Companies that manufacture a product have always chased the lowest labor rate around the globe. This is why your t-shirt is made in Honduras, your Chevy in Mexico, and your iphone in China.
This has been the main reason that the United States has been bleeding manufacturing jobs by the millions. Consider Honduras, where the mandated minimum wage is less than $1 per hour. If you make underwear in the United States you have to pay a federally mandated minimum wage of $7 per hour, plus workmen’s comp premiums, plus 7% wage taxes per employee. Even if you make a great product you can’t compete with the factory owner in Honduras who pays each worker $8 per day.
We’ve lost over 5 million jobs in manufacturing since 2000:
There are huge changes coming in manufacturing, mainly because robotics are eliminating the wage issue. Robots cost the same no matter where you set up your factory, here is a factory in China that has embraced robotics:
Another factor in manufacturing costs is logistics, or the costs of shipping. Your labor rates have to be low enough to make your widget in Mexico, then ship it back to the United States while still holding a profit.
Local robot manufacturing eliminates international tariffs and reduces shipping rates.
Of course, it costs money to convert a factory from human labor to robots, but it makes sense to eliminate labor costs from your overhead, even if this requires a large investment in technology.
Eventually all factories will convert to robotics, with just a handful of workers onsite in case of emergencies. As robotics get better and better there will be fewer employees, until the only human left in the equation will be the owner of the factory.
This is great news for factory owners in the United States, this means that all manufacturing will come back to America, right?
Perhaps not. The last factor here is the long term capital gains tax rate levied on the owner of our robotic factory. The United States has the sixth highest capital gains reat in the world:
Here in the USA we’re at 28.6%, while the same tax rate in Mexico is only 10%.
On a pure cost analysis it makes more sense to build your robot factory in the country with the lowest capital gains rate. Even though the factory might not create jobs it still uses the water and electricity wherever it’s located, the rent or mortgage is still going to the local municipality.
Do we want to “Make America Great Again?”
Let’s lower our capital gains tax rate to 5% for any manufacturer who wants to put up a factory anywhere in the United States. Let’s make the United States the most attractive place in the world to invent, create and manufacture new technology.
Sergey Brin came here from Russia and created Google, Elon Musk came here from South Africa and started PayPal, Tesla, SpaceX and Solar City.
We can create policies that make the United States the largest incubator in the world for technology and robotic manufacturing. We can create a culture that grows tech entrepreneurs from within but also attracts them here from the rest of the planet.
Imagine 10,000 factories building tech widgets HERE and paying a modest capital gains tax, versus 10,000 factories in other countries drawing talent away from our shores.
How many people like Elon Musk are out there, willing to grow a business, with an idea that can change the world… but they live in an environment that makes it harder to start a business?
Let’s find the entrepreneurs of the future and bring them here!
That’s my idea for the day…
Benjamin T. Alexander
September 28, 2016