POST SCRIPTS

then. However, more recently it has become a necessity to increase productivity to offset the costly gains made by our unions. That salary and benefit package has significantly added to the company overhead. In the past years, the increase cost in wages (or any overhead increase) was traditionally incorporated into the end price and passed along to the consumers and this worked ok (even thought it added to inflation) until there were cheaper and sometimes even better products showing up from foreign manufacturers.

For decades "made in America" meant quality at the best price, but does it still have the same consumer appeal or are consumers inclined to buy based on what they perceive as value, no matter who makes it? Well, you need only look at the number of Hondas on the road to answer that one!

Its exciting that we are well into a new era of global affluence, reflected most dramatically in emerging nations like India, China, Israel, Taiwan and South Korea to name but a few, all joining the new global market place. This represents tremendous opportunity for exporting and tremendous competition for the traditional "made in America" product.

Those of us who were not paying real close attention for the last decade may now be awakening to discover an assembly line in Jakarta, Bali or Turkuk can crank out widgets with the best in West, including the USA. And that's a big problem for the home team. The foreign competition is turning out low cost products and slowly, but steadily winning the "value" war with the American consumers and some of our long time overseas customers . That fact is reflected in last year's record 618 billion dollar trade deficit.

If we can't out produce them and we can't make a better widget for less cost than over seas competition because our labor cost can't compete, then what do we do to hold the line and preserve our economy?

Well, for about the last 15 years "outsourcing" has been the growing mantra for many innovative American CEO's. By the way, outsourcing is when American companies send some of their more menial to countries that can do it cheaper and are happy to have the opportunity to do it! These are the emerging nations and they are desperate for an opportunity to do business with American companies. Granted, this has resulted in some unfortunate situations by a few unscrupulous US businesses that ran sweatshops. But on the whole, most of our US companies have been very fair with their new business associates and vice versa.

The left has called this practice of using cheap labor “exploiting�, but is it exploiting to hire someone who desperately wants to work and is thrilled to work for the wage you offer? Let’s say a refrigeration plant in the US relocated it’s assembly plant to Mexico and is paying employees $3.75 an hour. In this region of Guadalajara it represents a 150% wage increase from previous years, is that exploiting? The workers are thrilled to get it and they will have more disposable money to buy products, including this American product. This raises the whole economic status of that local area, the company out sourcing has allowed them to reach more customers than ever before with more affordable products. But, what about the assembly jobs that were lost in the US? Just wait, I will explain, so please read on.

It’s an inescapable conclusion that more outsourcing will happen as US corporations look for ways to maintain their bottom line against the encroachment from overseas competitors. Outsourcing is just another tool, a way of networking and it will cause us to rely on each other and develop closer bonds on a global level. That can't be a bad thing, can it?

"Capital flows to where companies can make a profit, with the best companies outsourcing to win, not just to survive.... In so doing, a company can innovate faster, gain market share, and thereby hire more people in the company that does it best. While that sounds good, it is also a painful process for displaced workers." Jeff Lukens, speaking on the globalization of the American economy.

As the world changes US industries must evolve to meet the competition. An example where a US business sector has been slow to adapt to globalization and has suffered the consequences, is the once dominant American auto industry. Detroit is bleeding red ink under a tidal wave of foreign competition. Consider that Detroit once manufactured 80% of the worlds autos after WWII and now that has been reduced to a fractional share of just over 20%. New names like Nissan, Toyota, Honda and Hyundai are the new titans of the auto industry and they are seeing record profits as Detroit's racks up record losses.

There was an old saying, "So goes General Motors, so goes America". But, that old saying doesn't have to become a truism. Many of America's companies that went global are now employing more people than ever and winning over more customers too. They are developing strategic bonds around the world in a way that is best suited to their particular business model.

We are in a transition phase and there will definitely be a few bumps ahead, especially for unions. The autoworker that once made $65 an hour in wages and benefits at the Ford plant in St. Louis is being replaced by a Mexican worker in Hermosillo for $6 and hour. St. Louis will suffer from the loss of thousands of jobs until those auto workers can transition into something else that fills a local need and pays them a fair wage for their service. Workers are going to have increase their skills and knowledge to meet this new challenge, but it can be done.

How about price control and tariffs as a way out of this overseas competition? Yes, that works for a time and I support it in limited amounts to stop certain unethical trade practices. However, we can't stay protected and isolated for everything and this also leads to tariffs on American products...and we really don't want a trade war.

An obstical to progress: There are still many unenlightened people in powerhere who think the wealth in America is some infinite well from which all persons can draw their "fair share". They tell us even the entry level worker should have a comfortable lifestyle that includes buying a home and owning a nice car, etc., as if such things were an entitlement that came along with just being an American citizens!

This is the "livable wage" myth as pushed by a lot of socialist leaning liberals who don't have a clue how capitalism works. Two basic laws of economics are violated when we raise minimum wage to this so-called livable wage. First, an employer in a capitalistic society can only afford to pay an employee for the value of his labor, anything more must be subsidized. Next, raising minimum wage forces employers to fire the least productive. This would be the least educated, the least experience and likely the youngest and poorest workers. Entry level jobs are just that, a job to bring people along and allow them to learn and grow. Knocking out the lowest and poorest from this wonderful opportunity doesn't help anybody, yet here the left is saying they are the protectors of the little guy! This would be funny if the results were not so tragic.

If we continue down this socialists road to a "livable wage" replete with all its entitlements, then it follows that wage earners (tax payers) must absorb more and more of that cost. Entitlements often represent 50% of the wages and if it can't be born by business, then it is born by the government and that means you the taxpayers! This takes us into high taxes and ramps up inflation. Inflation then eats away at wages and wages must be increased and then the cycle repeats itself.

As taxes reach 60% for the average worker, this has a grave psychological effect and productivity will suffer. Eventually, the ratio of wage earners vs. wage takers will reach a very unhealthy imbalance and we will be pushed closer to brink of national economic catastrophy, as government revenues dwindle and funding shortfalls in the welfare safetynet arise.

The only way forward is through this new frictionless, integrated, global business model that allows Americans to maintain their economic might through leadership in the creation and development phase, while other nations pick up those manual labor tasks that they can do better and cheaper. For more on this subject I recommend reading the book or getting the tapes on the, "The World Is Flat, by Thomas L. Friedman