07:45 PM
Bob Evans
Bob Evans

Global CIO: President Obama's Dangerous Campaign Against Outsourcing

For every U.S. job outsourcing displaces, it creates two new ones—so why is the White House so intent on demonizing outsourcing?

Conventional wisdom (also known as uninformed speculation) has long held that outsourcing decimates American employment by shifting "our jobs" to another country and leaving nothing in its wake but rising rates of joblessness and ever-shrinking prospects for career growth, individual prosperity, and U.S. competitiveness.

In this scenario—a favorite for tub-thumping politicians and out-of-touch labor leaders looking to demonize corporations and pit "the working class" against "management"—amoral or even immoral business executives gleefully fire thousands of Americans and greedily hire thousands of lower-cost workers in other countries to prop up profits and fatter year-end bonuses.

According to this hallucination, these piggish executives ship "our jobs" overseas even though they know full well that those actions will undercut their companies' ability to compete, slash product quality and customer service, and eventually turn America into a third-world basket case, a barren wasteland filled with 300 million louts incapable of creating anything, producing anything, or caring for ourselves.

Well, it turns out that that depiction of outsourcing and of the citizens of the United States of America is not only grossly insulting but also wildly inaccurate.

The real truth about the impact of outsourcing on U.S. employment has been revealed via the research of economist Matthew Slaughter of Dartmouth's Tuck School of Business, whose astonishing findings were reported recently in the Wall Street Journal.

Consider these four head-spinning highlights from Slaughter's voluminous research on outsourcing's impact over the past decade:

--Instead of shredding employment opportunities in this country, outsourcing actually creates two jobs for every one displaced to another country.

--Those new U.S.-based jobs created as a result of the dynamic impact of outsourcing not only outnumber the jobs they replaced by a factor of 2 to 1, but the new jobs also offer better pay and demand higher skills than the old ones.

--The phenomenon is not limited to the U.S.: in the past generation, companies based outside the U.S. have doubled the number of jobs created in America.

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--And, those workers at U.S.-based subsidiaries of foreign corporations earn significantly more—31% more—than do their counterparts at competing firms based in the U.S.

In his Journal guest editorial on outsourcing and politics that highlights Slaughter's work, former Secretary of Defense William S. Cohen writes that "when U.S. firms hired lower-cost labor at foreign subsidiaries overseas, their parent companies hired even more people in the U.S. to support expanded operations."

Cohen continues:

"Between 1991 and 2001, employment at foreign subsidiaries of U.S. multinationals rose by 2.8 million jobs; during that same period, employment at their parent firms in the U.S. rose by 5.5 million jobs.

"For every job 'outsourced' to India and other foreign countries, nearly two new jobs were generated here in the U.S" (boldface emphasis added).

And as if that weren't enough of a repudiation of outsourcing's evil nature, Cohen piles it on with this additional insight: "Those new U.S. jobs were higher-skilled and better-paying—filled by scientists, engineers, marketing professionals and others hired to meet the new demand created by their foreign subsidiaries. . . .

"If Congress enacts legislation to stop American companies from outsourcing, foreign governments could do the same—and that could put at risk millions of high-paying jobs in the U.S."

Our president, as well as many members of our Congress from both parties, have chosen to gloss over these types of findings out of fear of angering an American public deeply concerned with employment issues. We should push our elected leaders to respond with facts and self-interested wisdom, rather than playing to voter fears with talk of punishing the "fat cats" who ship "our jobs" overseas.

Earlier this week, I wrote about a compelling suggestion offered to President Obama from Cisco CEO John Chambers and Oracle president Safra Catz for how the administration and Congress could rationally entice U.S. corporations to repatriate the approximately $1 trillion in foreign earnings that those companies are currently holding outside the U.S. to avoid having the taxman plunder up to $350 billion of that total (see Global CIO: Oracle And Cisco Join Forces On $1-Trillion Idea).

In that column, I praised the proposal from Chambers and Catz and suggested that more executives from the IT industry, as well as from the corporate customers gaining so much value from the IT industry, should make their voices heard on policy issues of strategic concern.

Few issues could be more vital to U.S. economic interests and to the competitive capabilities of American companies than the need to gain a clear-eyed understanding of outsourcing, and to help the American public understand the reality of cross-border employment dynamics in a truly global economy.

As Cohen writes in his conclusion, "President Obama has succumbed to this temptation, warning that we should not tell U.S. companies that they will be treated the same 'if you create a job in Bangalore, than if you create one in Buffalo.'

"That may play well in Buffalo," continues Cohen. "But that fact is that for every job outsourced to Bangalore, nearly two jobs are created in Buffalo and other American cities. That's a good deal for America—and something our president . . . should understand."


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GlobalCIO Bob Evans is senior VP and director of InformationWeek's Global CIO unit.

To find out more about Bob Evans, please visit his page.

For more Global CIO perspectives, check out Global CIO,
or write to Bob at [email protected].

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