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Obama Does Not Know What ‘Outsourcing’ Means



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Could somebody please get Barack Obama to shut up about “outsourcing” until some undergraduate aide has explained to him what the word means? As it stands, the president is showing himself an ignorant rube on the subject, and that is to nobody’s advantage.

The Obama campaign, as you probably know, has been running ads denouncing Mitt Romney’s role at Bain Capital, in which Romney made various business deals that had the effect of making a whole lot of money for Bain’s customers while also allowing a lot of dirty foreigners to eat, and God knows the world would be better off if a billion-some Chinese were hungry and desperate, that being an obvious recipe for global stability.

Because the Obama campaign knows that one of its most important constituencies is economically illiterate yokels — a demographic to which the president himself apparently belongs — it is on the airwaves claiming “Romney’s never stood up to China — all he’s ever done is send them our jobs.’’ (Whose?) The Obama campaign cites a Washington Post story on the subject, and the Romney campaign has noted that the folks over at WaPo did not distinguish between outsourcing and offshoring (and, indeed, the story is not a very smart one — do read it and see). Obama responded thus: “Yesterday, his advisers tried to clear this up by telling us that there was a difference between ‘outsourcing’ and ‘offshoring.’ Seriously. You can’t make that up.” And indeed you wouldn’t have to make it up, because it is a real thing: different words with different meanings. (Seriously, can we get this guy a library card?)

“Outsourcing” happens when a firm contracts out its non-core functions to other vendors, e.g., a hotel decides to hire a cleaning service rather than keep maids on the hotel payroll. To take an extreme but illustrative case, consider that the firms that provide car-driving services do not manufacture their own automobiles or stitch their drivers’ uniforms, even though doing so would “create jobs.” They outsource those tasks to GM or Ford and to whomever makes their uniforms. Likewise, their communication systems are outsourced to Apple or Motorola or RIM.

#more#But at least they should “buy American,” right? GM is an “American” company building “American” cars, but it too outsources many of its needs, sometimes to other U.S.-based companies, sometimes to companies overseas. Moving facilities overseas is what “offshoring” means; it is not synonymous with “outsourcing.” GM has decided that it can build cars without manufacturing brake pads or tires, much less manufacturing steel or rubber, and its production partners include facilities, workers, and investors from around the world. (This is, it should go without saying, a good thing. People who talk mistily about the virtues of “global cooperation” rarely recognize it when they see it.) But of course the idea of GM as an “American” company is itself a bit suspect. In his 2002 paper on outsourcing, Prof. Gene Grossman of Princeton cites a World Trade Organization study about “American” cars:

Thirty percent of the car’s value goes to Korea for assembly, 17.5 percent to Japan for components and advanced technology, 7.5 percent to Germany for design, 4 percent to Taiwan and Singapore for minor parts, 2.5 percent to he United Kingdom for advertising and marketing services, and 1.5 percent to Ireland and Barbados for data processing. This means that only 37 percent of the production value . . . is generated in the United States.

Notice that a lot of that value is going to relatively high-wage countries: Japan, Germany, Singapore, Ireland. As the Washington Post story notes, many of Bain’s investments during Romney’s tenure were in firms building facilities in Singapore, Taiwan, South Korea, Germany, Ireland, France, and Australia — not exactly the desperate Chinese sweatshops of anxiety and lore. (France, for Pete’s sake.) And that’s an important corrective to the usual knuckleheaded narrative about offshoring: “Poor desperate Third World brown types subsisting on four grains of rice a day are stealin’ our jobs!” But you’ll notice that capital is not exactly rushing to Haiti or Rwanda in order to build shiny new factories, while Germany, where workers do not come cheap, remains a manufacturing powerhouse. That is because low wages are not the goal of offshoring. High productivity is the goal of offshoring. There is a reason that BMW does not move all of its manufacturing operations to India, and patriotism is not it.

In fairness, Romney has said some dumb things about China, too, doing a lot of silly and pointless saber-rattling about Beijing’s monetary policy. (“Currency manipulators”? Have you heard of Ben Bernanke?) But he’s also said some smart things about China and promised action on more legitimate grounds, such as wholesale Chinese thievery of U.S. intellectual property, a problem about which something can and should be done.

What’s interesting about this controversy to me is the naked xenophobia of the Left on display alongside the amusing ignorance. Liberals love a good talk about the value of learning from other cultures and other peoples, so long as those foreigners don’t mind staying poor. If they want to sell goods and services, they are the enemy. Asians are allowed to be airy gurus and quaint villagers, but the day one of them wants to set up a factory, Democrats have a fit. Mohandas Gandhi good, Ratan Tata evil. You want collective, coordinated global cooperation to solve the world’s most pressing problems? That doesn’t look like a working-group meeting at the United Nations; it looks like what Bain does. You want a display of backward, ignorant chauvinism? Put Obama in front of a union hall.

There’s a famous and probably apocryphal story about Milton Friedman being taken on a tour of a giant Chinese infrastructure project of some kind, in which the workers were using old-fashioned shovels and picks and wheelbarrows. Curious, Friedman asked his guide why they weren’t using bulldozers and other heavy machinery. The answer was: “We care about creating jobs for our people.” To which Friedman responded: “Then why not use spoons?” I wonder if Barack Obama could answer Milton Friedman’s question.



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