How Does Outsourcing Affect Our Economy?

How Does Outsourcing Affect Our Economy?
7-21-2012 The Heritage Foundation

Both candidates in the presidential race have been accusing the other of “outsourcing.” It’s one of those words that is loaded with negative meaning, implying that the perpetrator is un-American. But does America have an outsourcing problem?

What is popularly referred to as “outsourcing” is the practice of offshoring business functions, including building facilities and employing workers in other countries. Liberals often argue that “sending jobs overseas” is harming America’s economy.

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They are missing two important truths: The reality of jobs in America, and the ways to bring even more jobs to the home front.

Jobs in America

•The U.S. actually leads the world in manufacturing. Yes, you read that correctly. We produce 21 percent of global manufactured products, while China comes after at 15 percent. According ot the National Association of Manufacturers, “manufacturing supports an estimated 17 million jobs in the U.S.—about one in six private sector jobs.”

•Big manufacturers are building new plants here. BMW is adding 300 new jobs to its South Carolina plant this year, and Airbus recently announced it will employ 1,000 at a new plant in Alabama. (Both South Carolina and Alabama are right-to-work states, meaning that workers aren’t forced to join unions.)

•Multinational corporations still employ more Americans. U.S.-based multinational corporations employ 22.9 million Americans—more than twice as many people as they employ in China, Mexico, and all other countries combined.

•There is no “giant sucking sound” of jobs and money fleeing the United States. According to the U.S. Bureau of Economic Analysis, the total value of foreign investment in the United States exceeds the value of U.S. investments in other countries by more than $4 trillion. Foreign-owned multinational corporations employ 5.5 million people in the United States.

•“Insourced” businesses are a tremendous boon for the U.S. economy. “Insourced” jobs—jobs brought to America by foreign-based companies—account for nearly 5 percent of private-sector employment. These businesses buy more than $1.8 trillion in goods and services from local suppliers and small businesses in the areas where they locate.

How to Boost American Jobs Even More

With an 8.2 percent unemployment rate, America still needs more jobs. There are many steps policymakers could take that would make locating—or relocating—in the U.S. more attractive to businesses.

A quick look at the Index of Economic Freedom, produced by The Heritage Foundation and The Wall Street Journal, reveals America’s competitive disadvantages.

Hong Kong, ranked No. 1 in the Index, has an economy that has been growing at 7 percent. That’s astounding. In contrast, U.S. GDP growth in the first quarter of 2012 was a paltry 1.9 percent.

There are several reasons why Hong Kong is No. 1 and America is No. 10. Hong Kong’s top corporate tax rate is only 16.5 percent, compared to the U.S. rate of 35 percent. Hong Kong’s trade regime is one of the world’s most competitive and efficient, with a zero tariff rate. And its regulatory environment is “highly supportive of business efficiency.”

Meanwhile, in the U.S., runaway regulations growing by the day make doing business vastly more expensive and difficult. The government is holding back the economy through regulation and its nonstop deficit spending, as Heritage’s Bryan Riley explains:

Excessive federal spending and the resulting budget deficit continue to be a problem. Foreign investors spent more than $400 billion on U.S. Treasury securities in 2011. This is another way to say that the government borrowed more than $400 billion from foreign investors. Those dollars could have been invested otherwise in the private sector of the U.S. economy or spent on U.S. exports.

While concern about outsourcing is misplaced, there are many ways the U.S. could attract even more jobs than it already does. Increasing our own economic freedom would spur growth in the economy, bringing greater prosperity and new enterprises to our shores.
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