Why Rubio needs an economic schooling
His ‘National Review’ article is off the mark
Republican Sen. Marco Rubio recently got national attention claiming the GOP bungled tax reform. The media missed one crucial point. The Florida senator appears to lack any basic education in economics, economic history or real-world experience. So do so many cradle-to-grave politicos — in both major parties. Here is why that’s critically important.
Writing in National Review, Rubio claimed that cutting corporate tax rates benefits multinationals’ foreign operations as if they were in America. True! Instead he wants “incentivized domestic business investment” — to boost jobs, productivity and wages. Sounds nice politically. But he’s wrong. It doesn’t work and, in fact, it hurts. And he seems to have no clue why. Let’s help him.
Every business must do something special, otherwise it wouldn’t exist. To survive, businesses must offer something better, something customers want beyond what others offer. Economic jargon calls this “comparative advantage.” That special thing gives a business its edge — but has limitations.
Your local laundromat’s special thing may be closeness, hugely hindering expansion. Some businesses have less limitation. They can push their special thing globally until tapping out all limitations. Once they’ve maxed their op- portunities to gain customers — expanding even more loses money. Overpush that envelope, and firms who hire soon are forced to fire — brutal and cruel to workers.
When Rubio argues for limiting “the ability of multinationals to arbitrage in low-tax foreign countries,” he would limit U.S. jobs. Why? Once any company has maxed out its special advantage within America, it can only create more U.S. jobs in two ways: One is to conceive of some new special thing, but that’s tough. The other is to build foreign operations and create jobs here!
Consider my firm. We started in Woodside, Calif. Now we have employees worldwide. But in first taking our comparative advantage to Europe to help folks there, we didn’t just add European jobs. For about every four there, we added one here — jobs Americans wouldn’t otherwise have had. We needed more American lawyers, accountants, operations specialists and managers interfacing with our non-U.S. business. Scads of folks fly back and forth.
Every firm expanding overseas does that. Rubio’s idea would deter what American firms should be doing: dominating globally and adding jobs here. Besides, his idea has been tried historically and never worked.
If America’s economy were mostly manufacturing, Rubio’s nonsense might make a bit more sense. With water freight cheap, manufacturers can ship globally. Where factories sit is less crucial. Some manufacturers may be able to invest locally to dominate globally. But manufacturing is just 11.6% of our economy. The vast majority, 68.9%, is services. It’s tough to render great service from continents away. It’s hard to help service Africans, Asians and Europeans from here. Being in those countries is necessary while also adding U.S. jobs.
Even within manufacturing, massive domestic investment wouldn’t bring many jobs. Why? America manufactures more than ever, around $2 trillion annually, but with far less labor. We have 12.7 million manufacturing workers, down from 19.5 million 40 years ago, because of technology that creates more modern, automated factories. Little help for displaced blue-collar heartland workers.
Too many politicos are like Sen. Rubio. After political science and law degrees and two years lawyering, he has held public office ever after. Economic or real-world know-how? None!
Common sense would dictate that cradle-to-grave politicians defer to peers with specific training, experience or real-world savvy. That deference seems ever absent. Moving toward this year’s mid-term elections, send your candidates the message to stick to where they have real experience — and defer all else to better-prepared peers.
Ken Fisher is the founder and executive chairman of Fisher Investments and is No. 200 on the Forbes 400 list of richest Americans. The views and opinions expressed in this column are the author’s and do not necessarily reflect those of USA TODAY.