Threat to Jobs Is Politicians, Not “Outsourcing”

Throughout history, the worst destroyer of economic growth and prosperity has been politicians who panic during an economic downturn. Michigan is in the late stages of a jobs recession, and our politicians are officially in panic mode.

The panic attack du jour is the "outsourcing" or "offshoring" of jobs by U.S. companies to foreign countries. This is contributing to an extremely dangerous outbreak of protectionist fever — dangerous because, although Michigan is the eighth largest state in terms of population, it is the fifth largest in exports to foreign markets, shipping out some $32.9 billion in merchandise in 2003. As will be seen, we are also a major importer — of jobs.

Michigan has keenly felt the loss of 300,000 jobs during the past three years. But very few of these jobs were lost because of "offshoring." Instead, the recession, low productivity growth, and Michigan’s burdensome tax climate, regulations and labor unions are mostly responsible.

The closing of the Electrolux refrigerator plant in Greenville is the most recent cause celebre of the protectionist Chicken Littles, who have claimed that the 2,700 jobs will be lost to a plant in Mexico. This is not accurate. Many of those jobs are going to an Electrolux facility in South Carolina. Sorry, UAW, but you can’t holler "NAFTA! NAFTA!" about those jobs. Their loss is due to Michigan’s poor tax and labor climate.

Gov. Granholm recently contributed to the protectionist drumbeat with a pair of executive directives authorizing new paperwork requirements on state contractors, who must now demonstrate that the state work is not "outsourced" overseas. This will reduce the number of firms willing to bid on Michigan work, raising the cost of government here. Many Republicans have fallen prey to the protectionist malady, and have endorsed the governor’s position.

As political commentator H.L. Mencken famously said, "For every complex problem there is a simple solution. And it’s always wrong." The angst over outsourcing is misplaced, for a simple reason: The United States and Michigan are "insourcing" far more jobs than they’re outsourcing.

The Organization for International Investment (OFII) in Washington reports that "U.S. subsidiaries [foreign companies with operations in the United States] employ a record high 6.4 million Americans, support an annual payroll of $350 billion, and heavily invest in the American manufacturing sector. Over the last 15 years, total ‘insourced’ jobs grew by 117 percent — at an annual rate of 7.8 percent; and total ‘outsourced’ jobs grew by 56 percent — at an annual rate of 3.8 percent."

In Michigan, the numbers are equally impressive. Foreign companies now employ 244,200 Michigan workers, up 50 percent in the last five years, according to OFII. Of these, 127,700 are manufacturing jobs. Foreign companies that have "insourced" jobs to Michigan include names like Akzo Nobel Inc., Saint-Gobain, Toyota and Volkswagen.

There is every indication that the jobs picture is improving. In February, Michigan lost no manufacturing jobs. A slight decrease in overall employment was due to normal seasonal factors, and will likely reverse itself as the weather improves.

Things are looking up, but we’re not out of the woods yet. The one thing that is absolutely guaranteed to shut down the nascent jobs recovery is misguided new regulations or laws, such as the governor’s executive directives, or a Democratic proposal to punish outsourcing employers with additional fees. Such actions will only prolong the pain by ensuring that potential new employers take a pass on Michigan.

For more information about foreign companies "insourcing" jobs to the U.S. and Michigan, visit the OFII website at http://www.ofii.org/.

Jack McHugh is editor of MichiganVotes.org, and legislative analyst for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich.