Mimsy Were the Borogoves

Editorials: Where I rant to the wall about politics. And sometimes the wall rants back.

The Parable of the Mexican Farmer

Jerry Stratton, January 22, 2012

Alien Apple

Is Apple sending jobs overseas just to be spiteful?

“Corporations ship jobs overseas just to shave a couple of cents off of the price of their widgets. But that’s a false dichotomy, because these corporations have so much money that they could afford to just shave the price off anyway and keep those jobs in America.”

Sound familiar? It’s pretty much what Betsey Stevenson, former chief economist at the Labor Department, says in the New York Times today:

“Companies once felt an obligation to support American workers, even when it wasn’t the best financial choice,” said Betsey Stevenson, the chief economist at the Labor Department until last September. “That’s disappeared. Profits and efficiency have trumped generosity.”

It’s a bit contradictory when you put both of those thoughts together in the same paragraph—that companies ship overseas to cut costs, but that they could afford to cut costs anyway. And yet there’s a sense that it’s true. Let’s bring it a little closer to you or me to see why. Pretend, for the moment, that you have so much money you almost don’t know what to do with it.1 But, you still need to eat. You need vegetables. You could buy your vegetables from local farmers; or you could fly to Mexico and buy your vegetables there. They’re cheap enough in Mexico that it pays for the immediate cost of flying there: your total dollars paid is less.

Would you do it?

Most likely not. The money doesn’t matter to you, but the trouble does, and it’s a lot more trouble and time-consuming to go to Mexico whenever you need more vegetables than it is to pay a higher price for vegetables in your home town.

Now, let’s add a couple of wrinkles that businesses face: whenever you buy vegetables in your home town, you have to spend more time filling out forms than it would take to fly to Mexico and back. Further, once you buy from any particular farmer, you have a relationship with that farmer that you cannot break. The law requires you to buy from that farmer. Even if you find a farmer who grows better-tasting vegetables, you are still required to buy vegetables from the first farmer. You are required by law to visit him, to negotiate with him, and to pay him, for vegetables that you no longer want. And if you don’t use them, you have to find a way to dispose of them—which will require even more paperwork.

In the short run, you’re going to eat lower-quality vegetables because it’s too much trouble to buy from the better farmer and still deal with the lower-quality farmer. If you do go with the second farmer while still dealing with the first farmer, think about what happens when the second farmer’s quality drops and then you find a third farmer who grows even better vegetables!

In the long run, you’re going to seriously consider just going to Mexico.

This is what American businesses have to deal with every time they consider expanding and hiring more people. Every new employee means that much more government red tape to deal with; for small businesses every new employee puts them that much closer to government thresholds on new, expensive, time-wasting regulations.

And here’s what’s also going to happen: as the Mexican farmer becomes more desirable, farming skills will become more desirable in Mexico and less desirable in your own country. The longer it takes for your country to make it easier to buy from local farmers, the fewer local farmers it will have.

It isn’t the cost of American workers that’s driving businesses to look overseas for manufacturing hires. It’s the cost of American government! It’s Betsey Stevenson and everyone else who makes the regulations that make it more difficult to create a nimble, stable company by hiring domestically than by hiring overseas. It’s the cost of the regulations necessary to hire a new worker, to build a new plant, to manufacture a new product.

When the maker of an all-electric car needs to submit their vehicle to the EPA for smog-testing, how can anyone be surprised that American companies prefer to build overseas? When a company that actually builds a plant to hire a thousand new workers gets hit by the federal government for building it in a state with fewer regulations, how can anyone be surprised that American companies prefer to build overseas? When the President of the United States kills a Canadian/American pipeline—and all of the American jobs that a pipeline would create—after sitting on it for years, why would anyone be surprised that foreign companies don’t hire in America?

When Apple discovered a design flaw in the plastic screens on their new, about-to-be-released iPhones, the fact that they were being manufactured in China meant that an Apple executive had to immediately book a flight to the other side of the globe to work out the design changes with the Chinese manufacturers. I suspect that both Apple and the executive would have preferred dealing with someone in driving distance, but that wasn’t possible. With less than six weeks to go before their launch date, Apple was able to test new materials, redesign the screen, and rework the assembly line at the plant in time to make the launch date. That couldn’t have been done in America and it’s not because of American workers.

Apple builds and hires overseas because they need to compete with companies who are able to spin up new products in a matter of days. That means hiring new employees quickly, it means building plants quickly, it means implementing new processes quickly. Were they to try to do this in America, they wouldn’t just lose a little “efficiency”. They would lose their business. They would have a turn-around for product changes measured in months and years, not days and weeks. And they would go out of business because of it.

If the White House wants businesses to hire more people in the United States, they need to make it easier to hire people in the United States. They need to make it easier to build new plants in the United States for those people to work. And they need to make it easier to use new materials and new processes within those plants. That alone would start reversing the overseas trend.

Beyond that, though, China’s success didn’t come overnight. It’s the result of a long trend of companies going overseas and thus making the skills to fill those jobs more desirable. We need more than just a nimble regulatory environment, we need a nimble educational environment as well. That means ending government-run education both at the pre-college and the college level. We spend billions encouraging students to learn skills that they could just as well learn spending time in the library. End the insane level of subsidization going on today, and students will be encouraged to learn the marketable skills that businesses like Apple need in order to be able to hire domestically.

In response to The Bureaucracy Event Horizon: Government bureaucracy is the ultimate broken window.

March 31, 2012: The Family Cow
American Voter Breakdown 2012

When the government worker slice of the pie gets bigger than the private worker slice, look out. (From the California Public Policy Center)

You have a family of seven, with another on the way. You feed your family on the milk from your single cow. As your family grows, that milk is leaving you hungrier and hungrier and you’re starting to dream of thick, juicy steaks.

Do you kill the cow and eat well this week, knowing it dooms your family next week?

This is a trick question. Of course, you don’t kill the cow. It may hurt now to go without the meat, but there’s a mathematical certainty of doom once the milk stops flowing. It’s really a trick question: the trick answer is, why are you relying on the cow? Why aren’t you and your oldest kids doing some work too? That cow is eventually going to die, leaving you with no food at all, not even milk.

We cannot rely on a shrinking tax base of employed—the rich and the middle-class—to pay for the growing population of government workers1, subsidized workers, and an increasingly wealthy underclass.

Nor can we start killing them by taking their savings and property to pay for government programs. It might make a tasty steak once, but when that steak is gone there’s nothing to replace it. Who will want to make money (and thus pay their milk in taxes) when even the money they get to keep ends up on the table? Who are you going to sell to when potential buyers know you’ll just take it back when your resources run dry next year?

Doom is a mathematical certainty when you kill the cow.

  1. This is not where most, if any, businesses are, but let’s roll with it and see how much it matters.

  1. Netflix and Google lobbies ->