As we move closer to the November elections here in the USA, we’ll be hearing more and more politicians tell how they are going to start punishing companies that ship jobs overseas.  It sounds so nice and so American.  We want to keep jobs here instead of having people in India, China, or elsewhere do “our” jobs.

If you are patiently waiting for your job to come back to the USA based upon the promises of a politician, you are wasting your time.  In fact, your job won’t come back to the USA.  In a global economy, they were never “our” jobs to begin with.  You would be better off learning a new skill, or taking what we teach here at The Entrepreneur School, and starting your own business.

Under capitalism, there is an idea called creative destruction.  This idea applies to technological changes that can completely wipe out certain industries.  Also, a competitor could come in with a better & cheaper product, and completely take your market share.  That’s just the reality of the system.  It’s a system based on change.  Those who don’t change or adapt new skills lose their jobs.  Companies that don’t change or adapt go bankrupt.  It’s harsh, but the opposite is a controlled system where supply is dictated by the government as opposed to demand.  That hasn’t worked out very well in the countries that have tried it.

If your competitor has a way to make their product cheaper, they can begin charging less for their product.  If you don’t follow suit, you will be out of business.  And in a global economy, your competitor is not just another USA company.  You are competing against every company in the world in your industry.

The debate about outsourcing and jobs moving overseas is one of simple economics.  In fact, each of us as consumers act in a similar manner every time we walk into a store.  If there are two similar products and one is $10 more than the other, most of us will choose the cheaper product.  The same applies for companies.  There are a number of inputs that determine the final price of a product.  If one of those inputs is $10 cheaper in another country, the company will choose the cheaper input.  And as noted above, if they don’t choose the cheaper input, someone else will.

If a product is labor intensive, like the production of a t-shirt, that simply means that labor will be one of the most costly parts of the product.  If a USA worker makes $7+ an hour and a East Asian worker makes $0.50 an hour, who do you think the company will choose?  The company has to recoup that labor cost in the price they charge for the t-shirt.  If competitors from the USA and other countries are selling t-shirts for $15 and you are making your shirts in the USA, your cost of production is likely more than $15 for each shirt.  You simply can’t sell a t-shirt for less than the cost of the production and hope to stay in business.

So, your choice becomes this – do we move the labor intensive jobs overseas in order to keep the company in business or do we keep producing in the USA until we run out of money?  This would be a pretty simple, yet heart-wrenching decision for the majority of business leaders.  Many people will lose their job as a result of the decision, but many more people will lose their job if the whole company goes under.

The hopeful outcome is that moving labor-intensive jobs oversees frees up profits that can be used to expand into new product categories.  These new products will require creative designers, managers, etc.  These new roles would likely be filled at headquarters in the USA.  Now, for the labor intensive worker, this creates a dilemma.  If he/she doesn’t have the skill set for this new type of job, they will likely get left behind.  A useful role of the government in this case would be to make new skills training easy and inexpensive.

On the other hand, if the government does try to bring jobs back to the USA, this is the way that decision will play out:

1. USA companies that are given incentive to produce in the USA will become less competitive.
2. Foreign companies that are not required (or given incentives) to produce in the USA will flood the USA market with the lower cost goods.
3. The USA will combat against these foreign goods though the use of quotas to limit/exclude foreign goods or through the use of a duty (tax) that makes the price of the good equal or more than the USA-produced good.
4. Consumers will suffer the consequences as prices increase due to the higher cost of USA-produced goods.
5. The new Bureau of Consumer Financial Protection will be inundated by angry consumers who now have their manufacturing jobs back, but can’t afford what they want to purchase because it’s too expensive.

Even though it is extremely painful to lose labor-intensive jobs, it’s a natural function of the global economy.  If this is reversed because politicians make it sound nice to keep jobs in the USA, everyone will suffer.