Offshoring (Editorial)

Offshoring — the outsourcing of jobs to overseas workers — has become one of the hottest political issues of the presidential campaign, and no doubt, to those who’ve lost jobs, it’s a real issue.

Despite all the rhetoric by both political parties, to the nation’s economy as a whole, it’s really a nonissue.

When N. Gregory Mankiw, chairman of President Bush’s Council of Economic Advisors said, “Outsourcing is just a new way of doing international trade. More things are tradable than were tradable in the past. And that’s a good thing,” it set off a political firestorm.

Even though Mankiw was correct, the Bush administration quickly backed away from its own report — and labor and the Democrats latched onto an issue.

More recent reports, however, back Mankiw’s original view. A March 15 article in The Wall Street Journal showed that foreigners outsource far more office work to the United States than American companies send abroad, based on the latest data from the Commerce Department. Here’s what it said:

• The value of services imported from abroad — which includes U.S. outsourcing of call centers and data entry to developing nations, among other things — hit $77.38 billion for the year, up $7.94 billion from 2002.

• The value of U.S. legal work, computer programming, telecommunications, banking, engineering, management consulting and other private services for foreign nations jumped to $131.01 billion in 2003, up $8.42 billion from the previous year.

• Thus the U.S. posted a $53.64 billion surplus last year in trade in private services with the rest of the world.

In addition to hiring more U.S. businesses to provide services, the article said, foreigners last year more than doubled the amount of money invested in U.S. companies, plants, offices, stores and other facilities from $39.63 billion in 2002 to $81.98 billion in 2003.

It would be wrong to think that all offshoring is good — or bad. Just as Mankiw said in his report, there may be some short-term pain and dislocation — we think that means out-of-work Americans — but long-term it will prove healthy for the U.S. economy.

Last week, according to a survey of 182 companies, more U.S. companies said they plan to outsource more back-office functions overseas where labor is cheaper, despite the penalty they pay in public relations.

Arkansas Business last week carried a cover story on Whirlpool Corp.’s decision to move some of its 4,400 jobs at Fort Smith to Mexico sometime next year.

About 86 percent of U.S. companies plan to increase the use of offshore outsourcing firms, according to one recent poll. Still the numbers being tossed about of jobs going overseas are more guesswork than hard numbers. The only numbers available show a minimal effect.

In spite of this, Sen. John Kerry, the Democratic presidential candidate, has proposed a change in international tax laws to discourage companies from shifting jobs to foreign countries by eliminating the tax break that lets U.S. companies defer tax payments on income earned abroad.

On the flip side, business executives and lawmakers — and we — say President Bush should resist any legislation aimed at stopping the outsourcing of U.S. jobs.

The President’s Export Council said the ability of U.S. companies to source goods and services from around the world was a net benefit to the economy since it gives American businesses “the flexibility and cost competitiveness needed to succeed in the global economy against fierce foreign competition.” It also helps developing countries by raising their standard of living, and as those markets develop, they become markets for U.S. exports and help drive job creation in the United States, the council said.

Kerry is playing politics with the issue — playing on the fears of workers, but maybe he truly doesn’t see his faulty thinking. Outsourcing makes American businesses more competitive, increasing exports and profits. Companies that don’t take advantage of cheaper supplies of services will lose markets and eventually production. Bankrupt companies do not create jobs.

Writing in the latest issue of Foreign Affairs, Daniel W. Drezner, an assistant professor of political science at the University of Chicago, describes the election-year hype over offshoring as alarmism that’s misguided. Overseas outsourcing actually brings far more benefits than costs, both now and in the long run. If its critics succeed in provoking a new wave of American protectionism, he says, the consequences will be disastrous — for the U.S. economy and for the American workers they claim to defend. We agree.