A Further Perspective

Outsourcing Reality

If Obama is so opposed to outsourcing, why does he endorse policies that make it harder for domestic businesses to create jobs?

By 7.17.12

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After three and a half years, President Obama's achievements are few, and his biggest, the passing of Obamacare, is consistently viewed negatively by a majority of the American people. The economy is still stuck in the mud as both businesses and consumers lack confidence. So it is not surprising that team Obama is going negative early. And it is also no surprise, given the creativity he used in forming his own "personal narrative," that his attempt to redefine Mitt Romney as a black-hearted capitalist "outsourcer" has little basis in reality. Indeed, Obama's attacks on Romney are manufactured in sweatshops in the Twilight Zone.

According to Obama and his reelection team, Mitt Romney, who successfully ran the venture capital firm, Bain Capital, prior to becoming governor of Massachusetts, is a rich corporate villain, responsible for destroying companies and shipping American jobs off-shore. Romney is the "outsourcer-in-chief." To back up these claims, the Obama team points to a few examples of Bain-funded companies that either went bankrupt or created jobs in foreign countries (it's not clear that jobs were actually "outsourced" from America) during a time that Mitt Romney no longer exercised operational control at Bain. Despite detailed rebuttals from Romney, several of the companies cited, and even by third party arbiters (such as FactCheck.org) showing the allegations to be false, Obama has chosen to keep to the narrative. The Obama team is more interested in how it sells, not if it is true, and for now they think this is the best thing they've got going.

Though these attacks do keep Romney "off message" and deflect attention from the real issues in the race -- the budget deficit, the floundering economy, Obamacare, America's retreat from world leadership -- it seems unlikely that they will have long-term effectiveness. The record is just not there to give the attacks credibility, and even if there was any substance to the charges, the underlying argument -- that Mitt Romney is cruel and unfeeling for closing an unprofitable business -- is rather hollow.

Private companies, unlike the federal government, cannot continue to operate -- and employ people -- if they lose money year after year. To argue that Bain should have kept an unprofitable business operating in order to save jobs is simply not a serious criticism. Should the Obama administration be criticized for not throwing away another $500 million to keep Solyndra employees at their money-losing jobs?

Private companies exist to make a profit for their owners. To do so, they need to produce a good or service that people want at a competitive price. When they succeed at that, they employ more people and help the economy to prosper. When it is no longer profitable to run a certain operation, that operation will be shut down. That is simple economics. Sometimes foreign companies will make better products, or low wage rates in underdeveloped countries will be too much for American companies to overcome. But if to survive a domestic company needs to send some jobs overseas, that is not a sin. What is a sin is if that necessity comes from government policies that make production in the United States uncompetitive. Ironically, though the Obama administration has been casting stones at American business, it is not without sin. If Obama is so adamantly opposed to outsourcing, then why does he endorse policies that make it harder for domestic businesses to operate profitably?

The in-place and approaching mandates of Obamacare already weigh heavy on businesses. And the Obama administration continues to call for higher taxes on business owners and higher taxes on capital. Its environmental policies will create further costs and regulatory hurdles for American businesses. American companies do not close down factories or shift production overseas for the fun of it. They do so out of economic necessity, and a big part of that necessity comes from the high cost of doing business in the United States resulting from government (both federal and state) policies, from heavy-handed regulations to high tax rates. To the extent that American companies are sending jobs overseas, at least part of the responsibility lies with government.

California is a prime example of the liberal Democratic mindset. The state has been losing jobs to neighboring states (and to foreign countries) in droves for two decades. California's legislature, dominated by liberal Democrats for the better part of a generation, has made sure that California is one of the most difficult places in the country to operate a business, with intense regulatory burdens, high tax rates, and high labor rates (resulting from the high cost of living, largely as a result of high tax rates and excessive regulation). Facing a large budget deficit, governor Jerry Brown and the state legislature have proposed a "painful" budget -- that actually increases total state spending -- and a 30% increase in the top income tax rate. There appears to be no understanding that such a huge increase in taxes on top off one of the most burdensome state income tax regimes in the country, will force more businesses, and productive individuals, to leave the state. If Governor Brown gets his way, many more jobs will be outsourced from California, and that won't be the fault of the fleeing businesses.

Brown and the Democrat-controlled state legislature, however, are moving forward with the first phase of a $68 billion (optimistic projection) high-speed rail project to link Los Angeles and San Francisco. The project will start with $6 billion to build 130 miles of track in California's sparsely populated Central Valley. If and when completed, it will undoubtedly run at a massive deficit, will take few cars off the roads (it will compete -- probably not well -- with airline travel more than driving), but it will "create jobs" (though not nearly as many as advertised, according to a UCLA study). And, of course, it is cool and cutting edge.

The "Bullet Train to Nowhere" also comes with a $3.2 billion stimulus grant from President Obama's venture capital company known as the U.S. Treasury. Obama's other "investments" have been the likes of now bankrupt Solyndra and LSP Energy. Obama's "stimulus" programs have been awash with waste, corruption, and favoritism. They have cost the U.S. taxpayer dearly, with little to show for it, with unemployment still above where it was when the "stimulus" tap started to flow. By contrast, while at Bain Capital, Mitt Romney helped to create tens of thousand of real, permanent jobs.

The Democratic ad machine cranks out attacks on Mitt Romney, smearing his business experience as something to be disdained. In smearing Romney as having made his fortune "buying and selling companies" rather than doing anything truly productive, Obama's surrogates show their profound ignorance of how business works. You don't make much money simply by "buying and selling companies" unless you do something to increase the value of the companies you buy. Bain Capital, under Romney's leadership, did that with visionary management, taking companies like Staples and Sports Authority from obscurity to industry leaders, as well as investing in and helping to manage many other successful companies -- creating tens of thousands of jobs in the process. There is no argument that Bain has been tremendously successful in turning under-performing businesses into stars. Even setting aside the issue of when Romney relinquished operational control, focusing on a handful of failures, or a few Bain-funded companies that hired some foreign-based workers, to portray Bain and Mitt Romney as "job destroyers" or "outsourcers" is breathtakingly dishonest, even for the Obama administration.

Obama, however, is more than dishonest. He, and most of his administration, it seems, does not have even a rudimentary understanding of how an economy prospers. Though they wash their hands of any responsibility for private sector job losses resulting from their policies, they believe true "job creation" is a creature of government. "Stimulus" spending is the answer. It doesn't matter if the spending is for productive activity, just as long as it employs people (at least through the next election). As President Obama put it so frankly, the problem is not anemic job growth in the private sector, which is "doing just fine," but rather that government jobs are still in decline.

Unfortunately, President Obama's experience as a community organizer does not appear to have left him well equipped to deal with the nation's economic problems, and much of the current Democratic leadership sounds as though their sole schooling in economics came from a teach-in at an Occupy Wall Street protest. They look down on private industry, do not understand that prosperity comes from productivity (not just spending), and cast employers as rapacious villains if they are too successful. That's a big reason why they really dislike Mitt Romney and see no problem in taking creative license in distorting what they view as a disreputable capitalist past. It is also explains why the American economy is still in the dumps. 

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About the Author
Brandon Crocker is the chief financial officer of a commercial real estate development and management company in San Diego.