A branch plant economy consists of local operations which are owned elsewhere. For example, Lands' End of Dodgeville recently became a branch plant of Sears in Chicago.
Let's look at some of the downsides to such absentee ownership.
Since ownership of the branch plant does not live in the community where operations occur, it tends to have no loyalties to keep the branch plant open. If the owners close the branch plant, or move it to Mexico, they do not live with the jobless human aftermath.
In a branch plant economy, jobs can disappear abruptly. For instance, outside Necedah, Wis., is a 40-acre now-vacant building that once employed 1,200 people little more than a year ago. The jobs went to Mexico. The owners lived in North Carolina.
In a branch plant economy, profits leave town. This is capital that could start new ventures in the branch plant's community - or maintain the competitive edge of the branch plant to keep it open. Branch plant economies create "giant sucking sounds."
In a branch plant economy, local charity support also leaves. The owners naturally tend to want to look good where they live, not where the branch plant operates. As a result, the branch plant has little, if any, surplus cash left to share as a good corporate citizen.
The branch plant economy is really a colonial economy. The branch plant, or "Colony," exists to benefit the absentee owners, or "Mother Country," not the locals. July 4, 1776, was a protest against this arrangement.
With branch plants we have come full circle. We need to grow local high-wage jobs instead of chasing low- wage branch plant jobs. Of course, this is harder than "giving away the store" to pump up the job numbers in the short run. In the long run, branch plants "bite" the workers whose taxes subsidize them.
Growing high-wage jobs at home, instead of pandering for branch plants, offers another advantage.
Canada is a perfect example of how a branch plant economy creates a "brain drain." Canadians have relied on American branch plants for jobs. However, profits and talented Canadians leave to create high-paying jobs around research and development in America.
In this state, it is easier to get capital to subsidize branch plants - or open a tavern for that matter - than to develop high- wage jobs that will not go to Mexico. We need to nurture our small businesses that can create such jobs.