Obama's Flawed Case for Insourcing

American workers are losing jobs to machines, not to Chinese workers.

President Barack Obama declared in his State of the Union address that the U.S. has a major opportunity to bring manufacturing back and fight unemployment. “Tonight, my message to business leaders is simple: Ask yourselves what you can do to bring jobs back to your country, and your country will do everything we can to help you succeed,” he thundered.

But all one can say to that is, “Good luck.” If that works, maybe he can spin gold from hay and pay off the national debt, too.

The president’s call wasn’t new. He has even invented a name for it: “insourcing.” And he’s been hectoring CEOs to make “Made In America” their prime goal, “not just because it’s increasingly the right thing to do for their bottom line, but also because it’s the right thing to do for their workers and for our communities and our country.”

But neither the president’s appeal to patriotism nor his economic case adds up.

The patriotic approach is not “the right thing to do,” because universalizing it would eviscerate its benefit. If American CEOs should make business decisions based on their nationality, then shouldn’t foreign CEOs as well?

If they did, it wouldn’t work out too well for America. Foreign-owned companies employ close to 5.5 million Americans and generate about $3.1 trillion in economic value. Does Obama want their CEOs to fold their businesses up and return home to do their patriotic duty?

Moreover, forcing American companies to produce goods more expensively at home rather than wherever it is most cost-effective will mean higher prices for American consumers. Where is the patriotism in sacrificing the interests of 300 million American consumers to protect the jobs of a few American workers?

But suppose that America’s great manufacturing rival, China, were to disappear tomorrow. Would that mean American workers would regain lost factory jobs? Not really.

The fact of the matter is that even though manufacturing employment has declined—America has lost roughly 6 million manufacturing jobs since the sector’s peak in the 1970s—manufacturing output has been going up. Indeed, total output today is 2.5 times its 1972 level in adjusted dollars. In 2010, America produced $1.8 trillion in goods (in 2005 dollars) — about $100 billion more than China, but with only about a tenth as many workers, thanks to automation and technological advances that have vastly increased American productivity. Goods that took 1,000 American workers to produce in 1950 now take 177.

The choice for American companies, then, is not between American workers and Chinese workers, but between American machines and Chinese workers. Given how much more American workers cost in wages and benefits, U.S. companies that relocate to America would have to develop even more labor-saving technologies or watch the market for their products simply disappear.

Consider the iPad you are holding in your hand. Back-of-the-envelope calculations suggest that a wholly American-made iPad 2 with 3G capability would cost about $1,400 instead of the current $700, putting it out of the reach of so many consumers that it might not offer the economies of scale that make it worth producing.

That’s why last February, when Obama asked Steve Jobs what it would take to bring Apple’s jobs back home, Jobs bluntly retorted, “Those jobs aren’t coming back.” Presumably he knew what he was talking about.

The president’s touching faith that the golden age of manufacturing jobs can return to America with a little government help is based largely on studies by the Boston Consulting Group. In one of them, the organization makes the claim—as far as I can tell, uncorroborated elsewhere—that about 2 million to 3 million manufacturing jobs might return to the U.S. over five years as the productivity-adjusted wage differential between China and America closes.

But even if one accepts this estimate, the Boston Consulting Group itself predicts that these jobs won’t go to the hollowed-out Rust Belt in the North but to Southern right-to-work states such as South Carolina, Tennessee, and Alabama, where labor is reasonably priced and flexible.

All of this suggests that the way to re-attract manufacturers is not by throwing government subsidies at them. The Boston Consulting Group notes that subsidies might help on the margins, but “won’t make a major difference in determining whether a plant is built in the U.S. or Asia.” Rather, we should be tempering union power to create a more competitive workforce.

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  • Fist of Etiquette||

    We're looking at this the wrong way. Obama just needs to get the other nations of the world to unionize their workforces. Then we're back to competitive, baby.

  • Mark||

    This is the greatest comment of all time.

  • lily||

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  • Suki||

    +1

  • Suki||

    Morning links by 9:15AM

  • American Unions||

    We're the 15%.

  • ||

    Private sector, that's more like, what, 7%?

  • The Question of Auban||

    He supports policies that make it unatractive to do business in the USA and then wonders (or pretends to wonder) why fewer companies are doing business in the USA. Joy.

  • Blacksmithking||

    He knows. Steve Jobs (and others) told him what he needed to do to get more manufacturing here. Despite what he may believe, though, he has to support his base if he wants to be re-elected.

  • The Question of Auban||

    He has already alienated much of his base with his constant warmongering.

  • ||

    Obviously you don't know many of his base.

  • Scruffy Nerfherder||

    I don't see electronics manufacturing coming back even if the rules change here.

    The supply chain is in Asia and the raw materials are in Asia. Even if we can get a reasonable supply chain built up in the US (and that would a monumental undertaking at this point), the rare earths used in batteries, capacitors, etc... come from over there. I have no doubt that China will use that as leverage against US based manufacturing.

  • protefeed||

    There are rare earths sitting in the ground in California. But the mine producing them has shut down because environmental and other regulations in California made the mine uncompetitive with the Chinese mines.

    The reality is that, for the time being, overseas companies have a "comparative advantage" in rare earth mining and electronics manufacturing, and so rational CEOs have moved those jobs to where the comparative advantage exists, and consumers have benefited.

    This is a GOOD thing. Everyone but a handful of unionized American workers is better off. And Obama is trying to destroy this highly beneficial arrangement because he wants to pander to, and get the votes of, those unionized workers.

  • Brubaker||

    Obama believes precisely what his "base" believes. He believes that America is evil, that government is the source of all that is good in the world and that American citizens are dumb enough to buy the stuff he's selling.

  • ||

    I think I've said his already but it needs repeating:

    Worst. President. EVAR!

  • Suki||

    Officially worse than Carter?

  • The Carter-Chasing Rabbit||

    Oh, yes.

  • Suki||

    Worse than FDR?

  • Jumbie||

    term for term, to co-opt a boxing phrase, yes.

  • Suki||

    Then the science is settled.

  • db||

  • Jumbie||

    Did that link freeze anyone else's computer?

  • db||

    Not mine.

  • invisible furry hand||

    Why does he stop at "insourcing" as a cure for what ails you? Why not propose a human sacrifice to appease the ancient gods, praying in a tongue not your own? Should be worth a few bucks on Pay-Per-View, if nothing else

  • Bee Tagger||

    Does Obama want their CEOs to fold their businesses up and return home to do their patriotic duty?

  • Bee Tagger||

    Who could know what he wants beyond the desire to be an increasingly powerful President for 4 more years.

  • ||

    barack hussein obama is a stuttering cluterfuck of a miserable failure.

  • ||

    You want to insource, you can start by ending regulation, corporate welfare, and union shops which have done nothing but create quasi-monopolies, stifle competition and dicourage people from starting or investing in new businesses and ideas.

  • The Administration||

    That's crazy talk. The People must be protected, and we must have a level playing field.

  • The Question of Auban||

    The most level playing field of all is a cemetery.

  • ||

    I just hope the fight for insourcing doesn't distract from the struggle against those job-stealing ATMs.

  • Rich||

    The truth is that the president’s economics simply don’t add up.

    Well, there *is* that multiplier effect.

  • Sparky||

    He wants to force kids to stay in school until 18, then go to college, then get a manufacturing job. Someone should tell him it doesn't work that way.

  • Class of 2012||

    Right. We've got a future in ... Community Organizing!

  • db||

    It sure isn't a future in Super Science.

  • FSA Footsoldier||

    I'll take the soup.

  • db||

    Well, it depends on the quality of a high school edu ation. My previous employer ran, in conjunctikn with a local university, an associate degree program to train new power plant operators. It used to be that a high school education wss enough, but the diminshing quality of public schools combined with the company's shift away from in the job training has made that much more rare. They also recruit heavily from Navy ranks but those

  • db||

    ...folks tend to move up intothe front line supervision roles pretty fats.

  • ||

    ah, another chubby-chaser!

  • db||

    Corksoaking autocorrect!

  • Dr. Fu Manchu||

    Obama is on to our plan! Release the scorpions!

  • Henchman||

  • Dr. Fu Manchu||

    No! No! You hydrocephalic cretin! By the 108 Buddhas, I swear that I will make you suffer a fate worse than all of the 18 levels of Hell combined!

    I meant "Winds of Change!"

  • ||

    Captain Zero's rhetoric displays a grasp of economics that is pathetic even compared to mine. I am mystified by what the thinks the motivational force is for businesses. Patriotic duty? Huh?

    A simple concept, inherently missing from the progressive school of thought, is that any system, economic or political, is optimized when it is organized so that bad or greedy people are rewarded for doing 'the right thing''; so that even when the wrong people (Obama) are in power, the system still works. Yeah, yeah, I know - dispensing with that concept is the basis of progressivism. That is why failure is built into it. ( Take notes Tony )

  • Chatroom Crank||

    1140 /= 1400

  • Tiffany Crankier||

    However, 3 do.

  • ||

    I don't think Obama is particularly bad at economics, not when compared to most leftists. Dig down into a leftist and you will eventually find someone who honestly believes that the entire rationale for business is to provide jobs. Not profit, not commerce, not free exchange... that's why they cannot see a difference between public and private workforces. A job is a job, if that is your only end-point.

  •  ||

    Not profit, not commerce, not free exchange...

    You left out the most important and only "rationale"...individualism. The right to one's life.

  • Zeb||

    No, I think that the rationale for business is making money.

  • protefeed||

    I don't think Obama is particularly bad at economics, not when compared to most leftists.

    Obama is terrible at economics. Him being in a 30 million place tie for last place in economic knowledge doesn't make him any better at it.

    It's just that Obama can try to do a lot of damage with his economic ignorance, while most leftists find themselves shunted into careers where their economic ignorance is irrelevant and causes little harm.

  • Tony||

    I don't think that's true--liberals actually realize that the private sector alone is not necessarily motivated to provide full employment, so public policy must be what has that goal in mind. In normal times that can be trade policy and other enhancements of the private sector; in recessions it can be public works programs.

    What should be obvious is that if you don't think government should be activist for the purpose of creating full employment, and that the private sector alone isn't necessarily incentivized to provide full employment, then you don't get to bitch about how bad the president is when unemployment is high.

  • robert||

    Tony, I've seen you miss a point before but that was truly something.

  • WTF||

    SugarFree|1.31.12 @ 8:57AM|
    Dig down into a leftist and you will eventually find someone who honestly believes that the entire rationale for business is to provide jobs. Not profit, not commerce, not free exchange... that's why they cannot see a difference between public and private workforces. A job is a job, if that is your only end-point.

    ^^And, here comes Tony to prove your point.

  • Tony||

    Well, what is the difference between a private and public sector job except that the latter is usually more useful to the public? To an employee, a paycheck is a paycheck.

    I'm just asking whether you think it's government's job to work toward full employment, and if not, what are you always bitching about?

  • WTF||

    Well, what is the difference between a private and public sector job except that the latter is usually more useful to the public?

    HAHAHAHAHAHAHAHAHAHAHAHAHA
    Nice spoof, you almost got me there.

  • Tony||

    You don't get to get away with the claim that working to fill some CEO's pocket is the same as doing the public good.

  • Brandon||

    Define "The public good."

  • ||

    "Corporations sitting on piles of cash should HIRE PEOPLE!" To do what? It's not really even about patriotism, it's just another transfer of wealth scheme.

  • Tony||

    If they don't have demand for labor, they shouldn't hire people. And you guys should stop trying to sell the nonsense that transferring more wealth to them will cause them to magically have demand for labor.

  • NotSure||

    Tell that your stupid government, they want to create demand all the time, when there is none.

  • Tony||

    Government should concern itself with employment levels, as that is a public concern. Private companies should concern themselves with their bottom line. When private companies concerning themselves with their bottom line don't create full employment by themselves, we have a couple choices. Make policy with the goal of full employment, or do nothing and watch more people go on the government dole. Of course I gather not only would you like people to be completely at the mercy of the private job market, but you'd like to cut safety net programs as well. Such a wonderfully fair and free system you guys envision.

  • NotSure||

    Like already had been said, you want to create jobs that and nobody wants and produce nothing of value, then you act surprised when the economy goes to shit.

    There is no "we" if you feel the urge to pay people for producing nothing, then do it with your own money, don't expect others to support paying people for simply having being born. Oh thats right - you are always generous with other peoples money not with your own.

  • Tony||

    I suppose meaningless free market platitudes are a possible response to something, but not what I posted.

    The economy didn't go to shit because the government employs people (however useless teachers, soldiers, and policeman are to you), but because of the popping of a huge speculative bubble inflated by people interested only in short-term profits.

    Now that unemployment is high, you want to blame the unemployed and then to punish them for their failure to be employed, make sure they go sick and hungry too. It's a true wonder why this shit doesn't sell better when it's actually explained instead of wrapped in mindless slogans.

  • Big Rich Guy||

    I agree. Violent Revolution will probably follow.

  • NotSure||

    That is exactly what you said, government must create jobs that nobody wants, because if there was a demand for these jobs they would then come about.

    How many teachers and policemen do you want exactly, make everyone who lost a job become a teacher or policeman ? you really are a stupid clown. Throw all your immature Oliver Twist scenarios you want, in the real world, there are too may sociology, philosophy and other crap liberal degrees. In the real world over entitled American workers who are no more productive than the average Indian worker cannot expect to have a standard of living.

  • Tony||

    There is a mismatch between skills and available jobs. Since education is mostly done in the public sector, that would seem to entail involvement action regardless. It's above my pay grade to figure out how to create full employment given the challenges of technology and foreign labor (though not subsidizing outsourcing seems like a commonsensical enough idea). Maybe we should see what industries are lacking demand, then see if there might be public projects that could fill the gap? There's no lack of a need for construction work in this country, as the free market doesn't seem to be magically repairing any roads or bridges.

  • ||

    Infrastructure!!!1!!!11!!!!1!

  • Brandon||

    " but because of the popping of a huge speculative bubble inflated by people interested only in short-term profits."

    If by "profits," you mean "votes," yes, this is correct.

  • k2000k||

    You know Tony three things.

    1) Unemployment is high because goverment keeps fucking around with the economy. It's like America has the flu but instead of letting her sit in bed and sweat it out you (plural) keep pumping her full of drugs that aleviate the symptoms so she can keep going about her day, but she will continue to feel crappy and underperform until the root cause, the fact that she is ill with the flu, is addressed.

    2) You admit unemployment is high, will you now admit that the stimulus was an abject failure. I mean I know you won't but I'm a sucker for hitting my head on a brick wall.

    3) No one wants to the unemployed to go sick and hungry, but if you think for a second that having too generous benefits is exacerbating the problem then your niave. I have a friend, whose dad works in goverment, who has publicly stated he is completely dissillusioned with unemployment benefits because one of his roommates has stayed unemployeed intentionally for 6 months, doing the barest minimum to stay on the dole, while he busted his ass to get any sort of work.

  • Strawman||

    There is no demand because people are not WORKING.

    What made many of these companies RICH in the first place was a healthy middle class. This is what created the Demand. The NEW DEAL programs from the 1930's that created a middle class (to the objection of the JOB CREATORS who preferred China-like Slaves).

  • NotSure||

    There will always be demand, human wants are virtually infinite. However nobody wants to pay 3 times the price for a computer simply because it was made in America, be honest would you really want to pay that much more ? Most people don't want to either.

  • k2000k||

    Im guessing with the name starman that the post was a spoof but I'm gonna write this anyways for Tonys benefit...

    1) The middle class existed prior to the 1930s

    2) On that theme even my admitted democratic economist professor in college admitted that the New Deal did not create jobs

    3) The middle class was created when advances in commerce and industry removed people from the traditional serf-lord relationship that had existed for nearly a thousand years, coupled with increased foodstuff productivity advances that allowed fewer people to farm and persue their own interests. Too summarize, it was conditions that lead to a larger private sector that lead to the middle class

    4) The incerase of professions not related to farming increased the number of individuals practicing trades which lead to price competition, which in turn lowered prices to the point were normal individuals could afford those purchases and spured the economic cycle we see today.

  • ||

    Why the fuck would I hire somebody when I don't know how much they are going to cost me in two years? Especially when you would just turn around and tell me that I can't fire them because that goes against "the public good".

  • Strawman||

    American worker is pretty much doomed.

    If we have to compete with people that are basically labor slaves in Asia, Africa, and Latin America...we will have to work longer hours, make a lot less money, forget about benefits, and cut down significantly on leisure time.

    Some Americans will go along with this (i.e. poor republicans). Some Americans will revolt (Occupy, annonymous, etc.)

    I think the ideal career path for American youth is Law Enforcement. The truth is that if libertarians and conservatives have their way, there will probably be a violent revolution in America in which the Civil War of the mid 1880's will look like our invasion of Greneda in the mid 1980's.

    Whether or not the libertarian/conservative policies will work in the long run...I say a significant number of people here will probably die.

    There is NOTHING the Liberals, the Conservatives, or Libertarians can do.

    If you are not a person with capital or a good idea that can make you rich, you are pretty much doomed to either be a labor slave or be caught up in a violent revolution.

  • Zeb||

    What is a labor slave? How does it differ from an actual slave? Is it sort of like a "wage slave" (i.e. not a slave at all because they work voluntarily for pay).

  • Big Rich Liberal Guy||

    A labor slave in America that works "voluntarily for pay" is one that can't find another job or would simply be trading in one-low-paying-asshole for another.

    In the rest of the world, they are slaves.

  • Brandon||

    LOOK AT THE HANDLE!

  • cynical||

    Good trolling. I liked the part you got the date of the civil war wrong by two decades to subtly undermine the credibility of the rest of your points. Very nice.

  • protefeed||

    What should be obvious is that if you don't think government should be activist for the purpose of creating full employment, and that the private sector alone isn't necessarily incentivized to provide full employment, then you don't get to bitch about how bad the president is when unemployment is high.

    When the president and his allies in Congress are refusing to fix the problems they created with brain-dead economic policies, for example raising the minimum wage and thus throwing lots of teenagers and unskilled workers, in particular minority teenagers, out of work because they aren't productive enough to earn the minimum wage, then fuck yes, one can rightfully bitch about the president's obstinacy and economic idiocy being responsible in part for high unemployment.

  • NotSure||

    What is this obsession with wanting people to be factory workers ? Nobody here wants to work in a factory, that includes all the leftists here who believe with all their hearts that manufacturing output is the goal of an economy. I suspect that the vast majority of people posting messages on the internet wanting back factory jobs also don't want to work in a factory, so where are all these willing workers going to come from ?

  • Strawman||

    The truth is I'll leave my office job for a factory job if it paid better.

  • NotSure||

    No you will not, unless it paid a huge amount more. Would you really want to screw on toothpaste caps the whole day for a 10% salary increase ?

  • Zeb||

    Well, not all manufacturing jobs are mindless assembly line shit. And even that I would generally prefer to a service job (dealing with customers is bad enough when you get paid reasonably well).

  • Strawman||

    We can choose to either share our wealth and try to keep the rabble happy or we can wait until a revolution comes and the rabble will either take or destroy our wealth. The other option is the potential of having the 99% just vote in Yugo Chavez and they will forcefully take our wealth.

    This is what has happened throughout history. Let's see how this unfolds.

  • Jumbie||

    If we must be ruled by a communist era car, I prefer a Lada:

    http://lancethompson.files.wor.....7/lada.jpg

  • romulus augustus||

    So civilization reverts back to the playground bully: "Give me your lunch money or I'll punch you in the mouth."

  • Big Rich Liberal Guy||

    I'm afraid we never left the playground. It's only that the "JOB CREATOR" is the bully today.

  • Zeb||

    Yeah. Or you could try to include "the rabble", as you so kindly put it, in the economy more so that everyone feels they have an interest and a stake in the whole economy doing well instead of perpetuating this class warfare bullshit. Revolutions almost never turn out well. And people don't revolt when they are comfortable. In the US we are pretty far from any place where enough people feel insecure or threatened enough to do that.

  • Big Rich Liberal Guy||

    What the current body politics from the RIGHT offer will not make the common person "feel they have an interest and a stake in the whole economy". The Welfare state is the result of managing the people that can't find jobs or financial opportunities.

  • ||

    HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA!

    Oh wait you're serious?

    HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA!

  • Big Rich Guy||

    Then what caused the welfare state then? The Generous LIBERALS willing to help out poor people with Other people's money?

    The welfare state is the result of people unable to find gainful employment.

  • Strawman||

    Don't forget your own words: Corporations are here to make money for the principle owners...not for the charity of creating jobs. Corporations have NO INTEREST in the well-being of workers and if machines or foreign slaves can do the entire job and put much much more money in the pockets of the owners...so Be it.

    There is NO FIXING THIS. We are doomed.

  • Big Rich Liberal Guy||

    you guys are boobs.

  • Brandon||

    Wow, this thread devolved into a two-troll echo chamber amazingly fast.

  • Realist||

    People need to learn how to design and run the machines. When cars replaced horses did we get upset about the loss of the buggy whip maker jobs?

  • k2000k||

    Fortunately for humankind at that point the newest species of human

    homo sans sapiens progressivus

    was only just splitting off from the rest of humanity.

  • illini||

    Hey Shika...shut the fuck up and buy American!

  • ||

    Here's how Obama used the Term "Insourcing" back in 2009 --now he's found a new way to use it - http://www.bizjournals.com/day.....rcing.html

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