Does Romney believe in capitalism? Does Obama?
WASHINGTON (MarketWatch) – The Obama and Romney campaigns have been beating each other up for a week over the issue of outsourcing American jobs.
Each of them is accusing the other of being the "outsourcer in chief." To hear them talk, you'd think that outsourcing is a bad thing.
Which raises the obvious question: Does Mitt Romney believe in capitalism? Does Barack Obama?
For outsourcing is old as capitalism itself, as basic as the theories of the division of labor and of comparative advantage that are the bedrock of capitalism.
Outsourcing flows directly and logically from the prime directive of capitalism: Maximize profits. A capitalist denouncing outsourcing is like a fish repudiating water.
Although Obama and Romney are railing against outsourcing on the campaign trail, both men have supported the outsourcing of jobs. While politicians of both parties have at times endorsed trivial limits and restrictions on the practice, the government has largely left businesses free to outsource at will.
Outsourcing -- and the threat of outsourcing -- remains one of the primary tactics used by businesses to cut costs and maximize their profits.Outsourcing drives wages lower and eliminates jobs, but some of the cost savings go to consumers, freeing up money to buy other things, which in turn creates other jobs. Outsourcing makes the American economy more productive.
First, let's clarify a few things. The politicians call it outsourcing, but what they truly hate is offshoring, a related term.
Technically, "outsourcing" is the practice of subcontracting work that was once done within a company to an outside firm, either in America or in a foreign country.
"Offshoring," on the other hand, is the practice of sending work currently done in the United States to a facility in another country, whether owned by that company, or by a supplier.
What the politicians are really in high dungeon about is the loss of American jobs to foreigners. The issue is offshoring, not outsourcing. When you hear someone denounce "outsourcing" without specifying what they mean, mentally substitute "offshoring."
Offshoring is an issue that won't go away, because it goes right to the heart of the anxiety that troubles every working American, no matter how long they've been on the job, how much they make or what skills they have: Somewhere in the world, there is someone who will do my job for a much lower wage. And it's my boss's job to find that person.
Offshoring is a potent political weapon, as we've seen this year and many times in the past.
Ross Perot's surprising strength in 1992 was based in large part on his rants against "that giant sucking sound" coming from Mexico, taking all our jobs. In 2004, George W. Bush's top economist, Greg Mankiw, got in trouble for saying that offshoring was a positive for the economy, a statement that was politically poisonous but utterly uncontroversial among economists. Like Galileo, Mankiw had to recant something he knew to be true.
Losing a job because your own employer outsourced it or offshored it is pretty much the same as losing it because a competitor, foreign or domestic, drove your employer out of business. But it seems worse, because we seem to think U.S. businesses should have some loyalty to something other than the bottom line.
But why should they? There's no room for sentimentality in business.
Once upon a time, some Mom & Pop businesses -- local retailers, restaurants, banks, newspapers, radio stations, manufacturers, and hospitals -- were sentimental. The owners treated their employees like family. They were proud members of their local community, and proud taxpayers. But then the forces of globalization and financialization and intense competition drove those sentimental, and hence inefficient, Mom & Pop businesses under.
And who replaced them? Unsentimental, no-nonsense companies, such Burger King, Dunkin' Donuts, the Sports Authority, Staples, Hospital Corporation of America, and other companies that Bain Capital invested in. Companies that took advantage of the economies of scale, and their willingness to cut costs, to outsource or offshore whenever possible to squeeze another penny of profit.
Mitt Romney was part of a revolution in U.S. business in the 1980s and 1990s. Businesses were streamlined, operations were shuttered or sold off, management was toughened up, wages were cut -- all in reaction to an onslaught of foreign and domestic competition, and the urgent demands from shareholders for a higher return on their investment. Read my earlier column "Romney was a businessman, not job creator."
Romney owes the small fortune he earned at Bain Capital to his ability to squeeze the sentimentality out of businesses. He used to be unapologetic about how he transformed the businesses he touched, but that was before Romney the Capitalist became Romney the Politician.
Because if capitalists cannot be sentimental, then politicians must be. The capitalist answers to the bottom line, but the politician answers to the public. Outsourcing and offshoring may be the right and logical thing to do from a business perspective, but the public will always be against them.
The public puts people ahead of profits, and therefore the politician must do likewise, at least on the campaign trail. Back in the corridors of power, away from the microphones, it's a different story. Just two weeks ago, for instance, the Obama administration hosted secretive negotiations in San Diego on the latest trade deal with our Pacific trading partners that would give U.S. corporations even more incentives to invest overseas and take American jobs with them.
Now that Romney has been caught red-handed, he cops the "Shaggy defense," saying "It wasn't me." But it was him, him and the rest of the investors, venture capitalists, business executives and politicians who've embraced the cruel logic of the marketplace.
If they believe in our market economy, then it's time for all of them to stand up and say with pride: "I endorse outsourcing." It's time to say what they really believe, and stop being so sentimental. We can take it.