Brace yourself. This post looks to be another rant against a puffed-up ignoramus spouting off about China without really knowing anything about the investment environment over here. This gets me hot and bothered every time, and in this case, there are extenuating circumstances that make this the perfect “rant” storm.

The article: Atlas Isn’t Shrugging, He’s Outsourcing.

The author: Addison Wiggin, head of Agora Financial, a research firm.

Wiggin’s bio describes Agora as “fiercely independent.” This was sufficient to annoy me from the outset. Quite the overused tag line that is essentially meaningless, not to mention ridiculous if you consider the relationship between research firms and institutional investors.¹ I think “fierce” is supposed to appeal to the macho, big swinging dick mentality of Wall Street. It also appears to 14-year-old boys. Come to think of it, maybe there is some overlap between the two groups. Regardless, as we shall see, Wiggin doesn’t seem to be even remotely independent from mainstream American conservative philosophy.

Anyway, Agora is a financial research outfit, and their job is to tell us (well, not us, but institutional investors) what’s up, what’s down, where markets will be in the out years, etc. These are the experts who you should trust when making big financial decisions. Keep this in mind.

Before I get into the substance of the article, one quick comment on the title. There is a very good chance that Wiggin did not come up with this himself, but rather some editor, so I’m not going to hold that against him. I have to say, though, that an allusion to Ayn Rand, whose mega-famous book Atlas Shrugged, is beloved by conservatives in the United States, does not put me in the best mood.

Not only am I thinking “Warning: political hack job ahead,” but a reference to a book so boring that I put it down halfway through (I almost never do that) is not a good starting point.²

Wiggin’s article begins with some comments recently made by David Farr, CEO of Emerson Electric, in the U.S. Midwest that have stirred up some controversy:

Washington is doing everything in their manpower capability to destroy U.S. manufacturers. Cap and trade, medical reform, labor rules. What do they want to do? Raise taxes. They’re just going to destroy jobs.

Jobs are going to be created offshore. They’re going to be created in India and China, places where people want the products and where the government welcomes you. They actually do something.

Apparently a lot of people took umbrage to these remarks. Not, I suspect, because Farr was expressing his inner idiot, which he was, but because folks in the Midwest are very sensitive about American companies that create jobs overseas. For a variety of reasons, and yes, one being that I make a living on foreign direct investment, I think the critics of FDI are wrong. Wiggin and I both agree on free trade, but that’s probably the only thing we agree on.

So the reason for the article is to support Farr’s idiocy. Wiggin is upfront about this in the lede:

Late last year, David Farr shot off his mouth and made a lot of people mad. But the insights that spring from his candid comments could make a lot of other people rich. Including you.

After reading that, some of you may be tempted to click on out of here. I don’t blame you. Wiggin is obviously using this to tout some narrow investment advice. I find this rather distasteful myself, since I read columns like this for accurate information. Once I read the “You might already be a winner” language, I tend to discount the advice itself as biased and tainted.

But let’s put that aside for the moment. I want to get to Wiggin’s comments about China, which is what caught my eye in the first place. Keep in mind that all of this is a conservative political diatribe against the U.S. government. Wiggin wants to show that jobs are going to China because 1) U.S. policy is simply not pro-business; and 2) China’s business climate is rosy. Both assertions are ridiculous.

Let’s use the issues raised by Farr, and supported by Wiggin. These are the issues Emerson says are driving jobs to places like China: cap and trade, medical reform, labor rules, and taxes.

1. Taxes — Wiggin brings up the usual misleading statistic about the U.S. corporate tax rate being the second-highest among developed economies. This has been debunked by folks who have shown that the effective tax rate (i.e., the amount corporations actually pay) is much, much lower and certainly competitive, if not lower, than other developed nations. Swing and a miss.

Wiggin talks about Emerson’s Asia growth in the ’90s, but says nothing about current conditions in China. For some reason, he failed to mention that many of those lovely tax breaks that China doled out to foreign companies are no longer available. Since the tax rates were harmonized in 2007, foreign firms have to pay 25% enterprise income tax, and preferential programs are few and far between. I’m not criticizing the tax law, but certainly China can not be seen as a conservative low-tax wonderland.

2. Labor rules — Farr/Wiggin apparently think that U.S. labor law is onerous on business. Aside from the specter of certain types of labor litigation, their concerns are laughable when compared to China. The U.S. is an “at will” jurisdiction, meaning you can pretty much fire people whenever you want. Not so in the PRC. Moreover, since the labor law was tightened up in 2008, the rules here are more favorable to employees. I don’t know anyone who would hold up the PRC labor law as a reason why companies would leave the U.S. for China.

3. Medical reform — This one is a head scratcher. If anything, the recent health care law in the U.S. will make things easier for businesses, and make it easier for them to compete globally. Portraying health care as a negative says more about Farr’s political views than anything else. Companies in China have been obliged to pay a portion of health insurance costs for their workers for many years, and if anything, the social insurance system in China is set to expand in the next few years. The U.S. just passed a new law that provides for an individual mandate, and here we have someone claiming that China’s system, with an employer payment mandate, is somehow better for companies?

4. Cap and trade — Another puzzler. First of all, the U.S. has not passed cap and trade legislation. Second, cap and trade is a market based solution that used to be favored by conservatives. Liberals, and environmentalists worldwide, would rather mandate a carbon tax, which I assume would be anathema to folks like Farr and Wiggin. So the U.S. does not yet even have the watered-down, second-best solution to greenhouse gas emissions (i.e., cap and trade), but guess what? China is contemplating implementing a carbon tax as early as 2012.

Thus endeth Part I of this rant. Catch the flip side tomorrow.
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1. Just for fun, I Googled “fiercely independent.” Lots of laughs there with the 313,000 results. Definitely overused.[↩]
2. Talk about boring, pedantic prose! I’m no literary critic, but using entire, long chapters to introduce new characters? I don’t think Ms. Rand was familiar with the term “pacing.” Moreover, all the characters are self-righteous assholes, and not the weird, amusing sort like you would find in a Chuck Palahniuk novel.[↩]

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