Business & Economics

Outsourcing is not the problem

Robert Reich

President Obama is slamming Mitt Romney for heading companies that were “pioneers in outsourcing U.S. jobs,” while Romney is accusing Obama of being “the real outsourcer-in-chief.”

These are the dog days of summer and the silly season of presidential campaigns. But can we get real, please?

The American economy has moved way beyond outsourcing abroad or even “in-sourcing.” Most big companies headquartered in America don’t send jobs overseas and don’t bring jobs here from abroad.

That’s because most are no longer really “American” companies. They’ve become global networks that design, make, buy, and sell things wherever around the world it’s most profitable for them to do so.

As an Apple executive told the New York Times, “we don’t have an obligation to solve America’s problems. Our only obligation is making the best product possible.” He might have added “and showing profits big enough to continually increase our share price.”

Forget the debate over outsourcing. The real question is how to make Americans so competitive that all global companies — whether or not headquartered in the United States — will create good jobs in America.

Apple employs 43,000 people in the United States but contracts with over 700,000 workers overseas. It assembles iPhones in China both because wages are low there and because Apple’s Chinese contractors can quickly mobilize workers from company dorms at almost any hour of the day or night.

But low wages aren’t the major force driving Apple or any other American-based corporate network abroad. The components Apple’s Chinese contractors assemble come from many places around the world with wages as high if not higher than in the United States.

More than a third of what you pay for an iPhone ends up in Japan, because that’s where some of its most advanced components are made. Seventeen percent goes to Germany, whose precision manufacturers pay wages higher than those paid to American manufacturing workers, on average, because German workers are more highly skilled. Thirteen percent comes from South Korea, whose median wage isn’t far from our own.

Workers in the United States get only about 6 percent of what you pay for an iPhone. It goes to American designers, lawyers, and financiers, as well as Apple’s top executives.

American-based companies are also doing more of their research and development abroad. The share of R&D spending going to the foreign subsidiaries of American-based companies rose from 9 percent in 1989 to almost 16 percent in 2009, according to the National Science Foundation.

What’s going on? Put simply, America isn’t educating enough of our people well enough to get American-based companies to do more of their high-value added work here.

Our K-12 school system isn’t nearly up to what it should be. American students continue to do poorly in math and science relative to students in other advanced countries. Japan, Germany, South Korea, Canada, Australia, Ireland, Sweden, and France all top us.

American universities continue to rank high but many are being starved of government funds and are having trouble keeping up. More and more young Americans and their families can’t afford a college education. China, by contrast, is investing like mad in world-class universities and research centers.

Transportation and communication systems abroad are also becoming better and more reliable. In case you hadn’t noticed, American roads are congested, our bridges are in disrepair, and our ports are becoming outmoded.

So forget the debate over outsourcing. The way we get good jobs back is with a national strategy to make Americans more competitive — retooling our schools, getting more of our young people through college or giving them a first-class technical education, remaking our infrastructure, and thereby guaranteeing a large share of Americans add significant value to the global economy.

But big American-based companies aren’t pushing this agenda, despite their huge clout in Washington. They don’t care about making Americans more competitive. They say they have no obligation to solve America’s problems.

They want lower corporate taxes, lower taxes for their executives, fewer regulations, and less public spending. And to achieve these goals they maintain legions of lobbyists and are pouring boatloads of money into political campaigns. The Supreme Court even says they’re “people” under the First Amendment, and can contribute as much as they want to political campaigns – even in secret.

The core problem isn’t outsourcing. It’s that the prosperity of America’s big businesses – which are really global networks that happen to be headquartered here – has become disconnected from the well-being of most Americans.

Mitt Romney’s Bain Capital is no different from any other global corporation — which is exactly why Romney’s so-called “business experience” is irrelevant to the real problems facing most Americans.

Without a government that’s focused on more and better jobs, we’re left with global corporations that don’t give a damn.

Cross-posted from Robert Reich’s blog.

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Comments to "Outsourcing is not the problem":
    • Deepika Gupta

      For those to the political right, this practice will have an overall positive effect on the US economy, since it saves money for companies, opens up opportunities for greater entrepreneurship in the US, and leads to more Americans holding higher level jobs. Critics suggest hiring foreign workers has an immediate effect on the US economy by stripping many Americans of jobs they would have performed, particularly by semi-skilled or skilled laborers.

      [Report abuse]

    • Anand Isaac

      It’s high time Obama takes some stern action on outsourcing. Outsourcing certain jobs is very bad for American image abroad. As a former employee of an ITES company I know how some files that come from America show that country in a really poor light. On top of that, the Indian employees who do such jobs are never the least grateful to America for sending such jobs. On the contrary they talk about America in such loathsome terms even while earning their livlihood with the help of American jobs!

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    • chris

      according to prof. reich’s blog, it appears that the root cause of the deficit in jobs is the deficit in morals in corporate america because too many corporations “don’t give a damn”. according to prof. reich, too many of us share holders and executives have placed increasing share prices above everything else, and don’t give a damn about individual citizenship and corporate citizenship. have i read too much into his blog?

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    • Barry

      Outsourcing IS A problem. We have literally shipped over 20 million jobs out of this country in the last three decades. That it is because corporations are free to thieve society’s capital and move it offshore may be a manifestation of a larger issue, but indeed it still is an issue. Just not the root cause. Government expenditures have exploded and transfer payments are up 700% over the last three decades. Without the rise of the state, which by the way, was at the expense of American citizens, our society would collapse. Cutting government expenditures means cutting the only substantive source of money creation that this country has. How Orwellian is that?

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    • kurt kramer

      July 10, 2012 The Republicans vote against S.2237 which gives tax reductions to upper bracket businessmen who hire the unemployed.

      July 25, 2012 The Republicans vote to maintain tax breaks for upper bracket businessmen without requiring them to hire the unemployed.

      Conclusion: The Republicans are against hiring the unemployed.

      [Report abuse]

    • Sherman

      It is a peculiar system we have in this country, where a capitalistic apparatus is to be nourished and protected by the state and federal governments so to guarantee benefits to the business world but the business of business is to maximize profits (for the owners) without those business beneficiaries having to take on any obligation to solve America’s problems (much less the world’s problems). Further, the same governments that are expected to nourish and protect the welfare of the business world are ridiculed and attacked for offering any assistance to the general public. Although I concur with the concept (however cold it may sound) that the basic function of business is to maximize profits and not at all have to do with solving anyone’s problems, I strongly disagree that the governments’ role is a one-sided directive, actively creating favorable environments for business to do its business while keeping a hands-off policy by ignoring and allowing whatever befalls the general public as fate or tough luck.

      Regarding the other peculiar notion, corporations are “people”, I have no trouble with this analysis except I insist that corporations should be recognized as fully human and not just partly so. Therefore, all corporations are to be pronounced dead and buried by the age of 70-80, legally sanctioned to marry (merge) with only one partner at a time, eligible for the draft when duty calls, required to register as individuals in order to vote, expected to paid taxes and follow the local laws where they actually work and not where they domicile, and endowed with other human traits and limitations that make us truly human/people.

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    • Dee

      Interesting thoughts. I don’t believe we will get back on track by ensuring more US citizens get a college education. Your right, we need to put more funding into education. We need to educate and train people to be able to build superior quality items. We need to build our manufacturing sector back up. A college education is a wonderful thing but college isn’t for everyone. Long ago even before my time public schools had a technical aspect to them. Students could get the basics for carpentry, automotive, plumbing, skills they could use to get an apprenticeship once they graduated from high school. The American people have the ability to learn how to build items and build them exceptionally. It will take companies that will keep the work in the United States. The thought of “we don’t have an obligation to solve America’s problems.” is true. But if we keep going this way less and less people in the United States will be able to purchase the items they want to sell here. And I agree, funding does need to be returned to schools at all levels.

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