“OutFORCING”: Pennsylvania’s Real Job Loss Culprit

There’s been a great deal of political talk this election season about greedy “Benedict Arnold” companies sending jobs overseas. Gov. Ed Rendell even announced that the Commonwealth would look unfavorably on companies wanting to do business with the state that “outsource” any of their business operations to another country. Although this response is well-intentioned and sincere about keeping jobs in America, “outsourcing” has become a convenient excuse for politicians avoiding the real culprit driving jobs out of this state and nation—the practice of government “outFORCING.”

Cheaper labor costs are frequently cited as the reason corporations move work and even entire operations to foreign countries. However, limiting the discussion to labor costs ignores the more compelling reasons why companies and jobs are leaving Pennsylvania and America.

Indeed, although the costs of labor are particularly high in the Commonwealth—where union bosses hinder the flexibility of companies to respond to the ever-changing and competitive global marketplace—they are not what ultimately send jobs elsewhere. The economic reality faced by all Pennsylvania businesses—big and small alike—is a climate characterized by over-taxation, over-regulation, and a legal system run amok. In short, it is the greed of politicians and special interest groups in Harrisburg and Washington—not company CEOs—that are “outFORCING” jobs to other states and countries.

Just consider the last 4 months on the taxation front in Pennsylvania. In December 2003, the Republican-led General Assembly joined forces with Gov. Rendell to pass a more than $1 billion tax increase that hit small businesses (which employ the majority of workers in PA) with a 10 percent increase in income taxes alone. For most businesses, 10 percent is more than double, triple, and even quadruple their annual profit margin.

In February, Gov. Rendell proposed a budget that would further increase the costs of doing business in the Commonwealth by raising fees on production emissions and waste disposal—punishing manufacturers even harder. Then the day before April Fool’s, the General Assembly put taxpayers further into debt by passing a 20-year bond requiring annual payments nearing $100 million. Later this month, the politicians in Harrisburg are hoping citizens will allow them to pull out the credit card once again to pay for water and sewer improvements.

Yet a discussion of the increased tax burdens on the state’s job providers doesn’t even begin to touch on other critical “outFORCING” issues. In addition to facing some of the highest business tax rates in the nation, Pennsylvania companies are forced to operate in a hostile business climate of compulsory unionism and prevailing wage laws, rising health insurance costs, capital taxes on buildings and equipment, high environmental compliance costs, increasing property taxes, mandated fringe benefits, and liability and litigation risks. The list could go on and on. So, is there really any wonder why companies and jobs are fleeing this state and nation?

Nevertheless, even if sending jobs overseas is deemed inherently wrong, shouldn’t these same politicians be condemning foreign companies who send work to Pennsylvania and praise those who keep jobs “over there”? Apparently the outrage over outsourcing is a one-way street.

Recently the Organization for International Investment noted that despite the dismal business climate in Pennsylvania, foreign companies have “insourced” more than 267,000 jobs to the Commonwealth, including nearly 105,000 manufacturing positions. Many of these jobs, of course, are coming from countries that are even more inhospitable to job creators than Pennsylvania.

One example of this “insourcing” phenomenon is that of B. Braun Biotech, Inc., a U.S. subsidiary of the Sartorious Group of Germany. Braun plans to expand its current operations in the Lehigh Valley area to employ 200 Pennsylvanians—more than double its current number. But Braun may not want to get too comfy in the Valley, as Pennsylvania politicians appear to be in an undeclared competition with their European welfare-state counterparts to see who can drive out all their businesses first.

Instead of whining about businesses utilizing effective cost-saving measures that allow companies to remain competitive in the global marketplace, politicians should start addressing the policies here at home that are “outFORCING” jobs to other states and countries. But, of course, it is always easier to rail loudly against a culprit they can do little about than to deal with the tax and regulatory mess they created themselves.

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Matthew J. Brouillette is President and CEO of the Commonwealth Foundation, a free-market public policy research and educational institute based in Harrisburg, PA. Permission is hereby granted to reprint in whole or in part, provided the author and his affiliation are cited.