Manufacturing US Jobs

Dr. Andy Grove is perhaps the finest manager over the past thirty years, and his book "Only the Paranoid Survive" is one of the great classics on business life. Recently he wrote on the topic of US jobs and stated that in order to build our industrial base we should "Levy an extra tax on the product of offshored labor. (If the result is a trade war, treat it like other wars -- fight to win.)"

One can disagree with Dr. Grove on an analytical basis. A tax of 20% or 30% is not going to have a serious impact on labor arbitrage- on the margin it will move production from south-eastern China to other areas. Taxes of the order of 1000% will begin to have an impact- but this would cause significant inflation as prices of domestically made goods will also go up steeply.

Dr. Grove is right about governmental intervention- the "visible" hand, and how it can benefit the country in the long run. However the lessons to be learnt from other countries should be learnt carefully, with discrimination. Companies will invest domestically if the directors on corporate boards push management. However management and board members are "answerable" to shareholders. The critical issues facing the US are: 1) quality of education, 2) willingness of the young people to work hard and under difficult conditions, and 3) the finance industry run amok.

Rather than taxing the product of offshore labor, the government should

1. increase corporate taxes in proportion to the % of offshore content in the products sold in the U.S.- as an example, a company whose products are completely manufactured overseas might have the highest tax rate of 60% or 70%.
2. Raise the personal income tax rate on managers of companies in proportion to the % of offshore content in the products sold
3. raise the tax rates on finance firms significantly. This will also have an effect of diverting talent from the finance business to other areas.

When managers and shareholders have to pay for neglecting the domestic economy, things will change in a hurry.

How to Make an American Job Before It's Too Late: Andy Grove - Bloomberg: "Financial Incentives

The first task is to rebuild our industrial commons. We should develop a system of financial incentives: Levy an extra tax on the product of offshored labor. (If the result is a trade war, treat it like other wars -- fight to win.) Keep that money separate. Deposit it in the coffers of what we might call the Scaling Bank of the U.S. and make these sums available to companies that will scale their American operations. Such a system would be a daily reminder that while pursuing our company goals, all of us in business have a responsibility to maintain the industrial base on which we depend and the society whose adaptability -- and stability -- we may have taken for granted."