Monday, July 23, 2012

Five Ways Romney Can Own ’Outsourcer-in-Chief’

Faced with an 8.2 percent unemployment rate less than four months before the election, President Barack Obama is trying to deflect attention from his record by undermining Republican opponent Mitt Romney’s major selling point: that he’s an experienced businessman who knows how to create jobs.
The Obama campaign is running ads claiming Romney is a “pioneer of outsourcing,” a reference to his work at private- equity firm Bain Capital. One such ad closes with the question: “Does Iowa really want an outsourcer-in-chief in the White House?”

About Caroline Baum

Caroline Baum, a columnist for Bloomberg News since 1998, is the author of "Just What I Said: Bloomberg Economics Columnist Takes on Bonds, Banks, Budgets and Bubbles."
More about Caroline Baum
Photographer: Rick Friedman/Bloomberg
Never mind that academic studies have found private equity’s effect on employment to be mixed. Or that there’s “no evidence to support the claim that Romney -- while he was still running Bain Capital -- shipped American jobs overseas,” according to, a project of the Annenberg Public Policy Center of the University of Pennsylvania that monitors accuracy in journalism and politics. Or that a similar ad received four Pinocchios (contains whoppers) from the Washington Post’s Glenn Kessler (aka “The Fact Checker”), who called it “misleading, unfair and untrue.”
Facts aren’t the issue here. Image is. Romney needs to seize the day and start wearing his outsourcing stripes as a badge of honor instead of accusing Obama of the same. Often it’s as simple as a choice of words. Since the Romney campaign has been slow to respond to the baseless attacks, I’d like to offer Mitt a few of my own suggestions on how to change “outsourcing” from a pejorative to a positive.

1. Cheap Goods Guarantor

Mitt, you have been accused of failing to connect with the common man. Which is why you need to get off your Jet Ski and get behind a shopping cart at Wal-Mart, the perfect milieu for a teaching moment.
While you’re cruising the aisles, grabbing a pair of jeans here and a box of Cheerios big enough to feed your immediate family there, you can explain how a market economy works; how companies compete with one another to provide the goods and services that consumers want at a price they are willing to pay. For that reason, business strives to become more efficient, replacing labor with machines. Often it behooves companies to produce low-end products in developing countries where labor is cheap. This is called “outsourcing.”
It’s also called Wal-Mart, and it ensures that American consumers have a wide variety of affordable goods to choose from. Their paychecks go further. Increased demand translates into additional output and jobs.
The same holds true for services: outsourcing call centers or back-office operations to India, for example. Companies pass on savings in the form of lower prices to consumers. A 2003 study by the McKinsey Global Institute -- Mitt, this is right up your alley -- found that offshoring creates wealth for everybody except those who lose their jobs in the short run.
When Iowans realize that “outsourcer-in-chief” is synonymous with “cheap goods guarantor,” they’ll be clamoring to have you in the Oval Office.

2. Made for Big Business

To encourage domestic hiring, Obama has proposed a tax credit for “insourcing,” for companies that bring jobs back to the U.S. This is just plain silly, and you can explain why. Any attempt to offer more favorable tax treatment for new jobs than existing ones creates a range of unintended consequences, including an incentive for companies to game the system. Of course, if the goal is to create government jobs, such a tax break would generate a whole new class of paper pushers to monitor, administer and enforce the program.
“Made in America” is the equivalent of “Made for Big Business.” It’s tantamount to mercantilism, a system that favors producers over consumers. Small businesses, the real job creators and the ones you claim to want to help, aren’t going to assume a long-term expense in exchange for a short-term subsidy.

3. Real-World Model

In a much-cited study on the effect of private equity on employment, the University of Chicago Booth School of Business’s Steven Davis and co-authors found that the decline in existing jobs at buyout targets is offset by the creation of new jobs at new establishments. The net change from leveraged buyouts is insignificant.
Mitt, you’re a numbers guy. The paper’s authors created a data set of private-equity transactions from 1980 to 2005 and analyzed 3,200 firms and 150,000 establishments before and after acquisition. The same public that bought into some bogus, model- driven number of “jobs created or saved” from Obama’s $831 billion fiscal stimulus in 2009 -- and a promise of full employment by now -- will appreciate hard data from someone like you.

4. Walk With Giants

All the angst about outsourcing is nothing more than a failure to understand the benefits of free trade. Just ask your economic adviser, Greg Mankiw. Back in 2004, when Mankiw was chairman of President George W. Bush’s Council of Economic Advisers, he created a kerfuffle when he said outsourcing would “prove a plus for the economy in the long run.”
He was right. But what you teach in “Ec 10,” Harvard’s introductory economics course, isn’t necessarily what you say as the president’s top economic adviser. In his retelling of his 15 minutes of fame on his blog, Mankiw cites Adam Smith’s “The Wealth of Nations”: “It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy.”
Smith was right, Mankiw writes. “Few propositions command as much consensus among professional economists as that open world trade increases economic growth and raises living standards.”
Yet when the economy is going through a tough time, free trade is always the first culprit. I think Americans are ready for a candidate with a horizon longer than the next election.

5. Comparative Advantage

Last year, on NBC’s “Today” show, Obama tried to explain why companies were reluctant to hire in the face of record profits. The president said companies were becoming more efficient, substituting ATMs for bank tellers.
This is the oldest myth in the book, that automation kills jobs. Yes, the automobile made buggy makers obsolete, and the Industrial Revolution put farmers out of work. But innovation and new technology raise living standards, lower prices and create new classes of higher-paying jobs. It’s the way societies advance and become rich. If the true goal is to create jobs, not wealth, just call a halt to progress.
Obama managed to spend 12 years as part of the University of Chicago Law School faculty without ever learning how an economy works. This is an area where you have a clear comparative advantage, Mitt. Use it, to explain why outsourcing isn’t a dirty word, or lose it in November.

No comments: