News: CJ Exclusives

Politics of Fear Threaten Free Trade

Candidates who resort to class conflict, populism ignore realities

With the election cycle once again in full swing, the political discourse over jobs and the economy has been profoundly negative. For months, newspapers, radio, and television reports have predicted recession, even hinting at the possibility of a depression.

Such predictions coupled with almost daily reports of plant closings, mass layoffs, wage disparities, and home foreclosures serve to feed the fear. The loss of jobs usually is blamed on the outsourcing of jobs overseas.

However, international business experts attending the Globalization 2008 Conference, sponsored by the Center for Entrepreneurial Development in Research Triangle Parklast month said trade with other nations benefits the United States in the long run.

Deepak Advani, Lenovo’s chief marketing officer and senior vice president of global e-commerce, and Michael Chen, Red Hat’s vice president of corporate marketing, both stressed the importance of global markets.

Chen said the Shanghai market grew by 98 percent last year compared to the U.S. market at about 9 percent. Much of the world”s population is centered in China, India, Brazil, and Indonesia, said Chen and Advani. As developing economies improve, American companies must take advantage of fast-growing consumer wealth, or other countries will gain a competitive advantage. The demand for more goods and services in developing nations creates more opportunities and jobs for Americans.

Business leaders at the conference, held on Feb. 14, acknowledged negative sentiment in the developed nations toward developing nations, largely because of job loss fears. While job loss is a reality, they pointed to job growth despite offshoring and touted the need for worker retraining and lifelong learning to ensure employees have the needed skills to compete as the economy transitions.

A January 2005 article in HinduBusinessOnline cited a troubling trend of U.S. undergraduate students losing interest in computer science because of job loss fears. At the same time, IT has become one of the most sought-after careers in India.

Chris James, vice president of marketing at Cree, said despite having 90 percent of their operations outsourced, the local workforce in Research Triangle Park has grown for the past 15 years. Advani said Lenovo is also building a plant in North Carolina.

When asked whether the United States is losing its competitiveness and innovation, both Chen and Advani said they think the nation is the leader in innovation, even in information technology. Advani pointed to examples such as Google, Yahoo, and Microsoft, saying “innovation is fundamental to competitive advantage.”

Politicians devoid of real solutions to complex problems turn to familiar tactics, such as class conflict, anti-business rhetoric, and promises of protectionism, to sway public opinion and win votes. Even though former Sen. John Edwards dropped out of the presidential campaign, his theme of “The Two Americas” pitted “hard-working people” against the “greedy corporations.”

Sen. Barack Obama says Americans don’t want cheaper products if it means losing their jobs, citing an example that 80 percent of all toys sold in the United States are made in China. Obama vows to protect American jobs by banning toys made in Asia from American stores.

Sen. Hillary Clinton wants to “temporarily freeze” trade agreements, even though her husband supported free trade and helped architect NAFTA during his presidency. In a recent interview, Clinton advocated universal health care as a way to protect American jobs, believing that high health-care costs are the primary reason companies are shifting jobs overseas. Clinton also promised to raise the minimum wage to more than $9 an hour and to increase the cap on H-1B visas to bring in more “skilled” labor.

Arkansas Gov. Mike Huckabee said he supports “fair trade,” meaning he would force China, India, and other trading partners to institute reforms to level the playing field. Such reforms include currency revaluation, the establishment of social welfare policies, and stricter environmental laws, policies that some economists argue have hurt American industry.

Reality Versus Hype

Job relocation and fears over job quality and wage degradation are not new phenomena brought on by globalization. Since the dawn of mankind, centers of economic and political power have shifted from one geographic region to another as improvements in technology, transportation, and communication advanced. Job relocation is a natural evolution, like the ebb and flow of the tides.

The debate over job quality, wages, and standard of living has always accompanied change, but history documents that as one industry disappears, others emerge to create new opportunities and jobs.

Dwight Jaffee, professor of banking and finance at Berkeley’s Haas School of Business, wrote in 2004 that “jobs lost to offshoring” are “generally transitory.” Unfortunately, because “job loss events necessarily come first and often reflect large layoffs,” said Jaffee, “job loss captures media attention, not the rehiring that takes place at a later time and often one job at a time.”

In May 2005, a policy brief by Ted Belaker and Adrian Moore of the Reason Foundation, said that job losses caused by offshoring have been “grossly overstated.” For example, Forrester Research in 2004 estimated that the United States had lost an average of 7.71 millions jobs every quarter since 1994 and predicted another 3.3 million jobs would be lost from outsourcing between 2000 and 2015.

Politicians and the media fail to point out that job loss also stems from automation and other macroeconomic factors, not merely from outsourcing or offshoring. Jaffee’s analysis of available offshoring data from the U.S. Bureau of Labor Statistics from 1999 to 2003 showed no net employment loss.

Insourcing

Also lost in the debate, media hype, and political rhetoric is the number of jobs created in the United States through insourcing or direct foreign investment. In October 2007, RSM McGladrey published a list of the 50 largest U.S. subsidiaries of foreign companies headquartered in the United States based on U.S.-generated revenue. These companies generate from $8.8 billion to more than $80 billion in U.S.-generated revenue annually.

According to the Organization for International Investment, U.S. subsidiaries of companies headquartered abroad employ more than 5.1 million Americans, while U.S. subsidiaries of companies headquartered in the U.S. employ 1.5 million Americans and provide jobs with an annual average compensation of $66,042, which is 32 percent higher than for all U.S. companies.

In August 2007, North Carolina was ranked 10th out of the top 20 states with the greatest number of insourcing jobs (192,200), according to the Organization for International Investment. Nearly 6 percent of North Carolina’s private sector workforce comes from U.S. subsidiaries, including Barclays, BASF, GlaxoSmithKline, Honda Aircraft Company, Novartis, Siemens, Syngenta, Tyco, and Volvo Group.

Karen McMahan is a contributing editor of Carolina Journal.