The Great Job Destroyer

A quick look at any business section, and sometimes even the front page, tells you in an instant: American jobs are disappearing. As the political season heats up, you're going to hear it more and more. "We need to protect jobs, create jobs, and maximize worker pay." This implies that American jobs are racing to other parts of the world. Increasingly, India, China, and Mexico have replaced Japan and Taiwan as the countries most identified as taking jobs from the United States.

All of this is true, to a degree. But there is a much, much greater culprit -- a force that has destroyed millions of jobs in manufacturing, agriculture, even high tech. This job vacuum cannot be found on any map. It's called improved efficiency. And it -- more than any foreign country -- has sucked away American jobs by the hundreds of thousands. Thousands of families have had their livelihoods thrown into turmoil by the destruction that is improved efficiency. It should be obvious our elected leaders must do something to turn back the tide, make industry less efficient and bring those jobs back.

Does that sound ridiculous?
I would hope so. But in the calculus of politics, even increased efficiency and its obvious benefits are not safe from the altar of "job protection." A lost job is a disaster for elected officials, because a lost job is an unhappy voter. Never mind that industries once employing hundreds of thousands essentially no longer exist. And never mind this equation does not include the simple test to see whether that job is worth doing anymore. What would have happened if, in the 1800s the United States set up a system to protect the cooperage industry, the handloom weavers, millers, horse breeders and blacksmiths?

Let's look at coopers -- once a large employer of American workers. The oil industry, led by Standard Oil, recognized early on that transporting its products in wooden barrels was woefully expensive and inefficient. The barrels leaked, storage space was lost, and they had to be replaced often. So the companies migrated to rail and barge tankers, saving millions in transportation and handling costs and increasing the core usability of their products. Standard Oil had no interest in putting barrel coopers out of business, but that's exactly what happened.

What would have happened if the government forced oil companies to continue using wood barrels in order to protect jobs? Coopers would still have their jobs, but the overall cost of oil would be substantially higher for us all, and both the demand and innovation that developed for oil would be substantially lower. Seeing as the engine of economic growth for the American economy in the last century was fueled by oil, a well-meaning attempt to protect cooperage jobs would have been a disaster. It also would have failed. No legislation could change the fact that commerce had rendered the barrel industry obsolete.

Don't mess with Texas. Or India.
A reader of last week's column noted that Dell Computer (Nasdaq: DELL  ) had migrated much of its customer service activities to India, and that he would no longer be buying products of the company based on its decision to do so. But should Dell be forced to keep such jobs in the US? If it did, we should assume that the higher employment costs would be built into its product costs. Great! More money and jobs kept in America, right? Not necessarily -- goods sold at higher price points than the market will bear won't be purchased as often, meaning less jobs here and overseas, and worse performance for Dell. And as any basic economic text will tell you, price maximization per unit it not the goal of companies, overall profitability is.

Fortunately for politicians, a great deal more people understand the emotional appeal of "job protection" than understand economics. Take a look at statistics released by the Federal Reserve: The industrial output of the US economy is 10% higher than it was in 1997, and yet according to the Bureau of Labor Statistics the number of employees is lower by about 15%, from 17.3 million to 14.6 million. The United States produces more with fewer people, putting lie to the belief that our economy is being eaten alive by competitive forces abroad.

And although this cannot in any way be a positive to those two million plus individuals who no longer have manufacturing jobs, there should be little doubt that the biggest culprit for taking those jobs away isn't some poor, far off economy stealing jobs -- it's our own economy rendering them unnecessary. We are producing more goods with fewer people. Efficiency "stole" many of those jobs, not China.

A bad pork recipe
This week I received an email from Florida Senator and presidential candidate Bob Graham's campaign urging me to sign a petition to call for the Justice Department to block Smithfield Foods' (NYSE: SFD  ) proposed purchase of Farmland Industries' pork processing facilities. The argument is that the merger puts "family farmers at risk by taking power from independent producers and put[ting] it in the hands of corporate CEOs."

Farmers have a sacred position in this country, and rightfully so. But blocking such a merger on the basis of job protection is a vote against efficiency, and a vote against lower prices. Few people would jump on Bob Graham's petition if he called it "We demand to pay more for pork!"

The fact is that farming is the industry that has achieved the greatest level of efficiency, reducing the fraction of Americans workers in agriculture from a majority to less than 6%, while prices, quality, and availability of foodstuffs have all dramatically improved. "Employ more people to make less, worse stuff" does not strike me as a winning economic formula. And yet, for protectionism of all forms, that's exactly what's being proposed.

American manufacturing output is at an all time high, employing fewer people. Rather than blame Congress, globalism, or greedy CEOs, it's high time we pointed fingers at the real culprits -- our own brutally efficient, ever-improving selves.

Adolph builds a bond fire and Rico plays with it. Bill Mann owned none of the companies mentioned in this article. He is descended from farmers and stockbrokers. The Motley Fool is investors writing for other investors.


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