Obama Weighs Ins and Outs of 'Insourcing'

The president offers a strategy to provide tax incentives for corporations to bring manufacturing back to the US


With President Obama’s praise for “insourcing” by American corporations — returning a few jobs to the US from places like Mexico and China — he is concealing an ambitious political goal behind a flimsy export-oriented economic strategy whose impact is certain to be minimal.

By calling attention to a few firms bringing jobs back to the US, the President is seeking to transform a tiny trickle of jobs into a reassuring trend that provides potential voters with seeming evidence of an increasingly vigorous economic recovery and hints of a revitalized productive base based on boosting US exports.

But the other side of the trade ledger — the much larger tide of imports — is barely mentioned. “Exports are up, but so are imports,” scoffs global economist Robert Scott of the progressive Economic Policy Institute. “It’s the trade deficit which displaces workers, with 5,000 to 10,000 jobs being lost for every $1 billion in the trade deficit.” For example, the US received nearly four times as many imports from China as it exported to China, for a net deficit of $295.5 billion.

Still, Obama assures the public that he can accomplish his goal of increased insourcing of production and higher exports by rewarding corporations with reduced taxes—even though the taxes of major firms are negligible.

By focusing on a few instances of insourcing by US firms, President Obama wants to be perceived as addressing the massive torrent of jobs leaving the US — a factor that 86% of Americans believed to be a major cause of the nation’s economic suffering (Wall Street Journal, April 2, 2010). Yet he is shying away from even rhetorically challenging corporate policies that continue to devastate American workers and exploit workers facing low wages and high repression in offshore plants in places like Mexico and China.

But it remains to be seen how long Obama can succeed politically with such a toothless policy initiative. By raising public hopes about renewing US manufacturing and halting the explosive issue of the “off-shoring” of US jobs that he cannot possibly pull off, Obama may be igniting a much bigger conflagration down the road as the torrent of jobs continues to flow offshore.

Initially at least, Obama’s increasing emphasis on renewing US manufacturing is striking a deep chord among Americans.

This message resonates profoundly among what some call the “precariate”: working-class and middle-class people existing on a precarious edge, striving anxiously to hang on to their jobs, their pensions, their homes, and their cars.

For many working families who are part of the “precariate,” the transfer of jobs to Mexico (wages are about 10% of US levels, according to economist Jeff Faux) and China (around 3%) is the ultimate betrayal of the majority of Americans by the 1%.

The call for renewing American manufacturing also touches a widespread belief that America cannot survive as a middle-class democracy if so much of its productive base and family-sustaining jobs continues to be exported, leaving behind a sharply-divided society where prospects for the vast majority are sinking while the richest 1% rises ever higher in income, wealth, and political influence.

These sentiments were on display at a high-spirited Feb. 15 event I attended in Milwaukee at the Master Lock factory. The focus of a visit by President Obama: the president hailing Master Lock for bringing back about 100 jobs that had been shipped to China and Mexico.

Before a crowd of 1,000 cheering that included numerous local dignitaries and about 400 Master Lock workers belonging to UAW Local 469, Obama declared: “Milwaukee, we are not going back to an economy that’s weakened by outsourcing and bad debt and phony financial profits.

“We need an economy that is built to last, that is built on American manufacturing, and American know-how, and American-made energy, and skills for American workers, and the renewal of American values of hard work and fair play and shared responsibility.”

Despite the celebration of Master Lock, other state corporations continue to off-shore jobs (three Wisconsin firms have recently announced major job shifts to Mexico, and a fourth is threatening workers with a move to Mexico if they strike). Average Milwaukee earnings have plummeted 21.9% since 1999. Master Lock is an oasis amid a barren urban landscape pockmarked by abandoned factories, boarded-up storefronts, cracked pavements and weed-grown lots.

Once proudly known as “the machine-tool capital of the world” for the products turned out by a hard-working, skilled workforce, Milwaukee has lost 80% of its manufacturing jobs since 1977, according to Prof. Marc Levine of the University of Wisconsin-Milwaukee’s Center on Economic Development.

For Milwaukeeans, the desolate inner-city surrounding Master Lock represents a “man-made disaster” of squalor and despair created by government policy fostering corporate flight to low-wage nations, as UAW International Representative John Drew said at the Master Lock event Wednesday. The plant’s zipcode is plagued by 60% joblessness, an infant-mortality rate rivaling that of Third World nations, and an appallingly-high incarceration rate. The central factor in the area’s desolation: the flight to the ultra-cheap, brutalized labor of Mexico and China by such major Milwaukee-born corporations as AO Smith, Briggs and Stratton, and yes, Master Lock itself–to Mexico and China.

As the New York Times’ David Firestone pointed out, “It’s great that the lock factory is now running at full capacity with a workforce of 412, but Mr. Obama omitted a key fact: 15 years ago the Milwaukee factory employed 1,154 workers.

Obama’s export-oriented economic strategy — which he has used the highlighting of “insourcing” to highlight—includes two components which we will examine here. (The shrinkage of US manufacturing capacity and disappearance of many American industries needs to be addressed as a huge problem on its own.)

The president aims to encourage US firms to relocate some overseas jobs back to the US.

As Obama stressed in Milwaukee that rising labor costs in China are opening new doors for US workers. Some firms have concluded that they would lose nothing by returning jobs to the US and avoiding the costs of transporting parts to China and finishing products back to the US.

However, according to the EPI’s Robert Scott, Chinese labor costs – starting from a base as low as 30 cents an hour — are climbing in the range of only 5% to 15%, hardly enough to make a significant difference to the US firms which have invested so heavily in China. For example, Milwaukee-based Johnson Controls has no less than 60 plants in China.

Moreover, US-based firms like Apple have developed intricate and effective supply chains in China. As global justice advocate Walden Bello has pointed out, “Chinese suppliers, with subsidies from the state, have established an unbeatable supply chain of contiguous factories, radically bringing down transport cost, enabling rapid assembly of an iPod or phone, and thus satisfying customers in a highly competitive market in record time.”

The late Apple CEO Steven Jobs flatly turned down Obama’s suggestion that he locate some of its work back in the US, the New York Times reported.

Not only does Apple depend upon the supply chain it has built up in China, but it can count on cheap labor among the 700,000 workers employed by Foxconn (notorious for the suicides it has provoked among workers unable to handle its rigid production rules, restricted lives, and low pay). Bello explains, “Mastery of the supply chain is, however, only one of the reasons Jobs and Apple favored China. The central reason continued to be cheap labor that is disciplined by the state.”

General Electric, whose CEO Jeffrey Immelt chairs Obama’s Presidential Commission on Jobs and Competitiveness, is now airing TV ads touting the skilled work performed at two of its remaining US plants, failing to mention that GE shifted its medical division headquarters from one of the plants to Shanghai, China, with immense long-term implications. Further, GE has closed nearly 20 plants in the three years, according to Chris Townsend, political director of the United Electrical Radio and Machine workers.

Like Apple in China, GE has developed a vigorous supply chain in Mexico, where the combined wages of its 15,000 workers in 1999 were less than the total $92 million compensation of then-CEO Jack Welch. GE constructed much of its Mexican supply chain by demanding that its US suppliers set up shop in Mexico or face the loss of GE’s business, as William K. Tabb noted in The Amoral Elephant.

President Obama’s chief weapon seems to be the use of tax breaks to punish off-shoring firms and reward in-sourcing corporations. But this seems a very hollow threat (and weak incentive) given that two-thirds of US corporations pay no corporate income taxes at all.

Thus, it was astonishing to hear President Obama repeat a bogus Republican talking point by asserting that “companies that are doing the right thing and choosing to stay here, they get hit with one of the highest tax rates in the world. That doesn’t make sense.”

The reality is vastly different, and the President ought to know better. Corporate tax rates for US firms are actually among the lowest among the 30 advanced nations belonging to the Organization of Economic Cooperation and Development, reported Citizens for Tax Justice.

Nothing illustrates the futility of Obama’s strategy — heaping more tax benefits on corporations that already pay no or minimal taxes — better than GE, whose CEO Jeff Immelt presumably exerts an influence on Obama as chair of his Commission on Jobs and Competitiveness.

General Electric generated an enormous $14.2 billion in profits in 2010, but paid no corporate income taxes. In fact, it accumulated $3.2 billion in federal tax credits. Yet GE has continued to offshore more production. From 2004 to 2010, GE slashed its U.S. workforce by 32,000 jobs, from 165,000 to 133,000.

The EPI’s Robert Scott, like tax expert and author David Cay Johnston, sees little hope that Obama’s tax plans — both to reward “insourcing” firms and to cut manufacturing taxes in general — as yielding more jobs in the US while producing a windfall of tax benefits for the corporations. ”The corporations will use their ability to set up subsidiaries overseas, manipulate their prices and profits, and shift revenues,” predicts Scott.

Roger Bybee is a Milwaukee-based labor journalist. Email winterbybee@gmail.com.

From The Progressive Populist, April 1, 2012


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