Free Trade - Good for Owners, Bad for Jobs
My First Hand Experience
By Michael T. Robinson
Founder and Chief Career Coach
www.CareerPlanner.com
I have a few personal examples showing that "free trade" is bad for our jobs, but good for the owners of companies. This comes from my experience doing business. I even moved factories from California to Mexico. Plus I have seen how other countries do a better job of protecting their jobs than the United States does. And I can explain why this is so, and why it does not have to be this way.
What amazes me is that many leaders and top politicians, whom I respect, are all for Free Trade. But they never explain why. My paranoid side suggests they might know that Free Trade is great for businerss owners, lobyists and those with wealth.
Example 1 - Moving factories from California into Mexico
In the early 1990's my boss told me to move the companies oldest product line from California to Tijuana, Mexico.
The company had already owned a factory in Mexico for over 17 years. They we just finishing adding a new building. My job was to move production down there, without screwing up delivery and quality to our customers.
The production workers in California were some of the oldest employees in the company. Mostly women who sat at a bench or machine and mannualy assembled electronic parts. Many of these ladies had worked their entire lives at this company and on this production line. They would all lose their jobs after this move. Fortunaley, most were already near retirement age. Fortunaely many had made a lot of money in the company's profit sharing which was invested in real estate just a mile from the beach.
So over a 56 month period we moved the production line into Tijuana. To train the workers in Mexico, I brought the ladies from California down, for several weeks. It was a vacation for them. I got them a hotel in San Diego and bussed them accross the border each day.
But once the move was complete, there were ~ 30 less jobs in the US and ~30 new jobs in Mexico.
Italy and Germany, Two Coutrnries That Protect Their JObs Better Than The US.
That same company, where I move the jobs into Mexico, also owned two factories in Italy. In fact, one factory produced almost identical products as that production line I moved into Mexico.
This was very inneficiant. Two separate factories in two separate coutnries building the same products.
So another boss at the company said we have to consolidate and shut down one factory. We argued and debated for almost a year. Here was the problem. The labor cost in Mexico was about $50 per week for an assembler. Somthing like $1.00 per hour with benefits.
The labor cost in Itally was over $30 per hour including benefits.
These products were labor intensive. Lots of manual labor to assemble and test. The products were so mature that the market was not growing and eventually a newer technology would replace them. we could not justify automation.
Based on labor cost of $30 per hour in Italty and $1.00 per hour in Mexico, which factory would you shut down?
You might be surprised that we shut down the lower cost line in Mexico and moved it all to the high cost line in Itally.
Why? The Italian governemnt had such strong laws in place to protect its workers, that it would have cost us millions in penalties if we tried to lay off the Italian workers.
That is my point. The Italian government, and maybe the unions there made it impossible for us to doing anything that would reduce Italian jobs.
That is what I think America should do.
So who benfited from this. The management and owners of the company who avoided paying huge penalites to the Italian government.
Germany protects its workers and steals jobs from the US
In 2015, a German company bought the company I've been talking about. As a result I took several trips to visit their factories in Germany and Austria. A couple of things surpsed me:
Most of the staff in this company had PhD.s. I have never seen so many PhDs. Not just in the technical areas, but throughout. Aparently Germany and Austria provide tuition free education. At a meeting in Austria, management of this German company bragged that between the factories there and the University, they had graduated 4000 people with advanced degrees.
There plan was, and still is, to shut down the factory in the USA, and replace those workers with Germans or Austrians.
All the while the American government allowed this to happen. Without so much as any noise at all.
The company was somehoe using German government or German bank funding to buy up US comapnies.
Shortly after buying the company I had been working for, they bought another high tech American company, and they are planning to move all those jobs to Germany etc.
By the way, the company I worked for had been around, in America, for almost 70 years. They had been on the New York Stock Exchange for over 50 years, and the same founder had been Chairman all thos years.
But the US government just sat by and let this happen. I would call that stupid.
NAFTA,
Free Trade Example 1 - NAFTA
Bill Clinton pushed North American Free Trade Association bill (NAFTA) through in the early 1990's. I was running a business with factories in Mexico and Italy at the time.
At the time, the public was told this would be good for everyone. we were told Free Trade would benefit it us all. I would call that a lie.
The result was as someone described it, a "Giant Sucking Sound" as jobs moved from the US into Mexico and Canada. Automotive jobs, beer brewing and bottling jobs, parts making jobs all moved into Canada and Mexico. Who benefited. Not the people who lost their jobs. Not the small local businesses where those people shopped. No. Only the company owners and maybe some top management benefitted.
Before NAFTA, if you wanted to bring products into the US from Mexico, Canada, etc, you probably would have to pay a duty, a customs fee.
The US government had a huge list of products and duties. The book that held this info was several inches thick. I know because I was bringing in some products from our Italian factrory and selling it to US customers. On some of these products I had to pay 6 to 10% customs fee to bring them into the US. As a business man I hated that.
But who did that help? We had a US competitor who built the same products in their Pensilvaia factory. They now had a 10% proce advantage over me. So guess what. They would usually win the business and that benefited their workers rather than us getting the business and bennefiting our Italian workers.
So if you move a factory from USA to any other country, usually one with lower labor and environmental costs, the owners of the company will benefit by having lower costs and higher profit margins. A few of the managers and employees might benefit through higher bonuses, becausew they reduced costs and increased profits. But the workers and most employees, including high paid jobs like engineers and managers will all suffer and eventually lose their jobs.
Because basic business decisions and financial analsys show that moving to a coutnry with lower costs wil make sense for the owners of the company, there has to be something that stops them from doing that and shippng jobs offshore. The US government has to step in and impose duties, tarrifs on importing those products into the US.
Businesses will normally not keep jobs in the US if they can get it done cheaper in another country.
Mitt Romney and Bain Capital Ship American Jobs to China
Here is another example of how the owners and sometimes the top management of an American company don't care about shipping American Jobs offshore. Even when they are a 2012 presidential canddate who is running on job creation.
Mitt's company had purchased a profiable manufactuer on the East Coast of US. Then they took out loans on the business and they started charging high management fees. Now the company was looking less and less profitable. Then they started moving the jobs to China. At some pooint, the company could not pay off the loans and they went bacnrupt.
Guess who made out. Mitt Romney's company - the owners. They already got their money out through those loans. Whoever loanded the money lost, and the workers lost.
Baqsically American owners and top management don't care about jobs. They don't care they are gutting the middle class. They just want to get richer.
In Germany it's different. There is a belief that once a company is making a certain amount of profit, they need to invest in more people and more technology.
The Solution
The solution is simple to understand, but very difficult to achieve.
- The US government must understand that Free Trade does not add jobs and does not help build the middle class
- The US governemnt - congress, and the president must stop allowing American companies from shipping jobs offshore
- Stop all foreign companies from purchasing American companies, because they will move jobs off shore
- Stop mergers and acquisitions in America. When you merge two companies, many jobs are eliminated. Management and owners dont' do a merger unless they expect to see large scale cost cutting - which means layoffs of American workers
Why Does Congress and The President Still Support FREE TRade
There are only two choices:
- Our leaders and government are still under the illusion that Free Trade is good and that it works well. MTheir economists keep repeating it. So maybe they really believe it. Maybe, theoretically, Free Trade will work out better - after a few hundred years when the wages in India, China, Vietnam have reached that of American wages.
- Or do they know that Free Trade results in jobs going off shore? If so, then they must be the owners or they are getting paid off by the owners.
Remember, other countries like Germany protect their jobs because they know it leads to a stronger economy and a stronger tax base.