The offshoring myth

By Alicia Burns

On June 4 the U.S. Bureau of Labor Statistics reported that nonfarm payrolls rose by 248,000 jobs in May, doubling the expectations of Wall Street. Manufacturing employment rose by 32,000, the sector's fourth consecutive monthly increase and the strongest gain in six years.

Last month's impressive numbers follow employment gains of 346,000 in April and 353,000 in March, bringing net job growth since August to more than 1.4 million jobs. The much-hyped jobless recovery, it can now be said, is conclusively over.

Also over, it seems, is election-year hysteria about offshoring, the practice of some American firms shifting certain operations overseas to take advantage of lower wages. Sen. John Kerry and other leading Democrats were quick to denounce the practice and label these companies' executives as Benedict Arnolds.

What these protectionists didn't say, however, is that foreign firms do it too -- and they're investing heavily in America.

Known as insourcing, the practice is common in global commerce and benefits Americans far more than the supposed ills of offshoring.

First, however, the naysayers.

Trade's opponents argue that foreign investment in the United States leads to job loss. There's some truth to this. From 1991 to 2001, for example, 2.78 million jobs were eliminated as a result of foreign companies purchasing American companies. But as Daimler's takeover of Chrysler demonstrated, these downsizings were far from willy-nilly. The much-needed restructuring placed these companies on firmer financial footing and benefited their shareholders.

What's more, these 2.78 million job losses over the decade are dwarfed by the number of U.S. jobs created by foreign investment. In 1991 alone, insourcing led to 4.9 million new hires in the U.S. Thanks to foreign firms such as Honda, Nestle, Siemens, Sony and Nissan, that number has consistently climbed every year, to 6.4 million in 2001. Now these foreign-owned companies operating in the United States support $350 million in worker salaries. On the whole, those salaries are 19 percent greater than those offered by their American-owned counterparts.

Additionally, the United States currently runs a $54 billion surplus in the services trade sector. While much has been made over U.S. firms rerouting customer service calls or data entry to India or Ghana, for example, foreign firms are increasingly turning to American workers for other services. In March, the U.S. Commerce Department reported that foreign demand for U.S. expertise in computer programming, telecommunications, banking, management consulting and legal work jumped from $8 billion in 2002 to $131 billion last year.

But it's not just foreigners who are creating jobs for Americans. With the coming Baby Boomer retirement, job opportunities for American workers will be considerable. In April, the U.S Chamber of Commerce estimated that between 2000 and 2010 Baby Boomers will retire in earnest. While the labor force is expected to grow by 12 percent, the number of jobs available should increase by 17 percent. By 2020, the United States will face a job surplus of roughly 10,000,000.

Industries such as construction, teaching, nursing, auto repair, and truck driving are expected to be the most heavily in need of workers. None of these jobs are in danger of being offshored.

Interestingly, legislators in 16 of the 20 states that benefit most from foreign insourcing -- California, New York and Illinois, chief among them -- have proposed legislation to curb offshoring. If these isolationists have their way, the retaliation could be disastrous.

The fact is that international trade is not only economically advantageous; it helps to foster cordial relations between states and bolsters international security. A mutually beneficial economic relationship can work wonders for diplomatic relations, strengthening ties between countries and encouraging cooperation on a number of fronts.

Globalization has brought about an interdependence that leads to prosperity if states approach these changes in the right way. But a country that attempts to implement protectionist or isolationist economic policies only denies itself in partaking of long-term global peace and prosperity. The irony is that if offshoring's foes succeed, their worst fears may be realized.

Alicia Burns is a fellow with the Digital Freedom Network in Newark, N.J.