Free Trade is one of the great economic boons to which we owe a large measure of our prosperity. The fact that we can buy shirts from Malaysia, electronics from Japan, wine from France and bananas from Costa Rica makes not just us but the Malaysians, the Japanese, les Français and los Costaricenses much better off than any of us could possibly be by growing, manufacturing, or otherwise producing everything within the borders of our own country. As nations develop and advance up the economic ladder, they become capable of increasingly high-order creative design and engineering, able to outsource lower-order assembly to less advanced countries and to trade on an equal footing with the world’s leaders. ‘Made in China’ typically means: designed in the USA, manufactured in Japan, Germany, South Korea, Taiwan, Singapore, Malaysia and/or the USA (still the world leader in manufacturing despite noise to the contrary), and finally assembled, at the end of the chain, in China.
High-productivity workers in advanced countries are not threatened by low-wage workers in less-advanced ones, because it is productivity that counts, not the hourly wage. If the workers of Prosperia earn $100 per hour and produce 1000 widgets apiece per hour, then their labor is more cost-effective than that of workers in Destutistan who earn $10 per hour but only produce 90 widgets apiece per hour; that’s 10 cents a widget from Prosperia vs 11 cents per widget from Destutistan. Under those circumstances Prosperia is said to have an absolute advantage over Destutistan.
Even if Prosperia’s workers, management, capital markets, and climate are the best in the world for everything (which no country may boast), workers in Destutistan can still find work to do where they have a relative advantage, that is, where the difference in productivity between Prosperia’s and Destutistan’s workers is less relative to areas where Prosperia is the undisputed leader. It pays Prosperia to do what it does ‘most best’ and buy what it makes ‘less best’ from others, which provides employment for Destutistan’s workers, and gives them the opportunity to advance up the economic ladder.
However, if something occurs that makes workers in one country more expensive (or more risky) to employ for any reason, then their competitive advantage may be eroded or disappear altogether, to the detriment of all except the immediate competitors. If a natural catastrophe or government-imposed tax raises the cost of employing Prosperian workers by twenty percent, then it will cost $120 to produce 1000 widgets, or 12 cents per widget, erasing the advantage. Those Prosperian workers will have to accept lower wages or lose their jobs to the foreign competition. This is obviously a loss for those workers in Prosperia and a boon to the competing workers in the particular industry. But it is not necessarily happy news even for the citizens of Destutistan in general; after all, they too now must pay 11 cents per widget when they could have gotten them cheaper by buying from Prosperia before.
Computers, the internet, and telecommunication technology have integrated world markets and intensified competition as never before in world history. Capital, entrepreneurial projects and jobs can move overnight to the places on planet Earth where they are the most welcome, most secure, and least handcuffed.
Which brings us to ObamaCare.
The Patient Protection and Accountable Care Act’s employer mandate requires that employers of 50 or more full-time employees (full-time being defined by the government as those working just 30 hours or more per week) must offer health insurance coverage compliant with the requirements of the Law and the Department of Health and Human Services (HHS) regulations or pay a $2,000 fine (sorry, tax) per employee, exempting the first 30 employees for purposes of calculating the penalty (I mean tax). This provision of the law has now been postponed by one year (in a move of questionable legality) to January 2015, but not yet repealed. The delay is a deferment, not a solution; the effects of the mandate must still be factored into any company’s long-term planning.
For those companies who want to ‘do the right thing’ and offer a health insurance benefit, the law contains many more requirements, including:
• All compliant health insurance plans must cover dependent children to age 26.
• No annual or lifetime coverage limits may be imposed.
• Insurance companies may not differentiate premiums on the basis of the riskiness of an employer’s industry or the age of its employees.
• …and much more, buried in the law’s 2700 pages and the derived regulations’ tens of thousands of pages.
Some or all of these things may be desirable to many, but they are not necessary for all, and they must be paid for somehow. Imposing them in a one-size-fits-all mandate on all employers raises the cost and risk of employing any American without consideration of the cost-benefit trade-offs that different employers and employees might prefer and mutually agree upon (that’s called Liberty of Contract). Except for very small firms, the mandate favors large, mature companies (that are not the primary source of new job growth) that employ highly-paid workers, at the expense of smaller firms employing less-skilled workers. In the latter case, the effect of the law can be to increase the cost of employing certain workers by 50% or more. The city of Wilmington, Delaware is facing the prospect of a half-million dollar spike in payroll costs (give or take $200,000) due to reclassifying part-time employees as full-time, as required by the Law. Many private employers are cutting their workers’ hours to below 30 to avoid the penalty, and many ’49er’ companies are cancelling plans to hire their 50th employee.
Even costs not specifically attributed to employers, but borne by taxpayers (which is to say, people who work) take their toll on the employment of Americans. The (recently doubled to $4.4 billion) cost of administering the government health insurance exchanges takes that money out of the private sector where it might have been used for entrepreneurial purposes, bidding up the wages of American workers.
Meanwhile, the foreign competition doesn’t have to pay these costs, and gets a free advantage over American firms and employees, courtesy not of a volcano, a hurricane, or an earthquake, but of a man-caused disaster. Why hire 10 Americans when you can hire 12, 20 or 40 equivalently trained non-Americans for the same price?
Six million net full-time jobs have been lost in America since 2008, offset only by the ‘gain’ of three million part-time jobs. Relief is nowhere in sight: the Bureau of Labor Statistics (BLS) reported in its Household Survey for June 2013, that the economy added 360,000 part-time jobs and lost 240,000 full-time ones.
This is not virtuous free trade; this is leading a global decline with our own self-inflicted wounds.
“There can be no prosperity or even freedom for our people if we ever abandon the competitive economic system that transformed this country into the strongest nation in the world.” — Ronald Reagan
Howard Hyde is author of Pull the Plug on Obamacare, available on Amazon.com in paperback and Kindle editions. He is editor of the website http://www.hhcapitalism.com/. He may be reached at HHCapitalism@gmail.com, and/or follow on Twitter @HowardHyde.