Outsourcing Myths -- Debunked! The stats say simply, clearly, that this whole issue is overblown.

National Review Online ^ | October 13, 2004 | Bruce Bartlett

[xsysmgr]

The outsourcing of U.S. jobs to foreign countries has been a major theme of the Kerry-Edwards campaign. During his debate with Vice President Cheney, John Edwards repeated the standard Democratic line: “The administration says over and over that the outsourcing of millions of American jobs is good. We’re against it.” A search of John Kerry’s campaign website turned up 176 separate statements on the evils of outsourcing.

What you won’t find on the Kerry website are any references to serious studies of outsourcing. The reason is that they all find the issue to be seriously overblown: Outsourcing is responsible for a trivial amount of job loss at most, and is generally a positive for the U.S. economy. Serious studies of outsourcing include ones by former Democratic administration officials.

In July, economist Martin N. Baily, chairman of the Council of Economic Advisers under President Clinton, looked at who benefits from outsourcing. He found that for every $1 spent by a U.S. corporation on outsourcing to India, only 33 cents stayed in India. The other 67 cents came back to the U.S. in the form of cost savings, new exports, and repatriated profits. However, productivity gains add another 45 to 47 cents of value to the U.S. economy. Thus, on balance, the U.S. economy gains $1.12 to $1.14 for every $1 invested in outsourcing.

In August, economist Charles Schultze, chairman of the CEA under President Carter, looked at the number of jobs lost to outsourcing. He found that between the end of 2000 and the end of 2003, at most 215,000 service-sector jobs were lost. This is a minuscule amount in a working population of close to 150 million. Moreover, Schultze says, the productivity gains produced by outsourcing raised real incomes and living standards in the U.S. He concluded that outsourcing cannot be blamed for the “jobless recovery.”

Also in August, the nonpartisan Public Policy Institute of California looked at the costs and benefits of restricting outsourcing. It found that the cost of restricting outsourcing would greatly exceed any gains. Policies targeted toward those affected by outsourcing are far preferable to a ban on outsourcing. For this reason, California Gov. Arnold Schwarzenegger recently vetoed several bills that would have restricted outsourcing in that state.

In September, International Monetary Fund economists Mary Amiti and Shang-Jin Wei did the most thorough study of outsourcing to date for the prestigious National Bureau of Economic Research. These are their findings:

U.S. imports of computing services — the most controversial area of outsourcing — came to just four-tenths of 1 percent of the gross domestic product in 2003.

In 2002, the U.S. was the world’s largest exporter of computer services, which added almost $60 billion to our exports. By contrast, India’s total exports in this area came to less than $20 billion and China’s were just over $10 billion.

China and India, the two countries most blamed for outsourcing, actually outsource more than we do — six-tenths of 1 percent of GDP for the former and 2.4 percent of GDP for the latter.

Contrary to popular belief, the U.S. is a large recipient of outsourcing from other countries — i.e., insourcing. In 2002, the U.S. ran a healthy trade surplus in this area — receiving $22 billion more in outsourcing from other countries than it paid in outsourcing to other countries.

The number of jobs gained from outsourcing approximately equals the number of jobs lost.

The Federal Reserve Bank of Kansas City did the most recent study of outsourcing. It concluded that outsourcing has no permanent employment effects, although there can be temporary displacements.

Finally, press reports indicate that the outsourcing boom may have already peaked. A Sept. 22 report in the Wall Street Journal said that Chinese workers are now demanding better pay and more time off, which has sharply raised the number of labor disputes. This is quickly eroding the cost advantage of outsourcing to China.

An Oct. 7 report in the Financial Times said that General Electric, which pioneered outsourcing to India, has decided to sell its international outsourcing business. It found that the savings from outsourcing were mostly one-time gains that tended to dissipate over time. One reason is high employee turnover. Call centers operated by GE in India lost 40 to 50 percent of their workers every year.

Perhaps for these reasons, in his debate with President Bush on Oct. 8, John Kerry backed away from some of the more extreme statements he and John Edwards have previously made about outsourcing. Said Kerry, “You can’t stop all outsourcing. … You can’t.” He added that anyone who says he will stop outsourcing “would be pandering.”

Kerry is right. I hope Edwards and other Democrats were listening.

— Bruce Bartlett is senior fellow for the National Center for Policy Analysis. Write to him here.

[1stFreedom]

There has been a significant loss of high tech jobs due to outsourcing, specifically programming and technical support positions.

The article argues that dollars invested in India eventually return here, I think it's a very weak argument.

A programmer that made $85k before outsourcing really took off is apt to make $65k now -- if they can find a job. The fact that many can't find jobs for months at a time while laid off is a total drain on the economy. To spin this as cost savings which return to the US is ludicrous.

Both parties are wrong on this issue, but the Republicans are especially wrong by acting as if it's not a problem at all. Denial of the problem is hurting Republicans.

What's even worse is that there has been in increase in insourcing of manufacturing jobs, but the people in States like Ohio obviously are still peeved about the outsourcing of manufacturing jobs over the past decades.

So, while the real controversy here is service related outsourcing, the blue collars are taking this issue to heart and siding against Bush.

In a race that may come down to as little as 1/2 of a percentage point, every high tech vote is needed. It seems the Republicans don't think they need them. We'll see on election day.

[Revolting cat!]

[1rudeboy]

Maybe you're right. I should lament that folks lose their jobs. Boy, I feel superior now.

[1rudeboy]

C'mon Willie, you know you're my favorite Marx-quoting protectionist. And in-sourcing can be an example of FDI, but also can not be. Which makes your appearance on an in-sourcing thread whining about FDI that much moree hilarious.

[flada]

I hope you know a lot of them. That's when anecdotes become really impressive.

[1rudeboy]

Come now, man. Have you no compassion? [wail]

[Willie Green]

1rudeboy reply #14: "FDI is not insourcing."
1rudeboy reply #24: "And in-sourcing can be an example of FDI"

QED

[Choose Ye This Day]

FDI is not insourcing.

Of course it is.

Don't be ridiculous. Foreign Direct Investment simply means someone from outside the U.S. buys interest in a business here in the U.S. It doesn't necessarily mean that the foreign entity is starting a business here. It often means that their money is coming here, and they become the new owners, or part-owners of what was formerly a U.S.-owned company.

If they wanted to, the foreign direct investors could actually lay off workers, in order to make their new acquisition more profitable. So don't try pretending that Foreign Direct Investment equals insourcing, because you are distorting the issue.

FDI refers to an investment made to acquire lasting interest in enterprises operating outside of the economy of the investor. Further, in cases of FDI, the investor´s purpose is to gain an effective voice in the management of the enterprise. The foreign entity or group of associated entities that makes the investment is termed the "direct investor". The unincorporated or incorporated enterprise-a branch or subsidiary, respectively, in which direct investment is made-is referred to as a "direct investment enterprise". Some degree of equity ownership is almost always considered to be associated with an effective voice in the management of an enterprise; the BPM5 suggests a threshold of 10 per cent of equity ownership to qualify an investor as a foreign direct investor.

[r9etb]

The premise of the article is flawed. The question is about more than the number of jobs -- it's also about whether or not it's important at some level to maintain some level of domestic manufacturing capability. For example, does the demise of domestic manufacturing industry X represent a national security concern?

At some point, one has to wonder if it is a uniformly good thing that most clothing is imported. Or that much of our manufactured merchandise is made in China (a likely military rival).

I'm not really taking a strong stand either way -- I'm just suggesting that Mr. Bartlett's take on outsourcing is incomplete, and therefore possibly misleading.

[1rudeboy]

Thanks. I was off trying to actually find FDI data. It's not easy.

[RightOnTheLeftCoast]

Said Kerry, “You can’t stop all outsourcing. … You can’t.”

In other words... outsourcing is a nuisance?

[1rudeboy]

Please see #28. You might learn something.

[lelio]

Both parties are wrong on this issue, but the Republicans are especially wrong by acting as if it's not a problem at all.

I agree. Also Nobel Prize winning economist Paul Sameulson is referenced in this the Boston Globe article:

"Free trade is not always a win-win situation," Samuelson concludes. It is particularly a problem, he says, in a world where large countries with far lower wages, such as India and China, are increasingly able to make almost any product or offer almost any service performed in the United States.

If we trade freely with them, then the powerful drag of their far lower wages will begin dragging down our average wages. Our economy may still grow, he calculates, but at a lower rate than it otherwise would have.

[1rudeboy]

By the way, if you plan on quoting me, can you try to use the full sentence, especially if the part you leave out is dispositive? Thanks in advance.

[Willie Green]

So don't try pretending that Foreign Direct Investment equals insourcing, because you are distorting the issue.

Those instances where FDI does not result in insourceing merely illustrate how disingenuous the insourcing cheerleaders actually are. With FDI already plummeting, and only a small portion being applied to new, job-creating investment, there is little insourcing actually occurring.

[1rudeboy]

Ah yes, a neo-Keynesian. Small wonder protectionists worship the man.

[Bon mots]

I know of a senior citizen whose job was outsourced:


I Know I Can't Vote In Your Election But..

Message:

To All American Voters,

I am a senior citizen. During the Clinton Administration I had an extremely good and well paying job. I took numerous vacations and had several vacation homes. Since President Bush took office, I have watched my entire life change for the worse.

I lost my job.

I lost my two sons in that terrible Iraqi War.

I lost my homes.

I lost my health insurance.

As a matter of fact I lost virtually everything and became homeless. Adding insult to injury, when the authorities found me living like an animal, instead of helping me, they arrested me. I will do anything that Senator Kerry wants to insure that a Democrat is back in the White House come next year. Bush has to go.

I just thought you would like to know how one senior citizen views the Bush Administration.

Thank you for taking time to read my letter.

Sincerely,

Saddam Hussein

[1rudeboy]

Check this out. If Willie says that FDI is insourcing, and little insourcing is going on, then it must be true.

[Choose Ye This Day]

If Toyota opens up a manufacturing plant in Tennessee, and hires 400 workers, that's insourcing.

But that's NOT Foreign Direct Investment, because Toyota is not taking an ownership position in an American company.

[the gillman@blacklagoon.com]

Tell it to the former employees of C&K Components who don't yet know their plants are closing as the company moves to China.