A Cynical Look At Labor And Capital These Days

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Poet
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A Cynical Look At Labor And Capital These Days

Big Disclaimer

I'm not saying most entrepreneurs are like this. There are a lot of great, conscientious, patriotic American entrepreneurs and corporate leaders. Some of the good people are right here in this community. They care about their employees and their communities.

But we all know many American companies are doing exactly this. And that is why I wrote the following:

---------------

I'm not an entrepreneur. But if I were a cost-conscious, uncaring bastard of an entrepreneur today in the United States, I would:

Labor Cost Reduction Strategies

1. Get college-degreed, unpaid interns to do a lot of the office work and grunt work required in the U..S. - and every few months, bring on more interns while letting the previous interns go with glowing letters of recommendation. After all, 85% of recent college graduates are returning to live with their parents anyway. Their parents can subsidize the cost of my free employees, with room and board and spending money, and health insurance up to age 26 (under the new health care law).

2. I would outsource a lot of my work to freelance programmers and engineers in India, sub-contractor manufacturers in China, and freelance office and network administrators and data entry typists in the Philippines who can log in remotely to do the work I need them to do. They cost anywhere from 5 to 10 times less than the going rate here in the U.S.

3. If I needed an on-site programmer or technician, I could see about getting a foreign worker into this country on an H-1B visa after advertising for a job with deliberately difficult-to-meet requirements and "not finding any American applicants". Maybe with help from a law firm. I can do that to avoid paying prevailing wages. The foreign worker would be stuck with me despite 12-hour days of hard work, because if I let him go or he leave my employment, he can't stay in this country anymore.

4. If I had to hire more unskilled or semi-skilled employees in the U.S., then I'd go with temporary labor for the most part - especially for grueling warehouse jobs (like at Amazon) where I don't have to worry about paying too much for injuries, worker's compensation claims, sick days, or vacation days. There's always someone unemployed who can fill in a gap from Labor Ready or Manpower. As the economy continues to deteriorate, I'll have more such workers waiting for me to hire them.

And if they don't get enough hours or enough pay? Or if the minimum wage is lowered or done away with altogether as Peter Schiff suggests, then even better! After all, government, family, and local charities subsidize the cost of my temporary, part-time employees with food stamps, Section 8 housing assistance, Medicaid, room and board, more food - so that they (or others just like them) are always relatively fed, rested, and healthy enough to be available at a moment's notice, whatever the shift or number of hours I require.

5. Now if I did have to hire a few permanent staff, I'd make sure their numbers would be few, and the benefits relatively decent, so I would have the most loyal and enthusiatic people who would be extremely grateful for the jobs they had. Their fierce loyalty and great enthusiasm could be used like carrots dangling on a stick in front of the interns and temporary workers. "See? You could make it, too!"

Conclusion

It wouldn't matter to me if environmental, business, or worker safety regulations were reduced, or taxes were reduced, or the minimum wages were reduced further in the United States. None of that compares to the cost advantage offered by technology and globalization: Internet, global communications, containerized shipping, outsourced workforce that can easily be 5 to 10 times cheaper than the typical American worker, whether skilled or unskilled. The lack of environmental, business, or worker safety regulations in other countries are mere icing on the cake.

And lowering taxes on my net income wouldn't necessarily mean I would spend it on hiring Americans. First, I would have to see that there was growing demand that I couldn't meet by squeezing more productivity from my existing workers, but instead required additional employees. Second, I could just as well hire more temps or more outsourced workers. Third, since labor costs are a business expense, the cost of workers I hired (who presumably would make more money for me) would not be taxable anyway.

No... Lowering taxes on my net income would just mean I had more money to spend on expanding overseas where the regulatory, taxation, and labor cost environment is much more favorable. Or, more money to spend on vacations abroad, to buy luxury automobiles from Germany, or to purchase more "prepping" materials for the coming economic decline and/or collapse.

Yes, if I were a cynical entrepreneur in the United States today, this is how I would do it.

---------------

We are a very large country. This great unraveling is a decades-long process that began in the 1970s. There is a lot of inertia. But every year, the toilet paper roll keeps getting sheets torn off at a faster pace, and the roll itself spins faster and rattles harder as its thickness decreases, with fewer and fewer sheets left on it.

Poet

 

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Retha
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Sad, but true

Greed is a nasty thing.  Big business didn't get big catering to the masses.  Oh sure, they give 'concern' for their employees lip service, but bottom line, it's about making a buck.  Sad, but true.

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darbikrash
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Great post Poet, and

Great post Poet, and unfortunately largely true.  As thorough as your accounting of the “hypothetical” is (because if your comments were anything but a hypothetical that would mean you’re against America) there are perhaps a few (wholly imaginary) effects missing. You do mention regulations and taxes, but given the current political economy and the fact that we are in election season, perhaps some aspects have been soft pedaled;

-         You omitted the part where after constructing such a business as you describe, you complain loudly to all who will listen (and many who won’t) that the regulations in this country are killing small business, are un-American, and are in fact responsible for killing all the jobs in this country. In light of this, the only sensible thing to do is to dismantle the government, preferably by “drowning it in a bathtub”.

-         You omitted the part where after constructing such a business as you describe, you complain loudly to all who will listen (and many who won’t) that the corporate taxes in this country are killing businesses, and then proceed to hire a sharp tax lawyer and suitably aggressive tax accountant  and pay them to find appropriate loopholes so that the business income can be translated to an offshore entity and avoid taxation altogether, while the salary you pay yourself that is subjected to US tax, this is heavy mitigated by all the losses that you keep on the stateside books, while the profits go overseas.

-         You omitted the part where after constructing such a business as you describe, you complain loudly to all who will listen (and many who won’t) that American workers are lazy, uneducated and are infected with an degenerative entitlement mentality wherein they consider themselves deserving of a modest standard of living, health insurance, and some type of reasonable assurances of a retirement after contributing 30+ years on the job to someone whose sole purpose is to extract surplus value from your labor and then complain about it for every waking hour of your existence.

-         You omitted the part wherein you actively complain and campaign against any type of Social Security Insurance, and call these measures “monstrous lies” and “Ponzi Schemes”  because the ungrateful lumpen proletariat should exercise some personal responsibility and save their money so they too can earn .05% on CD’s when they retire, so as to afford luxuries such as cat food and cardboard boxes to sleep in when they are too old to work.

-         You omitted the part wherein you remind people, loudly and incessantly, how grateful they should be that they have a job at all, and point dramatically to the offshore labor market as ample illustration of how if they are to keep their jobs, they will need to be more competitive. To drive this point home you’ll actively campaign to remove the right of collective bargaining for public sector workers.

But above all, make sure you keep reminding everyone that all of this is the governments’ fault. If free market forces were to prevail, why, none of these problems would manifest. Everyone knows that. ( Even Peter Schiff knows that, sounding like the Republican senatorial candidate he was, he makes similar claims. He also omits some details such as his type of “business” which is an investment boutique, and complains about how limiting those nasty regulators are, because we all know that regulation of investment boutiques is such infertile ground, even Bernie Madoff was offended at the spurious and annoying regulations)

And let’s not forget that all of this inevitably traces back to our monetary system. As Edward “there is a Commie in my closet” Griffin testified in his chronicle of Jekyll Island and formulation of the Federal Reserve Bank in 1913, we all know this is the very singularity of all things evil. If we just had a gold standard, if we just had competing currencies (like when the Indians were traded beads for Manhattan) and a currency that was not based on debt, why, we’d have none of these problems. And a free market for all!!

 

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Costs

Unfortunately, the US government has made it very expensive to hire an employee upfront.  Then there is the legal morass that creates a combative environment with HR departments.   It is no wonder in this environment that companies would be hesitant to take on new employees when D.C. is changing rules frequently.  The biggest unknown is Obamacare and how the regulations will be implemented.  So thank the US government for killing the entrepreneur. 

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KugsCheese wrote:   So
KugsCheese wrote:

  So thank the US government for killing the entrepreneur. 

Yep, dont forget state and local governments, too. I have an acquaintance that operates a small business in an otherwise vacant strip mall in a blighted part of town. City code enforcement came by to say that their store sign was out of compliance.

Let's not confuse enterpreneurship with corporate pillage and plunder.

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MarkM
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More government, please

http://thehill.com/business-a-lobbying/179087-the-hills-2011-50-wealthiest-congress-rish-list

 

"Analysis for The Hill’s Wealthiest shows that 2010 was a banner year for many well-heeled members of Congress. Lawmakers including Republican Rep. Darrell Issa (Calif.) and Democratic Leader Nancy Pelosi (Calif.) saw gains of millions of dollars in their fortunes."

I'll fill the tub.

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How to run a business into bankruptcy.....

I commented on this in another forum that referenced this topic.  Any entrepreneur would certainly laugh at the suggestions on how to run a business, you can read my comments here.

I for one am incredibly tired of this constant bashing of businesses by those who have no clue about how to run one....

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Excellent post, Poet

I agree, working for a large corporation, one gets to see exactly how shitty they really are.  Mine is worse that most people give us "credit" for.

I disagree with the minimum wage dig at Schiff, though.  If "people like Schiff" got their way, they would be no government subsidies to enable Walmart wages, nor would there be the bureacratic red tape that suppresses competition for said walmart-esque employers. 

If you REALLY want to fix the problem of large evil corporations, you need only do one thing- eliminate limited liability.  There is no legitimate reason on earth to divorce one's actions from the consequences.

Imagine if Enron leaders were required to pay back ALL the ill-gotten booty?

Imagine if PG&E leaders responsible for "redirecting" pipeline repair funds got the death penalty, or even a long prison sentence?

In other words, what if the people responsible for the actions of their companies actually had pay for their decisions?

As a non-related but interesting side conversation, how many employers could still pay minimum wage if those employees did not recieve tax-funded benefits?  IMO, tax payers are indirectly paying for Walmart's low prices, through subsidies that their workers need to survive.

All of our legal maze-work has resulted in an environment where corporations no longer focus on making the best product, but on lowering wages, keeping others legally barred from competing with them, and in my company's case, devising ways to get more and more free money from the government, at tax payer expense, of course.  Product quality is the LAST concern, and it shows.  Our last top CEO got $35 million for his attempts at controlling the CA populace and not fixing dangerous pipes-

http://www.sfexaminer.com/local/2011/04/pge-boss-peter-darbee-resigns-35m-retirement-package

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Poet
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Au Contraire, Rhare
rhare wrote:

I commented on this in another forum that referenced this topic.  Any entrepreneur would certainly laugh at the suggestions on how to run a business, you can read my comments here.

I for one am incredibly tired of this constant bashing of businesses by those who have no clue about how to run one....

I replied in the other forum, Rhare. And if you're going to attack me, don't be passive aggressive with your "those who" remarks.

Below is my reply, entitled Au Contraire, Rhare.

---------------------

rhare wrote:

As a small business or start-up you can't get free employees like that.  Only large companies that look good on your resume or that you hope you can move up get interns.  We used to have apprenticeships for trade skills, but those are long gone.

Maybe I wrote what I did, because I currently have friends who put in free time at start-ups, hoping to make it big. And friends who interned part-time for free, again at small start-ups, trying to get some experience on their resume.

This isn't uncommon these days, as you can see in the articles below.

http://www.nytimes.com/2010/04/03/business/03intern.html
http://www.nytimes.com/2011/04/03/opinion/03perlin.html
http://graduatefog.co.uk/2011/1440/startups-unpaid-interns/
http://hartford.craigslist.org/cpg/2598432540.html

It's not just large companies, but also small businesses and start-ups. Maybe your vaunted experience is a little dated.

rhare wrote:

Clearly you have never run a technical business (particularly a small one).  This would completely bankrupt you very shortly when you didn't get what you needed or wanted.  Only very very large shops can make this work.  It's takes teams to negotiate the work, keep it on track, and insure that you actually get things done.  I ran a small business (< 200 people) and we tried this for software development - complete disaster and I know of lots of others that have the same results.  Unless you have a very large project and can devote lots of man power to managing the effort - it's won't work.  You can't simply throw the project over the fence and hope it comes out.  Also, there is a odd cultural tendency in lots of these out sourcing places to never say no.  So you ask if someone understands what you want and they always answer yes, then after a few months, lots of money, you get a five foot carved wooden horse instead of a circuit board!

No, but I work at a software company and have freelanced in the field. A few years ago, our company laid off about 9 employees in our Engineering department and outsourced to a firm in India with about 40 employees dedicated to our software development needs. It took them about one year to get up to speed. But I would say they work hard, are always attentive, and research everything we asked of them immediately rather than try to put it off by saying they had too much other work - to the point where I considered their work and results to be superior.

One of my consulting clients - owner of a small package assembly business with about 10 full-time employees and 30 temporary employees - put $15,000 into an on-line business platform, paying programmers in India. They were happy with the results, too.

Maybe you just had a bad experience and some buyer's remorse, Rhare.

rhare wrote:

Yeah right, all the people I know on H-1B Visas make really good money.  On top of that all that help from a law firm and all the hassles for paperwork make the employee far more costly than just hiring a US citizen.  Then on top of that you have the problem of a key employee working on a project suddenly loosing their Visa and you have to scramble to transfer knowledge to another.  This is quite the fallacy of the H-1B visa workers.  Most companies hire non-US technical workers because there is (was) a shortage of workers with the skills needed.

That's funny. Translating what you know into a generalization and calling what I have to say to be a fallacy. Being a member of a minority community, with friends who are  H1-B visa workers, the ones I knew made a lot less than one would expect for their job, and worked a lot more. I personally think that out of the hundreds of thousands of unemployed American IT workers, there are skills there for the asking - just maybe not the price.

rhare wrote:

And finally we get to the only realistic thing.  Yes, you would hire cheap labor that you don't have to pay any benefits, because all the regulation have made hiring employees too expensive for unskilled labor.  This is a common problem with minimum wage laws - they make the value of unskilled labor too high.  Again, a manipulation.  If you have a glut of unskilled labor, then price for that labor needs to fall.  As labor falls more people get jobs, employers can expand.  But instead we eliminate jobs because it's better to have someone unemployed than working at a job that pays too little.    Also, you will find, that most people that do this as soon as a good worker comes along, you hire them permanently because finding good help is difficult, even in todays market.  Only the most unskilled labor (things that you can explain to a person what to do in under a minute) does this type of labor situation work.  Time spent training and monitoring a crappy employee eats up much of your profit.

It doesn't have to be the most unskilled labor. I've worked for a temp agency in the past myself. It took maybe 30 minutes of training, and I was soon filing things and typing shipping freight information into a data entry screen. My father, a manager who ran a plant on his own for over a decade, has hired temps. A lot of them have familiarity with the specific packages of accounting software, cashier experience, etc. Even training one for a few days is worth it for the month or so of peak season work before they are let go.

rhare wrote:

Life isn't fair.  As we have less and less resources people will have to be productive.  They will have to earn their way, earn their food, earn their housing.  None of these subsidies should exists as they don't force people to realize the those realities.  I highly doubt you will see the Peter Schiffs or Ron Pauls of the world supporting any of those things.  They are unsustainable subsidies and need to be eliminated.

Agreed. But don't forget that the less fortunate are people, too. And they see what is happening. They are not entirely blind. As for employers, I wrote (but you deliberately didn't quote), "I'm not saying most entrepreneurs are like this. There are a lot of great, conscientious, patriotic American entrepreneurs and corporate leaders. Some of the good people are right here in this community. They care about their employees and their communities."

You are taking exception and attacking a straw man.

rhare wrote:

This type of crap only comes from people who have never run a business.  Instead you find that if you can make enough money to eek by, you then have to create a nice environment for your employees otherwise those that are helping you make it will leave for greener pastures.  Most employers (at least small ones) fully understand this. You end up working very hard, often giving up lots of gain to try and keep a business running.  You often pay employees far better than you make - particularly in the early years.  Then when you finally get a sustainable business and are able to benefit from it, you get people like you point out how evil you are.

Sorry Poet, but your view could only come from someone who has never run a small business, has no clue how truely difficult it is to start and keep it going. 

This type of response only comes from someone who isn't willing to accept that there are other viewpoints that can be just as valid. I don't have to be a person who never ran a business to have a legitimate opinion. Even if the closest I've come to it is helping my father at his small business for years. Yes, my father suffered losses for years and paid his employees more. We did end up working hard and providing free labor - as family often does - just to make ends meet in those years.

But to discount what I know because I never personally ran a small business is like telling an oncologist or a nurse that he doesn't have a right to study or diagnose a patient or offer suggestions on therapy because he never had cancer himself. Or telling someone who hasn't served in the military that she doesn't have the right to an informed opinion on military spending. I would say that you need to be more open minded than that. Everything in the cynical/satirical piece that I've written has some basis in fact, and you know it. Don't take it so personally.

Poet

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Agree and DIsagree

Agree and disagree.

I work for a company that has cut my benefits substantially over the last 10 years but I think they had to keep costs under control.  We have had a couple of lay offs but they were always when business was down to a scary level and I did not see the details but I know the big numbers and back when we had the layoffs we were not making budget or even close to it.  We had to do something or the entire business would get into serious trouble.  On occasion I do see what one might attribute to ruthless behavior but in general I would have to say we are well run and trying as hard as we can as a big team to do the best we can for everyone involved, ourselves, senior management, and the shareholders.  I am actually pretty happy with it.  There is a pattern in that the most ruthless ones (in a negative way) end up going down the road and the ones who just work hard and do the best they can seem to end up staying.  It is not a perfect pattern but the R factor is probably 0.8.

On foreign workers - we have foreign workers from all over the world.  We have also contracted out a number or projects over the years.  Guess what ?  The contracted out projects are almost always seen as failures over the long run and the in house projects have a much higher percentage of success.  It does not seem to make any difference if it involves foreign workers or not.  I know this may run against the grain here but this is what I have seen over many years.  Contracting out a project to a foreign firm or another firm in the country is super high risk - a very high probability of failure - much higher risk than hiring foreign workers here in-house. 

 

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Perhaps it's the company your keeping....

[quote=Poet]

That's funny. Translating what you know into a generalization and calling what I have to say to be a fallacy. Being a member of a minority community, with friends who are  H1-B visa workers, the ones I knew made a lot less than one would expect for their job, and worked a lot more. I personally think that out of the hundreds of thousands of unemployed American IT workers, there are skills there for the asking - just maybe not the price.

[/quote]

Then the employers are breaking one of those oh-so precious regulations:

[quote=Berkeley H1-B FAQ]

The H 1B also requires that the H-1B employer pay the H1-B employee the same or higher wage than is paid to workers in similar occupations, in the geographical area of the proposed employment.

[/quote]

So you have a risk of being fined significantly for paying less, you have more costs in hiring (H1-B fees and paper work), more HR hassles, and the risk of the person suddenly not being allowed to remain in the country for  bureaucratic reasons.  So yes, it's is generally more costly to hire a H1-B employee.  The companies I know have gone the H1-B route that to hire specific technical skills that were hard to find. 

[quote=Poet]

I personally think that out of the hundreds of thousands of unemployed American IT workers, there are skills there for the asking - just maybe not the price.

[/quote]

Well you would be wrong!  Every time we had a position open, trying to hire a person with good technical and work skills was a nightmare.  The dot.com bubble produced thousands of idiot technical workers.  Anyone who could say "Computer" is now an expert.  It you are looking for someone to make you a basic web site, yeah, no problem, try hiring someone to build a high volume enterprise class system - very very hard to find good people. 

[quote=Poet]

No, but I work at a software company and have freelanced in the field. A few years ago, our company laid off about 9 employees in our Engineering department and outsourced to a firm in India with about 40 employees dedicated to our software development needs. It took them about one year to get up to speed. But I would say they work hard, are always attentive, and research everything we asked of them immediately rather than try to put it off by saying they had too much other work - to the point where I considered their work and results to be superior.

[/quote]

Then your company was lucky, because many of the companies I know that have outsourced, few were happy with the results, and most never realized the cost savings expected.  Even in your example, how much was a year of labor/time to market to bring them up to speed?  Here are some links that reiterate many of the points I made:

http://www.lessonsoffailure.com/companies/outsourcing-cost-lie/

http://news.cnet.com/2100-1001_3-5182611.html

http://www.businessweek.com/blogs/globespotting/archives/2007/01/india_software.html

It's not only outsourcing to a foreign country that has problems, many large companies are finding outsourcing at all is not near the cost savings it's made out to be:

http://www.cio.com/article/10510/_Backsourcing_Best_Practices_

[quote=Poet]

"I'm not saying most entrepreneurs are like this. There are a lot of great, conscientious, patriotic American entrepreneurs and corporate leaders. Some of the good people are right here in this community. They care about their employees and their communities."

You are taking exception and attacking a straw man.

[/quote]

There you have been quoted, all better now.  Hell yes I take it personally.  I believe you are pushing a social agenda of ever larger government interference in our lives.  So yes, I take it personally when you attack small businesses and lump them in with large corporations.   However, that probably doesn't even matter because I don't believe even large corporations are the problem.  Instead with our monetary policy, fiat currency, and government favors to the politically connected - we have set up the environment in which we now find ourselves.

[quote=Poet]

And if you're going to attack me, don't be passive aggressive with your "those who" remarks.

[/quote]

Fine - I'll be direct...

[quote=Poet]

I don't have to be a person who never ran a business to have a legitimate opinion. Even if the closest I've come to it is helping my father at his small business for years. Yes, my father suffered losses for years and paid his employees more. We did end up working hard and providing free labor - as family often does - just to make ends meet in those years.

[/quote]

Everyone can have an opinion. I discount yours since you haven't run a business, yet assume businesses are evil and discount the opinion of those of us who have.  You assume the worst of most people, come across as arrogant in telling people how to live their lives - I on the other hand feel everyone should be allowed to live their own lives without interference from government or those that push their social agendas using the force of the government.

Even in your statement above your arrogance comes across. You were so nice and kind to your employees, but you are special since the rest of your post was to indicate how many companies don't.  I on the other hand believe most small businesses are struggling and trying to do the best for their employees and shareholders, and they have to put up with more and more crap because of attitude and commentary like yours which vilifies businesses and encourages people to look to government for solutions.

DIRECT ENOUGH?

[quote=Poet]

But we all know many American companies are doing exactly this. And that is why I wrote the following:

[/quote]

So no, I don't believe many American companies are doing that. If you do, perhaps it's the company your keeping....

[quote=Poet]

None of that compares to the cost advantage offered by technology and globalization: Internet, global communications, containerized shipping, outsourced workforce that can easily be 5 to 10 times cheaper than the typical American worker, whether skilled or unskilled.

[/quote]

I beleive you are vastly over estimating the gain from globalization. In addition you fail to account for the massive subsidy most Americans have to buy overseas produced goods because of the dollar.  Let our currency more accurately reflect reality and all the cheap labor becomes even less important.   For the vast majority of small businesses in this country, outsourcing is not even an option - so what is killing all of them?

[quote=Poet]

A Cynical Look At Labor And Capital These Days

[/quote]

Cynicism is not a productive or positive quality....

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darbikrash
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Just not sure how to begin

 

rhare wrote:

 I believe you are pushing a social agenda of ever larger government interference in our lives.  So yes, I take it personally when you attack small businesses and lump them in with large corporations.   However, that probably doesn't even matter because I don't believe even large corporations are the problem.  Instead with our monetary policy, fiat currency, and government favors to the politically connected - we have set up the environment in which we now find ourselves.

....

Everyone can have an opinion. I discount yours since you haven't run a business, yet assume businesses are evil and discount the opinion of those of us who have.  You assume the worst of most people, come across as arrogant in telling people how to live their lives - I on the other hand feel everyone should be allowed to live their own lives without interference from government or those that push their social agendas using the force of the government.

....

Even in your statement above your arrogance comes across. You were so nice and kind to your employees, but you are special since the rest of your post was to indicate how many companies don't.  I on the other hand believe most small businesses are struggling and trying to do the best for their employees and shareholders, and they have to put up with more and more crap because of attitude and commentary like yours which vilifies businesses and encourages people to look to government for solutions.

......

I beleive you are vastly over estimating the gain from globalization. In addition you fail to account for the massive subsidy most Americans have to buy overseas produced goods because of the dollar.  Let our currency more accurately reflect reality and all the cheap labor becomes even less important.   For the vast majority of small businesses in this country, outsourcing is not even an option - so what is killing all of them?

Just not sure how to begin with this train wreck, it is insulting (and wrong) on so many levels.

Apparently at this forum it has become acceptable to discount another posters’ life experiences if they do not match up precisely with the protagonists’ life experiences, which gives excuse to criticize anyone’s opinion who has not had the same experiences. In my view, a sure sign of close minded deterministic thinking.

That said, I own and actively run a business, and have done so for more than 20 years, and am quite puzzled as to how my conclusions can be so different from what we see here in some of the responses.

Perhaps it is because I seem to be able to process a reality that does not conflate nuisance and annoyance level business regulation with the larger need to modulate uncontrolled capitalism?

It is also quite hard to believe in this day and age, that people still seriously argue that a return to uncontrolled and unregulated capitalism is a desired direction to strive towards. It is as if the history of the last 200 years never occurred, but of course with charlatans like Mises.org revising the history books before the ink can dry, to assuage their corporate paymasters, who can wonder?

To make the larger point that there is a deceit underway, I’ll make some statements that may shock the reader:

1.)  Small business is an insignificant, and virtually meaningless, contributor to the US economy. This has not always been the case, at the turn of the last century, 70% of America was small business, in the form of farms and farm co-ops. Today we have a dramatic reversal:

-       Of the nearly 28 million businesses in America, 75% of all these businesses in America have zero employees.

-       These 75% (nearly 22 million firms) of all American businesses contribute only 3.2% to total business income.

    Source

2.)  Major corporations (I’ll define as with 500 or more employees) provide approximately 60% of the total revenue in our economy. Out of the total of nearly 28 million businesses in America, just over 18,000 have more than 500 employees. This sector accounts for more than 60% of the total business receipts.

I’d like to stop and reflect on the above numbers as they effectively dispel the myth that America is a country of small businesses, this is not true, the small business sector contributes very little to GDP. I doubt very seriously if Rhare or others claming the entrepreneurial genius of our economy has a command of these numbers and what they mean.

3.)  Much of the strum and drang of modern politics beseeching the case of the small  business is targeted to build anti-regulatory sentiment that will benefit large multi-nationals. There are many differences between large and small businesses, but at the scale of large multi-national corporations, there are few returns on investment that pay better than paying lobbyists and buying politicians to create favorable regulatory climates to relieve the cost of compliance to an ever growing onslaught of requirements, largely driven by environmental pressure due to unthrottled expansionary efforts. Management of finite resources is not compatible with the growth imperative of large scale multi-nationals. Restrictions on growth through regulatory compliance, environmental impact, and restricted access to capital all represent potential intolerable boundaries that capital cannot abide.  

It is far cheaper to initiate campaigns to discourage, demonize, and de-popularize such restrictive measures and to present them as anti-American and anti-capitalistic than it is to attempt to comply.

While I lament the requirement of government oversight as much as the next guy, while I hate the notion of a large, disconnected central body imposing rules and regulations, I also realize that I as a business owner must exhibit responsibility, responsibility not just to self comply, but to recognize that it is essential to make sure that all socially relevant issues are applied evenly and across the board to all competitors.

To those that disagree, and yet in the same breath propose free market solutions- proven to be ineffective (and massively so) over the course of nearly 200 years, this to me is the pinnacle of delusion, deceit and self centered irresponsibility.

Again, the anti-regulation tirades are masked in the smoke and fury of the small business passion argument, but in reality, much of the objective is to deliver a crib death to regulatory overhang on big business, where the money, and the jobs, really are.

It is time to wake up.

4.)  Globalization is almost entirely driven by low labor burden, not regulatory relief and not flight of capital. It should come as no surprise that the vast majority of “offshoring” comes from large companies, not small businesses. This offshoring is most certainly driven, nearly universally, by the search for lower labor burden and not regulatory relief.

      The proportion of recurring costs in 99% of large businesses that is labor versus regulatory compliance is massively tilted to labor costs. Some websites, usually Libertarian sites, such as Heritage and Mises.org, will try and convince the reader that regulatory costs are artificially higher to promote their in-house (and capitalist funded) propaganda.

       An example is the oft quoted compliance figure cited as an hourly rate, that upon close examination, includes the entire budget of the Dept of Homeland Security. These figures are an abject falsification, a contrived exercise to build support for the dismantle the “gubymint” crowd. Another very important consideration (and rarely mentioned) specific to manufacturing concerning offshoring is the enormous capital advantage of using low cost foreign labor to build products, as opposed to making capital investment in machinery and tooling. To wit, you have $1.87/hr Chinese workers, numbering in the tens of thousands, assembling by hand, highly sophisticated Apple Ipods for example. Such an approach would never, ever be considered in a developed country, an automated production line would be built, which would costs tens, if not hundreds of millions of dollars. The manufacturer does not have to make this risky expenditure if he can do it all with Chinese ladies assembling products on picnic tables for $1.87/hr.

              I wonder if Apple computer, and their Chinese surrogate Foxcomm, would agree that their experience with offshoring has been anything  other than stellar in terms of performance.

5.)  In the last 50 years, the burden of taxation has shifted radically away from corporation to the individual.

 

The table below (in millions of dollars) is based on statistics from the Office of Management and the Budget in the White House[www.whitehouse.gov/omb/budget/Historicals/].

Year                                Total Individual Income Taxes          Total Corporate Income Taxes
                                                      (In Millions)                                                (In Millions)

1943                                                   6,505                                                         9,557

1948                                                 19,319                                                         9,678

1968                                                 68,726                                                        28,665

1988                                               401,181                                                        94,508

2008                                            1,145,747                                                      304,346


The overall picture is unmistakable.  The trend is clear.  During the Great Depression federal income tax receipts from individuals and corporations were roughly equal.  During World War Two, income tax receipts from corporations were 50 % greater than from individuals.  The national crises of depression and war produced successful popular demands for corporations to contribute significant portions of federal tax revenues.


The S corporations and LLC corporations as well as partnerships and sole proprietorships in the US allow corporations to pay no corporate income tax and instead pass the net corporate income through to their owners who pay individual income taxes on the corporate net income they receive. However, these are all overwhemingly small businesses. The laws pertaining to these business types made that clear (by limiting their sizes, limiting S corporations to a maximum of 100 shareholders, etc.). Your accountant/respondent - like so many folks on the right - likes to imagine that US business is chiefly the small businesses, but that is false. US business is extremely concentrated: big businesses dominate. The IRS refers to them as C corporations. They do the overwhelming bulk of the business and they pay the corporate income tax. So while the figure 1 below shows that there are many more small than big businesses and they file most of the income tax returns, Figure 2 shows that it is the big businesses who make and sell most of the goods and services in the US economy. Big businesses have always been C corporations and pay corporate income taxes. Figure 2 shows that they - big businesses - are and do the overwhelming bulk of business in the US.

The last decade or so big shift of businesses from C corporations (who pay the corporate income tax) to S corporations (who don't) was a shift of many firms but they were small - both individually and in the aggregate. The movement from C corporations to S corporations was not statistically significant in terms of my point; that movement therefore did not change the meaning of falling corporate taxes and rising personal taxes presented in my article. This is further corroborated by the matter of timing. As the table in my article shows, the shift from corporate to individual income taxes happened largely before the shift from C corporations to S and LLC corporations became significant.

Thus, the bulk of US business shifted the burden of income taxes off of itself onto individuals; the data make that crystal clear for all those without ideological blinders.

 

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Poet
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Nick Hanauer - TED Presentation On Job Creation

Originally, this was not published by TED, but it became available after a lot of people asked for it.

Nick Hanauer - Entrepreneur and venture capitalist...

Link to above YouTube video:

Poet

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