As the opening to his re-election campaign, President Obama’s rousing State of the Union address laid out a vision for a renewed American social compact, one in which hard work and responsibility offer everyone a decent life. It was a stirring message, aptly crystallizing the central theme of the 2012 campaign: Does our economy work for everyone? Or does it just work for the lucky, wealthy, or unusually talented few?
One of the reliable applause lines in the speech – and in politics more generally – was about saving and creating American jobs. The President assailed American companies that “outsource jobs” and “avoid paying [their] fair share of taxes by moving jobs and profits overseas.” President Obama is absolutely right on that latter point: it’s time for American corporations to stop shirking their tax responsibilities through complex accounting and putting subsidiaries in tax havens like the Cayman Islands. In fact, as I wrote in a recent blog post, Congress’s latest desire to give these corporations a “tax holiday” to repatriate profits to the United States is both economically foolish and morally unacceptable.
As for outsourcing, though, I have a problem: I’m not sure that I believe in such a thing as an “American job.” Of course, I believe in the literal fact that there are jobs in the United States, that they are primarily filled by American workers, and that they are at companies with headquarters in the U.S. But, at a broader level, I worry about the notion of “American jobs”: it suggests that the United States has a moral claim on these jobs, that workers in other countries who do work that was once done by Americans are not entitled to that work.
There is no doubt that outsourcing and technological innovation – especially the loss of close to 6 million manufacturing jobs from 1987 to 2010 – have hurt many American workers. It has been devastating to cities like Detroit and Philadelphia. And it has been one of the primary reasons for widening income disparity, which threatens the very core of the American compact.
But, blaming companies that employ people in other countries with better skills or more modest costs is missing the point: American workers are simply not competitive in many industries. In 1970, the U.S. had the highest high school graduation rate in the developed world. We’re now 21st in high school graduation and 15th in college graduation. And we all know that a diploma from many American high schools doesn’t mean nearly as much as one in Singapore, South Korea, France, or Japan. Moreover, our meager investments in the infrastructure that supports business are no match for aggressive investments in China and elsewhere. To a significant extent, outsourcing is not the cause, but the result, of years of economic mismanagement and foolish decisions.
Should the U.S. give tax breaks to companies for outsourcing jobs? Of course not. But, frankly, this issue is a political canard. The one-time tax benefit that corporations get for writing off costs related to shutting down U.S operations is a minor factor in their decisions to outsource. We should close this loophole, if only so that we can stop talking about it and get to the heart of the issue: the United States, led primarily by decades of neglect for investment in public education and infrastructure, has been losing its edge.On moral grounds, as well, I’m concerned that we do not see the other side of the equation: the shifting of work from the United States to other countries has often been a powerful driver of poverty alleviation in some of the world’s poorest corners. 1.4 billion people around the world continue to live on less than $1.25 a day. But that number has fallen dramatically in recent decades. In the much-reviled China, the impoverished portion of the population dropped from 85% in 1981 to 16% in 2005. Over 600 million people climbed into a decent standard of living during that period. One reason: many mid-skill manufacturing jobs for which Americans were no longer uniquely qualified went to China. The trend is similar, though less pronounced, in India, the heart of supposedly lamentable IT and call center outsourcing. Can you really tell me that desperately poor people in India or the Philippines or Cambodia do not deserve “American jobs?”
(To be clear, I’m not talking about companies that move operations to other countries so that they can dump toxic pollutants with impunity or exploitatively employ child labor. Those things happen, and they are morally bankrupt. But they don’t account for the bulk of American job losses.)
Before going back to school, I worked at a New York-based company with a large office in Hyderabad, India. The firm never specifically “outsourced” jobs to India. But a large fraction of total staff was in the Hyderabad office. There’s no question that at least marginally more workers would have been needed in the United States had we not had that office in India. Was it immoral to employ people in India? I don’t think so. In fact, it may be one of the most beneficial things that the company has done for the world. Those hundreds of people have good jobs, jobs that support families, jobs that pay taxes to the Indian government, jobs that transfer long-lasting skills to the Indian economy. They have more than earned those jobs, through diligence and a commitment to education. Over a relatively brief period, their wages rose dramatically, as the Hyderabad area developed and competition for skilled workers among American firms became fierce. This is how it should be. I don’t begrudge the Indian friends that I made over those years; I admire them. Nor do I hold the company’s decisions against it. Not at all.
I laud all of the energy that President Obama has put into trying to improve our education system, infrastructure, and economic competitiveness. Republicans, who are so anxious about competitiveness and job creation, must stop obstructing his every move. And I recognize that beating up on companies that employ people outside of the United States is a powerful political ritual that is inevitable every four years. It’s hard to feel sorry for them. Many large corporations have done an awful lot to destroy whatever goodwill voters might have felt towards them, including avoiding tax payments that actually fund investment in our economy.
But let’s not fall into the trap of thinking that this is a zero-sum game. People in other countries are not to blame for our losing in the global economy. We are doing a perfectly good job of losing all on our own.