The following opinion piece was contributed by G. Dan Hutcheson, chief executive and chairman of VLSI Research Inc.
Lately it’s become popular for the media to deride the Obama administration for creating a business climate of uncertainty that is causing American manufacturers to hold up on investing more productive capability in the United States. Now I am not going to get into politics here. The real issue is, should this perspective change your strategy or tactics in the immediate future? I don’t believe you should and let me explain why 'lack of trust' in the Obama administration will have little direct effect on corporate decisions. Other, more pressing issues weigh in far more heavily.
Uncertainty: Business is all about uncertainty. The future is always uncertain and the whole point about investing is that it happens when it makes business sense. There has to be some long-term expectation of profitability.
The issue with lack of manufacturing investment in the United States goes back three decades to when manufacturing employment peaked. It has little to do with the Obama administrations’ creation of an 'uncertain business climate.' You can’t blame every President since Reagan for it either.
The lack of manufacturing investment has far more to do with the unstoppable forces of globalization, digitization of workflows, exchange rate manipulation, and ultimately: greater foreign competitiveness via lower manufacturing costs.
I doubt that few would disagree that companies have been outsourcing manufacturing for three decades because that was the most profitable thing to do. This trend is not going to change until America becomes more competitive. By competitive I mean that it has to be more profitable to manufacture in the United States than in China, Vietnam, etc. Whatever it is that a country like the U.S. — or Germany and Japan — for that matter — makes, it must be cost competitive. For Germany it’s BMW’s, Mercedes, etc. For the U.S. it’s items like 22-nm microprocessors. So . . .
Intel didn’t get the memo about uncertainty and announced last week that it would be spending $6-8 billion in the United States to upgrade its manufacturing to 22-nm capability. Nowhere did they mention, or even hint, that the Obama administration had anything to do with the decision. The decision about where to invest was made on grounds of cost, best capability, and lowest risk. Now you could give me a ‘Yes, but …’ however then you have to argue about Samsung’s decision to build-out a foundry fab in Texas.
The bottom line is that uncertainty about what the Obama administration might do is having little measurable effect other than to increase worries about personal tax bills.
How many people who are complaining about the slow economy will buy a product made in America instead of a cheaper version made overseas? A few, but not many. The American model has been for people to optimize their personal wealth. The standard of living is higher in the US than most other places. If folks are willing to accept lower wages, they too can have jobs. We cannot have it both ways. Buy American, or accept the consequences.
CEO's answer to a Board of Directors, and the B of D answer to investors who want a quick return on investment. In order to achieve this, they will find the least expensive means of manufacturing their products. When profits are high, stock values are high. Globalization does not allow any single country or president to effectively control the laws and taxes of another country, so they have little control (beyond protectionist strategies).
If so much of the country's economy depends upon small businesses, that is where the stimulus dollars should be going. Small businesses typically cannot outsource manufacturing plants. Create an environment where small businesses can thrive and an incentive for them to keep businesses in the US as they grow.
As a Canadian E.E. watching the US for the last 30 years I've seen corporate America sell out the US, little by little, in favor of corporate profits (hence executive compensation). I've also watched corporations move globally to fight to pay the least amount of taxes anywhere in the world.
It's clear corporations take advantage globally while countries pay the price nationally. How do you fix this? Locally. Global corporations will NOT help.
Well, the obvious solution to the original question is isolationism and protectionism. However, last time I checked most companies enjoy a pretty significant export trade so to do that, we'd be taking a beating in the short term, both fiscally as well as politically. So it will never happen. So a way to slowly migrate in this direction is tariffs on imports (and thus, we will be tarriffed on exports). This is obviously very, very painful in the short term. Obama was hinting at some of these approaches (but subtly). But much of this flies in the face of US preached capitalism. Thus, this approach also probably dictates that we will need to "bring the boys home" from other countries that we are trying "educate."
Itís not logical to complain about shipping off jobs unless you're prepared to start instituting protectionist ideas.
You put way too much emphasis on the comments of one man, the Intel CEO. Intel had already decided to build their fab in the U.S. Sure, the CEO would like for his company to get a tax break for a decision that had already made. But tax breaks weren't going to affect Intel's decision. His comments were obviously self-serving, and should not be viewed as some kind of grand, omniscient statement on what is required to boost our economy.
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