Everyone knows the old joke about the weather: Everyone talks about it, but no one does anything about it. Sometimes I think all of the concern about our nation's manufacturing sector falls into this same category. Across the political spectrum, politicians wail about the loss of manufacturing jobs and demand "action." But the only thing anyone ever seems to come up with is trade protection, which is a cure worse than the disease. The real reasons for manufacturing's woes are never addressed.
Last week, the National Association of Manufacturers and the Manufacturers Alliance (MAPI) published a study detailing the true sources of manufacturing's problems. They do not originate in Asia, but here at home. Relative to our trading partners, the U.S. imposes many costs on our manufacturing businesses that make it difficult for them to compete. Without these additional burdens, American firms would be far more cost-competitive, leading to increased employment and wages.
The NAM/MAPI study identifies four key areas where American manufacturing firms are significantly burdened compared to our principal competitors. It estimates that they add 22.4 percent to the cost of production here relative to there. These include corporate taxes, employee benefits, pollution abatement expenses and tort liability costs.
-- Corporate taxes are 5.6 percent higher here on average than among our competitors. Only Japan's corporate taxes are higher than ours; China's and Taiwan's are 15 percent lower.
-- Employee benefits, mainly for health, are 5.5 percent higher here. Only South Korea, France and Germany have higher benefit costs.
-- Pollution abatement costs are 3.5 percent higher in the United States. None of our competitors have costs higher than ours.
-- Our tort liability system is 3.2 percent more expensive. No country has a system more expensive than ours.
This last point is reinforced by a new study from Tillinghast-Towers Perrin, a consulting group. Last week, it estimated that U.S. tort costs climbed to $233 billion in 2002, or 2.23 percent of the gross domestic product. This is like an $809 per year tax on every American, paid in the form of higher prices for goods and services, higher insurance costs and a deterioration in living standards.
Bruce Bartlett is a former senior fellow with the National Center for Policy Analysis of Dallas, Texas. Bartlett is a prolific author, having published over 900 articles in national publications, and prominent magazines and published four books, including Reaganomics: Supply-Side Economics in Action.
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