Strategic CIO // Executive Insights & Innovation
Commentary
6/9/2009
11:44 PM
Bob Evans
Bob Evans
Commentary
Connect Directly
RSS
E-Mail
50%
50%

Global Investments Spur U.S. Jobs And Wages, Economists Say

When American companies expand their operations outside the U.S., those global investments lead directly to the hiring of more workers in the U.S. at higher wages because the companies become more successful and competitive, according to a new study from Harvard and Berkeley. To you nativists who'll howl like roasted cats at such objective research, there's an old saying: you can look it up.

When American companies expand their operations outside the U.S., those global investments lead directly to the hiring of more workers in the U.S. at higher wages because the companies become more successful and competitive, according to a new study from Harvard and Berkeley. To you nativists who'll howl like roasted cats at such objective research, there's an old saying: you can look it up.Earlier this week, Microsoft CEO Steve Ballmer said President Obama's plans to raise taxes on multinational corporations will drive jobs out of this country. And in a column today, American Enterprise Institute scholar Kevin Hassett uses Ballmer's comments to put the Harvard-Berkeley economics research in context:

"It makes U.S. jobs more expensive," Ballmer said. "We're better off taking lots of people and moving them out of the U.S." If Microsoft, perhaps our most competitive company, has to abandon the U.S. in order to continue to thrive, who exactly is going to stay?"

This issue is of enormous significance to CIOs responsible for setting offshoring strategies for their companies and then overseeing execution. In the current difficult economic climate, many politicians, union spokesmen, and other deeply vested interests are attempting to smear U.S. corporations that engage in outsourcing with the dishonest and misleading label of greedy and un-American frauds looking to exploit workers abroad and abandon them at home.

Using the Harvard-Berkeley economics research to full effect, Hassett says such claims are not only absurd but also are intended to distort the truth: that direct foreign investment spurs growth here in the U.S.

First, he says, the U.S. has the second-highest combined corporate tax rates in the world -- about 10 percentage points higher than the average of 27% for major developed countries in the Organization for Economic Cooperation and Development.

Second, our tax code allows U.S. companies to set up subsidiaries in other countries, which, because of our own onerous corporate tax rates, all have lower corporate tax rates than the U.S., with the exception of Japan.

Third, those subsidiaries pay taxes at the rate of their host country, and don't incur the full burden of U.S. taxation "until the money is mailed home."

Fourth, says Hassett, "American companies use this approach to acquire market share overseas. The alternative is losing the business to foreign competitors."

And then he pulls out the big guns:

"Don't just take my word for it. A recent paper by Harvard economists Mihir Desai and C. Fritz Foley and Berkeley economist James Hines and published in the distinguished American Economic Review gathered data on American multinationals to explore the impact of foreign investments on domestic U.S. activity.

"Their conclusion was striking. The authors found that "10 percent greater foreign capital investment is associated with 2.2 percent greater domestic investment, and that 10 percent greater foreign employee compensation is associated with 4 percent greater domestic employee compensation. Changes in foreign and domestic sales, assets, and numbers of employees are likewise positively associated; the evidence also indicates that greater foreign investment is associated with additional domestic exports and R&D spending," the authors say.

Hassett concludes: "So when firms expand their operations abroad, taking advantage of the lower foreign tax rates, it helps their workers in the U.S. Higher sales abroad (surprise, surprise) are good for domestic workers."

Okay, all you folks who believe offshore operations are destroying the U.S. economy, the microphone is all yours.

Comment  | 
Print  | 
More Insights
The Business of Going Digital
The Business of Going Digital
Digital business isn't about changing code; it's about changing what legacy sales, distribution, customer service, and product groups do in the new digital age. It's about bringing big data analytics, mobile, social, marketing automation, cloud computing, and the app economy together to launch new products and services. We're seeing new titles in this digital revolution, new responsibilities, new business models, and major shifts in technology spending.
Register for InformationWeek Newsletters
White Papers
Current Issue
InformationWeek Tech Digest - July 22, 2014
Sophisticated attacks demand real-time risk management and continuous monitoring. Here's how federal agencies are meeting that challenge.
Flash Poll
Video
Slideshows
Twitter Feed
InformationWeek Radio
Live Streaming Video
Everything You've Been Told About Mobility Is Wrong
Attend this video symposium with Sean Wisdom, Global Director of Mobility Solutions, and learn about how you can harness powerful new products to mobilize your business potential.