Nexus Report: Why D.C. Gridlock Could Spur More Offshoring

Nexus Special Report: New York Times columnist Joe Nocera says Washington’s follies have put the U.S. at a disadvantage against global competitors. Political gridlock, rising debt, and uncertainty …

Nexus Special Report: New York Times columnist Joe Nocera says Washington’s follies have put the U.S. at a disadvantage against global competitors.

Political gridlock, rising debt, and uncertainty over key issues like immigration and healthcare could have more U.S. companies looking to put work offshore or in nearshore locales, according to New York Times columnist Joe Nocera. “Imagine you’re a company and you have to make decisions about capex and hiring. Tell me again why you’re going to expand that plant in the United States when you see what’s going on in Washington,” said Nocera, who spoke Wednesday at the Nearshore Nexus conference in Jersey City, NJ.

Nocera said the U.S. faces a range of problems that may compel growing businesses to seek out friendlier shores. “Any company in its right mind, and this is a crazy thought, is going to try and find a place that’s more politically stable than the United States.” Nocera said the root of the problem lies with legislators who are more concerned about toeing party lines than acting in the national interest. “In many ways, our politics has broken down, we’ve become divided by ideology.”

Immigration at the Root

He argued that the gridlock is having a disastrous effect in a number of areas that businesses rely on, from human capital to transportation. For example, while most experts agree that the U.S. needs to import more hi-tech workers, Congress has failed to fix an immigration system under which many of the best and brightest foreign students in disciplines like STEM are sent packing once they graduate.

“We should allow the people we educate from abroad to stay and use those skills here,” said Nocera. “That would be sensible policy. But our polarized politics are now so gnarled in ideology that nobody is willing to sit down and do what makes economic sense for America.”

Nocera also pointed to the sequester as another example of Washington’s failure to maintain a stable business climate. Sequestration-related cutbacks are causing flight delays as air traffic controllers get furloughed, educational shortfalls as training programs get cut, and reductions in federal R&D spending, among other things.

“They said, ‘We’ll come up with a solution to the debt crisis that will be so evil, so onerous, so terrible that it will absolutely positively force us to solve this problem. And they called it the sequester,” said Nocera.

Meanwhile, as the U.S. becomes increasingly mired in what Nocera called “a self-perpetuating negative feedback loop,” other countries’ economies are benefitting from relative political stability and government programs designed to establish highly competitive ITO and BPO sectors.

Nocera began his talk with an anecdote about his recent honeymoon to Brazil. “You see this powerful economic growth that’s going on, you see a rising middle class, jobs being created in front of your very eyes, and high-rises filled with knowledge workers,” he said. “It’s kind of amazing.”

Brazil’s ICT industry is now the world’s fifth largest, with revenues totaling more than $212 billion in 2011, according to BRASSCOM. “You’re from the United States and your working assumption is that the U.S. is and always will be the center of all important economic activity,” said Nocera. “Then you go to a place like Brazil and you realize it’s really not true.”

And it’s not just Brazil. “I’ve been to China, and it’s really not true in China. I’ve been to India, and it’s not true in India. These are vibrant economies that are growing, and they are figuring out ways to expand who it is that gets money.”

Adaptable Countries

It all adds up to more competition for the U.S. in the race to attract the kinds of hi-tech industries that will drive employment and prosperity in the years ahead. “These countries are completely adaptable to the world in which we live,” said Nocera. “The idea of global outsourcing, of global parts suppliers, the idea of global logistics, it doesn’t scare them.”

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The U.S. economy, meanwhile, is struggling to adapt to the flat world. “The United States in the postwar era had no competition. None,” said Nocera. “We could pay our middle class factory workers anything we wanted because there was no one to compete with us.”

The emergence of global competition means that the factories that do remain in the U.S. will have to be among the most efficient on the planet—relying on automation and highly skilled workers. “The thing about these modern factories is that you cannot get a job in one with just a high school education,” said Nocera.

He recalled his recent tour of a Caterpillar plant in North Carolina. “You see vast expanses of floor and almost no people.” He noted that the heavy equipment maker received subsidies of more than $21 million to open the plant, even though it employs just 800 workers. “These are the least advanced decent jobs in the United States at this point,” he said.

The World Has Changed

Nocera does see a bright spot in that private sector companies like Caterpillar are partnering with local community and technical colleges to build curricula that meets the needs of modern, high-tech manufacturing. But he contended that such programs are necessary because the federal and state governments have allowed the nation’s public educational system to crumble.

“Everybody knows that the key to a good life anywhere around the world is education,” said Nocera. “Look at the public schools in America, they’re a wreck.”

Nocera said term limits on legislators might help end some of the dysfunction in Washington that has led to many of the problems he outlined. “You would lose institutional memory, but what you would get in return would be a class of legislators who aren’t spending every second raising money and worrying about reelection.”

In the meantime, he said, Americans need to realize that the world has changed, and that competition from BRIC countries, as well as other parts of Latin America and Asia, is now a permanent fixture of the global landscape. “Here’s my theory of America at this moment in history: It’s hard to face the fact you’re not the king anymore.”

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