Friday, August 3, 2012

American Outsourcing and Relocation

"Within the next 5 years, we'll be bringing outsourcing companies to the moon."
 Above is a picture of Texas Governor Rick Perry with part of the XCOR Aerospace team. Behind them is XCOR's Lynx spacecraft. The caption was written by the author of this article and is not from either XCOR or Gov. Perry.



American companies are outsourcing. They are moving. They are relocating. Some myopic individuals blame the companies and corporations doing so for much of the economic stagnation we've experienced over the past 3 1/2 - 5 years. With a little bit of a common sense look at the facts, however, you really cannot blame the companies that are doing so. Some day soon, they may start relocating to the Moon or to Mars. It's not just science fiction anymore. It is a distinct future possibility.



Clark Howard is a consumer and financial talk show host (as well as television personality). Clark is not overly political. He is about saving people money and protecting people's credit. Recently, Clark recommended an online company for discounted eye glasses. The issue people have with the company Clark recommends is that the glasses are assembled in China.

China is a socialist/communist country. In many aspects, they are a oligarchic tyranny that we, as Americans, ideologically oppose. However, on the global scale, in the world market, they operate with a much more capitalist model than we do. They offer lower capital costs and lower taxes on capital. They offer lower regulatory fees. They offer fewer costly regulations.

So, many US companies are now outsourcing their manufacturing to China. The labor costs (human capital) are lower. However, that alone isn't the draw. It is just part of it. If the other taxes, fees, and other associated costs were lowered here in the USA, paying higher labor costs would be offset, bringing those jobs back to the US.

So, where do all of these additional sums of overhead originate? They come from two places. The first is the unions. Unions force wages to be above fair market value. In addition, they force companies to pay into multiple benefit funds, usually ones charging above the fair market value, as well, for the same services through other companies. But the union organizers get kick-backs from the insurance companies, etc., that they set the retirement funds and medical insurance group policies through.

However, the bulk of the overhead costs come from over-regulation. The federal and many state-level EPAs have regulations set for manufacturers that require employment of technologies that do not yet exist. It isn't just that the technologies are new and expensive, they don't exist. In the few cases they do exist, the technologies are still in experimental stages and not yet proven to work (much less work efficiently and effectively). Then you have this regulatory fee and that inspection fee and this re-inspection fee and that compliance fee and this licensing fee... . Add them all together. Then add in the fact that the US has the highest capital gains tax rates and highest corporate income tax rates in the world.

On a national scale, several states are seeing their companies flee to greener pastures. One recent example is XCOR Aerospace. XCOR was a California business set in the Mojave Desert. Recently, they had enough with the high regulatory fees, taxes, and ridiculous paperwork requirements in California. They pulled up their tent stakes and moved to Midland, TX. Midland even paid $10M in local, public funds to assist XCOR in the move. XCOR is increasing their workforce in addition.

Here is another great little bit for Xcor Aerospace  employees. XCOR can actually cut their salaries by 4.3% and the employees end up netting a raise. How could this happen? California's state income tax is 9.3%. Texas's state income tax is 0.000%. There is none. So, even with a pay-cut of 4.3%, the employees will get a raise greater than the current inflation rate. These numbers are just demonstrative. There is no indication that XCOR is reducing any salaries at all. So, the employees are actually getting that full 9.3% raise in take-home pay, at a minimum.

Texas not only has a 0.0% income tax rate, but is also a "right to work" state. That means that XCOR's employees cannot be forced to join a union and pay union dues against their wills in order to have their jobs.

Xcor Aerospace just might be hiring. What is their business? They build spaceships. They want to be the first private space shuttle company in the world. They are well on their way to becoming just that. "Houston, we have a problem. The problem just moved to Midland and is making money while we, NASA, are broke."

Is XCOR evil for relocating to Texas, even though they get a better deal for their business, better deal for their employees, lower costs of living for their employees, and a better work environment? Are they evil for bringing more jobs to Texas, which is comparatively booming in contrast to the state of California, which is going bankrupt?

Some may say this argument is moot since XCOR stayed in the US. The concept is the same. California's failing policies and "progressive" tax model are murdering business and citizens alike. Federal regulations, taxes, restrictions, and obvious hatred of prosperity, growth, and achievement are doing the same to our nation's companies, forcing them to relocate on the global level.

We shouldn't blame them. We should ask them what wrongs we're doing to them and what it will take to get them to move back.  Instead of blaming the companies for finally ending the abuse, turn that finger around and point it at those abusing them into leaving.