Wednesday, June 27, 2012

Economic Illiteracy at 1600 Pennsylvania Avenue

Barack Obama on the Romney campaign pointing out that there is a difference betweeen "outsourcing" and "offshoring": “Yesterday, his advisers tried to clear this up by telling us that there was a difference between ‘outsourcing’ and ‘offshoring.’ Seriously. You can’t make that up.”

Actually, you wouldn't need to "make this up," because there is a difference. This is not by any means the sole example of Barack Obama's economic illiteracy but he manages to make himself sound even smaller and more petty than usual. Kevin Williamson at National Review explains: 

“Outsourcing” happens when a firm contracts out its non-core functions to other vendors, e.g., a hotel decides to hire a cleaning service rather than keep maids on the hotel payroll. To take an extreme but illustrative case, consider that the firms that provide car-driving services do not manufacture their own automobiles or stitch their drivers’ uniforms, even though doing so would “create jobs.” They outsource those tasks to GM or Ford and to whomever makes their uniforms. Likewise, their communication systems are outsourced to Apple or Motorola or RIM.

But at least they should “buy American,” right? GM is an “American” company building “American” cars, but it too outsources many of its needs, sometimes to other U.S.-based companies, sometimes to companies overseas. Moving facilities overseas is what “offshoring” means; it is not synonymous with “outsourcing.” GM has decided that it can build cars without manufacturing brake pads or tires, much less manufacturing steel or rubber, and its production partners include facilities, workers, and investors from around the world. (This is, it should go without saying, a good thing. People who talk mistily about the virtues of “global cooperation” rarely recognize it when they see it.)
The belief that seems to be popular on the left is that the point of offshoring is to take advantage of cheap labor but in Williamson's article he points out that the offshored functions tend to go to high wage countries like Germany and Japan, not Haiti and Rwanda. Williamson:  "That is because low wages are not the goal of offshoring. High productivity is the goal of offshoring. There is a reason that BMW does not move all of its manufacturing operations to India, and patriotism is not it."

Read the whole thing. 

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