Entry: Exploding Liberal Myths 3: Outsourcing Woes Saturday, April 10, 2004



According to the Liberal school of economic thought, a free market economy is the worst thing for this country. They point to outsourcing of jobs as "proof" that President Bush is somehow a bad President, though it's been happening steadily since the signing of NAFTA by then-President Clinton in 1993. What they refuse to see is that free trade moves jobs both ways, and that the US is actually insourcing" more jobs from other countries than we send overseas... especially those manufacturing jobs that seem to be at the forefront of Democrat hand-wringing during the election campaign.

Even though the US economy is roaring like a river in full spate, the Democrats need to make it seem as though the economy is failing in some way in order to win the 2004 election. All gauges by which the economy can be measured have been indicating for months that everything was moving in the right direction, and that job growth (always the last thing to happen in a recovery) was on the way. The media complained about the "jobless recovery," as though the recovery was somehow over, not in progress. Now jobs have been created at a rate even the Left can't ignore -- 308,000 new jobs in March 2004 alone, and 205,000 during January and February (nearly double the original estimates). The Democrats have switched their arguments from "no jobs have been created" to "jobs are being sent overseas" and "the only jobs in America are burger-flipping."

Professor Michael L. Walden of N.C. State University has a slightly different perspective to offer, one that doesn't get a lot of play in the US media for some reason. "Consider what's happened in heavy manufacturing, which includes the manufacturing of vehicles, computers, electronics and other machinery. Since the mid-1990s, foreign companies have added 400,000 jobs in these industries in the U.S. Over the same time period, U.S. companies moved 300,000 jobs to foreign countries in the same sectors. The insourced jobs in these industries are also high-paying, with average compensation per employee of over $65,000." From the media soundbites, one would think that millions of jobs have been "sent overseas" with no jobs coming to American shores. Instead, the facts show that the US has increased overall jobs by a net 100,000 due to free trade. 

"Any way you slice it, the world is creating or transferring more jobs to the U.S. than we are doing to the rest of the world," said Daniel T. Griswold, a trade specialist at the Cato Institute, a research organization in Washington.
India's Essel Propack Ltd., Taiwan's Teco Electric & Machinery Co. and Denmark's Vestas Wind Systems A/S all have built plants in the United States in the last year and a half.
Other non-U.S. companies announced plans to increase hiring in the United States last year including Japan's Nissan Motor Co., with 3,350 jobs in Canton, Miss.; DaimlerChrysler AG of Germany, with 2,000 at a new Mercedes-Benz plant in Vance, Ala.; German appliance distributor BSH Bosch and Siemens Hausergate GmbH, with 1,300 in New Bern, N.C.; and Magna International Inc. of Canada, with as many as 800 in Bowling Green, Ky.

What outsourcing does is move the point of manufacture closer to the consumer. Among other things, this cuts international shipping costs, risks and time. Since the US is the world's largest consumer nation, goods destined to be sold here can be cheaper -- despite the increased cost of manufacturing -- to make here. If more people are buying Mercedes-Benz SL600 Roadsters here than in Germany, then by all means let Daimler-Chrysler employ Americans to make them in Alabama.

Passing laws to stop outsourcing is protectionism, which never works. "If anyone in our policy making framework thinks that by cutting off our outsourcing, we are going to encourage more insourcing and more investments in the United States, they are crazy," said Ernest Bower, president of the US-ASEAN Business Council (the largest US business group in Asia). President Bush tried protectionism in the steel industry for a short time by placing tariffs on foreign steel imports. He quickly removed the tarrifs when it became apparent that the worst part of the crisis had passed (and that they made our allies extremely unhappy).

Presidential hopeful John Kerry claims that he'll stop outsourcing of jobs (which would harm not only the US economy, but that of the entire world) by closing mysterious "tax loopholes" that give credits to "Benedict Arnold" companies for outsourcing what Kerry refers to as American jobs. The problem is that these loopholes remain largely a myth, according to James Hines, who teaches tax policy at the University of Michigan. US corporations owe the US government taxes on all profit, no matter where in the world they earn it, at the same rate of 35 percent. Companies can take a credit for taxes they pay to foreign governments, but still owe the remainder to the US. Companies can also defer taxes on foreign earnings that they invest abroad. That's a much smaller incentive than other countries' tax laws offer their corporations. For instance, German, Dutch, Canadian and Australian companies don't pay taxes on any money they earn outside their home countries. Since all those countries invest in the US, Americans are gaining about as many jobs from "tax loophole" insourcing as we lose to "tax loophole" outsourcing.

The biggest problem with this idea of altering the tax laws to stop companies from creating jobs overseas is the blind assumption that those companies would create those same jobs here in the US. The most likely outcome would be that the bulk of those jobs would never be created at all, for any workers, anywhere. Is it better to get a percentage of tax money from the overseas operations of some companies, or none at all? Is is better for US companies to employ some foreign workers, or none at all?

The real "Benedict Arnold" companies are those that move their headquarters overseas -- in the form of a rented office in Bermuda -- to avoid paying US taxes, not US-based companies with manufacturing centers in other countries. Those are the real tax cheats.

Exploding Liberal Myths 11: Home Spying Hogwash 
Exploding Liberal Myths 10: The Plame Name Game
Exploding Liberal Myths 9: The Separation of Church and State 
Exploding Liberal Myths 8: The Nazi Meme 
Exploding Liberal Myths 7: Fidel Castro, Demigod?
Exploding Liberal Myths 6: A Less Safe Post-Iraq
Exploding Liberal Myths 5: The Moral United Nations
Exploding Liberal Myths 4: Runaway Global Warming
Exploding Liberal Myths 2: The Eeevil PATRIOT Act
Exploding Liberal Myths 1: Nigerian Uranium  

   14 comments

d_Brit
April 11, 2004   02:27 AM PDT
 
I am sympathetic to the points you make. Outsourcing IS inevitable.

Free markets are the ONLY efficient and effective economic system yet devised.

That said, I read in the paper today that here in CA. 5,000 NET jobs for the MONTH were created. Pretty pathetic for a state of 33M and the sixth largest economy in the world.

ARRNOLD better get BACCK soon to KALIforneaa! :-)

When I hear that unemployment applications are at a six year low, I wonder if the fact that unemployment claims are running out for many isn't a factor in that figure.

If Kerry wins it will be because of ongoing problems in Iraq and low job growth.

Sure hope that roaring economy you mentioned gets here soon...
JM
April 11, 2004   06:12 AM PDT
 
>I read in the paper today that
>here in CA. 5,000 NET jobs for
>the MONTH were created.

That's the media, once again reporting ONLY payroll statistics (large established companies) and not household statistics (small businesses, startups and self-employed). If no one has a job, why aren't the streets lined with the homeless and starving?
StarkTruth
April 11, 2004   04:30 PM PDT
 
Wait a minute here, so what you are saying is capitalism works. I don't believe it. Climb back in your little cave. Capitalism is how this pathetic country got to be where it is today. 5.7% unemployment, the lowest in the world, I mean come on, this is disgusting. I can't take it anymore, SOCIALISM! SOCIALISM!
Jamie G.
April 12, 2004   09:13 PM PDT
 
Alabama not only has a Mercedes plant, we also have a new Honda plant and all kinds of support businesses have opened up around the plants, employing many more people! A lot of the industries (textile, clothing manufacturers, etc) in Alabama closed down factories because they couldn't compete with the lower prices of foreign made products. So, what our last two governors have done is to lure the foreign car manufacturers to our state. Instead of taxing the companies to death (like California has done) our politicians offered tax incentives to put their plants in our state.
JM
April 12, 2004   09:26 PM PDT
 
That's exactly the kind of thing Kerry and the Democrats are trying to keep secret from the rest of the country, Jamie. They want us to think there are whole families dying of starvation by the hundreds of thousands in the streets while a few fatcats make piles of dollars like autumn leaves and jump in them. Well, who's buying their goods, if no one has a job or any money? Try getting a Liberal Democrat to answer that question, but put your hip waders on first.
Jamie G
April 13, 2004   10:35 AM PDT
 
Have you heard about Kerry's new way of calulating the "Misery Index"? His campaign staff have found inventive new ways to make statistics work for them.

BTW - Did you see the article in NewsMax yesterday entitled "N.Y. Times: Bush Should Have Used Racial Profiling to Prevent 9/11". And did you see James Lileks column the other day? Both are commenting on the suggestions by the anti-Bush people on what Bush "should have done" prior to 9/11. Their suggestions include - pre-emptive strikes, racial profiling, etc. Everything that has been suggested would have been protested by the very people who are making the suggestions.

Jamie G
April 13, 2004   10:36 AM PDT
 
And just how did Jamie Gorelick get on the 9/11 Commission? Does anyone really expect her to be unbiased when she interviews Janet Reno today?
R. Doyle
April 13, 2004   01:15 PM PDT
 
I want to see Bush explain to the thousands of people who lost their jobs as computer technicians and/or programmers because the companies they work for have moved those divisions overseas, that it's a good thing because it brings in more foreign automobile manufacturing business to the US. Guess what their reaction will be?

As for the 308,000 new jobs in March and the 205,000 in both January and February? I am more than willing to bet that the majority of them are the same companies that jumped on the outsourcing bandwagon and are now bringing those same divisions BACK to the US.

Dell pulled most of their Technical Support division out of India and back to the US because they received numerous complaints regarding language barrier issues. That would show up on the books as "new" jobs made available. In fact, those who worked for them and were laid off due to the transition to India were made to re-apply for their old job when it came back to the US. That's sad!

The truth is, you cannot believe any numbers you see or read because the media reports hearsay as facts. I just know that in my field alone, there are ALOT of unemployed people, some of which I know.

Some of that is due to lack of edjookashun (lol). But, when foreigners that come into the US are given 7 years of employment without paying wage taxes, it makes education more monetarily possible. Natives on the other hand are expected to pay taxes from their 1st job down at the corner market or fast food chain of your choice.

Our country has no sense of itself, and the main reason for that is our Government.
JM
April 13, 2004   01:40 PM PDT
 
R.Doyle -- In one sentence you complain about outsourcing of helpdesk jobs... and in another, you state that Dell is bringing them back due to user complaints? Seems to me that's exactly the way the market works to regulate itself... without undue government interference. And all those low-level high-tech employees who lose a job can get training -- often at government expense -- for a better job. I know what I'm talking about, having done it myself (although not on Uncle Sam's dime).
Jamie G.
April 14, 2004   09:55 AM PDT
 
Even if you pay for training yourself, aren't there tax deductions for education costs related to your job?

And why shouldn't those jobs count as "new" jobs? They were counted as jobs "lost" to outsourcing overseas, weren't they? So, should we now set up a new category of "outsourced jobs returned to the U.S."?

As to workers from overseas coming here and taking jobs without having to pay taxes, isn't that part of what Bush is proposing for Mexican workers? That they be allowed to come here to work, but pay taxes. (which they don't do now).
R. Doyle
April 14, 2004   10:46 AM PDT
 
Mexican workers, perhaps, but let's be honest. Most of the "Professional" job market is being filled by well-educated people of Indian or Oriental descent.

Then you have the people who come to the US, open a business, and cycle their familes & friends as workers, each earning an additional 7 year, tax-free living before returning to their country with American dollars, leaving them wealthy from the exchange.

I do not mind paying taxes, and I understand their necessity. But I know that the amount of taxes I, we do pay can be aleviated by all working residents of the country being made to pay wage taxes. That includes any foreign person just entering the country.

As far as outsourcing? It will bleed the people of this country dry. No matter what service or industry you consider, it will always be cheaper to fulfill overseas. Any company would be foolish not to choose cheaper labor & production costs.
JM
April 14, 2004   02:19 PM PDT
 
Then explain the insourcing. Sorry, but you're only looking at one side of the issue.
Jamie G>
April 14, 2004   04:43 PM PDT
 
Do you remember during the run up to the Dem primaries when one of the Democratic contenders proposed a "universal minimum wage"? He said that we could work with other countries to set a "universal miminum wage" that all countries would have to agree to. That way, it would be less lucrative to outsource outside of the U.S. Then he turned around and said, "But there would be some third world countries who would be exempt from it because their economies would not support it". Guess what? He means the very same countries where the jobs are going now. Unless American workers stop demanding pay raises and more benefits every year, it WILL always be more lucrative to manufacturers to move jobs overseas - but if they didn't, our products would cost more and we would not be able to afford to buy them!

I'm not trying to change the subject, but I just read the complete testimony of John Ashcroft's opening opening statement to the 9/11 Commission yesterday. He absolutely blew them away. (like Condi did last week.)
JM
April 14, 2004   05:00 PM PDT
 
Well, SOMEONE'S buying American products...
http://news.yahoo.com/news?tmpl=story&cid=568&u=/nm/20040414/bs_nm/economy_trade_dc_2&printer=1

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