Dangers of Our Import Economy, Part Two

From www.mcgeepost.com .Copyright © 2012 Michael H. McGee. All rights reserved. Please feel free to share or re-post all or part non-commercially, hopefully with attribution.

Part One of this series was published on my blog on October 18, 2012.

In one capacity or another I have practiced Labor and Employment Law for thirty years. Therefore I feel more than competent to state with a high degree of certainty what I am about to say. Every citizen of the United States should pay close attention to what I am describing.

From the beginning, the primary motivation for companies in the United States to move their manufacturing and customer service facilities outside the country into the developing world has been the genuine and accomplished desire to avoid the expenses of having to comply with our country’s labor and employment laws.

The flight from our country’s salutary yet excessive employment laws and regulations is the primary source of the reduction in the standard of living for the American middle class. These laws and regulations were for the most part designed by Congress to prevent the exploitation of American employees, and to hold all employers to the same standards when dealing with our working people. Now these same laws and regulations are actively putting our people out of work.

There is also a genuine and accomplished desire to avoid having to deal with labor unions, which are a peculiarly Western institution; and with the federal agencies which attempt to standardize the relationships between labor unions and management. This is a really big deal. I have always represented management in labor disputes and negotiations, so I am certainly no union agitator.

I understand, though, that in situations where management is bad, labor unions are necessary. Labor unions are a huge source of irritation and expense for management. Moving facilities out of the country eliminates this irritation and expense instantly and permanently. Every remaining labor union becomes more conciliatory when the very real threat of leaving the country is held over their heads. Labor unions which are artificially weakened in this manner are not in the best interests of our country.

There are dozens, maybe hundreds of federal and state laws that employers have to comply with when they have employees inside the United States. There are at least 60,000 pages of detailed rules and regulations concerning employment in the Federal Register. Each state has its own administrative rules and regulations which must be followed. Each one of these laws and rules and regulations adds expenses to the cost of having employees inside the United States.

Companies pay millions, even hundreds of millions, to attorneys and consultants and human resources departments to interpret and apply these laws, rules and regulations. In addition, employers must pay payroll taxes such as their share of Social Security, and such things as unemployment insurance and health insurance and worker’s compensation and matching retirement benefits.

It’s easy to make a case that the government has put far too much of a financial burden on employers, and that all this burden must be passed along to consumers by way of higher prices for goods and services made in America. Yet this is what we have, and until Congress and state legislatures wake up and reduce this burden, we must deal with what we have.

Now here’s the crux of the matter. When an American employer ships jobs overseas, or buys goods from a developing country, all the legal and regulatory burdens, and all the payroll expenses, associated with production, are immediately and permanently stripped away. All of them. Forever. Employers in developing countries cannot be touched by US employment laws and regulations. These US companies find a freedom they could only have dreamed of in the present “land of the free and the home of the brave.”

All they have to do is step lightly over the US border and most of their labor and employment problems disappear forever. They can ignore our child labor laws, our minimum wage and overtime laws, our equal employment laws, our Lilly Ledbetter law, our labor union laws, our worker’s compensation laws, our social security laws, our unemployment laws, and so on. They don’t have to worry about retirement plans or employee health insurance. They don’t have to comply with OSHA workplace safety laws and rules.

To add even more freedom of action, these US employers manufacturing goods in developing countries no longer have to worry about our environmental laws and emissions requirements. Their factories can intentionally discharge toxic wastes, and don’t have to answer for accidental spills. When byproducts of production seep into the ground they don’t have to worry about massive remediation costs. If employees become ill from exposure to contaminants, they can safely terminate them with no payment or only a token amount.

Each year environmental standards in the US are being tightened. Melinda Wenner Moyer, in the December, 2012 issue of Scientific American, says: “Traces of some of the nearly 80,000 chemical substances used by U.S. industry end up in the air, in consumer products and in drinking water. Yet the U.S. Environmental Protection Agency has only evaluated the safety of a few hundred of them.”

Oh, gee whiz…. Wait until the Environmental Protection Agency gets around to issuing regulations governing the use of all 80,000 of these chemical substances.  At the usual government rate of maybe ten pages per regulation, we’ll end up with 800,000 pages of new regulations which all companies with facilities in the US will be forced to comply with.

Never in the history of mankind have we been in a position to remove all dangers from our environment. Neither will we do so now, even if as idealists we would like to see it done. Were we to remove all the dangers of industry, we would see almost all American industry shutting down. Then we would be confronted with a whole new set of dangers from a vast population where each person was seeking to ensure individual survival. We would further become totally dependent on other nations where industry was permitted to flourish even though their industry was not perfect.

China and all the other developing countries will likely never have Environmental Protection Agencies to add costs to their production processes. These countries will react only when American consumers are being poisoned by one specific product or another.

In the developing countries US manufacturers can continue to take advantage of almost feudal conditions and peonage – as most of life was in the Middle Ages. They can go back to the way things were before our country attempted to right every wrong and correct every error.

The few “fair-trade” sellers and the pledges by major producers to monitor overseas employment practices have about as much impact as throwing a pebble into Lake Superior.

Companies in the United States have everything to gain and almost nothing to lose by shipping jobs out of the US and doing their manufacturing in developing countries. Retailers and other merchants have no choice but to buy the cheaper imported products for resale, or get plowed under by the competition selling at lower prices.

Some retailers got on the imported goods bandwagon very early and have been able to grow by blowing away their slower-to-adapt competition. As an example, for many years now, almost everything sold at super-low prices by Wal-Mart has been made outside the country, entirely without regard to US labor and employment laws and environmental laws. They’ve also been first-adopters of technology, and have probably the most efficient supply line of any company in the world. The heart of their system, though, is the selling of imported goods at really low prices. Before they could get ahead of the competition they needed to have totally unimpeded and consistent access to all these imported goods.

According to Wikipedia, the 1990s saw an era of furious growth by Wal-Mart, on a scale never before seen. In 1990, US sales were $32 billion annually. By 2000, US sales were $156 billion annually. This period of growth roughly coincides with the time from 1992 to 2000 when Bill Clinton was president.

Wal-Mart started in Arkansas and still maintains its headquarters in that state. Bill Clinton was governor of Arkansas from 1978 to 1992 except for one two-year period. His wife Hilary was a partner at The Rose Law Firm in Little Rock. Starting in the 1970s the firm’s clients included Wal-Mart, again according to Wikipedia.

Throughout his presidency Bill Clinton was a big advocate of free trade and lowering barriers for the entry of imported goods. I have no evidence to suggest that Bill Clinton took any actions as president which may have been favorable to Wal-Mart. I certainly have no reason to do other than praise Wal-Mart.

In the next part of this series we will look at what we can do to ameliorate the dangers of our import economy.