The Pillage of Progressive Government

Evasive Action Increasing

It's a hard lesson to learn, but sooner or later even the antediluvians amongst us will begin to comprehend.  Point #1: Capital and labour are the core components of any commercial enterprise.  Point #2: Capital and labour are mobile.

Now this has not always been the case.  Before the development of technologies that can move people relatively quickly and inexpensively from one side of the globe to the other, labour was relatively immobile.  In a particular area, the number of jobs were necessarily limited; in times of recession, sometimes severely limited.  That meant that employees were effectively reduced to being "price takers".  They had little economic leverage to increase wages.  The number of employment opportunities was small or fixed; there was often surplus labour chasing those jobs.

Now, labour is globally mobile--more so than at any time hitherto in our age.
  If labour conditions are inadequate, labour can get up and move to take advantage of more attractive opportunities--whether in the same country or overseas.  No longer is it a case of selling up everything and joining a wagon train to trudge westward for months and months, through mortal danger in search of economic advancement.  Once packed, you can be anywhere in the world in 36 hours.  The only obstacles are visas and work permits.  These, too, are eroding barriers as free-trade agreements expand and multiply.

Capital, likewise, is increasingly mobile.  Businesses will relocate to secure cheaper, more competitive manufacturing locations.

New Zealand has experienced both capital and labour mobility.  It helps keep everybody honest.  But the worst millstone encouraging capital and labour flight to more attractive locations is state-imposed costs (taxes, rules, regulations, pension costs, compliance--most of which are dead weight costs, with no productivity benefits to offset at all.) 

Consider the following in California--once the sixth largest economy in the world, but now a shrinking violet, well past its early morning glory.  California has one of the most, if not the most, "progressive" state governments in the United States.  This particular piece, documenting both labour and capital flight out of the state, published  in the Los Angeles Times caught our eye.  Toyota is on the road.

Toyota Motor Corp. plans to move large numbers of jobs from its sales and marketing headquarters in Torrance to suburban Dallas, according to a person familiar with the automaker's plans. The move, creating a new North American headquarters, would put management of Toyota's U.S. business close to where it builds most cars for this market.

North American Chief Executive Jim Lentz is expected to brief employees Monday, said the person, who was not authorized to speak publicly. Toyota declined to detail its plans. About 5,300 people work at Toyota's Torrance complex. It is unclear how many workers will be asked to move to Texas. The move is expected to take several years.

Of course Texas is not dumb, despite all those long-drawled vowels.  Because it runs a low cost government, infrastructure and regulatory dead weight in that state is much less than elsewhere in the United States.  Its smart pollies have been out and about telling the good news.

(Texas Governor) Perry last month visited California to recruit companies. The group Americans for Economic Freedom also recently launched a $300,000 advertising campaign in which Perry contends 50 California companies have plans to expand or relocate in Texas because it offers a better business climate. Like these other companies, Toyota could also save money in an environment of lower business taxes, real estate prices and cost of living.

Because of the lower cost of living in Texas, employees who move from California and migrate to Texas also benefit from the lower taxes, lower real estate prices, and overall lower cost of living.  They get an immediate boost to their incomes by moving with the company.  Labour is now as mobile as capital.

What can Texas do?  Not much. 

Frank Scotto, Torrance's mayor, said he had no warning of Toyota's decision. He said he did know that the automaker planned a corporate announcement for Monday. "When any major corporation is courted by another state, it's very difficult to combat that," Scotto said. "We don't have the tools we need to keep major corporations here."  The mayor said businesses bear higher costs in California for workers' compensation and liability insurance, among other expenses.  "A company can easily see where it would benefit by relocating someplace else," Scotto said.

Both New York and Texas have aggressively pursued major California corporations by promising a number of financial incentives to get them to relocate, he said.

Progressive government progresses government--and more government rules, regulations, intrusions, feather-bedding, protections, political payoffs represent dead-weight costs to both capital and labour.  And once enacted and introduced they become permanent.  Nothing can be done to change the dead weight they represent, short of a political and social revolution.   The result: capital and labour flight--because now both are mobile.

Most politicians and bureaucrats are slow learners.  They think they are smarter then the average Joe.  They think they have unlimited license to govern, which they believe means ruling, regulating and intruding.  They also believe they know better than everyone else and can run others' lives and business enterprises better than the owners, the managers and the staff.  They also think they have a higher calling.  They are not (they tell themselves) self-interested.  They represent the public interest.  But when it comes down to it they are captive to a cluster of pressure groups to whose interests they have sold their soul because there are votes in the transaction.  Consequently they are both self-interested and selfish.  Unlike capital and labour, they do not have to earn the right to exist every day, in the face of fierce, remorseless, unrelenting competition.

Capital and labour are both self-interested and pragmatic.  If it will make the business more profitable to move to a more attractive location they will do so, because they can--more easily now than ever before.  But competition creates another discipline: the first to move gains competitive advantage.  In the end, other (competitor) businesses, have no choice but to follow.  A trickle becomes a torrent.  Toyota could no longer earn the right to exist if it stayed in California.  It had no choice.  Its staff will be coming to the same conclusion.

The velocity of labour and capital mobility is rising.  Both are voting with their feet.  The Californias of the world end up commercial and economic Chernobyls.  We have seen their future, and it is called Detroit.