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The Washington Post and Outsourcing: Two Wrongs Don’t Make a Right

by Edward Alden
July 10, 2012

Workers are pictured beneath clocks displaying time zones at an outsourcing center in Bangalore (Vivek Prakash/Courtesy Reuters). Workers are pictured beneath clocks displaying time zones at an outsourcing center in Bangalore (Vivek Prakash/Courtesy Reuters).

Outsourcing is a big problem. That’s about the only thing The Washington Post got right in its front page story this morning, “Obama struggles to make headway on outsourcing,” that sadly does much to misinform about one of the most important issues confronting the U.S. economy.

Perhaps the president deserved this. His campaign had jumped on an equally misleading Post story last month that accused Mitt Romney’s former private equity firm of investing heavily in U.S. companies that were moving work to lower-wage countries. That story immediately became fodder for a series of Obama campaign ads accusing the GOP presidential challenger of shipping jobs overseas. I presume today’s story was an attempt by the Post to show “balance,” but the result is to leave Post readers more befuddled than ever.

Where to start? The Post stories are absolutely right that outsourcing by multinational corporations poses a huge challenge to the United States. In the Council’s recent Task Force report on U.S. Trade and Investment Policy, on which I served as project co-director along with the Dartmouth economist Matthew Slaughter, we showed the dramatic turn for the worse over the past decade. In the 1990s, U.S.-based multinational companies created 4.4 million jobs in the United States, and 2.7 million jobs in their overseas affiliates – a classic “win-win.” In the 2000s, however, those same companies went on adding another 2.6 million jobs abroad, but eliminated 2.9 million jobs in the United States. The world’s gain became our loss.

That’s a big problem. Not only are these generally better, higher-paying positions, but these are the companies that do more than 70 percent of the private sector R&D in the United States. As jobs in these firms migrate overseas, there are growing worries that research and innovation will follow.

In its Romney story, the Post highlighted Bain Capital’s investments in various companies that expanded call center operations abroad, helped tech companies outsource packaging and hardware assembly, and moved or expanded manufacturing outside the United States. The story was not so much wrong as meaningless – any private equity firm or other large investor in the United States over the past two decades has unavoidably held a stake in firms that were outsourcing. In fact, one could probably say confidently that virtually every American who has owned stock or a mutual fund over that period has, to quote the Post headline, “invested in companies that moved jobs overseas.”

This morning’s story, however, was even worse in quoting a series of “critics” slamming the Obama administration for not enacting remedies that would likely have done nothing to reverse the trend, and could in fact have accelerated it. It focuses heavily on Obama’s repeated call to raise corporate taxes on income earned overseas; some Democrats have been advocating various forms of this proposal for a decade or more. The proposals are complex, but in simple form would make it harder for U.S.-based multinationals to lower taxes by retaining overseas income outside the United States, or shifting profits to lower-tax jurisdictions overseas. CFR.org has an excellent backgrounder on the issue here. The difficulties in enforcing compliance would probably be overwhelming. And if the regime were truly effective, the primary result would likely be to encourage U.S.-based multinationals to reorganize in ways to escape the additional tax burden, probably by moving additional parts of the company offshore.

The other suggestions are even less likely to help. The article quotes various critics saying that Obama should have labeled China “a currency manipulator” which, according to the Post, “could ultimately allow the U.S. government to erect tariffs to protect American industries.” No it couldn’t. In fact, all the statute says is that, by identifying a country as a currency manipulator, the Treasury Secretary is required to “initiate negotiations with such foreign countries on an expedited basis.” Slapping punitive tariffs against China over currency manipulation would almost certainly be a violation of World Trade Organization rules, and would be struck down as such.

The article similarly accuses Obama of embracing “unfettered trade despite its costs to American workers,” citing the administration’s belated support of trade agreements with Colombia, Panama, and South Korea. The first two countries already exported virtually everything to the United States duty-free, so the primary effect of the deals was to open those markets to U.S. exports. And with South Korea, the administration only supported the deal after forcing Seoul to re-write the provisions related to auto trade to meet the concerns of the United Auto Workers, who then backed the agreement.

Perhaps the most egregious distortion in the article is the suggestion that allowing skilled foreign workers into the United States on H-1B visas means that “these foreigners get trained in the United States and then set up competing enterprises when they go home.” Really? Some surely do, but by that logic the United States should kick every foreign student out of U.S. universities because they might acquire skills that allow them to go home and compete with Americans.

While there are legitimate debates over the H-1B program, the notion that it encourages outsourcing is ridiculous. By allowing the best foreign workers into the United States, it means U.S. companies do not need to go abroad to hire top talent. It is far better for the United States to have skilled foreigners working here alongside skilled Americans than to see those operations leave the United States. And if some smart Indians or Chinese go back home and set up businesses, they are likely to build on the contacts they made in the United States, opening up new opportunities for American business even as they may provide new competition.

Finally, it’s not even clear that the premise of the article remains correct. The subhead in the print edition notes: “President’s record is criticized as jobs keep flowing from U.S.” That was certainly the case through 2010, the latest hard data available. But there is growing evidence of at least a slight uptick in manufacturing jobs returning from overseas, in part due to rising wage costs abroad. And as indicated by the recent Airbus announcement of its plans to begin assembling planes in Alabama, the United States is becoming more attractive to foreign investment as well.

The debate over outsourcing deserves better than this, though judging by the thousands of comments on the two Post stories, it is clearly a topic of great interest. It should be. The United States desperately needs to figure out how to do more to expand investment and jobs in a world where other countries are competing aggressively to do the same. Serious newspapers like the Washington Post should be raising the quality of that discussion, not lowering it.

Post a Comment 6 Comments

  • Posted by P Henry

    The problem is that the h-1b does not mean talented foreigners are “working alongside” Americans. The Americans aren’t being hired in the first place. Why do you think companies are placing “h-1b only” jobs on Dice.com? They want cheap, compliant labor for the few jobs that can’t be outsourced to the third world. It’s a disgrace and the only thing more abhorrent than the practice are the shills that defend it.

  • Posted by jgo

    Employment of production workers (US and foreign) in the US “software publishing” industry — the folks who make actual software products, shrink-wrap software, commercial off-the-shelf software — has been flat for over a decade.

    About 1.8 million US STEM workers are unemployed or under-employed in work that does not make use of our STEM talent, knowledge, and experience.

    Dozens of academic research studies since 1990 have concluded that there is no evidence of a shortage of US STEM talent; several of those studies concluded that we’ve been producing about 3 times as many new STEM workers as we’ve been putting to work as STEM workers. Even former cross-border bodyshopper Vivek Wadhwa admitted that, by every measure — flexibility, creativity, dynamic application of principles to new situations… — US STEM workers are the best.

    Back to your regular propaganda about neeeeeding more cheap, young, pliant foreign labor with flexible ethics while continuing to strive actively NOT find able and willing US STEM workers.

  • Posted by Jobs4US

    “…new companies out of India have a much better idea for making money. They send the engineers from India to America to fill spots–and get money to do it–and then after the 3 to 6 years, they bring them back to India to work for the companies that are competing with American companies.

    They call it their outsourcing visa.

    They are sending their talented engineers to learn how Americans do business and then bring them back and compete with those American companies. Is that what we have in mind here?

    Is that our goal, to create more opportunities for people to create businesses around the world to compete with us? I think not.”

    Senator Dick Durbin
    FLOOR STATEMENT: H-1B VISA REFORM

    Tuesday, June 5, 2007

    http://web.archive.org/web/20110108195825/http://durbin.senate.gov/showRelease.cfm?releaseId=280890

  • Posted by Jobs4US

    Outsourcing’s evil twin is the H-1b “insourcing” visa. Even companies in India refer to the H-1b visa as the outtsourcing visa.

    You can’t ship jobs offshore without having onshore feet on the street.

    Outsourcing and H-1B insourcing are bi-partisan forms of cancer funded by:
    - greedy US and global corporations
    - supported by corrupt politicians on both sides of the aisle.

    This aggressive form of cancer has been growing for years – undetected, until:
    - The economic crisis
    - Skyrocketing and unrelenting US unemployment
    - The layoff of millions of highly skilled Americans who were replaced by foreign visa workers, and forced to train their younger, less experienced foreign replacements.

    Bill Gates and sidekick, convicted felon Jack Abramoff, wrote H-1b visa laws and $$ influenced $$ Congress to pass egregious H-1b visa laws that legalize discrimination against American citizens.

    Did you know that egregious loopholes in H-1b visa law make it 100% legal for employers to hire exclusively offshore and NEVER consider American job candidates?

    Get the facts about corporate visas and their impact on American citizens – http://www.brightfuturejobs.com

  • Posted by Amita Barai

    I agree that outsourcing is a challenge for U.S and this issue has become a political hot potato, since the economy of the U.S. is affected by it. Anti-outsourcing campaigns are being raised time and again by Congressmen to garner votes and this time also the Presidential election campaign is no different.
    I believe that outsourcing started because of cheap labor in every other country except England, Canada, and United States. In these three countries, their currency is highest than in any of those countries where companies do outsourcing. To illustrate this, a company in the U.S. is paying an adult 25 dollars an hour as compared China the same company is paying 30 cents an hour to 7 years old. The example I mentioned clearly indicates that in other countries labor is cheap as compared to U.S. So, it is not hard for a company to choose between American labor or some other country’s labor like India and China.
    The United States faces enormous challenges formed by an increasingly energetic and competitive global economy. I believe that today bringing the economy back on track is hard and tough but not impossible. Companies still can bring our economy back on track by putting all those factors back in the U.S. rather than India or China. According to the Alden in the years from 2000’s multinational companies added 5.3 million jobs abroad and left 2.9 million jobs in United States. In my view, though the margin of profit increases for companies, their volume of sales substantially decreases because whatever the companies make overseas most of the time they sell it in the United States where the purchasing power of people decreases due to unemployment.
    In the United States, people or employees are being laid off from their jobs, or whosoever is not laid off is getting less than 40 hours a week. People are losing their jobs; they don’t have money so how are they going to buy the things they build overseas? Almost everybody knows companies are making profits but the companies should realize that people are buying less because companies are outsourcing. Alden identifies the situation prevailing currently as inverse compared during the years 1990’s when United States had a “win-win” situation. He explains a “win- win” situation in reference to past when the companies were making profits with labors employed within the U.S. only.
    But, the blame cannot be just put on companies only; I believe that the unions are equally responsible. Unions can tell companies that we will not do outsourcing any more to lose our employees in America. They can make it really clear that they don’t want to do outsourcing because unions are strong enough to do so. Also, unions are laying off employees and hiring inmates because they can pay less money and get a work lot of work from them. China’s economic growth rate is 7-8 % compared to U.S. whose growth rate is around 2%. If American companies keep losing jobs like this than people who are studying in United States have to look for a job overseas. For example, most Americans don’t buy cars manufactured in America and but they buy Chinese or Japanese manufactured cars because they are cheap. This is bad for car companies in U.S. because if they don’t sell more cars their factories will shut down.
    The far reaching consequences of outsourcing in my opinion would lead to American companies shifting jobs in other countries and building economy of those countries. “The numbers of jobs currently outsourced to India alone ranges between 400,000 and 700,000 as stated by market-research company Forrester Research in Cambridge, Mass”. The statistical numbers itself show how big the challenge is for U.S. In my view, paying less money and making more money is the most common reason to outsourcing. When a company is making long term relationships with other countries for outsourcing is a big task. My knowledge indicates that other common reason for outsourcing is to gain access into emerging economies worldwide and also to see the citizens of these countries as consumers. Now a day, U.S. technology companies can call on the brain power of nearly the entire world when designing, producing and servicing products. The routine work which the workers do in America can be done by really talented people in another time zone at much lower wages.
    Over the past decade, I think the United States has been very successful at creating jobs overseas which helps in growing the economies of those countries. I believe that American companies are sending jobs to other countries and the unions of other countries are hiring children for labor. If they keep on hiring child labor to work, the children would not have any future. Even it is against the law to make a child who is under 16 years to work. Children want to get their education and want to learn new things no matter what country they are from. By putting factories in other countries, America is putting a question mark on the future education of these children.
    I strongly agree that the companies in United States should not send work to other countries as they are losing opportunities for the unemployed. Currently the economy of U.S. is not good, so companies are thinking about making profits by hiring cheap labor from other countries just because the company does not go in loss. In the United States there are lots of people who want to work but don’t have job.
    The most important issue touches on outsourcing and its direct relationship with H-1 B in-sourcing which are both funded by the U.S. corporations as well as supported by politicians. H-1 B visas are obtained by workers to legally work and acquire training in United States. Adding fuel to the fire, H1-B visa holders over a period of time can also acquire permanent residency and eventually become US citizens. In my opinion this becomes a threat for the actual citizens in United States as have new competitors. The F-1 visa which is the student visa can also have a negative impact as the foreign students acquire the knowledge from U.S. universities and apply the same by working within U.S. or set up competing companies when they go back to their home countries. There can be a clear indication that the H-1 B and the F-1 visas slow down the job creation process of U.S citizens.
    Finally, outsourcing is a threat and will harm the overall economy as well as shatter the dreams of many Americans who are currently enrolled in any educational institute. In my opinion, America should stay focused only on their own people and create opportunities for them rather than creating opportunities from all the people all over the world. Alden lastly stresses that American candidates should be given the first priority for employment within the U.S.

  • Posted by sugarlongcoppershort

    Lets get real and acknowledge the fact that the failure of the federal reserve to remain a politically independent arbitrator in the U.S. economy during the mid 90s has led us to the collapse of home values in over 90% of america. Alan Greenspan, at the behest of Bill Clinton and Mr. Rubin, allowed easy credit to people who had no business buying a home. However, this did perpetuate the amercan dream myth for millions of moderate to low income americans thereby ensuring relative contentment among the electorate which gave the democratic party Clintons re-election in 1996. Massive home loan defaults were only a matter of time. Unfortuately the chickens have indeed come home to roost.

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