Is Romney Going to Defend ‘Shipping Jobs Overseas’? No Way

The lead story in today’s Washington Post accuses Mitt Romney, while at Bain Capital, of investing in firms "that specialized in relocating" American jobs overseas. This gave cause to Obama political adviser David Axelrod to accuse Romney of "breathtaking hypocrisy," which prompted Roger Pilon to spell out some differences between economics and "Solyndranomics" for the administration. Roger’s correct. But Romney---for running away from that record and playing to that same politically fertile economic ignorance that tempts devastating economic policies---is also worthy of his scorn. Romney should have written Roger’s words.

President Obama set the tone earlier this year during his SOTU address by demonizing companies that get tax breaks for shipping jobs overseas. By "tax breaks," the president means merely that their un-patriated profits aren’t subject to double taxation. "Shipping jobs overseas" is a metaphor you’ll hear more frequently in the coming months, and Romney is more likely to deny any association with it than to defend it. That’s just the way he rolls.

Outsourcing has been portrayed as a betrayal of American workers by companies that only care about the bottom-line. Well, yes, caring about the bottom line is what companies are supposed to do. Corporate officers have a fiduciary duty to their shareholders to maximize profits. It is not the responsibility of corporations to tend to the national employment situation. It is, however, the responsibility of Congress and the administration to have policies in place that encourage investing and hiring or that at least don’t discourage investing and hiring. But for the specific financial inducements that politicians offer firms to invest and hire in particular chosen industries---Solyndranomics---this administration (and the 110th-112th Congresses) has produced too many reasons to forgo domestic investment. Let’s not blame companies for following the incentives and disincentives created by policy.

There’s also the economics. Contrary to the assertions of some anti-trade, anti-globalization interests, countries with low wages or lax labor and environmental standards rarely draw U.S. investment. Total production costs---from product conception to consumption---are what matter and locations with low wages or lax standards tend to be less productive and thus less appealing places to produce.

The vast majority of U.S. direct investment abroad (what the president calls "shipping jobs overseas") goes to other rich countries (European countries and Canada), where the rule of law is clear and abided, and where there is a market to serve. The primary reason for U.S. corporations establishing foreign affiliates is to serve demand in those markets---not as a platform for exporting back to the United States. In fact, according to this study by Matt Slaughter, over 93 percent of the sales of U.S. foreign affiliates are made in the host or other foreign countries. Only about 7 percent of the sales are to U.S. customers.

Furthermore, the companies that are investing abroad tend to be the same ones that are doing well and investing and hiring at home.  Their operations abroad complement rather than supplant their U.S. operations.

During his unsuccessful 2004 presidential campaign, candidate John Kerry denigrated "Benedict Arnold companies" that outsourced production and service functions to places like India. Earlier this month, Senator Kerry introduced a bill in the Senate that effectively acknowledges that anti-investment, anti-business policies may be responsible for deterring foreign investment in the United States and for chasing some U.S. companies away. Maybe he should talk to the president---and Romney.