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Intel Co-Founder Calls For Tax On Offshored Labor
theodp writes "Intel co-founder and ex-CEO Andy Grove calls BS on the truism that moving production offshore to locations with much lower wages is a sound idea. 'Not only did we lose an untold number of jobs,' says Grove, 'we broke the chain of experience that is so important in technological evolution. As happened with batteries, abandoning today's "commodity" manufacturing can lock you out of tomorrow's emerging industry.' To rebuild its industrial commons, Grove says the US should develop a system of financial incentives, including an extra tax on the product of offshored labor. 'If the result is a trade war,' Grove advises, 'treat it like other wars — fight to win.'"
The first thing companies will do is spin off "Offshore Labor, Inc" to a separate corporation headquartered in the Cayman Islands or wherever, then import the products for sale here. No offshored labor here!
If I have been able to see further than others, it is because I bought a pair of binoculars.
This is an excellent point. Offshore labor is why I cant understand tech support anymore. I would rather pay a get more for the product to ensure I get good customer support.
If you send work off shore, you no longer get all the corporate welfare tax breaks that US companies get.
"Have you ever thought about just turning off the TV, sitting down with your kids, and hitting them?"
And weak to no media coverage and using the same soldiers over and over until they're ground to a pulp physically and/or mentally and ensure that the general population suffers no ill effects of the war to the point that it doesn't affect more than the occasional purchase of a "Support our troops!" magnetic ribbon.
The trouble with these type of taxes is that the corporations simply pass it onto the customers. Unless a huge tax is placed on the products, it will still be cheaper overall to offshore labor and charge consumers more. There are three scenarios:
1) Low tax, say taxing the corporations for 20% of the difference between US cost of labor and offshored cost of labor. Consumers will pay more in the US, but get no new jobs, and are worse off. The government earns taxes and is better off. The corporations sell slightly fewer products due to slightly higher cost, and are slightly worse off.
2) Medium tax rate, say taxing the corporations for 80% of the difference between US cost of labor and offshored cost of labor. Consumers will pay more in the US, but get no new jobs, and are worse off. The government earns lots of taxes and is better off. The corporations sell fewer products due to higher cost, and are noticeably worse off.
3) High tax rate, say taxing the corporations for 120% of the difference between US cost of labor and offshored cost of labor. Consumers will pay more in the US, but get some new jobs, and are worse off unless they would be unemployed otherwise. The government earns very little in taxes and is barely better off. The corporations sell fewer products due to higher cost, and are much worse off.
Of course, the corporations lose less money if the goods in question are price inelastic (demand doesn't drop that much if price increases) and there's a social benefit from more employment and technical expertise, but the government gets the most money in case 2, where everyone except for the government is made worse off by the taxes. In real life, there's a huge time in cost and effort needed to move manufacturing back to the US, what with hiring new managers, building or reopening factories, establishing entirely new supply lines, canceling contracts, etc. Because of this, companies are unlikely to move manufacturing back to the US even if the tax makes hiring offshore workers the same as hiring American workers; the slight gain in quality and public respect is canceled out by the upfront cost of moving.
I for one sincerely doubt that the US government will tax corporations with a high enough rate to make most of them move back to the US, as the tax income is the lowest in that situation. Sadly, even if this knee jerk reaction goes through, social benefit to consumers and citizens will likely take a back seat to corporate interests and government revenue collection.
Signatures are the new names.
You have obviously never tried to convince an American "businessman" to consider customers first and profits second.
Living With a Nerd
Or just remove worker benefits entirely. And freedom of asembly. And speech. And make it easier to bribe government officials. Also workhouses. Rows and rows of beds. That's the way to increase employment! Make workers so cheap and desperate that their only alternative is slow death. We did eliminate healthcare, yes? Good.
Now, I would consider myself fairly conservative. Usually the argument goes "they're taking our jobs!! We need to enact protectionist policies to protect American workers!"
Doing this blindly, I have a problem with it-- it doesn't make economic sense. If we are more efficient at producing one good, and they are more efficient at producing something else, then it doesn't make sense for us to waste money trying to produce it ourselves in the States.
However, I cannot economically justify free trade when
1). the trade occurring is uni-directional (IE, we're buying from them and they're not buying anything of ours-- I don't count China's investment in Treasuries as real goods-based Trade [even though financial trade is _technically_ trade])
2). one of the countries (China) involved in the trade refuses to let their currency's value be determined by the market.
In other words, what we have now is not true "free trade". If it were free trade, China would be buying our products [unfortunately much of our product is now Intellectual Property and it's difficult to enforce consumption of these goods], and China would not be fixing the value of their currency. If they weren't fixing the value of their currency relative to ours, then any trade imbalances would be slowly corrected as it becomes more and more expensive (in dollars) to outsource labor/manufacturing to China.
The Intel guy is mostly right; we just differ on how the imbalance should be corrected. I'd much rather a natural, market-driven return to mean, than a politically dangerous (taxing imports) one.
Too bad he's not the CEO anymore.
And too bad all of Intel's products seem to be made in China these days.
There's no -1 for "I don't get it."
If the laws and taxes make it economically infeasible to compete without offshoring, Intel like every other corporation will offshore. Grove is suggesting we make it more feasible to compete with local labor because of the long term benefits it will have for innovation. I expect if it were economically feasible to keep work here they would.
Nothing hypocritical here.
- For the complete works of Shakespeare: cat
The US is not the only economy in the world, and Americans are not going to stay in the US if there are no jobs. The policy of the Federal and State governments should be to work to attract high-wage jobs by cutting taxation, regulation, and the deficit, and returning to hard currency. Trying to fence jobs in will only result in foreign employers even more strenuously avoiding the US, while the most capable Americans will strive even more vigorously to escape.
Slashdot: Playing Favorites Since 1997
Some years back, my uncle got an MBA at UC Berkeley's Haas school of business, and the commencement speaker was none other than Andy Grove.
He basically told them they were all fscked. "Somewhere in India," he said, "there's someone willing to do what you do and more for 1/10 your salary. Sitting next to you are people who will do anything to beat you at your own job," and so on. He talked on and on about how much you have to compete to survive, effectively saying, "your work needs to be your life and you need to expect nothing from it."
And that'd all be well and good, but that same year, he was compensated over $100M, partially because of the cost savings of outsourcing, of forcing his employees to compete ruthlessly for each other, and so on. It seemed disingenuous at best to say, "This is the reality," when it's the decision of him and people like him to enforce that reality.
What this change in tone says to me is that he feels that other companies are beating Intel at the outsourcing racket. Maybe he's upset that Samsung is making Apple's A4 for the iPad and iPhone, and he wishes it had been Intel ARM chips going into those millions of devices over the last quarter or so. Maybe it's something else, but this rings of the spoiled kid down the block leaving the game with his football because his team is losing.
There is another way to run your company. Treat your employees like valued contributors. If they don't contribute, find out if they want to be in another role, or another company and let them do that. But if you're always looking to get the cheapest workers, you're in danger of losing your best people, and being beaten at the bottom dollar game as well.
OK, end of rant.
The CB App. What's your 20?
"We broke the chain of experience that is so important in technological evolution..." Darn straight. I sure wish more company management understood that.
You can document a little, you can document a lot, but you can't ever document everything. Every company relies on stuff in peoples' heads. Reading other peoples' code and then being able to ask them about it. Solving problems at the time they occur by talking to the right person for five minutes in the hallway, instead of writing thirty-page memos and scheduling a series of weekly hour-long meetings, which eight people attend so that two of them can talk.
The guy who says "Well, it worked well when we did it thus-and-such way on the Dash-Twenty-Twos."
Even more important, the guy who says, "Well, the reason we're doing it that way now is because of concerns X, Y, and Z that we had on the Dash Twenty-Twos, but those reasons don't apply any more.
"How to Do Nothing," kids activities, back in print!
And don't forget about torturing your competition but decrying that torture when used against your own people!
The CB App. What's your 20?
'Not only did we lose an untold number of jobs,' says Grove, 'we broke the chain of experience that is so important in technological evolution
ding ding ding ding ding ding
Give that man a cigar.
The problem with offshoring all the entry level jobs is that in 5 years, all the folks with 5 years experience will be somewhere else, in 10 years, all the folks with 10 years experience will be somewhere else, and in 15 years there will be few folks around qualified to do more than ask if you want fries with that. (yes, I know that we've been offshoring entry level work for many years, the only reason that we aren't all phone sanitizers by now is that we haven't thrown _everything_ overseas.)
Senior folks, capable of sustaining interesting, cutting edge work don't fall out of the sky. They need to get a first job somewhere. A country that doesn't invest in new hires is sacrificing tomorrow for today.
That is already what is happening....more and more good jobs go overseas, Americans become more willing to accept lower standards of living.
Assuming a truly globalized and free economy, this is a broken window fallacy. Increasing the cost of production (by taxing the more efficient producers to make their products as expensive as the products of the less efficient producers) can never lead to any overall increase of wealth. Of course one can use force to get one party wealthier at the expense of another, and that is pretty much what he is proposing.
Negative moral value of force outweighs the positive value of good intentions.
I think the problem is there just aren't enough jobs. For local / offshore / everywhere.
Too many people in the world, not enough resources, not enough of anything to be honest. So we want to make a system that further skews things because too far in one direction is worse then a crappy balancing act. Offshore pushes towards labor inequality. I just wish the offshore people would demand more from their employers and it seems to be slowly moving that way. But the fact is that there are too many people that can do the same job, but with varying demands of compensation. So taxing them because they are willing to work for less does not seem very ethical to me but that is why I will always be broke. I'm not willing to screw people over just for a little extra money.
Of course they couldn't find qualified Americans.....for $10/hour. That's his whole point. If the offshore labor was taxed for the same things local labor is taxed for, the scales wouldn't be quite so imbalanced.
Only if you define "economically feasible" as "the absolute greatest profit".
Taxes were not intended to change behavior, but they do. There is no way to avoid it unless you tax something everyone wants to do (earn money and spend money).
When Grove was CEO of Intel, HE was the one who moved much of their R&D overseas because they were "unable to get qualified Americans."
Of course he did. When he was CEO of Intel, his job was to do what was best for Intel. Now that he is not the CEO of Intel, he is looking at a different picture: what is best for the USA. There is nothing two-faced about it.
"You want to know how to help your kids? Leave them the fuck alone." -George Carlin
Intel is already more expensive than the competition. It's not an issue of making money, it's an issue of making the MOST money.
There's no -1 for "I don't get it."
every american businessman inevitably refers to business process in terms of war.
IIRC some business schools used to have, or may still have, The Art of War as required reading.
Trolling is a art,
He was still an American when he was CEO of Intel. Shouldn't his duty to his country take priority over his duty to his employer?
>And too bad all of Intel's products seem to be made in China these days.
Err, do you really want to work in a chip fab? They're in China because of China's lax environmental regulations. They're essentially poison factories.
Grove's statements are populist bullcrap. Protectionism isn't going to help. Raising the price of Intel's chips isn't going to help (that's what these taxes will do). Sure, fabs are overseas but all the cushy office jobs that aren't manufacturing are here. If sales drop because of rise of prices, which they will, we'll be laying off our local engineers, marketers, etc because of the drop in business.
The US will never be a manufacturing powerhouse again. We're too rich. We dont want dirty factories polluting our lands and more minimum wage jobs in factory conditions. All countries that can afford to get out of manufacturing do so for a reason.
It is not only not good common sense but it is actually bad economically. The protectionist law Smoot-Hawley Tariff Act, which became law in 1930, led to the Great Depression. When one country enacts protectionist laws other countries pass their own protectionist laws in retaliation which shuts down trade. Economies then collapse causing recessions and depressions.
If you want to help create US jobs, reduce if not get rid of Payroll taxes. Besides all the taxes employers have to deduct from employee pay checks, employers have to also pay taxes. The FICA or Medicare and Social Security tax, employers have to pay half of it. They have to pay federal and state unemployment taxes as well. Not only that but they have to pay accountants to calculate how much has to be paid in taxes. These taxes are paid for every employee, reduce the number of employees and the taxes are reduced as well. Reducing, I'd prefer them to be abolished, federal income and payroll taxes would allow employers to hire more employees and or pay them more. And more people making more money will boost the economy. They will have more money to buy more, driving demand, and or they will invest more thus creating more jobs.
I am completely sick of being screwed over by the corporatist plutocrats.
So hold them accountable, just don't shut down trade.
Falcon
Should there be a Law?
And, there is where you show your bias and ignorance of most Americans.
There is no "-1 offended" or "-1 you don't agree with me" mod options for a reason.
'Outsourcing' allows smaller firms to take on projects that they otherwise could not afford to do. I own a small business and at least two of my products I could never hope to bring to market if my only option was to use domestic resources. Those products make money and allow me to expand. This is not a burden on the U.S. economy; it is a positive contribution.
The fundamental reason you can't produce your products using domestic resources is not that it would cost too much. It's because you couldn't sell them for enough to cover the costs and make a profit. The reason for that is because Americans today are by and large earning less, because the jobs that paid better are gone. Thus those Americans consume less and so cannot be a source of much profit for business. This is a big reason why the financial services sector has ballooned to 1/3 of our economy, because the other sectors of our economy are dying out and one of the only way to earn large amounts of money is to aggregate other peoples' money (e.g. their savings) and use it for investments. This, however, only makes a small number of people all that much richer, while everyone else continues to participate in a race to the bottom.
The very real problem that perhaps not you, but your children, will need to worry about is this - will Americans be able to afford ANY products our businesses produce? Of course, we all need food, clothing and shelter, but you can't grow an economy if people are only buying the bare necessities. When lots of companies outsource, they're not just reducing their operating costs - by laying off the Americans they used to use to do the job, they're also reducing the number of people who have discretionary income to spend on their products! In small numbers, this is not a horrible thing, but in the past twenty years, something in the range of tens of millions of jobs have been lost, and lots of people have moved from working in factories to working at McDonalds and often working two jobs. In 1960, how many families had two parents working two jobs to make ends meet? It's not uncommon today. Why is that? Obviously, as you yourself have realized, most things Americans can do can be done by people in other countries cheaper, and that mostly just leaves what jobs people MUST be in the US to do, and those jobs tend not to pay very well because they're mostly butt-in-seat jobs.
Unfortunately, each individual company sees in the short term an increase in profits and can't see the long term damage they're doing to themselves, and so they all rush to outsource in search of bigger profits. The big problem facing us is that people like yourselves do not think about the big picture, or, you perceive it as not your problem - you add up the dollars and cents, and if it equals profit, you think it's good. You might want to brush up on your Chinese though, soon they'll be the ones with the money to afford your product. Except that, if the Chinese decide to produce your product without your help (they don't really care about IP), they can probably charge quite a bit less and make an even bigger profit since they don't have to deal with paying an American wage.
Reducing, I'd prefer them to be abolished, federal income and payroll taxes would allow employers to hire more employees and or pay them more.
Over the past decade or so, we've had great expansion in worker productivity in America, and we also boasted a high GDP. We also had anemic wage growth vs. inflation (especially against the prices of goods such as college education and health care) and nearly non-existant job growth. And this was after two separate substantial tax cut packages near the beginning of the decade. The lessons of the last decade appear to be that there is not always a direct link between job growth and increased business profits / lowered taxes - often, the business's shareholders just pocket those increases. So forgive some of us for being skeptical that additional cuts on payroll taxes will have any major effect.
Libertarians somehow believe that private businesses should be stronger than governments but weaker than individuals.
Ah... But define "economically unfeasible". I contend we're already there with things and just don't see it yet.
It's a race to the bottom and it's unsustainable- and it cannibalizes much of the country that you do it in, enriching the people that were in charge and as often as not the countries they shift the work to. And it also ends up being substandard work and all- which also is economically unfeasible.
I am not merely a "consumer" or a "taxpayer". I am a Citizen of the State of Texas