I had a conversation last week with one of the more liberal members of my family (yes, I am the oddball in family politics). It really made me think and I have been reflecting on it a bunch. Here is how it went…
I was talking about how I had saved one of my client tens of thousands of dollars by helping them find an offshore supplier for their invention which highlighted to my family member how uncompetitive our nation is in many industries. (As a note, I would always prefer to make product in America but American consumers are not willing to pay 5x the cost for products, so the choice is often to source internationally or have the business fail.)
My family member asked me what can be done to make the US more competitive. I highlighted how the recent Health Care Law impacts businesses. The very quick response that I received was “but the health care law does a lot of good things” which apparently made it, in their eyes, an “acceptable” burden to place on businesses.
Here is the part that I have been reflecting upon the most. Since Americans among are the most productive in the world, there are two other factors that differentiate US labor pricing from international labor pricing: supply/demand and overhead costs. From a supply/demand perspective, countries like China and Indian have a competitive advantage but that advantage has been lessening as evidenced by the wage inflation in those countries (China is even considering loosening their one child policy). The nice thing about macro economics in the long run is that supply/demand difference ultimately even out.
So that leaves overhead as a differentiating factor between US and offshore manufacturing, which includes all of the facilities, staff and all of the regulatory, environmental and other costs applied by our government . Now, we all like living in a country with clean air, clean water, etc. and when those laws were passed, the certainly were passed on the basis that they “did a lot of good things”. The challenge that we have is that all of those good things combined cost a lot of money and impact our ability to compete. I am not advocating that we get rid of all of the laws that govern business in our country. However, we should ensure that the laws that are in place have had the intended impact and are worth the burden that they place on competitiveness/job creation and we should certainly scrutinize every new burden that we place on businesses because those burdens will only further reduce our competitiveness and hinder creation of new jobs.