The Trump administration’s emphasis on U.S. job losses in steel, coal, and manufacturing industries to low-cost offshore locations is a justifiable emphasis given the devastation visited on Rust Belt communities after years of neglect and hostility by the Obama administration. A clear and present danger is at our doorstep, however, if we ignore the outsourcing juggernaut in highly paid and crucial technical disciplines such as product engineering, research and development, and information technology. In excess of one million well-paying jobs have been outsourced by the likes of IBM, General Electric, Dell, Hewlett Packard, Accenture, Computer Sciences Corporation, Intel, Cognizant, Xerox, HCL, Infosys, Wipro, and TCS among many others during the last ten years. What is worse, many more millions of jobs are presently the subject of board room discussions awaiting a green light so they too can be jettisoned to an offshore location. In fact, many companies may feel the urge to accelerate their outsourcing decisions while giving the new administration a head fake by adding some jobs domestically. IBM’s announcement, for example, that it plans to add 25,000 new jobs in the United States over four years is welcome news but pales in comparison to the more than roughly 75,000 jobs it has already outsourced to offshore locations. In addition to the great human suffering that has been brought about by outsourcing on workers and their families, incremental job losses in the orders of magnitude which are in the offing will have a marked impact on tax revenues and the nation’s ability to fund social services.
THE NATION’S SECURITY IS AT RISK
The dramatic loss of jobs and people talents, if left unattended, represents a national security risk to our nation from which we might not be able to recover. It is worth noting that three of the above named companies [HCL, Infosys, and TCS] are Indian owned. In fact, Indian outsourcers account for roughly two-thirds of all information technology jobs outsourced. India also happens to be a nexus for a great deal of audit, tax and advisory work done on behalf of the Big Four accounting firms where there is nowhere near the regulatory oversight that clients would find in this country. Apparently, it hasn’t occurred to the brass at the Big Four that college interns from American colleges are just as smart and cost-effective as hires in India especially when the coordinative and overhead costs of the latter are factored in. It is true, the United States currently has a cordial relationship with India but the geopolitical interests of nations always prevail and today’s friend could well turn out to be tomorrow’s foe. The nation simply cannot allow its precious technology assets to be in the hands of a foreign power.
THE GLOBALIZATION PREMISE IS FLAWED
Globalization gets a lot of oxygen from proponents of free trade in and out of government because a concept which implies freedom must obviously represent goodness. America’s experience with globalization, however, is decidedly different as the nation has racked up an accumulated trade deficit of approximately $10 trillion during the last four decades. Tragically, millions of workers have lost their jobs during that time, in effect, financing the trade deficit while one administration after another in Washington turned the other cheek to our trading partners who excelled at cheating through currency manipulation, import tariffs, prohibited commercial activities, and pirated intellectual capital. Rest assured, globalists believe that globalization’s ugly side, lower wages, lost jobs, shuttered factories or devastated communities is the result of there not being enough global governance to channel all of the good that derives from globalization. This globalization conceit must be rebuffed at every turn.
GOVERNMENT CONTRACTING NEEDS TO DO ITS PART
It’s not just companies that have to do their part in making America great again. Offshore outsourcing of government projects at both the federal and state level, unfortunately, is alive and well. A handful of states do have broad prohibitions against offshore outsourcing of government contracts. Most states, however, have neither the statutory nor the regulatory prohibitions that keep contractors or their subs from taking work offshore. It is clearly disingenuous for politicos to clamor for business leaders to refrain from outsourcing jobs offshore when their own state contracts have no such prohibitions. The federal government, however, can discourage the states’ inclination to outsource projects offshore by tugging at the right purse strings much as it intends to do by throttling federal financing for sanctuary cities.
A CALL TO ACTION
The Trump administration must be determined in its efforts to swing the pendulum in the opposite direction by delivering the message to corporate leaders that the economic landscape is now markedly different. A coffee klatch in the Oval Office with business leaders simply will not get it done. It will take nothing less than an aggressive jawboning, marketing, and education campaign to get the attention of corporate leaders who are contemplating technical outsourcing decisions before it is too late. Department of Commerce Secretary Wilbur Ross might be an ideal candidate for helping to deliver this message. The message to corporate leaders makes financial good sense because a lot has changed and more is expected to change with the new administration at the helm. Here’s how:
- DIMINISHED ROI: The Chinese and Indian cost advantage has begun to slip. These overheated markets are in evidence in wage inflation, worker turnover, and job hopping. The upshot of these developments is that U.S. companies can expect diminished quality and service from these long-standing low cost providers as their margins continue to be squeezed. Nonetheless, the continued plunder of our nation’s intellectual capital by nations – China foremost among them – should give U.S. companies pause and be met by stiffer than prescribed border taxes. Recent low cost actors on the scene like Malaysia, the Philippines, and Viet Nam are tactical threats and call for our vigilance but they lack the sustainable comparative advantages of China or India.
- AMERICAN WORKER AFFORDABILITY AND AVAILABILITY: An important consequence of a decades-long outsourcing tsunami is that wages in the U.S. for technical positions have either stagnated or risen minimally. These positions can now be re-filled at a more moderate cost especially considering that only one in two STEM (science, technology, engineering, and mathematics) graduates are working in STEM jobs according to the Economic Policy Institute.
- WORKFORCE RESTORATION INCENTIVES: Workers formerly displaced by outsourcing are now available in unprecedented numbers. Many of these workers, it is true, will be in need of retraining and refreshing of skill sets which, in turn, will require a serious corporate commitment to address. An incentive that might be considered is to offer these companies progressive job-training tax credits. That is, tax credit percentages that step up with increasing numbers of new hires. One can only imagine what a morale boost workers would experience by participating in training not just for its own sake but as an activity antecedent to a good paying job.
- REDUCED CORPORATE TAX BURDEN: An important rationale for U.S. corporations to outsource offshore lies clearly at the feet of our world-leading corporate tax rates. This will no longer be the case if your administration reduces these rates to 15%.
- REPATRIATION INCENTIVE: If a repatriation holiday of foreign earnings comes to pass as the new administration has indicated it would pursue, corporations with offshore hoards of cash will have a sizeable incentive to reinvest in the United States.
- SERVICES VAT AVOIDANCE: The administration’s threat to slap a tariff on imported goods manufactured by companies which have outsourced makes sense. Imported services, however, call for a different approach. Clearly, U.S. companies that import services, should not be off the hook any more than those which import automobiles. A value added tax [VAT] which, for practical purposes, works like a tariff should be imposed on companies that have outsourced service work and brought back into the country a value added deliverable. As it turns out, our country is virtually alone in the world without a VAT. If the imposition of a VAT came to pass and if, say, General Electric outsourced – either directly or through a state-side contractor whether foreign or domestic – software development for a new order entry system to India and received a monthly invoice from the Indian contractor for a million dollars, a VAT of 20% or $200,000 – European Union countries, as a point of reference, charge on average 20% – would be slapped on GE on the gross amount of $1 million. Exchange or barter transactions would not be excluded from the VAT assessment so as to close that potential loophole.
- CYBER INFRASTRUCTURE WORK: Cyber-security priorities have never been as critical as they are today. The nation operates mission-critical applications such as the IRS, Medicare, and Social Security systems, over sclerotic information technology infrastructures. These systems will require large numbers of contractors staffed by many thousands of specialized technicians to upgrade. This work represents projects of large scope that will last for years to come with all of the attendant recurring revenue. Clearly, it would be strategically imprudent for the nation if this work were done offshore.
- EQUITABLE GUEST WORKER PROGRAMS: In the 1990’s Senator Spencer Abraham of Michigan offered the most prophetic assessment of the guest worker situation at the time and his words still ring true: “If American companies can’t bring the talent here to fill their needs…they’ll move some of their operations overseas.” Guest worker programs do have a place in a dynamic and growing economy but they must be fair to indigenous workers. Already the Immigration and Nationality Act requires that the hiring of a foreign worker does not adversely affect the wages and working conditions of American workers. It isn’t clear, however, that this regulation has been strictly enforced and in practice employers can find many workarounds. A stiffened regulation would call for a more strict reporting and audit mechanism with severe penalties to lawbreaker companies. In addition, an updated regulation would require employers to train and employ domestic workers in numbers equal to the number of guest workers brought into the country.
We are no longer playing a domestic zero-sum game. The threat now is that if we lose to an offshore location we may stand no chance of recovering that lost business or the brain drain that accompanies it. If manufacturing slipped away from the United States in a generation, it won’t take nearly as long for technical service activities—more easily outsourceable than manufacturing ever was—to disappear from our shores. The process, unfortunately, is already well on its way.