[Welfare state that provides health care, good for business-dr]

July 25, 2005
Toyota, Moving Northward
By PAUL KRUGMAN

Modern American politics is dominated by the doctrine that government is
the problem, not the solution. In practice, this doctrine translates into
policies that make low taxes on the rich the highest priority, even if lack
of revenue undermines basic public services. You don't have to be a liberal
to realize that this is wrong-headed. Corporate leaders understand quite
well that good public services are also good for business. But the
political environment is so polarized these days that top executives are
often afraid to speak up against conservative dogma.

Instead, they vote with their feet. Which brings us to the story of
Toyota's choice.

There has been fierce competition among states hoping to attract a new
Toyota assembly plant. Several Southern states reportedly offered financial
incentives worth hundreds of millions of dollars.

But last month Toyota decided to put the new plant, which will produce RAV4
mini-S.U.V.'s, in Ontario. Explaining why it passed up financial incentives
to choose a U.S. location, the company cited the quality of Ontario's work
force.

What made Toyota so sensitive to labor quality issues? Maybe we should
discount remarks from the president of the Toronto-based Automotive Parts
Manufacturers' Association, who claimed that the educational level in the
Southern United States was so low that trainers for Japanese plants in
Alabama had to use "pictorials" to teach some illiterate workers how to use
high-tech equipment.

But there are other reports, some coming from state officials, that confirm
his basic point: Japanese auto companies opening plants in the Southern
U.S. have been unfavorably surprised by the work force's poor level of
training.

There's some bitter irony here for Alabama's governor. Just two years ago
voters overwhelmingly rejected his plea for an increase in the state's
rock-bottom taxes on the affluent, so that he could afford to improve the
state's low-quality education system. Opponents of the tax hike convinced
voters that it would cost the state jobs.

But education is only one reason Toyota chose Ontario. Canada's other big
selling point is its national health insurance system, which saves auto
manufacturers large sums in benefit payments compared with their costs in
the United States.

You might be tempted to say that Canadian taxpayers are, in effect,
subsidizing Toyota's move by paying for health coverage. But that's not
right, even aside from the fact that Canada's health care system has far
lower costs per person than the American system, with its huge
administrative expenses. In fact, U.S. taxpayers, not Canadians, will be
hurt by the northward movement of auto jobs.

To see why, bear in mind that in the long run decisions like Toyota's
probably won't affect the overall number of jobs in either the United
States or Canada. But the result of international competition will be to
give Canada more jobs in industries like autos, which pay health benefits
to their U.S. workers, and fewer jobs in industries that don't provide
those benefits. In the U.S. the effect will be just the reverse: fewer jobs
with benefits, more jobs without.

So what's the impact on taxpayers? In Canada, there's no impact at all:
since all Canadians get government-provided health insurance in any case,
the additional auto jobs won't increase government spending.

But U.S. taxpayers will suffer, because the general public ends up picking
up much of the cost of health care for workers who don't get insurance
through their jobs. Some uninsured workers and their families end up on
Medicaid. Others end up depending on emergency rooms, which are heavily
subsidized by taxpayers.

Funny, isn't it? Pundits tell us that the welfare state is doomed by
globalization, that programs like national health insurance have become
unsustainable. But Canada's universal health insurance system is handling
international competition just fine. It's our own system, which penalizes
companies that treat their workers well, that's in trouble.

I'm sure that some readers will respond to everything I've just said by
asking why, if the Canadians are so smart, they aren't richer. But I'll
have to leave the issue of America's comparative economic performance for
another day.

For now, let me just point out that treating people decently is sometimes a
competitive advantage. In America, basic health insurance is a privilege;
in Canada, it's a right. And in the auto industry, at least, the good jobs
are heading north.

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