Students saying no to computer science

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Government encouraging companies to move out

"You have to realize, instead of penalizing companies for outsourcing, they actually subsidize them. They allow and even push companies to do things like laying off hundreds of thousands of American workers to higher cheap Indian and Chinese labor."

This was documented many years ago. Both Perot and Michael Moore used to talk about this, in their own ways. Except back then it wasn't about moving the jobs to India and China, but to Mexico. On one of his "TV Nation" shows Moore posed as a businessman interested in moving his media production group to Mexico, and showed a U.S. government employee showing him around Mexico, talking it up as a good place to do business. In a wryly humorous, though always a bit depressing, moment, he showed a shanty town they drove by on the tour.

One of the things Kerry has talked about is ending the tax break corporations get for profits made overseas, which seems to encourage them to keep the profit monies out of this country, lest they be taxed. The notion goes that since they're not encouraged to bring the profits back, they invest the profits by building new plants overseas and hiring more foreign workers. This law has been around for decades, incidently. Only thing is, from a couple experts I've heard from, changing this law would not really affect the outsourcing trend. Michael Porter, a professor at Harvard's business school, was asked about this on the Charlie Rose show earlier this year. He said changing it would have a negligable affect on outsourcing. I believe he, like a rare few have said publicly, that the whole outsourcing issue is way overblown, that at most a few hundred thousand jobs have been outsourced, by most estimates. So ending the tax break is not the cure to the problem it's being made out to be. It's a nice political issue to get people fired up about, but it seems it's like Clinton's promotion of school uniforms. It feels nice, but doesn't really mean anything.

One thing I remember was on Porter's "wish list" was to end the double taxation of dividends. This was something that was on Bush's agenda a year or two ago, though he settled for half a loaf. Porter said he saw the taxation on dividends as flawed from a policy perspective, because it encourages what we saw in the 90s where young, upstart companies did not offer dividends, lest they scare off investors who don't want to pay taxes on them, when they went public. Rather, they sold investors on the idea that "the business cycle has been defeated", and that people should invest in the value of the stock, which would continue to rise as far as the eye could see...theoretically. The problem was in order to accomplish this they had to outgrow their markets, which is exactly what they did, creating the bubble that burst in 2000. This resulted in trillions of dollars in lost value in the market, having devastating effects on the economy, and indirectly, jobs.

Incidentally, I've heard that there have been pieces of legislation proposed to reverse the tax law for foreign profits, for the past few years, but it's never passed in congress. In fact, before Kerry even publicly talked about it, there was a piece of legislation in congress being proposed this year to end it, but it's just languished there, or it was defeated.

The thing is, this is all tied up in free trade policy. Even though politicians long tried to deny that labor had anything to do with trade policy, it IS affected by it. Politicians from both parties, in large part, are in favor of the policy we have. Democrats and Republicans like it because they feel it helps us in our foreign policy, spreading wealth around the world, helping lift up poorer nations. That's the idea, anyway. I'm not sure it works in every circumstance. The only bright light I see from this policy is China. Both parties think it's a better solution than just using foreign aid. Businesses like it because it allows them to expand when they find domestic markets just aren't offering them the kind of growth they'd like anymore, and this has relevance to the tech industry. According to what the Undersecretary of Commerce said earlier this year, at that point in time, 50% of the demand, worldwide, for U.S. software was overseas. Companies have outsourced software production because they want to keep production close to where the demand is, to take advantage of local people's knowledge of the language and customs, plus the labor is cheaper so they can afford to lower the price of their products in those countries, where a lot of people wouldn't be able to afford it if they paid the equivalent of what we pay for it here. He predicted that we'll see technology jobs come back as the economy recovers here, because of the same motivation. Companies will want to keep production close to where the demand is. This kind of flies in the face of the notion that companies are only doing this to take advantage of the lower labor cost, for products destined to this market. That isn't always the case.

Posted by: Mark Miller   Posted on: 08/13/04 You are currently: a Guest | Members login | Terms of Use

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