Tim Bishop likes manufacturing. The manufacturing of campaign issues, that is. In his effort to manufacture a campaign issue around overseas outsourcing, he got a lifeline from the White House yesterday when President Obama held an “insourcing” forum yesterday to encourage companies to “bring jobs back to America.” An editorial in the Wall Street Journal titled, “Insourcing for Dummies” describes the effort.
Having spent his entire adult working life at either Southampton College, which went out of business and was acquired by the State University of New York, and the House of Representatives, Mr. Bishop should be forgiven if his grasp of economics is lacking. So let’s try to help get him up to speed.
Coming from academia, I am sure Mr. Bishop will give due deference to a study on outsourcing from an Ivy League University. Matthew J. Slaughter, an economist at Dartmouth’s Amos Tuck School of Business, conducted a study where he found that for every job outsourced overseas, two jobs were created in the U.S. How could that possibly be? It works something like this.
Let’s say a company has an opportunity to outsource its call center overseas and takes advantage of doing so. It utilizes a well-educated work force in India, and let’s say it cuts its cost allocated to that call center in half. It now has additional capital to invest in growing the business. To do so, it hires more sales people, who in turn need sales engineers to explain their widgets to their perspective customers, and when the customers buy more widgets, more people are needed to process the orders and build the widgets. This boost of growth results in a boost in jobs.
Slaughter studied Bureau of Economic Analysis data, reported annually between 1991 and 2001 for 2,500 multinational companies. This was a time when India and China were ramping up their operations to take on outsourcing roles. What Slaughter found was that while employment in their foreign affiliates grew by 2.8 million jobs, U.S. based employment in the parent firms grew by 5.5 million jobs. Taking it a step further, when that job growth is compared to total job growth, those multinational created more jobs faster than the economy as a whole.
Tim Bishop’s Plan
So what is Tim Bishop’s big idea? He wants companies to shut foreign outsourcing or have two call centers that callers can choose between. That means there is no savings from the call centers, which translates into fewer profits to use to grow the business and hire fewer people. Also lower profits, means less tax revenues because what are companies taxed on? Correct! Profits!
So in the midst of a dastardly economy with high unemployment, and staggering deficits, Tim Bishop wants to curtail corporate growth, reverse conditions for job growth, and reduce tax revenues. What a trifecta! This is all so that Tim Bishop can have something, anything, to build a reelection campaign around. There no major call centers in his district, so this is a bald-faced effort to cling to office. If he was serious about the economy, he would be advocating for slashing the corporate tax rate or even backing the Fair Tax, so that money held overseas could flow back to the U.S. and perhaps other countries would build factories here and create even more jobs. But that would require a grasp of economics, instead of an iron grasp on his House seat.
That’s my opinion; I’d like to know yours. Please comment below.
