Part 2 of excerpt from Exporting America by world renowned journalist Lou Dobbs on the effects of outsourcing overseas.
The people of Celina, Tennessee, have experienced firsthand the cost of free trade. Twelve hundred people once worked in the town’s OshKosh plant in Celina. Now only fifteen do. The rest of those jobs were sent out of the country, to Mexico and Honduras. Some of the company’s employees had worked at OshKosh for three decades. But with OshKosh gone, the unemployment rate in Celina is 15.5 percent, and its per capita income has fallen to $13,000.
While Celina is just one more town abandoned by American companies in search of cheap foreign labor, the town is fighting to get back on its feet and stay there. Clay County has created a Web site to attract new business to Celina and the surrounding area, and the chamber of commerce is aggressively selling the county to outsiders. It has already been successful, having lured a commonly outsourced business to the town: a call center. Healthcare Management Resources has set up a new center to handle billing for hospitals and now employs 120 people. The jobs don’t pay as much as the factory jobs at OshKosh, but it’s steady work and it carries benefits. Moreover, the company is thrilled with Celina. According to Dennis Swartz, the president of Healthcare Management Resources, the people of Celina have a “great work ethic. I put these people up against anybody anywhere. And my goal in life is really to set up a third center, a fourth center, a fifth center in areas just like this.”
Internet provider Earthlink is closing its call center in Harrisburg, Pennsylvania, and sending 400 jobs to the Philippines and India. The state of Pennsylvania has already been hard hit by job losses, having seen 132,000 manufacturing jobs evaporate. Now it’s seeing its high-tech jobs go away. At a stop in Harrisburg in 2004, President Bush told Pennsylvanians that “There are people looking for work because jobs have gone overseas. And we need to act in this country. We need to act to make sure there are more jobs at home.” So far, that has been nothing but an empty statement. And to worsen the pain, the Earthlink workers in Harrisburg have been denied special trade assistance by the Bush administration.
Outside of the obvious factory closings and new call centers in India, there are the insidious under-the-radar cases of outsourcing that we rarely ever detect. They eat away at our economic infrastructure like rot in a foundation, and we barely notice—until it’s too late. For example, The Smithsonian Institution has chosen Innodata Isogen to create an online library of one of the most expansive research projects in American history, the United States Exploring Expedition. Running from 1838 to 1842, it was the first federally funded mission of exploration in U.S. history and yielded nearly 3,000 pages of data on topics including geology, anthropology, American art, and more. But Innodata Isogen outsourced the work to the Philippines. According to the Smithsonian, the work was sent overseas because there are not enough skilled workers in this country to do the job. I find it incredibly hard to believe that it required offshore talent to chronicle the legacy of one of America’s greatest research endeavors.
Under-the-radar outsourcing affects small industries that have been the source of jobs in the United States for as long as most people can remember. The embroidery industry, one of the mainstays of the New Jersey economy for more than a century, is now in danger of disappearing from this country. Small New Jersey factories once made 90 percent of the embroidery in American lingerie, clothing, and bedding. It was a half-billion-dollar-a-year industry with nearly 7,000 jobs. Today, there are less than 1,000 jobs left. American clothing manufacturers still require embroidery on their products, but they’ve gone to Sri Lanka, India, China, and Mexico to get it done.
It’s doubtful that anyone will claim that embroidery is a critical component of our national economy, yet it is a traditional craft that has provided a good income to thousands of Americans for generations. And there’s still a lot of it being done—just not by Americans. It’s one more part of apparel manufacturing that is being outsourced. Today, 96 percent of clothing production is done outside our borders. That fact had a direct bearing on last year’s closing of thirty-seven textile factories in North and South Carolina alone.
And when it comes to apparel, even gaping loopholes in U.S. Customs inspections of clothing and textiles are costing American jobs. Less than one-tenth of one percent of the three million textile shipments that come into this country every year are inspected. That’s a security gap that foreign textile manufacturers have been exploiting to their benefit and our detriment. Knowing that they are unlikely to get caught, unscrupulous producers will label a piece of clothing to read that it was made in, say, Honduras, when it may actually have come from China. Then it’s shipped to the United States using falsified entry documents. According to a recent General Accounting Office report, the lack of inspection at our borders results in the frequent smuggling of garments past U.S. customs.
There’s even more opportunity for abuse. U.S. Customs allows shippers to pass cargo through the United States, free of charge and free from quota restrictions, on its way to another country. But Customs does not track shipments adequately enough to ensure that they leave the United States. Many shipments get here, claim to be passing through, and are then diverted to store shelves in American cities and towns—without a penny in tariffs ever being paid. This kind of cheating makes it hard for American textile manufacturers to compete. It’s not known how much is lost in tariff revenue from this kind of fraud and smuggling, but one case provides some stunning insight. In Long Beach, California, 5,000 containers were stopped and inspected. Customs agents found illegal merchandise. The exporter was trying to avoid paying $65 million in duties.
The final indignity is that these imports, both legal and illegal, are usually arriving on foreign-owned ships. Seven hundred fifty billion dollars’ worth of goods comes into the United States on ships each year, but not one of the top ten international shipping companies is American-owned. Foreign companies have bought out nearly all the top American cargo carriers—a trend that has been facilitated by foreign governments that subsidize their international shipping companies. American firms sold out when they realized they couldn’t compete against subsidized international shipping. Free trade or simply the absence of an American trade strategy?
These foreign ships are arriving in American port terminals that are increasingly under the control of foreign companies. An estimated 50 percent of East Coast terminals and 30 percent of West Coast terminals are leased and operated by foreign companies—not by U.S. businesses.
If you look at every one of these companies, industries, towns, and communities, outsourcing has far-reaching and devastating effects across all aspects of our society. Yet there is still one more insidious element: the growing multibillion-dollar industry made up of companies that are actually getting paid to help other companies outsource their businesses. Many of the companies exporting American jobs to cheap foreign labor markets are not doing it by themselves, and there are a lot of consultants anxious to help.
U.S. businesses spent $16 billion on outsourcing work last year, according to leading IT research company Gartner Inc. But outsourcing overseas often means that corporations have to rely on consulting firms that specialize in outsourcing. Consultants often play a role as the middleman, connecting companies with offshore providers and holding conferences to help companies outsource and “offshore” work. This past year, at a New York City hotel, corporate executives paid $500 apiece for advice on how to export American jobs to cheap overseas labor markets. Protesters got wind of the conference and picketed with signs reading, “Be American. Buy American.”
But inside the hotel, the signs celebrated offshore outsourcing. Consulting firm Covance bragged that “We pioneered the transparent offshore outsourcing model.” Executives attending the event learned the finer points of doing business in emerging labor markets such as Russia, the Philippines, and Vietnam. The cosponsor of the event, Atul Vashistha, CEO of NeoIT, told our reporter Peter Viles that “in the short term, this is a painful process. No question about it. But in the medium to long term, you will create more jobs on the services side of the economy.” When Viles asked him where all those new jobs would be, Vashistha cited global business management, which, among other things, is managing all the jobs that companies outsource.
One seminar was intriguingly titled, “Is Offshore Sourcing Unpatriotic?” Even more intriguing, that seminar was closed to the news media, so we never did get the answer to the question posed by the seminar. But I’m sure I could have guessed what the sponsors would have said.
The thing that’s not being communicated at these conferences is that American multinational companies that are outsourcing and offshoring are also essentially firing their customers. India can provide our software; China can provide our toys; Sri Lanka can make our clothes; Japan can make our cars. But at some point we have to ask, what will we export? At what will Americans work? And for what kind of wages? No one I’ve asked in government, business, or academia has been able to answer those questions.
Copyright © 2004 by The Dobbs Group