is connected. We then need to think through where the leverage points are and take action to get the ship turned around.

We need to overhaul our horrible tax system. It truly needs to be simplified. We also need to create stronger pre-school programs that prepare children to become good students. We also need to improve our elementary and secondary schools systems to produce stronger results. When high schools don’t have enough textbooks for all their students, meaning that students have to check out textbooks to do assignments, then Houston we have a problem.

We also need more trade schools, because not everyone needs to go to college, and we need more apprentice programs. Many jobs are going unfilled because our labor force just does not have the skills. These jobs are good paying jobs.

I also think we need to raise the minimum wage rate. However, to do that we the consumer need to know that we will pay more for the things we enjoy. Whether it is our coffee, or favorite hamburger, some of the cost of higher wages will be passed on to the consumer.

We also need to overhaul our immigration system. We need both high-end immigrants and we need laborers who work in the fields. It has been proven time and time again that Americans do not want to pick fruit. So we need more people who are willing to do that kind of work.

So don’t whine to me about American companies aren’t willing to create jobs here in the U.S. if you are not willing to pay the higher cost. Don’t whine to me about how horrible American business is when you have not thought through the alternatives, we all have to work somewhere, and if we don’t we don’t eat. Other countries want to be open for business, and it appears we want to close up shop so we can play video games and sit back and watch The View. The end is coming.

And that is my thought for the day!

 

 

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