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The Myth of 'Exporting Jobs' / Artikel mises.org

verfasst von - Elli -, 27.06.2003, 23:16

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The Myth of"Exporting Jobs"
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by William L.
Anderson

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[Posted June
27, 2003]

 

[img][/img] As
U.S. trade deficits continue to pile up, and as the economy continues in its
slow-growth patterns, a number of economic commentators have been accusing
American corporations of causing the trouble by"exporting jobs."
Now, given the bounty of economic myths that economists and media pundits seem
to foist upon us, one should not be surprised at anything we read in the
academic literature or popular press, but the newest set of fallacies that we
are hearing is especially insidious.

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In his
path-breaking Principles of Economics, Carl Menger writes in the first
chapter,"All things are subject to the law of cause and effect."  While
such a truth seems to be self-evident, one needs to be careful in separating
cause and effect or determining the correct line of causality. Unfortunately,
the modern pundits are guilty of convoluting the order of things; thus, we
hear nonsensical things like trade deficits are the result of budget deficits
or that free exchange creates an overall decrease in a country's standard of
living. As usual, the"experts" blame business leaders while
politicians and bureaucrats are given a free pass.

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This is not a
standard article on defense of free trade; writers in the Austrian tradition
like Murray Rothbard, Henry Hazlitt, and Mark Brandly have eloquently
explained the process and have painstakingly pointed out why attempts to throw
sand in the gears of trading relations between individuals can only make
matters worse, and I do not think I can improve on their work.

 

However, the
"newest" set of challenges to free trade, some from the right and
some from the left, need to be answered. Furthermore, we need to point out why
U.S. businesses continue to look overseas for investment opportunities and
give a reasonable explanation as to why trying to block such activity will
only make things worse in this country.

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The first and
most important thing to point out here is that the phrase"exporting jobs"
is a misnomer. A job is not a good, nor is it a service, so it cannot be
imported or exported. Only goods can fit that terminology, and one can neither
purchase nor sell a job, so to say that U.S. corporations are"exporting
jobs" is at best to be using economic language in a sloppy and inaccurate
way; at worst, it is yet another contribution to the Keynesian morass that
pervades modern economic thinking. (One can exchange things like labor and
capital, but neither of those are jobs. The term"job" is a formal
designation we give to action associated with the creation of goods, but they
are not goods themselves.)

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That being
said, there are serious problems for which advocates of free trade are being
blamed—when, in reality, the failure of government to permit free
trade within the borders of the United States is ground zero. Far from causing
our standard of living to deteriorate, real free trade would permit new
economic opportunities not only for people at home, but also for people abroad.

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The first
question one asks is why U.S. corporations choose to do more and more of their
investing overseas, as opposed to investment being centered within our borders.
To say that corporations simply are chasing after cheap labor is only
partially correct, as there is more to successful capital investing than
finding workers willing to toil for peanuts. If that were truly the case, as
critics of the left and right are charging, then low-wage backwaters like
Rwanda and Zimbabwe would receive the lion's share of investments from the
West.

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That
individuals and corporations do not choose to invest simply where labor is
cheapest should be obvious to people, since most capital development
originating from western business owners is done either in other western
countries or the more economically advanced regions in Asia. Moreover, the
decision to invest apart from one's home country is a much more complicated
affair than the critics may be saying.

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Things like
language and cultural barriers, as well as changes in the legal environment
are important items for firm managers and owners to consider when they are
deciding whether or not to invest huge sums of money into a place.
Transportation facilities and costs, as well as proximity to a certain market
also fall into the decision matrix.

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I mention
these things because overseas investing by American firms has been especially
targeted by individuals on both the right and the left who see something
sinister in a U.S. company shutting down some operations in this country to
locate them where labor is cheaper. (If one recalls, the most repeated line
from the 1992 U.S. presidential election was independent Ross Perot's"giant
sucking sound" that would be heard if Mexico and this country were to
liberalize trade.)

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Economist Paul
Craig Roberts, who has devoted a number of his syndicated columns to trade
issues, writes that the relatively free flow of capital, technology, and
information (what he calls"outsourcing") across international
borders is not the same as the free flow of traded goods. He writes:

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Trade
implies reciprocity. It is a two-way street. There is no reciprocity in
outsourcing, only the export of domestic jobs. That's why the United States is
currently running a $125 billion trade deficit with China alone, a Third World
country.... An economy can, of course, stand some outsourcing. But
when goods and services in general are outsourced, where is the economy?<a title style="mso-endnote-id: edn1" href="http://www.mises.org/fullstory.asp?control=1248#_edn1" name="_ednref1"></a>

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Roberts has
written elsewhere that production of goods creates wealth because of the
"value added" process of manufacturing. For example, a tree is first
cut down, then sent to the sawmill, then made into lumber, and finally into
the finished product of a house, furniture, or whatever it may be. At each
stage, there is"value added" to the raw material.

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While no doubt
there are changes at each stage of manufacturing and distribution, the"value
added" concept has no place in economic thinking and clearly is at odds
with Menger's emphasis that the value of the factors of production emanates
from the value of the final product. In other words, value flows from the
final product backwards (or downwards), not upwards, as Roberts suggests. To
put it another way, the concept of"value added" is something used
for accounting purposes, but is not a true form of economic measurement.

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Beyond that,
there are other problems with Robert's analysis—although I also need to add
that the prospect of manufacturing more and more things overseas does have
implications at home, things with which I will deal (and find that Roberts in
this area has some important and insightful things to say). The first deals
with the notion that if we"ship out" all jobs, we will somehow have
nothing to do.

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For many years,
economics has been plagued with the"lump of jobs" fallacy in which
it is believed there are only a limited amount of things to do and once they
are done, people have no means of employment. The truth is the polar opposite;
there literally are an infinite number of things that must be done. As Alchian
and Allen have noted in their 1983 book [i]Exchange and Production, the
elimination of some tasks due to improved methods of productivity frees up
scarce labor to do other things. That, they point out, is how an economy grows,
a simple truth that seems to have escaped most of the economics profession.

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However, while
Roberts no doubt agrees with that assessment, his point cannot be ignored.
Take my present home of Cumberland, Maryland, for example. During the latter
half of the 19th Century and for much of the 20th
Century, Cumberland was a manufacturing center and home to many firms. However,
following World War II, firms closed down here and either have gone out of
business or relocated.

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That
phenomenon has changed the face of employment here. In its manufacturing
heyday, people in Cumberland (which had twice the population it has today)
were relatively well off compared to people elsewhere in this country. Today,
while most people enjoy a standard of living that is absolutely higher
than people here enjoyed five decades ago, they are relatively poorer compared
with people in other cities. Furthermore, the economic future here seems to be
more of the same.

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While the
changes here have been somewhat tragic, there are reasons why they occurred.
First, this area for many years has been strongly pro-union, and few
manufacturers and investors want to deal with labor unions if they can avoid
it. Second, the State of Maryland has a leftist government and over the years
has proven itself to be extremely hostile to private enterprise and private
property. Third, as Maryland's economic position has deteriorated, the state
government has taken an even more active role in trying to make up the
difference, which means high taxes, bureaucracy, and other such barriers to
private investment.

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Roberts
himself points out that the relatively well-educated but low-earning laborers
of many Asian countries gain an advantage to workers in this country because
of our legal situation. He writes:

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The
advantage (of foreign workers) increases with the absence of tort lawyer
extortions and harassing and fining IRS, EPA, OSHA, EEOC and other regulatory
bureaucracies, whose budgets demand a never ending supply of wrongdoers to be
penalized.<a title style="mso-endnote-id: edn2" href="http://www.mises.org/fullstory.asp?control=1248#_edn2" name="_ednref2">[ii]</a>

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In one sense,
the Law of Comparative Advantage still holds. If workers overseas own a
comparative advantage to workers here because of the predations of U.S.
national, state, and local governments, it still is a comparative advantage
and one cannot fault people for taking advantage of that situation. However,
we must add that such a situation is self-inflicted. If U.S. workers
want to price themselves out of market after market, they are free to do so,
but must pay the consequences.

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(The current
federal harassment of Martha Stewart is another example of this phenomenon in
action. The economic meaning of this episode to other investors, entrepreneurs,
and executives is that doing well in the United States will lead to one's
being targeted by prosecutors and tort lawyers. The end result is less
investment here, which ultimately means that Americans are wildly cheering
themselves into a long-term condition of a lower standard of living.)

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Without the
regulatory burdens that American firms typically face, much more manufacturing
would go on here. To restrict people from closing operations or investing
overseas, as Patrick Buchanan has urged, would only make things worse, however.
First, the imposition of even more restrictions, regulations, and legal
burdens would simply discourage investment; such policies ultimately would
have the effect of chilling the creation of new goods. Second, the low cost of
overseas manufacturing at least means lower costs for goods here. Eliminate
that possibility and we have the prospect of no jobs and fewer goods at
home.

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To put it
another way, U.S. policies already in place lead to fewer economic
opportunities. Choking off the possibility of overseas investment will not
improve the situation here. In this case, Buchanan is presenting a false
choice: he declares that if firms in this country are forbidden to invest in
other firms, they will invest the same amounts of money here. That simply is
not true.

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On one last
issue, Roberts also has written that the growth of U.S. agriculture sales
abroad is proof that we are becoming a Third World economy. Given the nature
of vast growing lands in this country, that is not an accurate assessment of
things. Not only does this country enjoy the lands where agriculture can
thrive, but also his picture of U.S. farming being a low-tech, peasant-like
activity is also false.

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Farming in
this country is both capital intensive and extremely high-tech. A productive
U.S. farm cannot be compared with a small plot of land worked by peasants in
India. Granted, this leaves out the discussion of environmental regulations,
farm subsidies, and the irresponsible government distribution of water in arid
regions to agricultural entities located in the western states, but to say
that the production of food somehow is a lowly thing is a bit silly and
ignores the scientific advancements that have been made in this area.

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In short,
Roberts is partly correct. Policies pushed by politicians and bureaucrats in
this country have eliminated many economic opportunities. The answer, however,
is not to close off our borders, but to close off the government. We cannot
have big, intrusive government and a healthy economy at the same time. 

 

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William Anderson, an adjunct scholar of the Mises Institute,
teaches economics at Frostburg State University. Send him MAIL.
See his Mises.org Articles
Archive. 

<div style="mso-element: endnote-list">
<div id="edn1" style="mso-element: endnote">
<a title style="mso-endnote-id: edn1" href="http://www.mises.org/fullstory.asp?control=1248#_ednref1" name="_edn1">[i]</a>
Paul Craig Roberts, “Notes
for Free Traders,”  March 5, 2003.

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<div id="edn2" style="mso-element: endnote">
<a title style="mso-endnote-id: edn2" href="http://www.mises.org/fullstory.asp?control=1248#_ednref2" name="_edn2">[ii]</a>
Ibid.


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The Myth of 'Exporting Jobs' / Artikel mises.org - - Elli -, 27.06.2003, 23:16