Thursday, November 24, 2011

Is offshoring the problem it is made out to be?

In the last decade, U.S.-based multinational companies have been on a hiring spree, adding over 2 million new jobs. They're just not adding them in the United States.
In the last decade, U.S.-based multinational corporations cut nearly 864,000 jobs in the United States, according to a new report from the Commerce Department's Bureau of Economic Analysis. At the same time, they added 2.87 million jobs outside the country, including 1.61 million jobs in Asia and the Pacific region.
Multinational companies are focusing their hiring largely in emerging markets, where economic growth has been faster than in other regions. China, which grew at an average 10.3 percent per year between 1999 and 2009, was the country that enjoyed the most job growth from U.S.-based multinational companies, with 691,100 jobs added, according to the report.
In India, where the economy grew an average 7.2 percent per year during that time frame, U.S.-based multinational corporations added 425,800 jobs. The U.S. economy, in contrast, grew an average 1.7 percent per year.
U.S.-based multinational corporations also added 532,300 jobs in Latin America, the study found. Economies in the region have been growing nearly four percent per year on average, according to the Conference Board.
"They're going abroad mainly to sell their products," said BEA economist Raymond Mataloni, who co-authored the report. "Most of the sales in these emerging markets are to local customers."
Read the rest at The Huffington Post
by Bonnie Kavoussi

This headline is somewhat misleading. It suggests that the US lost workers bu offshoring production, whereas the numbers indicate that US multinationals not only produced but also sold more products abroad. This is going to be an increasing feature of the global economy as the emerging economies continue to grow rapidly. Viewing it as a bug is counter-productive, and this will only serve to disadvantage US multinationals in the arena of global competition. Scapegoating "big corporations" is not the way to go here, as intuitive as it may seem.

The problem is not as much offshoring US jobs as the US technocrati being unable to understand that the real issue is lagging demand, largely due to flat worker incomes and excessively high taxation, FICA in particular. 

It is true that corporations have been allocating a larger share of revenue to profit at the expense of wages. However, worker compensation has remained pretty stable over this time. While wages have been stagnant to falling in real terms, benefits have been rising, driven by exploding health care costs and rising insurance premiums. This has meant a transference of revenue to FIRE, along with interest and mortgage payments. As a result, the proportion of GDP garnered by FIRE has increased dramatically.

Demand was supported for a time through credit-based consumption, which finally reached unsustainable levels when private debt ballooned, hit historically high levels.

The solution is not bringing "back the jobs." Rather, it lies in an understanding that the real issue is effective demand and that this can be addressed fiscally through the sectoral balance approach and functional finance, as recommended by MMT.

Some will counter with the rising level of imports and assert that the US needs to grow it export market to take back jobs. MMT economists point out, however, that imports are favorable in real terms of trade, whereas exporting involves domestic workers using national resource to supply foreigners rather than the country's own nationals.

As long as the issue is understood correctly and the sectors kept in balance at full employment, there is no problem with multinationals producing and selling abroad, or the country running a persistent current account deficit as long as other countries want to save in its courrency.


Mario said...

as long as other countries want to save in its courrency.

if they don't then we are sort of stuck for a bit at least until we can get substitute products elsewhere or make them ourselves. It wouldn't happen overnight for one and for two what manufacturer is going to turn down an eager buyer? Perhaps there might be demand-pull inflation if more buyers step into the market.

Matt Franko said...


Good write up here: "The solution is not bringing "back the jobs." Rather, it lies in an understanding that the real issue is effective demand and that this can be addressed fiscally through the sectoral balance approach and functional finance, as recommended by MMT."

It's not 'bring back the jobs', it's 'Guaranty the jobs'. By whatever means we see as appropriate.

Full employment policy. In fact the first "mandate" of the Fed under the FR Act is "MAXIMUM" employment.

This is the real prize.

Focusing solely on corruption, FIRE, Fraud, "the predator state", Wall Street, etc. while all true and people need to be locked up, and are indeed bad outcomes, does not get us there.

As Warren says, we are taxed WAY too much for our given size of government.....


Tom Hickey said...

Right, Matt. Trying to go forward by looking backward is a numbskull solution. The world changes, and countries and their economies have to adapt.

Tom Hickey said...

Mario, Warren has been saying that we should enjoy the benefits in real terms of trade while it lasts. This likely won't last forever, nothing does, and then the US will have to adapt to shifting external saving desire. No one can predict with accuracy the pace of that change or exactly when it will occur. But right now, no sign of it as the bond market can't get enough tsys and yields are collapsing.

Clonal said...

I think all of you are missing the real downside of offshoring. The real downside is the loss of skills that happens as industries shut down domestically and move offshore.

This happens in two ways first crucial skills are lost as the experienced workers retire and die, and critical skills that can only be passed on worker to worker are lost. Second, as workers move on to other jobs, critical skill elements are lost in the fog of memory, the longer they are away from the old job.

Of course, none of that is important to armchair strategists who are in charge of corporate policy -- whose mindset is dominated by changes in quarterly profit, and not my any sense of commitment to the community that they live and work in.

Dan Lynch said...

Have to disagree, as someone who has lost jobs due to offshoring.

So if I lose my well paying, skilled job in a manufacturing business, MMT is going to fix that by offering me an $8/hour manual labor job ?

And then what happens if WWIII comes along and we can no longer rely on products from foreign countries ?

I understand the theory of comparative advantage -- Idaho has a comparative advantage over Florida at growing potatoes, Florida has a comparative advantage at growing Oranges, so it makes sense for Idaho to trade with Florida.

But I'm not seeing a comparative advantage trading with Asia. Asia has no inherent manufacturing advantage over the US, what it has is subsidized credit, lack of environmental regulations, and lack of labor protections. It's a race to the bottom.

Scott R. said...

Tough duty Tom..., trying to convince folks that offshoring of jobs isn't the biggest problem we face and that focusing on "bringing jobs back" is not just a misguided approach..., it is a futile approach. I wrote a piece for my blog with the title "Shipping Our Jobs Overseas" a while back. It was based on my long experience in the logging industry and how technological advances had replaced those jobs. I took a bit of heat from the folks over at The Agonist when I cross-posted it there. It didn't take me long to find a research paper "Manufacturing Productivity and the Shifting US,
China, and Global Job Scenes—1990 to 2005"
that supported my contention Some of the conclusions include

Scott R. said...

Whoops..., a bit to long..., or maybe editing error : ) Here's the conclusion:

Some of the conclusions include "Meanwhile, compare the United States economy’s 1.5 million manufacturing job losses from competitive and structural factors to the 7.5 million lost to productivity growth. From this comparison, I conclude that, during the period 1990 to early-2005, US manufacturing productivity growth cost the US several times more manufacturing jobs than all other factors combined—including global competition."

Tom Hickey said...

Thanks for the assist, Scott R.

To the rest. We have to start thinking of the global economy as a closed system and start designing an economics that fits it.

There is no going back to the post-WWII period, which is what many people are yearning for. It was a special case. We are in another special case. We have to adapt to changing circumstances through knowledge and coordination.

This has happened before in other ways, and when things don't do smoothly the outcome is depression and war. This is the way things are headed now unless we shift course. Looking back isn't going to cut it. We need to innovate out this.

Tom Hickey said...

I should qualify what I meant by "innovate" above. I was not thinking only of technological innovation but also social, political, and economic innovation.

As Scott R. points out the real issue increasing productivity due to technology making work obsolete. This is an exploding phenomenon and the world needs to be redesigned socially, politically and economically to adapt to it smoothly. The alternative is recurrent crises and pervasive social unrest.

Mario said...

So if I lose my well paying, skilled job in a manufacturing business, MMT is going to fix that by offering me an $8/hour manual labor job ?

it's a great point Dan. And I would say that MMT would add that this jobs program is not to "replace" all jobs but rather to provide a backstop. This caps the worst-case scenario for any citizen in the nation. It's not designed to be a kick-butt stellar job to give you a stellar life. It's designed to prevent your life from becoming beyond destitute. It does a few other things as well like put in a floor for agg. demand, provide opportunities for disadvantaged people to get a leg up, and refurbishes the community, etc.

Remember MMT also calls for a significant tax cuts. This offsets alot of slack in the economy.

Also manufacturing is not dead....there's new types of engineering that needs to with better roads...perhaps even some better material over asphalt, concrete, etc. There's green energy technologies (not solyndra bs...real green tech that works and is's out there we just need to really dive in and open up all the stops). And there's NASA and space technology as well. There's also a huge demand for all sorts of current goods but in a more organic and health-conscious sustainable way. That's a whole industry in and of itself where you can essentially just re-create what we already have just in a more sustainable fashion. There's tons of stuff that we can do but the government needs to get the ball rolling with various MMT prescriptions and also needs to stop subsidizing the status quo that is no longer working and dragging us down and instead start to subsidize these new ventures.

There's alot that can be done. It's definitely not all dire for the US at all, it's just like what Tom requires us to think OUTSIDE the confines of what we once knew to be true. We are our own generation now and we need to put down the past, and pick up what is right before us and available to us all, and look directly into the future.

I hope that helps?

Clonal said...

Read also this article When offshoring backfires

Also this - Offshoring and Outsourcing US American Jobs , GOOD OR BAD?

I used to be a big fan of outsourcing. I cannot say that for certain any longer after seeing what it has done to the manufacturing industry in particular in the U.S. I think its effects are very shortsighted and possibly dangerous when we are taking so many skilled U.S. jobs offshore in the name of cost savings. There is no doubt this practice benefits the countries receiving the jobs, and possibly raises their standard of living, but I worry about this. I am sure that in most cases, the firms and staffs performing the outsourced work do a credible job of the task at hand, but I have this nagging question in my head. I ask, “Does any country, the U.S. or otherwise, want to trade sovereignty for profit?” I think this is what has happened in part here in the U.S., with not only commercial ventures but also Government Bidding as well.

If MMT dictates currency sovereignty -- by the same logic it also dictates manufacturing sovereignty.

Tom Hickey said...

There is no way to go back now. It's just not going to happen. We should see the bright side of this, which is that productivity gains through technological advance vastly increase the possibility for global prosperity and distributed leisure.

What is standing in the way of this is lack of neither affordability nor real resources. The problem arises from social, political and economic innovation not keeping pace with technological innovation.

Hobbling the implementation of technological innovation is not the way forward. In fact, it is selfishness on the part of the developed world to maintain a status quo of privilege. Humanity can go forward together if we cooperate and coordinate rather than compete and conflict. Many solutions to most existing problems have already been developed and tested.

An old friend of mine, theoretical physicist John Hagelin, ran for president several years ago on a platform based on existing scientific solutions to existing problems. Of course, he had no real chance of winning but he said it got him in the door to talk to many politicians and leaders. He reported that many if not most agreed with his evidence-based views, but they saw them politically impractical, e.g., because they did not think the public was ready to accept the degree of change involved. Of course, Warren also ran for president and then senate on the MMT platform.

This is nothing new. Bucky Fuller was preaching this fifty years and several wars and crises ago.

Clonal said...

It is "Think Globally, Act Locally" and not Act Globally. In order to act locally, you have to have the skill set -- and not have lost it. I am afraid the outsourcing is fast leading us down a path where acting locally will be difficult if not impossible!

Ryan Harris said...

Euphemisms like offshoring miss the point. What we are talking about is arbitrage between labor markets in different nations. The purpose of offshoring isn't for comparative advantage, never has been. There isn't a comparative advantage to making a slinky or tennis shoe in china vs taiwan vs the usa. The singular purpose is to increase the supply of labor and thereby decrease costs. The cost of labor decreases rapidly where the jobs are lost and only slightly increase where the jobs are moved.

Tom Hickey said...

The change brought about by globalization is forcing other changes. This is how progress occurs. It's messy.

There will be no return of US manufacturing involving mass hiring of workers, in that plans are already in place to move to automation and robotification when global labor arbitrage becomes less cost-effective. This is already occurring with the rising cost of energy involved in transporting goods, as well as rising wages in Asia. It's the future, and there is no stopping it. There is simply no way to force US businesses to move backward. It is not going to happen, ever.

I never worked in a factory myself, But forty years ago my cousin owned and operated factories in which I invested. I regularly visited those factories and knew the work and workers. Running lathes, milling machines is skilled work but it incredibly routine and boring. It doesn't require a human hand to make the required adjustments. Now that we have computers, robotification can do the job more effectiently and effectively. Human workers should be liberated from this sort of thing.

Similarly, agriculture has gone from back-breaking work for long hours to entirely machine-driven. There are Mennonite farmers around here that still use horse-drawn ploughs and eschew modern conveniences as a matter of religious principle. While these people seem happy enough with their choice, I think that most people are happy that they no longer have to do this kind of work. A hundred years ago, most workers were agricultural workers doing this kind of work. Previous to that, humans were poking sticks in the ground growing beans.

This kind of existence is no longer required and its vestiges continue only because of institutional arrangements that keep it going. Time to move on.

The way forward to seize new opportunities. Why anyone who doesn't have to would want to go back to the farm or factory beats me, unless one enjoys hard or repetitive work.

Humanity can afford a lot more leisure and cultural opportunities without having to do the work it once did. Let's move on together.

Matt Franko said...


IMO this is why the Christ (Annointed One) thru Paul left it open ended;

For the BOC, thru Paul, from Romans 2:14: "For whenever they of the nations that have no law, by nature may be doing that which the law demands, these, having no law, are a law to themselves,
15 who are displaying the ACTION of the law written in their hearts, their conscience testifying together and their reckonings between one another, accusing or defending them,"

So it's not that we have to implement "the law", it's that we have to see what type of actions of the law, or reults, He was driving at; the outcomes.

As far as economic outcomes it was Full Employment. This was the ACTION of the law. This should be written in our hearts, I know it is written in the hearts of those to whom the understanding and truth of MMT has been given.

We can get this done probably many combinations of ways. Back even as recently as the "pilgrim" days, with our mostly agricultural economy, this perhaps was easier, just alot the land according to a family's means. And everybody could work in ag. But as you point out, in this era it is more complicated and global, but the results we should be shooting for should be the same. Full employment.

We should be working cooperatively with these other nations to assure full employment WORLDWIDE. If we could come together on this, thru perhaps a global implementation of Functional Finance, we could get this done...


Mario said...

I agree with you clonal about self-reliance and ability to care for oneself...however I think it applies more to agriculture than to manufacturing and I think this is why Jefferson was so keen on agriculture. If you make your own food you can really live just a very fine enough life. Far better to be importing gadgets and things versus food.

I still don't understand why everyone thinks there is nothing more we can do in manufacturing though. You know it used to be whale blubber until some people innovated something's like this all through time. Why are we begging and crying and moaning that we don't have 20th century plants and jobs while the 21st century is speeding by?!?!? Based on what little I know about engineering, complex math, and science it is clear enough to me that we can literally do anything we want. We have truly mastered the universe to such a high degree that we can do most anything we want with our minds and resources and allocations. It's really just that simple.

Let China have the 20th century today guys!!! It's an old toy. We need to pick up the torch and create what has only been imagined. THAT'S how you sustain yourself. Success through imitation only lasts temporarily. True success and genius is found in the NEWNESS...that's why the 20th century was so great for the was the newness then. It's time to let that one go now folks and grab onto today's newness. In my eyes the 21st century is all about green energy, space travel, and sustainable industry across the board. It's just that simple. Add in MMT prescriptions, mix and stir, and bake for 5 hours at 395 F. Done!

Tom Hickey said...

Agreed, Matt. But instead of full employment as the goal, I would say "full empowerment" as a free person.

What I mean is that everyone has a natural right to a fair share and equal opportunity. As long as humanity has to work for its bread, then that would included the right to gainful employment at an above-subsistence job. Lacking this, a person is not free in that kind of environment.

But technology is quickly progressing humanity to the stage at which not everyone needs to work as hard as previously. In this case, full empowerment needs to be reinterpreted so that all persons can exercise their right to freedom — a human right — in a way appropriate to the times.

There seems to me to be no way to justifiably argue the claim that only rentiers have "earned" the right to discretionary leisure and privileged enjoyment of the fruits of the earth, anymore than did the warrior classes that first seized power and created a monopoly on violence called "the state." That's just a rationale for stealing and exploiting. (Did I mention that I am a libertarian of the left?)

I am not arguing for social or economic equality here, but equity based on kinship in the human family. Nor do I think that humans have unlimited rights wrt other species or resources. Rights involve responsibilities. We are stewards rather than masters.

We need to aim higher.

Mario said...

totally agreed as to stewards and I love the term libertarian of the left. nice man ;)

what you are talking about sounds very much to me like what Jefferson envisioned.

It should also be noted that Keynes and many other economists did/do not see production as the purpose or ends of economy. They all saw a higher cultivation of the human faculties as the real ends to a proper economy. Work your economy properly so that you can do OTHER THINGS the rest of the day. It's really awesome....the earth consciousness does seem to be rising with more people talking and thinking like this. Perhaps that Mayan calendar wasn't all too inaccurate eh!?!?!? With death comes LIFE!!!

Tom Hickey said...

Mario: It should also be noted that Keynes and many other economists did/do not see production as the purpose or ends of economy. They all saw a higher cultivation of the human faculties as the real ends to a proper economy.

Right. Economics and the economy are means to an end. The economy is a life-support system, not a goal in itself. The objective is a progressively HIGHER QUALITY OF LIFE rather than accumulation, especially by only a few that wiggle to the top.

Tom Hickey said...

Check out Jeremy Rifkin, The Empathic Civilization (RSA Animate)

Ryan Harris said...

The economy never going back to manufacturing doesn't absolve us from ensuring our economic models enable the least prepared and educated have ample opportunities to earn and maintain dignified lives. Full empowerment sounds like more econ double speak such as offshoring or free trade that inadequately protected the vulnerable from the neolib ayn rand vision.

Tom Hickey said...

@ TB

Why does everyone have to work for a living? This is a moral requirement (normative), not an economic one (positive).

The world could pretty quickly move to providing an above subsistence allotment to all and people who wanted to could choose to earn more.

True, many would probably just goof of and waste their lives. But many others would choice more creative and contributory ways to use their time and energy. However, no one would starve, and everyone would be free to choose. That's a big step up from where we are now. And it is doable.

Mario said...

agreed Tom.

True, many would probably just goof of and waste their lives.

frankly people goof-off and waste their lives now. "Working" and "wasting your life" unfortunately are not mutually exclusive. In fact that's what we call in our society a mid-life crisis. I think our younger generation is having their mid-life crisis early and vicariously and through mirror neurons.

very few people work for the work itself. They work for what it affords them. But what if we could afford more with working less? In fact I think that this is how the elite are a real blessing to us all...they are living proof that such an existence is possible. We the people are bringing the freedom into that whole process. No longer do we need to enslave another to have our own comforts. Life is not a zero-sum game. Thank God for that!!!

Mario said...

although there could be an argument that we have actually exported our slavery to China....and actually I think that is quite accurate.

Perhaps the best way...aka the most free for all of us to support ourselves completely? However I think that is an old pattern that no longer works's pattern is about finding the power within a group of true individuals. The answers and solutions will likely just come and be made manifest as we live our lives b/c truly we are this new pattern. It's in our DNA. You can't change the code but you can try to bust it up as much as possible...but that's really an act of futility. muhahaha!!

Ryan Harris said...

WTom, To me work is labor that has value. I don't know if everyone has to work or how to divide the financial spoils of the work by changing values through policy choices. The stakes are huge and we aren't meeting the basic needs in our current system. Food stamps, second class housing, medical care and education are the current solutions to low value labor. We can do better.

Tom Hickey said...

@ TB

In a capital-driven market economy scarce resources are allocated by markets on the basis of price. That's one way to do it. It's not the only way, and it's also not suitable universally, even though it works reasonably well for some things in most cases. But this model has been over-generalized to the point of having been institutionalized as the prevailing ideology. Many of the problems we face as a species are the result of these institutional arrangements that have taken on the cultural mantel of custom and tradition.

We already have many workarounds, but by and large they are ignored by economics because they don't fit the market paradigm. Others things we insist on squeezing into the market paradigm even though they don't really fit. Time to broaden the scope and examine more possibilities.

What we are now doing is neither most effective nor most efficient, as is often erroneously presumed and preached.

Mario said...

one idea for example is how we gather and acquire our food and water today. Food and water of course being such vital elements to human life. Yet how many of us actually hunt for our food anymore? Is that a loss or a gain to us? Have we lost our ability to hunt? I don't think so, there are many greater hunters today and we can always learn. However we have more options and now we have more time to do other things beyond getting food. The same goes with many of us go to a well or a watering hole to fetch a pail of water? Is that a loss to society that we no longer have to "work" like that? I'd say definitely not! Through our innovation and technology we are able to bring our water to us without any real hassle or trouble. This efficiency saves us time and energy to devote to HIGHER and GREATER ventures. To argue to go back to fetching water and hunting food is a rather ridiculous and unnecessary notion today and doesn't make much sense at all...I am arguing that it's the same thing with these "manufacturing" jobs. But remember there are OTHER types of engineering and manufacturing we can do as I've already's just about innovation and progression.

Ryan Harris said...

@Mario, For me the argument is what to do with the left over hunters and the villages they inhabited. We could tell them to become hedge fund managers. Scientists. Engineers. Subsidize their retraining and community college. They can move to NYC, L.A. or San Fran. and abandon all the investments, buildings and infrastructure built around the hunting communities and destroy their cultures. Or we could do something else. We could decide we are going to shut 20,000 people out of hunting so we develop an industry that will help communities to stop using fossil water from aquifers and build pipelines to renewable and sustainable surface water. New free trade with Korea?, great, lets do something for 400,000 workers in Michigan and Ohio that will lose auto manufacturing jobs in the next 10 years. Isn't there a new technology that would work if there was a small subsidy during a transition period? A new free trade agreement with Chile? Excellent. Lets decide what to do with the most productive farm land in the USA in California that will go dry before we convert it to strip malls. Someday we may need to eat. There are valuable people and resources that get tossed out with no attention paid to strategy, future, valuable investments or anything. Its just reap the rewards of comparative advantage and labor arbitrage. When Apple patents a new technology for transmitting compressed images across a network and sues everyone in sight. No one questions who subsidized the network or who paid for the compression algo. (The government did.) The government develops virtually all the basic technology we utilize for our 'innovative' industries. Facebook? Did you notice all the folks on the board of directors from the Council on foreign relations? Yup, early on heavily subsidized by the State Dept. They left that part out of the movie. The free markets shaping our world are a myth...we control the policies and direction and value of labor. We can do better...

offshoring philippines said...

Many businesses tout offshoring as the logical approach to global competition. In certain circumstances, it saves money and enhances profitability, and office and industrial markets succeed when the overall economy is growing.

However, there are numerous hidden costs and cultural and political problems. Just as the best and brightest commercial real estate executives have adapted to the technological and social changes of the past 60 years, so shall we adapt to offshoring and learn how to deal with its negative consequences and profit from its positive outcomes, both as an industry and as a nation.

Mario said...

I agree with you tombasil...the transition period sucks and many get burned and it's usually "unfair."

I also agree that as humans we could have more strategy and planning than we do today....but apparently this is a very normal human deficiency that has withstood the "test of time" unfortunately. :(

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Offshoring IT said...

Good write up here: "The solution is not bringing "back the jobs." Rather, it lies in an understanding that the real issue is effective demand and that this can be addressed fiscally through the sectoral balance approach and functional finance, as recommended by MMT."