The political war against “off-shoring” — which is what the critics usually mean when they use the term “outsourcing” — is raging this election year, in part because of Democrats’ failed efforts to stimulate the economy. But there is an important reason why many
General Electric Chief Executive Jeffery Immelt, a close Obama advisor, told the Wall Street Journal last year that 30 percent of GE’s business was overseas in 2000; today it’s 46 percent, and the majority of GE’s employees are now overseas.
Ditto for Caterpillar, whose overseas workforce grew by 39 percent between 2005 and 2010, compared to a 7.8 percent
A 2011 report from the U.S. Commerce Department says that about a third of the roughly 31 million
But first, let’s clear up some of the confusion surrounding the terms. Outsourcing is when a company contracts with an outside person or company to provide some product or service, such as bookkeeping, payroll processing or janitorial services, or more complicated functions like marketing or IT services. And families do the same thing when they turn to professionals for major plumbing, air conditioner or car repairs.
Economists refer to this process of turning to those who can produce a product or service at a lower marginal cost as “comparative advantage,” and it’s the key ingredient to an efficient and productive economy.
If a company outsources jobs to another country, that’s off-shoring. However, companies can also build stores or factories in foreign countries and hire the people who work there. That’s also off-shoring, but it isn’t necessarily outsourcing. Those are company employees, both American and foreign.
From an economics standpoint, it makes no difference whether or not that outsourcing is with a person or firm in the same town, state or country. Economics is unconcerned with national borders; politics, on the other hand, is very concerned, and especially in this economic climate.
Frankly, it isn’t entirely clear what the critics of outsourcing, or off-shoring, want to stop. An Obama ad says Mitt Romney “supports tax breaks for companies that ship jobs overseas,” and accuses Romney of supporting outsourcing while Obama believes in “insourcing.”
But Wal-Mart is opening stores all over the world and hiring people to man them. The Wall Street Journal reports the company added 100,000 employees outside of the
We used to praise that type of competitive spirit and success — used to.
Or take International Paper. The Journal reports that the 114-year-old company is also growing much faster outside the
To add insult to injury in Obama’s view, International Paper is cutting
Should International Paper stay land-locked — or insourced, to use the president’s term — to avoid the extra taxes and accusations of being unpatriotic?
Yes, some
Of course, some off-shoring efforts have not worked as well as others.
In addition,
But instead of reducing regulations and creating a tax structure that rewards
It’s almost as if these off-shoring critics have spent their whole lives as community organizers rather than business owners. Had they run a business they might have a better idea how to run a country.