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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.
I am completely sick of being screwed over by the corporatist plutocrats.
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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.
... and enter it with reckless abandon and no exit strategy; that last part is crucial.
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?"
every american businessman inevitably refers to business process in terms of war.
Good people go to bed earlier.
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.
Of course this ever happening in the US this is a pipe dream, but I like to visit these dreams every once in a while and yes it makes me feel better.
CS: It is all sink or swim...oh and did I mention there are sharks in that water?
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.
I wonder where the good Mr. Groves stands on Intel's large R&D base in Israel... Should we be taxing that, or is this only a tax for his dirty competitors who are fabbing with TSMC?
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."
RIP America
July 4, 1776 - September 11, 2001
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.
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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.
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"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!
That is already what is happening....more and more good jobs go overseas, Americans become more willing to accept lower standards of living.
I am now dumber for reading your comment. Your power to reduce intelligence is amazing.
How is it that China, and Japan before them, are able to peg their currencies? This is a question rarely discussed. The easiest and most effective way to accomplish this is by purchasing U.S. bonds, which we sell in abundance to cover our enormous debts. In effect, the politicians railing about how unfair the Chinese currency policy is actually contribute more to the problem than anyone else.
'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.
I once took an excursion to Reddit, and later HN. Unlimited up/down voting sucks when dealing with a hive-mind.
I agree with your last point. I think that we should drop personal income/payroll taxes for anyone making less than $200,000/year and have corporations pay strictly based on gross revenue minus non-executive salaries of US workers. That would cut costs and get more money moving throughout the economy.
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Your proposed solution to general social economic problems will fail because:
[X] It requires investors to care about something other than short term profits
[ ] It requires corporations to care about something other than short term profits
[X] It requires politicians to care about citizens rather than corporations
[X] It requires laws without loopholes
Crap, an Anonymous Coward is on to our plan. Now we must regroup and start over.
If executive level managers didn't take home half the payroll of their companies, said companies could afford to hire people. As someone else said, Grove took home $100,000,000 in pay one year and he is ONE PERSON. What exactly did he do to earn that much money?
How much money could be made available for paying for on-shore manufacturing if the upper management were paid a reasonable amount? If Grove had been paid $1 million, there would have been $99 million dollars to hire 990 people at $100,000 per year. That is almost 2,000 full time positions (5% of Intel's workforce) at $50,000 per year. You could give 19,800 people a $5,000.00 per year raise.
And, that is just for one person. Throw in the rest of the similarly over-paid executives and managers and think of how easy it would be for Intel to pay to have every one of its employees in the United States.
The problem isn't the government. The problem is literally executive greed.
If past experience with corporations are any indication, doing any and/or all of what you suggest will result in higher executive pay and no more jobs in the United States.
There is no "-1 offended" or "-1 you don't agree with me" mod options for a reason.
It's bizarre that Americans complain about that pegged currency.
You do realize that if China wasn't buying treasuries like crazy in order to stop their currency from climbing in value against the USD then all that government spending would have to be paid by taxing you more, right?
The US government could break that dollar peg overnight by refusing to issue anymore debt.
But don't worry it ends in the relatively near term anyway, sadly though America isn't going to enjoy the end of this "the rest of the world does all the work, while we consume all the stuff and send them IOUs".
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.
Actually, there's lots and lots of people who want to buy US debt. Someone else will pick up China's purchases, at a slightly higher interest rate.
Really, the reason China is allowing the RMB to float is they already are not comfortable owning that much US debt. They were already cutting down on purchasing new debt.
Especially after our economy collapsed from doing so.