The Problem with Re-training

It is almost a drumbeat, what American workers need is more education, more technical and skill based education to fill the jobs coming open today. 

There is undoubtedly a certain amount of truth to this. But there are other factors in American jobs, in American hiring, to call much of this re-training into question. I have serious doubts that re-training can be successful without some necessary policy changes at the national level.  

The policies that made it easy and profitable to move American jobs overseas are still in place and, in fact, with the new TPP (Trans Pacific Partnership), it will be even easier to move jobs overseas. 

Picture yourself as a corporate executive. You’re a CEO and you have built a company with highly skilled workforce. You get a salary of about 250K a year and you have directly owned stock worth about a half million and an option to buy about two million more. Your company pays around fifteen million a year and has profits of around thirty five million. 

You have 120 workers who were trained to do these technical tasks at a local college under the auspice of a state mandate to train workers in direct response to local needs. You and your investors asked for the college to focus on the kind of training you needed and the college responded. You received grants from the state and the federal government to start and develop your business of around seven million dollars and they required you to operate in the state and in this country. However, this requirement was for five years and that time has expired. 

If you move the jobs overseas, you will be allowed to deduct all of the moving expenses. So, the actual move will cost you little or nothing.

The company’s stock may well double in value as the move will be fully publicized in the financial press. Speculators will buy up the stock and the value will probably rise as much at least as much as 50%. That means that your half million in stock will become worth three quarters of a million and do I need to talk about the stock options? – The potential profits are enormous. 

If that isn’t enough there are enormous tax advantages in moving your business outside the United States. Here’s a quote from the web site – Sovereign Man: 

However, the real tax advantage from running an offshore company as a US citizen doesn’t come from direct tax savings. It comes from tax deferment, meaning you postpone the payment of taxes into the future. If you run a business overseas and reinvest profits within the company you can defer taxes indefinitely. Let’s say you have a profitable company overseas. Now imagine that instead of paying taxes on your profits every year you can reinvest that capital in your offshore company every year for 30 years, and only pay taxes if you decide to sell the company after 30 years. Being able to reinvest your capital tax-free combined with the power of compound interest makes this a truly exceptional opportunity.

So the government subsidizes on an enormous scale the movement of businesses overseas and for those businesses to stay there. 

It is very difficult to move a business overseas and not make a profit. You can be fairly incompetent and still make a lot of money. In fact, financially the move may not make any financial sense at all. You may not be able to find the kind of skilled labor you need. You may not even be able to generate a profit with the limitations of the foreign supply chain. But for those quarters of the year that you were moving and during that period of stock speculation, a lot of money was made and business people in America are not trained to look at the long term but the next quarter. 

How will our re-training of American workers make a long term difference in their lives when the CEO, the Board of Directors and the Stockholder have a strong financial interest in moving the company once it is established? And there is the additional factor that any company remaining in the United States is in competition with American companies that have already moves overseas and are now largely relieved of their tax burden. How will they be able to compete without pushing down wages or, perhaps, even moving overseas themselves? 

And if those who have undertaken the arduous task of being trained and re-educated do find a company that offers them good jobs, what kind of salary and benefits can they expect when they are subject to the downward wage pressure that this international job movement creates? What kind of job security will that be? 

James Pilant