Where does it say somebody owes you a job? Sure, for most of us, this seems self-evident. But how else do you explain people like CNN’s Lou Dobbs?
Dobbs, formerly the host of CNN’s “Moneyline,” who now hosts CNN’s “Lou Dobbs Tonight,” seems downright anti-money. For Dobbs constantly rants at the evil perpetuated by greedy American CEOs. What evil is that? Why, outsourcing! Dobbs calls it “exporting America,” while he whines about “cheap overseas labor,” arguing that “corporate America” ignores its responsibilities that “extend beyond a quarterly profit statement.”
If it sounds to you like 2004 Democratic presidential candidate John Kerry, you’re not alone. Kerry, too, skewered CEOs responsible for the crime of “outsourcing,” calling the executives “Benedict Arnold” CEOs. “When I am president,” said Kerry, “and with your help, we’re going to repeal every benefit, every loophole, every reward that entices any Benedict Arnold company or CEO to take the money and the jobs overseas and stick the American people with the bill.”
What exactly is outsourcing? According to the American Heritage Dictionary, outsourcing is “the procuring of services or products, such as parts used in manufacturing of a motor vehicle, from an outside supplier or manufacturer in order to cut costs.” The outside supplier could be in the same town, or a different state or country. Today, the term “outsourcing” usually refers to offshore outsourcing, where the outside service or product supplier is in another country.
A whole lot of companies outsource, including the parent company of Lou Dobbs’ employer, CNN! Time Warner, CNN’s parent company, employs about 3,000 people in business process outsourcing in India for its AOL company. According to industry sources, Time Warner is considering using India for various business process outsourcing and back office operations for other parts of its company.
Does outsourcing benefit the United States?
You better believe it does. Free trade works both ways. Jobs coming from other countries to the United States are called “insourced” jobs. While more jobs are outsourced from the U.S. than are insourced to the U.S., for the last 15 years insourced jobs grew by 117 percent, while outsourced jobs only grew by 56 percent. Insourced jobs account for nearly 5 percent of all private-sector jobs, and tend to be higher paying – with salaries an average of 31 percent higher than other private-sector jobs. Foreign-owned U.S. subsidiaries manufacturing their goods here in America account for 20 percent of all U.S. exports.
What about the decline in manufacturing jobs? Can we blame outsourcing? For the most part, no. Manufacturing now employs a smaller percentage of workers, given our dramatic increase in worker productivity. Higher worker productivity means fewer workers required. Between 1995 and 2002, U.S. manufacturing jobs declined 11 percent – identical to the average world decline in manufacturing employment. Yet in the last 15 years, insourced manufacturing jobs grew by 83 percent, while outsourced manufacturing jobs only grew by 23 percent.
The U.S. Department of Commerce reported that, in 2003, the U.S. bought over $77 billion from foreign companies, and sold $131 billion to them – exporting nearly $54 billion more in services than we imported. This surplus accounted for an additional 400,000 jobs in 2003.
Outsourcing and globalization of manufacturing allows companies to reduce costs, benefits consumers with lower cost goods and services, causes economic expansion that reduces unemployment, and increases productivity and job creation. According to the McKinsey Global Institute, for every $1 outsourced, the economic gain to the U.S. as a whole is $1.12 to $1.14.
Consider the CEO who refuses to outsource, believing – as does Mr. Dobbs – this hurts America. His competitor, however, wants to increase profits. When he can, he lowers costs by “outsourcing,” using the savings to put back into his business. The CEO who refused to outsource now must explain to his finicky customers why he intends to charge them more.
Consider the real-life example of E-Loan, Inc., a Pleasanton, Calif.-based company that processes loan applications. Because of the growing sensitivity to “outsourcing,” E-Loan offered customers a choice. Processing your loan could take 12 days if processed by American workers. If, however, you wanted your results two days earlier – in 10 days – you could agree to have your loan processed in India. Guess what? According to the Los Angeles Times, 9 out of 10 customers choose the 10-day, overseas option. So much for, “I only buy if it’s made in America.”
Sen. Hillary Rodham Clinton seems to have a better grasp of Economics 101 than CNN’s Dobbs. Speaking to business and political leaders in India, she called “outsourcing” a “reality.” Sen. Clinton, offering yet another reason why she may be savvy enough to win her party’s 2008 nomination, said, “There are people who feel left behind … because they do not understand the economic benefits of outsourcing.”