By Kevin Meyer
A short op-ed in The Wall Street Journal last week had some interesting numbers on a group of companies that are growing:
Last month a Survey of Current Business report by the U.S. Bureau of Economic Analysis suggested—perhaps accidentally—a promising new approach [to create growth]. The report documented a dynamic group of companies that create high-paying American jobs based on significant capital investment and export prowess—precisely the kinds of jobs America desperately needs to build a sustainable recovery.
In 2008, these companies employed 5.6 million Americans, 4.7% of total private-sector employment. In the U.S. private sector that year, these companies accounted for 11.3% of capital investment ($187.5 billion), 14.3% of research and development ($40.5 billion), and 18.1% of goods exports ($232.4 billion). All these activities contribute to good-paying jobs. In 2008, total U.S. compensation at these companies was $408.5 billion—a per-worker average of $73,023. That's about one-third more than the average for all other U.S. workers.
Who are these companies?
Ones that "insource"—that is, the U.S. operations of multinational firms based abroad. Insourcing companies now employ more than twice the number of Americans they employed in 1987. According to a recent survey by the Organization for International Investment, the chief financial officers of insourcing companies continue to see growth opportunities in America. Almost 50% plan to increase U.S. employment over the next 12 to 18 months, and just 22% plan to reduce it.
So let me get this straight… we have multinational companies like Philips that are trying to grow by shuttering U.S. plants and shedding thousands of years of knowledge and creativity by chasing lower labor costs, and we have multinational companies that are trying to grow by expanding and even opening new operations in the U.S.
And the ones expanding in the U.S. are being successful. Sort of says something about the value of being close to the customer as opposed to the phantasm of value of so-called "cheap labor" doesn't it? What's really interesting are the ones expanding in the U.S. to export to other countries. An interesting value – not just cost – calculation.
The article goes on to describe some factors that are hindering companies from expanding in the U.S.
First, taxes. Insourcing CFOs reported to the Organization for International Investment that taxation is the single most important policy area that shapes their companies' investment decisions. In turn, their top concern is the U.S. corporate tax rate, which, at 35%, is one of the world's highest. America's high corporate tax rate inhibits hiring and investment in all U.S. firms, big and small alike.
Second, trade. The global production and distribution networks of insourcing companies foster lots of exports and related jobs. So does trade liberalization. The more U.S. policy makers enact free-trade agreements with other nations, the more insourcing companies will be able to expand their exports and related jobs.
Third, tone. A worrisome 72.2% of insourcing CFOs say that the environment for doing business in America deteriorated over the last year. Contributing to this deterioration were the "Buy American" provisions of the 2009 American Recovery and Reinvestment Act. This protectionist tone belies the reality that America today is in a new era of global competition to attract the dynamic operations of global companies.
Yes, those concerns to have significant impact – and especially for those of us trying to do business in states like California. But the important point is that companies are being successful – and creating new jobs – by expanding operations in the U.S.