April 11, 2004

The Other Side to Outsourcing

Last spring, 1,400 workers at Microsoft?s Dallas office were informed that the company was building a phone center in Bangalore, India. Although Microsoft says this move has not caused the loss of full-time jobs at that Texas customer support center, contract workers have been let go there.

In Austin, however, Samsung, the South Korean electronics conglomerate, announced plans to spend $500 million to expand its seven-year-old semiconductor plant and to hire up to 300 workers, bringing its total work force there to more than 1,000.

Samsung's investment underlines the other side of the outsourcing debate, the fact that foreign companies are spending billions of dollars to build or expand operations, from automobile plants to pharmaceutical laboratories.

Proponents say such "insourcing" lifts local economies and offsets some of the jobs being sent offshore by American companies.

Free trade supporters point to the near-record 6.4 million Americans who worked for foreign companies as of 2001. They note that while more jobs are being outsourced than insourced, the number of new workers employed by foreign companies more than doubled during the 15 years ended in 2001.

By comparison, the number that moved offshore - roughly 10 million, according to the Bureau of Economic Analysis - grew by only 56 percent in the same period.

"The opponents of outsourcing take insourcing for granted," said Nancy McLernon, deputy director of the Organization for International Investment, a group representing foreign companies in the United States. "In discussions on global trade, the spotlight usually is focused on those that are harmed by it, not those that benefit."

Not everyone agrees about those benefits. Some economists argue that more than 90 percent of those 6.4 million jobs were not so much created as acquired when foreign companies bought American businesses. For example, when Daimler-Benz of Germany took over Chrysler in 1998, Chrysler's 97,000 workers were reclassified as employees of a foreign subsidiary.

Robert Scott, of the Economic Policy Institute, said that after factoring in layoffs, foreign companies account for only about 25,000 new jobs a year, and that ?a lot of job destruction? occurred as well.

Other economists say that many more jobs are created, and that insourced jobs tend to be higher-paying and more stable than the ones moving out of the country. Were it not for foreign companies buying American companies, many of those jobs would have vanished.

The last recession "would have been much more painful without foreign direct investment," said Daniel Griswold, associate director of the Center for Trade Policy Studies at the Cato Institute in Washington.

In any event, the debate over insourcing is one of the most troublesome political issues of this election year.
Senator John Kerry of Massachusetts, the presumptive Democratic presidential nominee, has promised to eliminate tax advantages that encourage American companies to move operations overseas.

Yet these same tax benefits and free-trade agreements have also made it easier for foreign companies to invest in the United States.

President Bush cites the millions of workers employed by foreign companies as evidence that his free-trade agenda is paying dividends.

Speaking in Cleveland in March, Mr. Bush praised the Honda Motor Company for employing 16,000 workers in Ohio, adding that "Economic isolationism would lead to retaliation from abroad, and put many of those jobs at risk."

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