|
President Bush,
Senators Miller & Chambliss,
Congressman Linder,
Other Members of the Georgia Congressional Delegation,
Other Members of Congress,
Governor Perdue,
State Representatives Bannister, Dix, and Heard,
State Senator Henson,
Other Georgia State Leaders,
We don't know how long it will take to absorb the economic distortions that have been created by massive government spending, overbearing regulation, and our inflationary central bank policy. You cannot begin to change any of this without understanding how it works. Here’s some information that will help you understand why American jobs are being lost to workers overseas. Please take a few minutes to read William Anderson’s article about why American capital is flying out of the country.
I highly recommend anything Mr. Anderson writes. He makes economics very understandable and shows us how freedom of human action, private property, and prosperity are linked together
Sincerly,
Wes Alexander
Concerning the Export of Capital
by William L. Anderson
Posted on the Mises Institute web site August 7, 2003
In the interest of brevity, portions of this article have been truncated and paraphrased. The complete article can be found at
Conerning the Export of Capital
In the past decade, more and more U.S. based firms have been investing in new factories overseas, and especially in places like China and other Asian countries. To put it another way, American firms have been exporting capital; and capital investment results in the creation of employment overseas.
The exportation of capital is hardly new in the modern economy. During the 19th Century, the United States was a favorite investment target of firms from Great Britain and Europe. In the past two decades, a number of overseas automobile companies, including Toyota, Nissan, Mercedes-Benz, BMW, and Honda have invested literally billions of dollars in plants here. At the same time, a large number of U.S. companies have built plants in Asia and Mexico. There is nothing sinister about this process; individuals ultimately are choosing to invest where they believe their capital will get the best return.
Yet, the critics of trade insist that permitting individuals in this country the freedom to invest where they please undermines the effectiveness of the U.S. economy and ultimately leads to a lower standard of living.
As someone who once worked as executive director of a manufacturers' association, I have heard this argument before. In fact, when I was hearing manufacturers make them nearly 20 years go, such opinions hardly were new; Adam Smith's 1776 classic The Wealth of Nations was written in large part as a treatise against the Mercantilist views of his age.
Capital does create wealth, and the creation of capital is a good thing. If government policies drive investment capital away from our shores, then we can expect a lower standard of living to occur.
From environmental policies to labor regulations to the litigation explosion to the vast expansion of federal law that criminalizes what historically have been standard business practices; investors here are receiving the message loud and clear: invest capital in the United States and you are sure to have someone try to hijack the profits. You may go to prison in the process, especially if you happen to be successful.
The antipathy that the political and intellectual classes have expressed toward private capital seems to have intensified over the past decade, and especially during the last economic downturn. The current group of presidential candidates (including George Bush) do not instill confidence in the hearts of investors, as the anti-business rhetoric has been especially virulent. Since investors realize the deck is stacked against them, they continue to look elsewhere.
To believe that Americans are better off only when others are poor; is to greatly misunderstand the nature of exchange. Socialists (from the left and right) are fond of promoting the myth that economic exchange is an action that leaves one party better off at the expense of others. Thus, we hear them say that the way to reduce poverty in the Third World is for those countries to pursue protectionist, socialist policies. In the end, we see the destruction of promising economies, including Cuba, which before Castro and communism had one of the highest standards of living in Latin America.
In the case of Cuba, leftists have created a serious dilemma. First, they claim that trade between the "First World" and "Third World" creates poverty; second, they say that the reason for Cuba's poverty is the U.S. trade embargo. Yet, both views cannot be simultaneously correct, as Cuba cannot be poor both because of trade and lack of trade.
Free trade does not lower our overall standard of living. Indeed, if that were the case, then the United States, being, in effect, a huge free trade zone, would long ago have traded itself into poverty. If one says that the exportation of capital from the USA to Vietnam creates poverty in the USA, then the "exportation" of capital from New York to Georgia would have the same negative sum effect, as there is nothing magic about international borders when it comes to trade.
I emphasize again that we are speaking of exportation of capital, not jobs, since jobs are not economic goods. The way that foreigners pay for capital imported into their countries is to export those goods to this country. Yet, (some) claim that the process of exporting capital naturally creates conditions in which most individuals in this country will not be able to afford to purchase those goods made abroad.
This argument does not make economic sense. If Americans will not be able to afford the goods made with exported American capital, then there is no reason to open factories abroad with cheaper labor unless the manufacturers hope to find other markets that can afford the goods.
Much of the argument against free trade is based upon a fallacy that confuses costs and wealth. For example, assume two kids ask to mow my lawn. The first offers to do it for $25, while the second asks for $50. According to the anti-traders, the second choice is the better one, since it will "put more money into the economy."
Americans did not become the wealthiest people on earth because they are high-cost producers. Instead, they became wealthy because they were able to produce more things, and as long as the government gives investors and workers relative freedom to be productive, this will continue. However, should the government persist in its policies to attack capital and productive people through punitive regulations, laws, and taxation, then we can expect investors to look to more friendly places.
It is vital to note here that there are two processes at work, and they are not identical, although anti-traders tend to confuse them. In a free trade situation within a free market economy, investors will export capital because of the opportunity cost of free labor. For example, when Nissan opened an automobile plant in Smyrna, TN in the early 1980s, some people who were working in other factories took jobs with Nissan. They changed jobs to make more money.
In the free market case, investors send capital elsewhere because the price for local labor is "too high" to make their investments profitable. The local workers are better paid than what the investors in question can pay them, so they are not injured by the departure of capital. However, when government artificially raises the opportunity cost of labor through the regulatory and legal process, then the local workers left behind are harmed.
There is also the situation in which labor unions have, in effect, hijacked capital. The so-called Rust Belt is a case in point. For many years, militant labor unions were able to force higher-than-market wages for their labor basically through violent means. However, that also created the incentive for steel manufacturers not to reinvest when the capital became obsolete.
Keep in mind that the imposition of above market wages was not the same as the creation of wealth. Indeed, it was the long-term destruction of wealth, and when the mills closed down, the workers there did not have anywhere else to go. Thus, we see the decline of communities in the Northeast and Mid-Atlantic states that once were prosperous, but now are losing population and seeing their relative standards of living decline.
This phenomenon is not the legacy of free trade, but rather a situation caused by excessive government. Furthermore, by creating conditions that practically invited investors to locate capital elsewhere, government officials and their allies have made it clear that they do not care about the real effects of their actions. Instead, they call for even more hijacking of capital, along with laws that will coerce individuals to "invest" in domestic capital projects, then grab whatever meager profits the investments create.
This is not the solution to our current economic problems; indeed, it sends us down the same destructive road we have been following. As the Berlin Wall failed to keep productive people inside East Germany, so will an economic "Berlin Wall" here be unsuccessful as well, as such policies ultimately will mean we will have no investment and no goods, either.
To stop the exportation of capital, instead of easing the burden of government upon productive people and capital, the political classes and their allies turn to destructive methods. Punitive tariffs, tax increases and other new regulatory burdens become the weapon of choice for those who make policies.
Such policies will not improve economic conditions. They make them worse. The political classes ultimately do not appeal to good economic sense, but to destructive envy instead
I can only hope that people at some point will be willing to listen to reason, but right now it seems that the loudest voices belong to those who seek to do us even more harm-all in the name of prosperity.
William Anderson, an adjunct scholar of the Mises Institute, teaches economics at Frostburg State University.
|
