The Outsourcing Dividend for the Poor and Middle Class
I was daydreaming recently about how I would respond to the outsourcing charge were I Mitt Romney. One thought led to another, and finally to a surprisingly simple but high-impact realization.
For some years I worked for an international management consulting firm that competed from time to time with the consulting arm of Bain. They were a very effective competitor, and so there was no love lost.
If we are going to make sense out of the outsourcing dust-up, we really need some data. Now, I don't plan to dig through Bain's history to make some kind of educated assessment of how many jobs were destroyed or created, as if that could even be done in any way that would be acceptable to all parties. But I do think we can look at this from another perspective, where the implications of the potential data are all that we really need. Here we go.
Have you even been to...well, pick your big box store -- Walmart, Target, Home Depot, etc. -- and marveled at the prices? My wife shows me a new blouse and brags that it was $4.50 at Walmart. For all I can tell, it could have come from Neiman Marcus. Or we guys go to Home Depot and get a box of screws that are exactly the right size, color, and material for pennies. Guess what we are all doing. We are voting with our dollars for outsourcing. These products were made in Malaysia, Costa Rica, China -- you name it. And they are manufactured, shipped, stocked, and put on the shelves just when we need them at a price we couldn't reproduce making them here in America.
Think about it for a moment. Every time Michelle Obama (just picking someone at random) buys a pair of Italian shoes, she's voting for outsourcing. How? Well, the people who make shoes in Italy just made some profit, and the people here who import these shoes just made some profit. So guess what: they are going to be encouraged to continue if not increase their use of imports. Can't you hear it? "Joe, those imports are selling so well that maybe we ought to consider getting more of our product from those Italian manufacturers."
Now let's follow this a step or so farther. If the increased use of imports -- either finished goods directly for sale to the public, or business supplies like transmissions for cars assembled here -- is in fact displacing people who made these things in our country, we do have an issue. What are they going to do for a living? How do they send their kids to college or retire?
The answer is that we need a vibrant, entrepreneurial economy that is looking every day for new goods and services to offer that will create the jobs that "soak up" the people newly introduced to the labor market. Andy Kessler had a great article in the Wall Street Journal on July 17 titled "The Incredible Bain Jobs Machine." In one example, he notes that a while a company like Staples might put some people out of work -- those charging higher prices for their product, for example -- it also made it possible for small businesses to supply themselves less expensively and as a result to stay in business, grow, and continue to offer jobs to their employees. Seems like a pretty good trade-off. Drive out the inefficient or ineffective, and replace them with the efficient and effective.
But we suffer today from having only half of this equation in place. We are voting with our dollars for goods and services that come from jobs outside America, but we have hamstrung our entrepreneurial class with taxes, regulations, and, above all, uncertainty as to the business climate they face in the future. And so we do not generate the jobs. We've got the destruction part right, but we've ignored the creative part.
Now, I'll leave it to you to decide whether this administration's approach to this issue is driven by a misunderstanding of how our economy works. There's certainly plenty of evidence for that in Obama's remarks that the private sector is doing just fine or that if you build a business, you can't take credit for it because someone else (the government! who else?) provided the road you drive to work on. But we've got to get this second half right. Maybe Mitt Romney's the guy to do it. He does have a track record on both sides of this issue -- and it strikes me that we suffer today because we're missing that crucial balance.
Bruce Phillips is a recovering management consultant currently working in financial services. He can be reached at email@example.com.