Tax cuts vs. competitiveness

Tax cuts vs. competitiveness

Toward the end of the U.S. presidential campaign, both candidates spoke repeatedly about how their brand of tax cuts would create outsource-proof jobs for American workers. While this tactic has an obvious appeal, the unfortunate reality is that in today's global economy, there is no real correlation between tax cuts and job creation.

The belief behind this pillar of supply-side economics is that tax cuts leave more profits for companies -- earnings that will be invested back into a business, thus creating more jobs. Additional profits from subsequent ventures generate even more employment, and a virtuous circle of growth ensues.

It all sounds great, but the basic tenet of this Reagan-era theory puts the cartful of tax cuts well out in front of the horse that provides the profits.

Everybody likes lower taxes, but companies don't undertake growth initiatives solely on the hope of future breaks. In most cases, executives are willing to build plants or hire employees because they believe they can turn a profit on a specific venture. Supply-side economics is based on the naive assumption that profits are automatic and, as such, job-creating tax cuts are part of the logical cycle of economic growth.

As any decent tax accountant will affirm, it's difficult to benefit from an earnings-based tax cut when there are no earnings to begin with.

In the final analysis, investments are made in payroll because decision-makers are convinced that their workers can compete. This is what creates jobs, and if U.S.-based companies can't make muster against their global rivals, tax cuts can't even be part of the conversation. So, the real issue is how U.S. companies combine product innovation with supply-chain techniques to set themselves apart from the legions of low-cost manufacturers in foreign markets.

While new industries and products are the true catalysts of long-term economic growth, there are many initiatives that can be undertaken in the U.S. to improve the logistics component of its overall value proposition. For example, President-elect Obama's secretary of education should take a page out of Europe's book by creating a nationwide apprenticeship program for international logistics and supply-chain management. If a young person can go to a technical high school to learn how to become an electrician, he or she should be able to go to the same school to earn a certification in transportation and logistics.

Europe's commitment to these types of apprenticeship programs has created well-paying jobs across the continent, and companies there enjoy a comparative advantage due to their professional treatment of the logistics discipline. For U.S. high school students who don't have immediate college plans, this approach offers an option that not only creates valuable skills, but also contributes to the competitiveness of the country.

The government also should begin public school language programs where children are taught Japanese, Spanish or Farsi from the first grade on. While some people in the U.S. continue to waste time lobbying to establish English as the official language, more enlightened countries are producing multilingual workers. Even though English is the de facto language of global business at an executive level, the ability of American workers to speak a client's or supplier's native tongue would be immensely valuable.

Looking toward the future, one can envision how competitive the next generation of employees would be if they were armed with formal training in global trade and were able to express that knowledge in Mandarin.

The large number of teachers that would be required to make the above a reality can be based on practices used by the U.S. Army's Reserve Officers' Training Corps. Specifically, the government could offer university scholarships to study international business or linguistics in exchange for four years of service in local school systems. A Peace Corps approach also could be adopted where aspiring teachers are sent abroad to perfect language skills or perform trade internships. Once participants complete their education and four years of academic service, they could remain in teaching or put their skills to work in other areas that contribute to the country's prosperity.

If the U.S. wants to create a virtuous circle of job creation, it must be based on long-range plans designed to make the American worker more competitive. While not a panacea for all of the country's economic woes, enhancement of our trade and language skills certainly offers more promise than the pixie dust of tax cuts.