At a in dinner in Silicon Valley in 2011, President Barack Obama is reported to have asked Steve Jobs what it would take for Apple to employ Americans in America to make iPhones. With characteristic candour, Mr Jobs replied: “Those jobs aren’t coming back.”
In that one comment he was making three points that President Donald Trump might consider as he wends his curious way between deregulation and protectionism, between slashing taxes to liberate business and a heavy-handed industrial policy.
The first point was that politicians had to stop kidding themselves about bringing manufacturing jobs back to America. Some may return, but never on the scale of the post-second world war years. Brains and busywork have replaced brawn. The vision of the American worker has gone from the great, sinewy He-Men of Thomas Hart Benton’s murals, heaving rocks and pounding metal, to Google programmers and the office-park slackers of Workaholics.
Mr Jobs’ second point was that outsourcing was no longer just a hunt for the lowest possible cost. The best plants in Shenzhen had shot up the learning curve, to become the best of their kind at any price. Even if Apple were to build a plant in America and pay American workers American wages, it would take a long time to manufacture with the speed, precision and flexibility the company could achieve with its partners in China. And that is to assume the Chinese stopped getting better.
And the third was that the best US companies had become brilliant at managing across borders and directing resources to where they generate the highest returns. They weren’t victims of globalisation. They were its masters and had become less and less American.
In 1990, the economist Robert Reich published an article titled “Who Is Us?” He argued that the success of US-owned corporations and American competitiveness were the same thing. Business was off plundering new markets and employing tens of thousands of foreign workers. Meanwhile, foreign companies, notably the Japanese, were investing in American plants and factories, hiring American workers, and teaching their American rivals how to be more productive. Foreigners were driving American competitiveness, while Americans were off seeking higher returns on capital overseas. So to his question “who is us?” Mr Reich answered: “The American workforce, the American people, but not particularly the American corporation.” And this was several years before the North American Free Trade Agreement.
These decades of multinational shape-shifting have made America’s largest corporations easy prey for an economic nationalist. Ford, for example, has 199,000 employees worldwide, of whom only 48 per cent are in America. Apple has about 66,000 employees in the US yet is reported to have had almost five times that number working on making a single version of the iPhone at its Chinese supplier, Hon Hai.
If one accepts Milton Friedman’s argument that a corporation’s sole responsibility is to its owners, then one cannot find fault with these multinationals. They plant their flag where the money is. Their shareholders don’t want them playing the “Star Spangled Banner” in the boardroom. And while they may not directly be investing in American workers, they are generating returns for US investors who can reallocate their capital as they see fit. Mr Trump has done precisely this with his own business, investing in property deals far beyond US shores.
But this is a fragile argument and Mr Trump is gleefully smashing it to pieces. He knows you cannot respond to stagnant wages and economic insecurity among the working and middle classes with the crystalline logic of a Nobel-winning economist. And he is threatening to perp walk before the press any companies that disappoint him.
The other problem for US multinationals is the 2004 Homeland Investment Act, which gave companies a tax break if they repatriated foreign income. The government told them they were being given this on the condition they invested in R&D and worker training. They were not to hand it all out to shareholders through dividends and buybacks. Guess what happened next?
The problem was the “fungibility of money”. Once companies brought their foreign money home and ran it through the accounts, it became a shell game. The government couldn’t keep track of which money was what, and where overseas funds were going. Shareholders got somewhere between 62 and 90 cents of every dollar repatriated.
Today, US companies are holding an estimated $1tn or so in cash overseas. If they were given another opportunity to bring it home, chances are the same thing would happen again.
For global companies, patriotism can be stimulated with incentives like tax breaks, or threats like tariffs, but it is not a natural state of mind. Capital hasn’t been scarce these past few years. If businesses saw more value in investing in American workers, they could easily have done so. But they would rather wait for robots.
