Post-Recession Job Recovery Hampered by Offshoring

[OlympicBrian]

Post-Recession Job Recovery Hampered by Offshoring
- Media Whitewashing Offshoring Reality, Evidence Shows Otherwise
By Dan, Seattle, 11/25/2010

In the 2001-2007 period, there was plenty of discussion about offshoring among the public and in Congress, with a number of studies published--funded mostly by special interests. These studies amounted to a number of speculative projections about the future of US employment. Despite the fact that a number of risks to the macro-economy were identified by the studies at that time, absolutely no Congressional action was taken. The discussion largely fizzled out, as the burgeoning housing bubble artificially boosted the economy--masking the encroaching effects of offshoring.

In fact, to this day, there are in fact a number of incentives in place to encourage shipping jobs overseas, including:

(1) US Tax write-downs which allow companies to move operations overseas, while gaining tax benefit from shuttered US operations. That's right, everyone gets to pay for that factory shipped to China.

(2) US Tax loopholes which allow corporations to shuffle profits gained overseas to tax havens, which leads to reduced tax bills.

(3) US Tax loopholes which allow corporations to permanently postpone repatriation of profits gained overseas, that leads them to both avoid paying US corporate income taxes, and to re-invest in overseas operations instead of in the US (which means no US jobs).

(4) Foreign worker visa programs which allow offshore companies to reap competitive advantage over US companies.

and finally:

(5) The powerful US Chamber of Commerce has staunchly and steadfastly furthered a pro-offshoring agenda. This group recently got a big financial boost as a result of the Citizens United Supreme Court decision--which eighty percent of the public is opposed to.

Now, the question arises as to how much offshoring has gone on during the last decade or so, and even before--not only which has led directly to a "slow and bleeding" job loss, but how much offshoring has led to weak job recovery following the current recession (which is supposedly "over.") According to official explanations, per a recent Bloomberg report, "rising productivity is helping boost profit margins...business (is) asking workers to help save cash by working smarter and with existing technology...A potential cost: efficiency gains reduce the chances recession-casualty jobs will come back."

"Bernake Goal of Optimal Employment Elusive with Profits Bringing No Jobs
http://www.bloomberg.com/news/2010-11-24/bernanke-goal-of-optimal-employment-elusive-with-profits-bringing-no-jobs.html

It's true that some efficiency gains are due to factors such as mechanization and "working smarter." What the above article doesn't mention is that business is offshoring to achieve productivity gains, and perhaps has even accelerated doing this in response to the recession--yet, the word "offshoring" is nowhere to be found in the whole article.

In other words, instead of hiring in the US, companies have simply been diverting resources into offshoring (building and hiring at non-US affiliates, partnerships. etc.) at a quicker pace--and in fact have built up substantial offshore investment since 1990; it so happens that US manufacturing employment also began to tumble around 1990, see graph at http://www.huffingtonpost.com/robert-e-scott/the-myth-of-the-manufactu_b_478815.html , page down 4x, blue line. This offshoring trend is reinforced by the tax loophole (3) listed above, which allows companies to re-invest in overseas operations. The result? A slow US job recovery!

You might think this is all speculation. However, I have found a graph which clearly illustrates the growth in offshoring since 1990. The graph accounts not only for slow job recovery related to the current (ahem, "past") recession, but the drop in manufacturing employment since 1990, and the slow job recovery after the 2001 recession as well!

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x9624014#9627257

Read the notes above the linked-in graph carefully. Clearly, given that there is evidence that offshoring has impeded recovery for two recessions in a row, it's time for Congress to take action (to wit, on items (1) through (5) above.) As shown by the graph, offshoring is accelerating--and it can only impede the current economic recovery. And don't buy into media stories which hide offshoring by whitewashing it among "productivity gains"--this mindset ignores all the side effects.

"Economic theory assumes that capitalists pursuing their individual interests are led to benefit the general welfare of their society by an indivisible hand. But offshoring, or the pursuit of absolute advantage, breaks the connection between the profit motive and the general welfare. The beneficiaries of offshoring are the corporations' shareholders and top executives and the foreign country, the GDP of which rises when its labor is substituted for the corporations' home labor. Every time a corporation offshores its production, it converts domestic GDP into imports. The home economy loses GDP to the foreign country that gains it."
- Paul Craig Roberts, Economist, former Assistant Secretary of the Treasury, former editor and columnist Wall Street Journal, Businessweek
http://www.creators.com/opinion/paul-craig-roberts/cato-s-trade-report-blinded-by-ideology.html

[OHdem10]

1. Too bad our leaders choose to ignore sage advice.

They keep digging that Free Trade Hole Deeper expecting
different results. Crazy???

[FreakinDJ]

2. Ya think ???

[OlympicBrian]

3. Well, it seems obvious, but...

The politicians pretend offshoring doesn't exist, they are pressured by the corporations.

It's nice to see a set of graphs all line up, which explain the downturn in manufacturing employment, the slow recovery from the last recession, and the current extra-slow recovery from recession.

And to think, they want to reduce the tax on overseas profits to zero. Now what effect might that have?

[FreakinDJ]

6. I wish more people would talk about it

Rather we preoccupy ourselves with Bush's Military record or Obama's Birth Certificate while corporate greed runs a muck in Washington. This instead is an issue a strong majority of Americans from almost every walk of life agree upon.

If the Dems had concentrated on this rather then pleasing their corporate handlers we would have a Democratic Mandate after the 3rd consecutive stunning victory in the elections and would be writing the eulogy of what was once was the "Teaparty"

[OlympicBrian]

8. All the while they've been setting the stage for record corporate profits

While we talk about other things that Glenn Beck wants us to.

[earthboundmisfit]

4. U.S. companies guilty of economic treason

Aided and abetted by 1 thru 5 - and especially the C of C

[Greyhound]

5. K&R. Please re-post this Monday.

Hell, re-post this every week forever. We're being conned and the more who see it, the better. If we just keep waiting until it effects each of us individually, we will lose.
:kick: & R

[OlympicBrian]

7. I have a few edits already

OK I'll K&R for a few days. I have some new material to add.

If someone could help me with the graphs...I could embed and overlay them into one! Sadly, I am just an under-employed American, with few resources. I would need someone that is good at BLS/BEA extraction, etc.

[KT2000]

9. this has meaning only to us

the conservatives have been so brainwashed they do not think corporations should pay any taxes at all. Taxes on business equals anti-business. This idea keeps showing up on local "comments" sections.
Off-shoring is something they do not discuss.

[OlympicBrian]

10. Yep, "mum" is the word...

According to some research I read that was done back in the early- to mid- 2000s, Offshoring was a touchy subject. Back then, and now, it's assumed you will offshore, if you are a company, and be hush about it.

Recently, IBM stopped making announcements relating to personnel changes. They have 75,000 employees in India, not counting subcontractors.

Offshoring has been out of the limelight, while we sit here with tax loopholes encouraging overseas hiring vs. same in the US. And we cry about the deficit, when we've destroyed our own tax base? About 2/3 of our federal tax income comes from non-corporate receipts.

And you know what, there STILL is no independent, reputable, macroeconomic study of the effects of offshoring. Anyone reading this, please link one in (and yes, I know about most of the industry-sponsored ones.)

[KT2000]

11. no link to macroeconomic

studies but I know of someone who quit GM when they sent him to China to transition some of the work there. He said the first thing they do is get copies of the plans.
Boeing started outsourcing not only manufacturing but engineering and design to China. Hey guess what - they just announced their own version of a jet to compete with Boeing and Airbus.

There is a new book: Turbulence:Boeing and the State of American Workers and Managers It is not the macroeconomics but it does discuss some of the unseen costs of off-shoring and cost-cutting.


Everything is being destroyed so CEOs can attend their conferences and play top dog in profits.

[billlll]

12. "the Private Sector is moving to India" is the soundbite we need

That states the problem. The solution is----

"Only co-op and WPA jobs will stay here"
"Only these two are also safe from getting cut down to dollar a day wages"
--these are the soundbites for a solution to the first soundbite.

R Reich advises this site---
National JOBS FOR ALL coalition--

http://www.njfac.org

[OlympicBrian]

15. Top three areas to offshore: China, India, and Brazil.

India is the top area for white collar jobs.

Brazil pays employees 26 cents compared to the dollar in wages, which roughly corresponds to $1.89 per hour.
http://www.bls.gov/news.release/ichcc.t01.htm

China pays about employees about $1.82 an hour. More for white collar.
India pays about employees about $1.71 an hour. More for white collar.
http://www.sdcexec.com/web/online/Global-Focus-News/Indias-Manufacturing-Labor-Costs-Top-China-in-2010/50$12946

In addition, foreign affiliates of US multinationals utilize subcontractors, for even cheaper labor. Their numbers are huge.

Further...China, India, and Brazil are seen as fast-growing markets, so why not relocate offshore? Then, hire and sell from the same location?

p.s. Corporations--now making record profits--want a tax break overall and to pay ZERO taxes for overseas profits!

[billlll]

18. dup

Nt

[billlll]

21. "only co-ops and WPA wont be ended by automation"

Please add that to my reply above.
In these two automation will shorten the work week - yet you get the same pay as now. No one gets fired.

PS. Tariffs can lessen the degree of offshoring and wage cuts ( to match foreign dollar a day wages )
but tariffs are no help when Megacorp automates and fires you.

Only co-ops and WPA will automate then shorten your work week
--------------
--------------
With the same pay you now get for a full week!
-------------
-------------
. It is a way of returning the added machine output-profit to you... which Megacorp will not do.

[OlympicBrian]

22. When you say that I think of nanobots...

And then it occurs to me as to who will own the intellectual rights to these? How will wealth be distributed?

[Canuckistanian]

13. There's no "enlightened self-interest" any more

It's now just "self-interest".

And if you didn't work hard enough to be a CEO, that's your fault.

[KT2000]

14. I think Paul Craig Roberts

may have an error - many products, such as electronic and appliances have parts made in China but are assembled in the US. If they meet certain requirements they are allowed to say it was made in the US. Corps. work hard to juggle those requirements so they can keep the US label.

Not sure how this is handled for statistical purposes. They import the parts but the sale of the finished product contributes to the GDP.
I will bet that off-shore production is falling through the cracks as far as the data. Businesses work very hard to disguise the fact that most of their product is made in India and China, etc.

[OlympicBrian]

17. Paul is likely correct, just some technicalities..

This is a little confusing.

Intermediate goods, such as parts made in China, should not be recorded as Chinese GDP. However, they are counted as imports when they arrived here. I've not found a way they sneak in.

"Intermediate goods are not counted in a country's GDP, as that would mean double counting, as the final product only should be counted."
http://en.wikipedia.org/wiki/Intermediate_good

So yeah, the parts (intermediate goods) can be made abroad, and assembled in the US, but everything nets out and there is "value added" by finishing a product from parts made here or abroad. If the product is then bought here it is consumed as a durable good.

GDP (Y) is a sum of Consumption (C), Investment (I), Government Spending (G) and Net Exports (X - M).
http://en.wikipedia.org/wiki/GDP

According to this model, I'm curious as to how a country which makes only intermediate goods fits into the equation, even if these goods were exported, since such goods wouldn't seem to be accounted for on their side.

As you suggest, maybe there are some ways to play tricks with this system, but I've not found any in my research.

[KT2000]

23. The problem I wonder about

is that the products that have their parts made elsewhere and then are assembled in the US would create false numbers, at least for historical comparison. The cost of a product would have some or most of that amount spent in other countries for raw material, labor etc.
So if the GDP is correlated to standard of living then it should not be if the parts are made elsewhere. The standard of living is increasing in the other countries.

I do not know a lot about economics but I suspect that our traditional economic data is not accounting for the whole business of off-shore manufacturing. A product that is sold in the US for $100 used to mean that supported a workforce in the US. Now, foreign workforces are supported instead. Where are those statistics?

[OlympicBrian]

24. Exactly

You are hitting on the point made by Paul Craig Roberts.

Not only did that $100 product which sold in the US support a workforce, but the workforce supported things like...say, paying income taxes, or eating at the local Mom and Pop diner.

"Every time a corporation offshores its production, it converts domestic GDP into imports. The home economy loses GDP to the foreign country that gains it..."

[KT2000]

25. OK - and

thanks for those links.

Another thing about the GDP is that every time someone is diagnosed with cancer or other illness that requires treatment and/or supplies, it increases the GDP - right? More goods and services.

[OlympicBrian]

26. Yes

They might consume way more than they otherwise might in a year, for example.

If we all came down with an awful plague, US GDP could go up--assuming we could afford to pay for some expensive treatment for everyone. Of course during that time investment and exports might go down somewhat.

[snagglepuss]

16. Corect me if I'm wrong but hasn't Hillary Clinton been very supportive of outsourcing?

If I'm correct I would be interested knowing if she has ever said specifically what jobs are replacing those being outsourced?

Also puzzling is that outsourcing call center jobs to Central and South America as well as the Philipines is rarely mentioned yet those countries are all part of the picture.

[OlympicBrian]

20. Hillary and call-center jobs

There certainly is some buzz on the web about Hillary. I haven't done any personal research.

As for call-center jobs, they are one tier below manufacturing and two tiers below white-collar.

I do know Philipines is a low-wage area, 5/100 the cost of the US! That's 5 cents per dollar--or normalized to US minimum wage--36 cents per hour. The lowest of the low! Argentina 31/100, Brazil 26/100.

http://www.bls.gov/news.release/ichcc.t01.htm

[LongTomH]

28. Hillary Clinton was the Senator from India

Hillary Clinton is the perfect model for the new generation of corporate-owned-and-operated congresspeople. She was the senator for Tata, the Indian company that does much of the outsourcing of US IT jobs.

She made her pilgrimage to India during the 2008 campaign to 'woo India' and to promise to keep sending them American jobs. Quoting from the Asia Times article:

Hillary Clinton made it apparent where she stood on outsourcing during her India visit, in an attempt perhaps to clear the Indian misgivings received during the Kerry campaign. "There is no way to legislate against reality. Outsourcing will continue," she told an audience of Indian big-wigs. She pointed out that there were 3 billion people who feel left behind and are trying to attack the modern world in the hope of turning the clock back on globalization. "It is not far-fetched to imagine ... if the Indian miracle would be the one of choice of those who feel left behind," said Hillary.

]

Hillary has been at the forefront in defending free trade and outsourcing. During the height of the anti-outsourcing backlash in the US last year, she faced considerable flak for defending Indian software giant Tata Consultancy Services (TCS) for opening a center in Buffalo, New York. "We are not against all outsourcing; we are not in favor of putting up fences," Hillary said firmly, despite inevitably invoking the ire of the anti-free trade brigade.

Actually, both the Clintons have a long history with India:

Perhaps one of the biggest friends of the Indian American community has been former US president Bill Clinton. Clinton is closely associated with the American India Foundation and visited India in 2001, as head of an Indian delegation to collect funds for victims of the Gujarat earthquake. There was considerable talk at that time that the Clinton visit was a well-orchestrated plan to cultivate the Indian American community to prepare for Hillary Clinton as president of the US.

One of the big donors to her campaign was Indian born Rakesh Gangwal, who also worked for her campaign.

Gangwal was the CEO of my old company, Worldspan. He downsized American workers, first to get the company ready for an IPO; when the market wouldn't pay what he was asking, he tried to get the company ready to sell, downsizing even more workers in the process. I was 'downsized' in 2005. Apparently, he did the same thing at his old company, USAirways. When he left, the company was in bankruptcy; Rakki walked away with a cool $15 million in his piggybank.

Is it any wonder that people are talking up the idea of Hillary as the Vice President on the 2012 ticket to replace Joe Biden? With her on the ticket, they will get big bucks from Tata and the corporations profiting from outsourcing. And they're talking up Hillary as a presidential candidate for 2016.

By the way, K&R:kick:

[OlympicBrian]

29. My sister is married to someone high up in the military...

She thinks the Clintons are "smart"--maybe this is a widely-held opinion of the higher-ups?

Apparently, this is one way Hillary can get strong financial campaign support from abroad, particularly because of Citizens United?

There are at least 75,000 IBM employees alone just in India.

Wow, some scathing stuff on Hillary. And I was thinking of her as an option for 2012 and 2016.

Does Hillary cite any objective, macroeconomic studies on the effects of offshoring?

And does she and/or her friends have financial stakes in Indian companies?

[LongTomH]

31. Good questions! I don't know the answers!

I need to do some research on that.

By the way, this post and thread would be a good start for your journal; it's worth saving.:fistbump:

[laughingliberal]

19. K & R nt

[OlympicBrian]

27. K&R

[Waiting For Everyman]

30. It's our lawmakers' fault.

And it would cost $0 dollars to fix it - passing laws costs our budget nothing.

What infuriates me the most is states offshoring Food Stamp call centers. That is a perfect example of the problem. There's NO excuse for that. All of our tax dollars should be spent HERE. At the very least, we should be able to expect that. If a subcontract for some exceptional reason has to be given to a foreigh company, we should at least require that it build a facility here to do it using US workers - or else be ineligible for the contract.

Again, that could be fixed for free by passing different laws (and btw if that includes treaty-repair, that could be done too). Wouldn't you think that cost-free solutions like fixing the law should've been done first? This jobs crisis didn't have to happen, and it doesn't have to be continuing now... it's that our lawmakers refuse to do what will solve it. This is a totally artificial and avoidable catastrophe we're living in.

That's the message that Dems ought to be repeating in the news 24/7.

[OlympicBrian]

32. The problem is it's so ingrained in the system...

As I pointed out, there are two tax loopholes which provide incentive to offshore. That's on top of the corporate "absolute advantage" assumption that lower wages are always good (for the guys/gals lower down on the ladder.)

And this all on top of the fact that we have nurtured China to its GDP growth rate of 10-odd percent by reinforcing the whole cycle. Since China is large, it thus becomes a big consumer of our goods (made offshore.)

You're right, it costs zero to fix this via laws, and will actually help the US employment and fiscal situation.

If corporations are making so much money offshoring, not only should the two tax loopholes be closed, but they should be charged a surtax for overseas profits produced by offshore foreign affiliates and partnerships.

[AdHocSolver]

33. A few large multinational corporations run the U.S. economy and control the U.S. government.

This is news?

These corporations buy our politicians and pay very little in taxes.

The Federal Reserve is an important enabler of this pillaging of America, through its control of interest rates and the money supply.

Corporate cartel agreements such as NAFTA, the WTO, the World Bank, and the IMF are an important means of control of the world's economies.

The terms "free trade" and "globalization" are not descriptive economic terms, but made up buzz words to stifle complaints about loss of jobs due to corporate anticompetitive policies. "We can't help it if we offshore jobs. We need to do so to remain competitive.", wail the corporations.

Nonsense! The world's economies are tightly controlled by a few large multinational corporations. There is NO competition for them.

The GDP figures, like the official unemployment figures, and the figures describing "inflation" are all rigged.

Want to know what is happening in the economy? Forget GDP, forget the complex graphs, and ignore the pundits who spout useless verbiage. Read the stories about closing factories, offshoring jobs, house foreclosures, homeless people, government deficits, the growing number of people without health care, and the obscene bonuses given to bankers and corporate executives. This information is all you need to know to understand where the U.S. economy is headed.

The bottom line is what can we do to save the U.S. economy. Waiting for our bought and paid for politicians to solve the problems means you will never see it happen.

The idea that, if things get bad enough, our politicians will save us before it is too late is right up there with Santa Claus and the Tooth Fairy.

The people have to hit the capitalists in their pocket books, and stop playing the game of sucker.

Stop buying their imported crap while you still hsve money to spend. Buy American made goods from local companies, and demand U.S. made goods be made available for purchase in the major corporate run stores or you won't shop there.

Once you run out of money to spend, the corporations won't care what you do, as you represent no profit for them.

If you have savings in a bank, demand that they pay you more interest or you will put your money elsewhere. If only a few people do this, then they will ignore you. However, if lots of people complain to the banks, they will have to listen to the people.

They will tell you that the Fed sets the interest rates, and it is out of their control. Nonsense! The Fed is controlled by the banks and is a major player in the Ponzi schemes that have been ripping off Americans.

It is long past the time to "explain" what is happening. Forget economic theory. Most of it is nonsensical babble anyways. Anyone with half a brain can understand what is happening. Open your eyes and your mind.

Start devising ways to thwart corporate control and regain control of our economy and our lives.


P.S. We are NOT in "post recession". We are still in recession (forget GDP and the stock market which are not valid indicators of economic health) and headed toward a major depression.