Jewish World Review July 22, 2003 / 22 Tamuz, 5763

Peter A. Brown

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A cautionary tale for those who naively believe that political posturing can override the laws of economics


http://www.jewishworldreview.com | Most of the time, grandstanding politicians just damage their own credibility, but sometimes they really hurt people by acting without thinking about the consequences of their rhetoric.

Which is why the tale of The Stanley Works is one that everyone in a position of political influence should consider before he or she opens his or her mouth.

It is also a cautionary tale for those who naively believe that political posturing can override the laws of economics.

The episode should make the politicians think about whether they care more about government budgets or the well-being of U.S. workers.

Sometimes the two do not intersect, and when politicians pay more attention to the government's bottom line than the reality of the private sector, average Americans get hurt.

The Stanley Works is the largest U.S. maker of hand tools. It is headquartered in New Britain, Conn., a town like much of those in yesterday's New England, built around prosperous small manufacturing centers. Those towns have declined as people and jobs have migrated to the Sun Belt and overseas.

Stanley's sales have dropped due to foreign competition, forcing the firm to improve the bottom line or face further financial deterioration. In recent years, management had trimmed its relatively well-paid U.S. work force and moved some production to Asia.

Then, last year, in an effort to cut costs without sacrificing more U.S. jobs, the company said it would move its corporate address to Bermuda.

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The paper transaction would have saved the company an estimated $30 million annually in taxes, much of it on profits actually made outside the United States. Its two major competitors, U.S. companies Ingersoll-Rand and Cooper Industries, had already made the move offshore to save on taxes, which helped their bottom lines.

In response, much of the American political establishment reacted as if Stanley had committed corporate treason. Its local congressman compared the firm to Benedict Arnold, and labor leaders screamed for corporate blood.

Critics complained that the firm would be shortchanging the state and federal governments of tax revenue. As if a company's first allegiance should be to Uncle Sam, rather than its shareholders, and by proxy, its workers.

In fact, The Associated Press reports that U.S. companies moving their address overseas cost the Treasury $4 billion in taxes annually.

After several weeks of pounding in the news media, Stanley Works announced that it would not move its headquarters address after all, although it said it had been promised Congress would change the laws that provide the incentive for it to move.

So far Congress has done nothing on that matter.

The politicians declared victory and moved on to saving the whales, protecting motherhood, or some other such worthy cause.

But the political posturing didn't change Stanley's financial situation, or stall its need to improve profitability, or protect it from the wrath of the marketplace.

When the dust cleared, the firm announced this April that its quarterly profits were less than half the comparable period and would require the company to trim the jobs of 1,000 human beings.

Now, it is easy to say that the company shouldn't have to earn the 15 percent operating profit margin it feels it needs to stop the stock price from eroding even further. Unless, that is, you've sunk your hard-earned money into the company stock.

And, after all, it is the stockholders for whose benefit the company is primarily run, because, if not, they will sell their shares and rob the firm of the capital it needs to operate, which will cost "Joe and Jill Sixpack" even more jobs.

For those who think that only the rich own stock, think again. Close to 100 million Americans own shares, both individually and through mutual and pension plans.

But, had Stanley moved its address overseas, it would have saved almost as much money as it is realizing through the layoffs when all the tax consequences are figured in.

The company - wishing to stay out of the news-media limelight - won't say that the move would have saved the jobs, but you don't have to be a rocket scientist to do the math.

In the end, the politicians got their issue, the news media got their story, the government got its tax money from Stanley and the workers got the shaft.

Such is economic reality.

Maybe the politicians and labor leaders will think before they speak next time - or at least take Economics 101.

Unless, of course, they do think the Treasury's bottom line is more important than American jobs.



Peter A. Brown is an editorial page columnist for the Orlando Sentinel. Comment by clicking here.

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