President George W. Bush and Sen. John Kerry disagree on pretty much everything about the ever-growing business phenomenon known as off-shoring -- including whether it's really a problem or not.
Off-shoring, sometimes called outsourcing, is the increasingly popular practice of sending U.S. work overseas to cut costs. The candidates dispute its cause, whether it can be stopped, how to stop it or even if it should be stopped.
"We don't think outsourcing is something to be feared, but a phenomenon that needs to be better understood so we can decide what the appropriate policy response would be. There are a lot of people throwing out proposals that we think may not serve the country well," said Tim Adams, policy director for the Bush-Cheney campaign. "We think some of these ideas proposed by Kerry are gimmicks, silver-bullet ideas that won't solve anything."
Kerry's campaign disagrees and accuses Bush of encouraging off-shoring by letting other countries ignore trade pacts.
"If you don't enforce your trade agreements, like with China or Korea, that means those countries can continue to favor products made in their countries with tax rebates, which encourages U.S. companies to build plants or send jobs overseas," said Jason Furman, economic policy director for the Kerry-Edwards campaign. "John Kerry, of course, sees outsourcing as a negative."
Kerry will be at Macomb Community College in Warren tonight, where he is expected to discuss the economy and Michigan's struggle to add jobs. Michigan finished September with the nation's fourth-highest unemployment rate -- 6.8 percent. The practice of outsourcing -- what a company does when it contracts with outsiders nearby, in another county or state, or in another country to make things or do tasks it used to do itself -- may well be a topic of discussion because some metro Detroit employers have done it.
The outrage over outsourcing has grown during the last 12 months, fueled by election-year politics and business realities. Some of the country's largest employers, ranging from Detroit automaker General Motors Corp. to software manufacturer Oracle Corp., moved white- and blue-collar work to lower-cost foreign markets such as China and India. Sometimes, corporations move manufacturing work overseas to address those expanding markets, but the concerns grow when they employ lower-cost foreign workers to handle high-tech jobs previously done in the United States. Troy-based auto supplier Delphi Corp., for example, decided earlier this year to move some IT engineering and designing jobs to India. The positions paid $50,000 to $80,000 a year.
Forrester Research, a technology-research firm that has become the most widely cited expert on outsourcing, estimates that 500,000 white-collar service jobs have been outsourced. It estimates that in 10 years, that number will grow to about 3.5 million jobs.
"Outsourcing has been blamed for difficulties in our job market, our falling standard of living and the rising disparity between the rich and the poor. The notion that outsourcing is completely to blame is misleading, but it has been used that way," said Catherine Mann, a senior fellow who has studied outsourcing for the Institute of International Economics, a nonpartisan think tank.
Off-shoring: Good or bad?
Bush: His administration was criticized, even by Republicans, when top economic adviser Greg Mankiw said in February that off-shoring was "a good thing," and the White House issued a report saying it "makes more sense" for goods or services to be produced more cheaply abroad.
They've since backed off, realizing it didn't play well amid an uncertain economy that still is producing fewer jobs than predicted. They don't discuss it much, unless prompted. Bush's advisers now say that off-shoring is probably inevitable, especially as long as labor rates and energy costs are higher in the United States.
"We've not done a good job, as a government, in preparing for these changes. We're still trying to address the industrial age, and we should be looking ahead to these new challenges," Adams said.
Kerry: He has consistently said that he thinks off-shoring is harmful for U.S. workers and wages. He, too, has called it inevitable, but complains the Bush administration's trade policy and tax code encourages companies to send work overseas.
Kerry proposes changing the U.S. corporate tax policy. Currently, companies can avoid paying taxes on money made overseas for a decade or more. Kerry said he will close that loophole and give multinational corporations a year to repatriate the $600 billion they have in overseas profits.
His argument is that this will encourage companies to reinvest in the United States. He will take the $20 billion he estimates will come in new tax revenues and use that for a 2-year tax credit for jobs created in the United States.
Analysts: Economists, unrestrained by political concerns, are quick to point out the potential positives of off-shoring. They said it is simply business acting in the same efficient -- albeit harsh -- way it has always acted.
"U.S. companies need to do this if they are going to be competitive," said Virendra Singh, senior economist for Economy.com. "If U.S. companies don't do it, then their competitors in Europe probably will."
Singh and other business experts said the practice is basically a win-win-win-lose proposition. A study by the McKinsey Global Institute, a business-consulting firm, found that the off-shoring of U.S. jobs is a "win" for the country the job goes to, like China. It's seen as a win for the corporations and consumers, because both save money. The losers? The workers who lose their jobs. And when they find new jobs, those jobs pay less.
Why is it happening?
Bush: His advisers said off-shoring is happening because it is too expensive to do business in the United States. This is a common refrain from the Bush-Cheney campaign on economic issues. "Capital is going to go where it feels like it is treated well, where it can buy land for less or the labor rates are lower or there won't be lawsuits," Adams said.
Kerry: He agrees that off-shoring it somewhat inevitable because of higher costs in the United States, such as the health care tab a company must pay for a worker.
His campaign said companies are opening up engineering centers and plants in other countries because Bush has let other countries break their word on trade agreements. They cite China, which has credits and subsidies for goods and services made in their country.
Analysts: Economists said both candidates are right -- it is much cheaper to do work overseas, and part of that reason is the incentives other countries like China use to attract companies.
They say the United States is also suffering from a lack of technical skills. Countries like India and China have spent years building up their workforce's skills.
"Companies go there because of lower costs, but also because the technical skills are as good, or even better. Plus, there are more people to choose from over in a place like India, which further pushes down labor rates," Singh said.
Outsourcing: What to do?
Bush: His campaign doesn't offer any specific proposals to halt or limit outsourcing. The policy is, basically, to make it less expensive to do business in the United States by cutting taxes or limiting lawsuits.
Instead of specifics to halt outsourcing, Bush's thrust is to spend more on worker re-training and community colleges for people who lose their jobs.
Kerry: Besides changes to the corporate tax policy and a $20-billion tax credit to employers who add jobs, Kerry said he will also lower the corporate tax rate by 5 percent.
His campaign said his health care plan, which would expand health care to about 25 million Americans and have the government pick up some catastrophic health care costs, will bring down the cost of providing health care and help keep jobs in the United States.
Analysts: An Economy.com analysis called Kerry's tax proposals "laudable" in the direction they are taking corporate tax policy, but added they would probably have only small, albeit measurable, affects on slowing outsourcing.
Economists agree that retraining workers needs to be a key component to deal with outsourcing, especially as moving from job to job becomes more common.
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