Offshore Outsourcing: An Endangered Species

It’s no longer about greedy American corporate executives – it’s about the long-term effect on the economy and destroying America’s tax breadbasket: The Working Middle Class If you’re …

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It’s no longer about greedy American corporate executives – it’s about the long-term effect on the economy and destroying America’s tax breadbasket: The Working Middle Class

If you’re a buyer or seller of offshore services, beware that American voters have your livelihood in their sights. US unemployment numbers in December 2010 stood at over 14.5 million, which is just under 10% of the working population. High unemployment, rampant offshore outsourcing, a rapidly shrinking middle-class tax base, and overall lower spending is putting economic pressure on politicians to make some changes to boost the ailing economy.

Last year marked the introduction of two bills (H.R. 5622 and S. 3816), known as The Create American Jobs and Ending Offshoring Act, designed to end access to tax havens, to protect the American worker by offering tax incentives for hiring Americans for offshored jobs, and to end tax breaks for American companies that move their businesses offshore. The bills failed to pass into law but there’s little doubt that similar bills will be introduced during the current Congressional session. The voting unfortunately fell along party lines with Republicans voting against and Democrats voting for the bills.

Opponents to the bills state that offering tax incentives wouldn’t boost the economy and that the money would be wasted. Further, opponents claim that government interference hurts business and therefore would provide little motivation for additional local hiring. The Republican Party favors less government interference in business, quoting the idea that economies will level themselves without outside (government) assistance. Bill advocates plead that tax-related enticements would boost localized hiring, lower unemployment, create a stronger tax base, increase spending, and protect the public interest.

The truth is, both parties have failed to read the definition of Free Enterprise.

According to the Merriam-Webster dictionary, the term Free Enterprise means “freedom of private business to organize and operate for profit in a competitive system without interference by government beyond regulation necessary to protect public interest and keep the national economy in balance.”

American workers, especially the unemployed American worker, are tired of seeing billions of American dollars going offshore to construct infrastructure, provide training, and invest in foreign economies with the sole purpose of displacing American workers and replacing them with foreign ones. And, to add fuel to the fire of anti-offshore sentiment, US-based companies are using tax incentive dollars and deploying funds to tax haven countries to take those actions. American workers also know that there are laws in place in other countries that protect their workers. Free enterprise no longer seems to be free. Its price is American jobs.

Stimulating the American economy….not

 

The fundamental problem lies in the fact that if we destroy our middle class workforce, which incidentally is the tax base breadbasket for the entire country, then we’ll become a poor nation with economic extremes and no stratification. In other words, America will look like so many other corrupt countries where there are the very rich, the very poor, and a few in-between. One proponent of the offshore model stated that, “By using nearshore resources, we might keep them from crossing the fence into the US”. The problem with that statement is that you rarely see programmers, systems administrators, or corporate executives cutting fences to get to the “Land of Opportunity.”

A related issue is that American money invested in foreign infrastructure, training, and salaries does very little to stimulate America’s economy. Foreign workers don’t pay taxes to the U.S. and they typically don’t purchase American goods or services. In essence, the money paid out to foreign workers by American businesses is wasted. We, as a nation, receive no benefit from those offshored salaries and investments.

Solving the dilemma?

 

The answer to the problem, that either no one wants to hear or that everyone wants to ignore, is to assume an attitude of cooperatition. A good definition of this term is found at cooperatition.com: “Cooperatition is an economic model of combining the merits of business cooperation and business competition. This is in contrast to the standard business objective of eliminating the competition at all cost.” In the realm of offshore outsourcing and doing business in other countries, we should do the following:

  1. American companies should hire Americans for work performed in the US.
  2. Those companies should hire foreign nationals in countries where that business is performed.
  3. Companies should accept no tax incentive dollars for displacing American workers.
  4. Countries where offshoring is done should be required to counter-invest in America.
  5. Balance the dollars spent in foreign countries with American investment.

American companies need to hire American workers for work performed for other American companies. Similarly, if an American company does business in another country, local workers should be hired to perform that work. There should be no tax dollars or other incentives paid by the American people to companies that displace our workers.

Popular locations for offshore outsourcing should be required to counter-invest in countries that offshore work to theirs. It is unfair to have the flow all in one direction. Such practice is little more than charity and it shows that those “taker” countries have no incentive to contribute to anything outside their own borders. Finally, American companies that invest money and resources into offshore concerns should invest an equivalent amount in similar pursuits at home: training, infrastructure, employment.

For the past 10 to 15 years, American companies have enjoyed unchecked and undeterred dumping of American workers in favor of cheap foreign labor, tax money to carry out their plans, and no government regulations to stop them. This trend is about to change. The American people understand the detrimental economic effect that these practices have. The farce of a global economy is about to surface. The global economy is composed of local economies. And, it is those local economies that are starving in order to feed the corporate machine in the name of free enterprise.

Ken Hess is a technical analyst, author and consultant. He writes regularly for Linux Magazine and ServerWatch. Read his other article for Nearshore Americas here.

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