Industrial Hostages; B. Summers

Brian Summers WITH unemployment afflicting many communities, political leaders are proposing .that businesses be pre vented from closing their plants and moving to new locations. In several states, bills have been introduced which would require severance pay to laid-off· workers and restitution payments to the surrounding com munity. These proposals have been exam ined by several leading economists, most notably Richard B. McKenzie of Clemson University. Let us ex amine their findings, so we can bet- , ter judge the merits of legal restric- .' tions on business mobility. Mr. Summers is a member of the staff of The Foun dation for Economic Education. 748 Restrictions on business mobility are costly. Suppose, for example, a manufac turing firm in the North is pre vented from moving to the South, where taxes, wage rates, and other business expenses may be lower. This places the manufacturer at a com petitive disadvantage compared with firms in less costly regions. His profit margins decline and his stockhold ers suffer losses. Eventually he may have to close.

In addition, there are hidden costs. With capital held hostage, other sec tors of the economy can't expand. New businesses, new products, and new jobs won't appear because the needed resources are tie~ up in inINDUSTRIAL HOSTAGES 749 efficient production processes. In the long run, restrictions on business mobility lead to greater costs, higher prices, and lower real incomes. Less mobility means less competi tion. When a business firm moves into a region, it competes with local busi nesses and bids up the wages of local workers. Restrictions on business mobility prevent firms from enter ing new areas, thereby reducing competition in those regions. As time passes, competition is also reduced in areas companies wish to vacate. New firms are reluctant to enter a region that may, at some fu ture date, prevent them from leav ing. Taking hostages scares away potential employers. Restrictions on business mobility increase the monopoly power of unions.

When businesses are prevented from moving, the threat ofjob loss is reduced, and unions can increase The Driving Force their demands. The industrial hos tage is at the mercy of the union, while nonunion workers in other parts of the country are prevented from bidding for jobs. In the long run, restrictions on business mobility are futile. If business firms are prevented from moving to II,lore hospitable lo cations, the profi~able opportunities there will be exploited by others. New firms will open and existing firms will expand. These businesses will be able to undersell the industrial hostages. The hostage firms will have to contract or go out of business. As the new firms grow and the hostage firms decline, employment patterns will shift in spite of the re location rules. Brut, because of the dislocations caused by the restric tions on busines~ mobility, the ad justment procesS will be far more costly than woulcloccur in a free and open market. , IDEAS ON LIBERTY THE driving force behind the free market is the enterprise of the busi nessman. He is the man who sees a chance to turn unused resources to account, and produce something out of them which the public will want.

He buys materials, secures tools, hires helpers, and sells his product in the hope of recovering all his costs; including the cost of his own time and the cost of any tools that may be his .... Profits are the business man's return for trying something new and desirable. When it is no longer new, profits stop. Profits are temporary only, but the gain to consumers, investors, and workers is permanent. i HART BUCK, "Freedom to Shop Around"