Global
GLOBAL Sourcing
SOURCING Update
UPDATE
Chamber of Commerce of the United States
ast April, the U.S. Chamber issued a
report called Jobs,Trade, Sourcing, and the
Future of the American Workforce. Our goal
was to bring some balance to what had been a
one-sided attack on global sourcing—an attack
that was leading many Americans to believe that
a mass exodus of jobs was under way and that
isolationist trade policies were needed to protect
those jobs.
The report was well received. It has
helped change the terms of the debate.We
have made good progress in bringing to light
important facts that had been all but ignored.
For example, our nation enjoys a substantial
$60 billion annual surplus in services trade—
indicating that far more “white-collar” service
work is shipped from other countries to the
United States rather than the other way around.
Moreover, America’s open markets have attracted
some 6 million jobs that are directly created by
foreign-owned companies, as well as tens of
millions of indirect jobs. Even the most drastic
forecasts envision only a small fraction of U.S.
jobs sourced offshore in the future.
L
This newsletter is the first in what will
be a series of factual updates designed to
help proponents of free, fair, and open
trading policies make their case.
These facts are getting through to policymakers. Teaming up with partners such as the
Business Roundtable, the American Bankers
Association, the American Council of Life
Insurers, the Coalition of Service Industries,
the Electronics Industry Alliance, and the
continued on page 2
“Jobless” Recovery, RIP
he Chamber’s April 2004
report Jobs,Trade, Sourcing, and
the Future of the American
Workforce attributed much of the
concern about sourcing to the
slow pace of job growth since
the end of the 2001 recession.
With several more months of
government figures now in,
what does the job picture look
like today?
◆ Unemployment stands at
5.4% as of September 2004.
That’s lower than the average
rate compiled during the
1970s, 1980s, and 1990s.
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◆ 96,000 jobs were created
in September, according to the
payroll survey compiled by the
federal Bureau of Labor
Statistics (BLS). 1.9 million
jobs have been created over
the past 13 months, according
to this survey.
◆ Within the service-providing
sector, employment in the
professional and technical
services has grown by 205,000
jobs since August 2003.
◆ The BLS household survey,
the other way the government measures our workforce,
continues to show dramatic
gains. As of September 2004,
139.5 million Americans were
employed—3.8 million more
than the post-9/11 low of
135.7 in January 2002.
The job-generating
engine of the U.S. economy is
fundamentally strong. Global
sourcing has not stood in the
way. More likely, it has strengthened domestic companies and
attracted more foreign employers
to our shores, which have
helped boost payrolls for
American workers. ❖
Fall 2004
The Global Sourcing Debate Rages On
The Global Sourcing Debate Rages On
continued from cover
Information Technology Association of America,
the Chamber helped form the Economic
Growth and American Jobs Coalition.This
coalition has been successful in turning back or
significantly changing most of the federal and
state legislation designed to punish and restrict
companies who choose to source.
Strong action is needed to reduce the impediments
that restrict the creation of domestic jobs, such as
runaway legal, regulatory, and health care costs.
Yet global sourcing remains an issue that is
easy to exploit, emotionally and politically. Much
like the related debates over NAFTA and globalization, it will challenge us for some time. New
information, new arguments, and new lines of
attack by business opponents appear almost every
day. This newsletter is the first in what will be a
series of factual updates designed to help proponents of free, fair, and open trading policies make
their case.
Let me underscore that the Chamber is not
in the business of advising any company that it
should source work offshore, but we want businesses to have the freedom and flexibility to
source and trade around the world so that they
can grow more efficient and profitable and create
better jobs here at home.
Further, the Chamber does not advocate
complacency. Strong action is needed to reduce
the impediments that restrict the creation of
domestic jobs, such as runaway legal, regulatory,
and health care costs; an inadequate energy
supply and an overburdened infrastructure; and
an education system that fails to produce the
scientists, engineers, and other high-skilled
workers that our modern economy demands
and employers need.
Rest assured that as the global sourcing
debate rages on, the Chamber will continue to
work aggressively to defeat punitive restrictions
and harmful isolationist policies and keep
the focus where it belongs—on reducing the
unnecessary costs that discourage companies
from creating good jobs right here in the
United States of America. ❖
Thomas J. Donohue
President and CEO, U.S. Chamber of Commerce
The American Middle Class:
An Endangered Species?
ven as they acknowledge recent job gains, some
critics malign new employment as “hamburgerE
flipping” jobs. While families and businesses are
grappling with higher health insurance and energy
prices, most indicators emerging since the Chamber’s
initial report show steady gains in household wealth
and living standards.
◆ Real disposable income in the second quarter of 2004 was
up 3.6% over a year ago and 10% since December 2000.
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◆ The national homeownership rate in the second quarter
of 2004 was at an all-time high of 69.2%. Household
wealth stands at a record level as well.
◆ The unemployment rate among Americans with at least a
four-year college degree is just 2.6%—down from 2.9%
cited in the April 2004 report—further evidence of both
the importance of education to the middle class lifestyle
and to the fact that there has been no significant exodus
of white-collar jobs from the United States. ❖
Global Sourcing Update
Anti-Sourcing Legislation—
Turning Back the Tide
s negative reports saturated the
news media, a plethora of politically
appealing legislative proposals to close
markets and block sourcing appeared in
the states and in Congress. Below are
examples of the subjects addressed in
the proposed measures:
• Restricting the procurement of
goods and services to U.S. citizens
and companies (including “Buy
America”-type requirements),
sometimes further narrowing
eligibility to in-state sources.
• Requiring call center operators to
identify their locations and offer to
transfer calls to U.S. handlers.
• Investment restrictions for state
pension funds.
• Denial of state development assistance/tax credits for companies
with offshore operations.
• Restriction on data flow outside
the United States.
The Economic Growth and
American Jobs Coalition, backed by the
Chamber and others, has been leading
the fight against these measures. Here is
a status report:
A
In the states
◆ As of mid-September, 196 legislative
proposals have been introduced in
40 states. Just 4 bills have been signed
by governors and enacted into law.
◆ 123 bills failed in committee or
were voted down; 14 bills passed
in one house but not the other; in
21 states, legislatures adjourned
without taking action.
◆ Bills passed the legislature in
10 states. Govs. Robert Ehrlich Jr.
(MD), Mitt Romney (MA), and
Arnold Schwarzenegger (CA) have
vetoed bills.
◆ Executive orders or directives have
been issued in 8 states.These actions
range from calling for further study
to procurement preferences.
Fall 2004
◆ A campaign to place an anti-
sourcing initiative on the Colorado
ballot failed after an intensive
effort by our coalition, led by the
Colorado Association of Commerce
and Industry.
In the Congress
Among the proposals successfully
rejected are the following:
Partial Repeal of the Deferral
Rule—An amendment by Sen. Byron
Dorgan (D-ND) would have partially
repealed the “deferral rule,” which
permits U.S. multinational companies
to defer U.S. taxation of the active
income of their foreign subsidiaries
until the income is repatriated.This
would have reduced the ability of
American multinationals to compete
against foreign companies in those
foreign markets.
Expansion of the WARN
Act—The WARN Act requires
employers to give 60 days’ notice
to employees when there is a mass
layoff at a job site. A mass layoff
is defined as either 500 or more
employees or 33% of the workforce
if the workforce is between 50 and
499 employees.
The Dorgan amendment would
have also expanded the WARN Act by
requiring 90 days’ notice and applying
it to all layoffs of more than 50
employees. It would also cover the
“offshoring of jobs”—defined as anytime a company reduces nationwide
employment by 15 or more over a
30-day period and creates a single job
outside of the United States within
that period.
Graham Amendment to
the FSC/ETI Tax Bill—An
amendment by Sen. Bob Graham
(D-FL) would have removed the bill’s
manufacturing deduction and the
Manufacturing
Makes a
Comeback
he reports of my death
have been greatly exaggerated,” American author and
humorist Mark Twain quipped
after reading his own premature
obituary in the newspaper.
That holds true for American
manufacturing as well.
In recent months, positive
signs of a manufacturing resurgence have appeared—even on
the job front. Manufacturing
payrolls have increased by
88,000 jobs in the first 7
months of 2004.The National
Association of Manufacturers
(NAM) estimates that an additional 350,000 manufacturing
jobs will be created over the
next 12 months.
The fundamental equation
driving manufacturing
companies in a competitive
worldwide economy—how
to further boost productivity
and make more products with
fewer people—is here to stay.
This will continue to cause
hardship for some workers,
who should be assisted
and retrained.
Yet the depiction by some
of the United States as a land of
padlocked factory gates is false
and misleading. Manufacturing
is on the rebound. The sector
will continue to be a strong
part of America’s economic
base, provided that excessive
domestic costs are reduced
and that our manufacturers
remain free to innovate,
source, and trade throughout
the global economy. ❖
“T
continued on page 7
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Global Sourcing Roundup:
Statistics, Studies, and the Current State of the Debate
ne of the most frustrating
findings in the Chamber’s
initial examination of global
sourcing was the imprecise terminology
used to describe the phenomenon as
well as the inadequacy of the numbers
used to measure its extent. Opponents
seized upon the confusion to create a
portrait of a massive job flight overseas.
Sourcing was portrayed as a new
practice when it has been occurring
in many forms for decades. Domestic
sourcing was confused with sourcing
to other countries.American multinational corporations were portrayed as
doing most of their investing overseas when, in fact, they invest far more
domestically than internationally.
And many of the job losses attributed to sourcing were actually due
to advances in productivity.
O
Where do we stand today?
to the creation of better,
high-paying jobs here at home.
◆ The government has started
measuring global sourcing—and
affirms that its impact is small.
All sides in the sourcing debate have
clamored for better data, and in June
the Bureau of Labor Statistics (BLS)
responded by issuing its first quarterly
report Extended Mass Layoffs
Associated with Domestic and Overseas
Relocations. Covering the first quarter
of 2004, BLS found that only a small
fraction of layoffs—about 2.0%—
were caused by the movement of
work overseas.
Economists caution that the report
only covers companies that lay off 50
or more workers and doesn’t take into
account jobs that are never created
domestically in the first place because
the new work is secured offshore.
◆ The terms of the debate have
changed. Persistent communications
and educational efforts by the
Economic Growth and American
Jobs Coalition, the U.S. Chamber,
and many others are paying off. Most
global sourcing stories now discuss
one or more balancing factors, such
as the following:
• The tens of millions of jobs
that foreign companies support
in the United States.
• Our $60 billion surplus in
services trade.
• The cost savings to consumers
and taxpayers that can be
achieved through sourcing.
• The relatively small number
of jobs lost to sourcing.
• The risks of retaliation
should America try to close
its markets.
• The idea that the freedom to
source, trade, and compete
around the world can lead
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◆ Forrester Updates Its Forecast
—With Little Change. As we
noted in April, most studies measuring
jobs lost to global sourcing fall into
the 300,000-500,000 range—a small
long-term estimate by just 100,000
jobs (3.4 million instead of 3.3 million). However, researchers foresee
a greater short-term increase than
previously forecast, as more companies
learn and take advantage of offshore
service providers.
◆ GAO Study Confirms Extent
of Outsourcing Hard to Track.
The Government Accountability
Office, a bipartisan congressional
agency, has issued a September 2004
report confirming the Chamber’s
finding that the extent of global
sourcing and its impact on jobs is
hard to track—due to both the
inadequacy of data and the wrongful
attribution of many job losses to
sourcing.While the study found a
substantial percentage growth in
imported business services (in other
words, outsourcing), it also concluded
that the impact on the economy
is minor.
Interestingly, the GAO report
also found that despite the widespread
belief that global sourcing is driven
primarily by companies chasing
The terms of the sourcing debate have changed.
Persistent communications and educational efforts by
the Economic Growth and American Jobs Coalition,
the U.S. Chamber, and many others are paying off.
fraction of the 139.5 million
Americans now working. Forrester
Research’s widely cited study put the
number at 300,000 and forecast that
3.3 million jobs would be moved by
the year 2015—a yearly average of
approximately 220,000 jobs.
In a May 2004 update of its
earlier findings, Forrester ups its
after low-wage workers,“low-wage”
India, for example, ranked only
eighth in 2002 among countries
to which the United States sends
business, professional, and technical
services tasks. Ranking ahead of India
were Canada, the United Kingdom,
Japan, Germany, France, Mexico, and
the Netherlands.
Global Sourcing Update
◆ Lou Dobbs and the AFL-CIO
Sharpen Their Attacks. CNN’s Lou
Dobbs has advanced his crusade against
global sourcing with a new book called
Exporting America:Why Corporate Greed Is
Shipping American Jobs Overseas.This thin
volume consists of 160 pages of large-type
text, no footnotes or index, and brings no
new factual information to the debate.
Dobbs calls for an outright ban on all
government contracts where any part of
the work is done overseas, advocates a
reexamination of all trade agreements and
our relationship to the World Trade
Organization, and expresses sympathy for
the trade pronouncements of former
presidential candidate Dennis Kucinich.
The last time we checked, the book
ranked 412 on Amazon’s “best-seller” list.
Meanwhile, the AFL-CIO
announced the creation of a new Web
database that targets 200,000 companies
that the union claims are “exporting
jobs.”The “Job Tracker”Web site
wildly inflates the impact of sourcing
by lumping together companies and
subsidiaries that are “exporting jobs or
losing jobs to trade.” (Emphasis added.)
Predictably, there is no mention,
much less a database, of the far greater
number of jobs that have been created
due to the openness of our markets
and our vigorous participation in
global commerce. ❖
The Privacy Issue Emerges
ince the preparation of the Chamber’s
April 2004 report, global sourcing
opponents have advanced a fresh line of
attack centering on issues of consumer privacy.
Tapping into Americans’ concerns that data
about their finances and health may not be
secure when electronically transmitted, these
opponents suggest that privacy risks are
exacerbated when collected and processed
by overseas personnel.
S
What is usually overlooked is that
strong privacy protections for consumers
already exist.
Various state and federal proposals would
severely restrict companies’ freedom to source,
based on these yet unsubstantiated fears. For
example, Sens. Hillary Rodham Clinton
(D-NY) and Mark Dayton (D-MN) have
Fall 2004
proposed that the Federal Trade Commission be
charged with determining to what extent our
trading partners’ privacy rules are adequate—a
role the commission neither asked for nor is
qualified to fulfill—and that consumers be
required to give prior consent before any data
are transmitted to or from another country.
What is usually overlooked is that strong
privacy protections for consumers already exist.
Congress and the regulators have created a comprehensive, robust, and effective system to protect
Americans’ confidential information no matter
where it is processed across the globe.The regulators of financial and health firms have never
suggested that they lack the tools necessary to
ensure that firms meet stringent privacy
standards.There are heavy fines for violations and
in some cases criminal penalties.
Balancing the right to privacy and the need
to share information for appropriate purposes is
a legitimate concern in the Internet age. But this
concern does not in any way make a case against
global sourcing. ❖
5
Outsourcing on the Campaign Trail
s expected, Democratic candidate John
Kerry has made an attack on global
sourcing a key economic message of his
presidential campaign—but not without some
equivocation along the way.
During the primary season, Kerry made
waves by calling companies who source abroad
or establish offshore headquarters “Benedict
Arnolds.” After securing the nomination,
he tried to explain
away this attack,
telling reporters, “But
A
“Benedict Arnold does not refer to
somebody who in the normal course of
business is going to go overseas and take
jobs overseas. That happens. I support that.
I understand that.”
—Sen. John Kerry
the Benedict Arnold
line applied, you
know, I called a couple of times to overzealous
speechwriters and said ‘look that’s not what I’m
saying.’ Benedict Arnold does not refer to somebody who in the normal course of business
is going to go overseas and take jobs overseas.
That happens. I support that. I understand that.”
(The Wall Street Journal, 5/3/04)
In his July 29 acceptance speech before the
Democratic National Convention in Boston,
Kerry made just one muted reference to sourcing.Yet more recently he has turned up the
heat, charging, “Because of George Bush’s
wrong choices, this country is continuing to
ship good jobs overseas.”The senator reiterated
his pledge to “put an end to tax breaks that
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reward companies for shipping American
jobs overseas.”
Kerry is referring to a provision in the tax
code that allows our companies to defer paying
taxes on income earned overseas until they
bring that income back to the United States.
Economists note that the purpose of such a
provision is not to promote the location of
facilities and workers overseas, but rather to
level the playing field so that American
companies can compete with foreign rivals
in international markets.
The United States is the only major country that taxes corporations on the basis of their
worldwide income—as opposed to taxing only
domestic earnings.Without the provision, U.S.
companies would be at a severe disadvantage in
overseas markets, while foreign companies
doing business here would continue to enjoy
territorial tax treatment of their earnings.
By attempting to “do something” about
global sourcing, Kerry’s proposal would, in
reality, create the unintended consequence of
weakening our companies’ competitive position
in the worldwide economy and thus stymie
their plans to expand and create more
American jobs.
Meanwhile, on the other side of the aisle,
the Bush campaign, sensitive to the emotional
appeal of anti-sourcing politicking, has
refrained from defending or mentioning the
practice. Instead, it has emphasized the need to
make our own market more conducive to
domestic job creation. In his September 2
acceptance speech before the Republican
National Convention in New York, President
Bush said, “We now compete in a global market that provides new buyers for our goods, but
new competition for our workers.To create
more jobs in America, America must be the
best place in the world to do business.”
With the candidates locked in close races
in a number of industrial battleground states,
there is little doubt that global sourcing will
continue to be a provocative campaign issue all
the way to election day. ❖
Global Sourcing Update
The Worker Shortage—Are We Closing the Gap?
he Chamber’s April 2004 report found that the
nation’s true workforce challenge is not the
T
relatively small number of jobs that are moving overseas
but rather the significant gap between the number of
jobs in our economy and the workers available to fill
those jobs.
Citing projections from the Bureau of Labor
Statistics (BLS), we reported that by the year 2010,
there would be approximately 167.7 million jobs
generated in the workforce but just 157.7 million
people available to work—leaving a shortage of
10 million workers.
New data from BLS have resulted in updated
projections, which look forward to the year 2012. By
the year 2012, there will be approximately 160 million
job openings and 155–157 million workers, resulting in a
projected shortage of 3–5 million.
Have we succeeded, in a matter of months, in closing one half or more of our impending worker shortage?
Hardly. Look closely at the numbers and you will see
that the shrinking gap is due to a lower projection of the
number of jobs in our economy and not to the sudden
discovery of millions of additional available workers.
Stagnant employment growth over the past several
years—the result of the economic uncertainty and
continued increases in productivity—has resulted in
scaling back future employment projections.With our
economy now growing and producing new jobs at a
substantial pace, look for future projections to widen the
worker shortage gap once again. ❖
America’s Skills Deficit
ne positive outgrowth of the
global sourcing debate has
been the renewed focus it
has brought to the need to significantly upgrade the quality of our
schools and the skills of our workers,
especially in the face of unprecedented
competition from emerging nations
like India and China.
Information received since our
original study further illustrates the
importance of education to both
individual accomplishment and our
nation’s competitiveness. According to
the BLS, a worker with a bachelor’s
degree will have a lifetime income of
$1,667,700—compared to a high
school graduate who will earn
$994,080.
Yet despite the clear linkage
between higher levels of education,
pay, and employment, a September
2004 survey by the Organization for
Economic Cooperation and
Development (OECD) found that
our country is losing its edge.We
now rank just 10th among industrialized nations in the share of population
that has a high school degree.While
O
Fall 2004
we rank second behind Canada in the
percentage of college graduates, other
nations are catching up fast.
In 1975, the United States
ranked third among nations in
the share of 18–24 year olds
earning science and engineering
degrees.Today, we rank 17th.
Furthermore, the National
Science Board warned that there is a
“troubling decline” in the number of
Americans training to be scientists. In
1975, the United States ranked third
among nations in the share of 18–24
year olds earning science and engineering degrees.Today, we rank 17th.
Along with substantially greater
investments in R&D, improving the
skills of our workforce—from K-12
to advanced degrees to retraining
older workers—is fundamental to
the nation’s future competitiveness
and prosperity. ❖
Anti-Sourcing
Legislation—
continued from page 3
reforms to the international tax rules,
replacing it with a new tax credit equal
to 1.66% of the first $35,000 of W-2
wages paid to employees in manufacturing. The amendment would have
limited the new tax credit to wages
related to domestic production only.
Dodd Amendment to the
FSC/ETI Tax Bill—As originally
drafted, an amendment by Sen. Chris
Dodd (D-CT) would have prohibited
any A-76 contract conversions and,
with limited exceptions, federal and
state contracts from being performed
outside the United States.This
amendment was successfully deleted
from the tax reform bill before its
final passage in October 2004.
Thanks to intensive lobbying,
lawmakers are appreciating the difficulty of translating their anti-sourcing
rhetoric into workable legislation that
would not run afoul of trade and
investment treaties, trigger retaliation,
send investors fleeing, or significantly
raise costs for taxpayers. ❖
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Global Sourcing Update G
“In April, the U.S. Chamber of Commerce released an
intriguing report, Jobs,Trade, Sourcing, and the Future of
the American Workforce, which overwrought politicians and
pundits should read. So should the rest of us.The national
blood pressure would take a healthy drop.”
Steve Forbes, Forbes magazine, May 10, 2004
Questions and Comments
If you have questions or comments about this Update, topics you would like to see covered in future
newsletters, or if you would like an electronic copy of the U.S. Chamber’s April 2004 global sourcing
report, please contact James W. Robinson at [email protected]. For the latest developments, visit
the Economic Growth and American Jobs Coalition Web site at www.growthandjobs.org.