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Stacy Zimmerman

Kellogg

ENGL 1320

April 21, 2012

Protectionism: Reviving the Moral Economy

A common topic regarding the American economy today is the unemployment rate.

From small town coffee shops to Wall Street investment firms, there is no shortage of finger

pointing; one such scapegoat for the American joblessness epidemic is outsourcing. Today,

nearly thirteen million people in the United States are unemployed (National Bureau of Labor

Statistics), and outsourcing of American jobs is contributing to this statistic. Also known as

offshoring or offshore outsourcing, it is the utilization of foreign laborers instead of

comparably qualified Americans. A growing number of American enterprises favor outsourcing,

primarily because of the financial gains it offers. Proponents of outsourcing allege that it is an

amiable proffer for each faction; the American-based establishments save capital, and create

employment opportunities in otherwise repressed areas of the world. Challengers disagree,

contending that potential employers from foreign countries are not reciprocating in this

multilateral trading relationship, therefore causing an imbalance, namely the staggering decline

in U.S. employment. Opposing the practice of outsourcing is a form of Protectionism, a tenet that

originated with the founding fathers of this country that was essentially designed to protect

American citizens who engaged in free trade. Today, lawmakers on state and federal levels are

actively creating legislation to regulate outsourcing for the exact same reason: to protect

American consumers and workers from falling victim to the manufacturing industry itself. It is

within the power of our Congress, the House of Representatives and the Senate to reverse this

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damaging trend by further amending current tax codes, restructuring work-visa requirements,

and creating new laws that mandate a more balanced approach to our standards regarding foreign

and local labor forces. Governing the outsourcing of American jobs is the first step in defending

the security of American breadwinners and their families.

Manufacturing and Information Technology are two sectors of the job market

overwhelmingly affected by outsourcing. Though both industries outsource extensively, each

has specific ways in which it affects the U.S. economy and workforces. Likewise, solutions for

addressing each respectively vary. This essay will address both, starting with the implications of

outsourcing from the manufacturing perspective.

Jan arrives at the daycare to pick up her son, Paul Jr. Its earlier than usual and she

wonders if his nap will be interrupted by her surprise arrival. Instead of her usual pick-up time

of five-fifteen, it is barely after lunch. But today was no ordinary day. Today, after fourteen

years at the Corning Glass plant, Jan lost her job. Corning, since its inception in the 1850s, had

employed three generations of Jans family. Apple, Inc. had chosen the American-based

company to supply the glass screens for iPhones, but opted instead to award the contract to

FoxConn, a Chinese-based organization. FoxConn took over the contract because they could

produce the same glass for a fraction of the cost. Manufacturing the glass in China not only

eliminated the need for costly overseas shipping of the glass, it reduced Apples cost of

production by sixty-five dollars per unit (The New York Times). As a result, Apple took its

business to FoxConn, leaving Jan and hundreds more workers in the small Kentucky town

displaced and unemployed. The practice of outsourcing results in the loss of more than factory-

floor jobs, however; the ripple effect of unemployment and economic decline is invasive,

spreading indiscriminately throughout all levels of the American economy.

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The majority of employed Americans, eighty-six percent, are now in lower paying

service-related jobs. Only fourteen percent still work in good-producing roles, including

manufacturing. This is in sharp decline from just fifty years ago, when nearly forty percent of all

American jobs were manufacturing related (The New York Times). This is significant. For

every one thousand manufacturing jobs that exist, another four thousand jobs are subsequently

created: parts manufacturing; transportation; warehousing; and management positions, all in

support of production and assembly line roles. This is known as the job-multiplier effect

(Bivens). The opposite of this effect is happening today, however. As more lower-level

manufacturing jobs have left this country, people in the higher paying supporting positions have

had to follow suit. This has created a vacuum of unemployed people, most of which are only

qualified for lower paying service related vocations, such as restaurant staff, hospital attendants

and retail sales. People in the higher level supporting positions either have to relocate overseas

or take lesser paying service related positions to stay employed here in the U.S. Outsourcing of

American manufacturing jobs not only affects workers on the factory floor, it impacts the entire

workforce.

Save Money, Live Better is the well-known slogan of the American based big-box

store, Wal-Mart. The nationwide chain is able to offer products at much lower price points

because their merchandise is largely imported from foreign suppliers. Not only does the money

spent to acquire their massive inventory go to foreign suppliers, six hundred thousand jobs

required to produce the items are exported overseas as well (Fischman). Where there once were

locally owned retailers for groceries, hardware and building materials, garden supplies and

pharmaceuticals, now instead are the sprawling new Supercenters, family-owned businesses left

boarded up and vacant (Mitchell). Ironically, Wal-Mart employs more Americans than any other

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company, one million, seven thousand people (Blodget) which is a fact their savvy public

relations firm has fervently capitalized upon. What they conveniently fail to mention, however, is

that for every job Wal-Mart creates, 1.4 American jobs are lost as existing businesses are

forced to downsize or close (Neumark, Zhang and Ciccarella). It would shock the average Wal-

Mart consumer to know that by shopping there, they are contributing to one of the worst attacks

on the economy the U.S. has ever seen. Save Money, Live Better is at best an enigma. Wal-

Mart in reality is the antithesis to living better; saving money in the short term is extolling

serious long term economic consequences (Goetz). The less aware the consumer is kept, the

better off Wal-Mart becomes. For reducing the quality of life for millions, perhaps a more

accurate slogan for Wal-Mart would be Save Money, Live Destitute or The Less You Know,

The Better We Live.

Wal-Mart is not alone. Many additional big-box conglomerates are profiting using the

same tactics: outsourcing the production of and importing foreign made merchandise; paying

lower wages and reducing health benefits of American employees; and taking full advantage of

government subsidies and loopholes in existing tax codes. Other similarly subsidized retailers

such as Home Depot, Bass Pro Shops, Super Target, and Borders Book Stores also reap

enormous fiscal benefits due to property tax rebates, free or discounted tracts of land, and

financial backing for site preparation and on-site infrastructure (Mattera, Philip, and Purinton).

These companies are given government money on the premise of creating economic growth, but

in reality, there are more people on Medicaid and food stamps in communities with these big-box

stores than there are in areas without them. The average Wal-Mart worker, for example, requires

$730 a year in taxpayer-funded healthcare and $1,222 annually in other forms of assistance, such

as food stamps and subsidized housing (Dube and Jacobs). The United States government must

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put an end to these corporate subsidies and tax cut incentives. The intent of these codes was to

stimulate economic growth, but as statistics have clearly shown, the companies taking advantage

of state and local loopholes are using them to fatten their own corporate bottom lines. The

people these laws were meant to help are actually suffering because of them, ending up worse off

than they were before the big-box stores came to town. Save Money, Live Better on Public

Assistance.

Aside from American joblessness and economic decline stateside, there is another

perspective on foreign outsourcing that warrants concern, and that is the toll it is taking on

people outside of this country as well. People in less developed areas of the world vie for

positions with American employers. Competition is fierce, and workers are willing to endure

conditions that would be unthinkable in the U.S. in exchange for pay that is a fraction of our own

minimum wage. American-based companies like Dell, HP, IBM, Motorola, Nokia, Sony,

Toshiba and Apple have openly admitted that Chinese manufacturing facilities efficiency and

lower operational costs makes them more attractive than their American counterparts. Human

rights groups, however, in both China and the United States have cried foul, citing numerous

occasions where inhumane working conditions have led to exhaustion, injuries, fatalities, mental

breakdowns and numerous suicides (Chan). Winning an American contract for Chinese

companies like FoxConn is literally like winning the lottery. Factories are run twenty-four hours

a day, seven days a week, with military precision and force. Plant Managers at FoxConn know

how to satisfy the demands of the American buyer; production must be at the speed of innovation

itself. This burden is then transferred to the millions of Chinese laborers, where abuse and

coercion are accepted as part of the job. This is all done to please the American buyers in hopes

of winning the next contract, and the next, with little concern for the human toll being taken. It

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is a common site in industrial towns like Longhua and Guanlan in the Shenzhen province of

China to see suicide prevention nets surrounding FoxConn employee dormitories (Chan).

Another sector of American workers displaced by outsourcing is those in the field of

Information Technology. This type of outsourcing, known as Business Process Outsourcing, or

BPO, impacts the American workforce differently than manufacturing related outsourcing, but is

perhaps more readily noticeable to the public. American based call centers and customer-service

related jobs, thanks to advances in telecommunication technology, are very easily replaced with

BPO centers in other parts of the world. Companies wanting to provide twenty-four-hour

support to a world-wide customer base might have call centers in several different time zones.

At face value this sounds like a reasonable justification, but opponents argue that with multiple

shifts in a twenty-four-hour period, American call centers could provide the exact same level of

support. In reality, the true motivation to outsource is cost: it is much cheaper for companies to

hire people overseas than it is to employ Americans, largely because of the minimum wage

requirements in this country. In less developed areas of the world like the Philippines,

Guatemala, Mexico and India, people are willing to be paid much less per hour than most

Americans, just to have a job in an air-conditioned cubicle for an eight to twelve-hour shift.

Additionally, employers of overseas workers are able to hire people without having to provide

them with health or retirement benefits, another savings in the overhead costs of operation. Since

fifty-five to sixty percent of the overhead costs of running a call center is man-power, this is a

significant amount of capital to be saved (Outsource2India.com). Coupled with the tax breaks

the U.S. Government currently provides, these factors add up to a profit boosting incentive few

American companies have been able to resist (Ali). Among those currently outsourcing their call

center operations are Convergys, Equinox Corporation, American Express, American Airlines,

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and U.S. Airways, to name a few. Imagine a customers surprise when calling the 800 number

for American Express client services and getting a call center agent who is obviously in another

country. The formidable cultural gap and accent barriers have resulted in an onslaught of

consumer complaints and a backlash against overseas call centers. A BPO firm in India, Delhi

Call Center, fields millions of calls per month, most of which come from America. Delhi Call

Centers creative solution to the backlash has been to extensively train young Indian recruits on

how not to be Indian. The successful graduates of the program have learned from weeks of

accent training tapes, the study of English intonation and memorization of American holidays.

The agents are required to adopt American names to use when identifying themselves to

customers, to make themselves (and Delhi Call Center) more palatable to American callers.

Those who do not make the cut are sent away, said yet to be cured of their MTI, or mother

tongue influence (Marantz). Millions of Indians apply for these BPO positions, the average pay

for which is about twenty-two thousand rupees per month- around two dollars an hour, or five

thousand dollars per year (US Department of State). Many Indian call center agents see this as

their opportunity to escape poverty and enter Indias middle class; they will opt for threadbare

living conditions, ration their own food, and send their paychecks back home to waiting families.

Not only are American companies taking jobs away from U.S. citizens, to make matters worse

they are taking advantage of the people in India who are so desperate for work that they willingly

accept such conditions.

In Manufacturing and IT alike, American corporations motivation to outsource seems to

share some similarities. Both do it for the money. Replacing American jobs with foreign labor

may benefit large American corporations by reducing overhead costs and bolstering profits.

According to the McKinsey Global Institute, for every dollar the United States spends overseas,

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we get back $1.12 (Ferrell). The investment dollars do come back to America, but its in the

form of corporate profits, leaving the American worker paying the ultimate price for someone

elses short term economic gain. It is this unscrupulous greed that is at the heart of many

problems, both locally within the United States and globally as well. These acts against

humanity, regardless of the degree of abuse, can be stopped. The United States government has

the power to mandate regulations and standards that could make significant changes for all.

Regulating the outsourcing of American jobs is the first step in protecting the interests of

American breadwinners and their families. Lawmakers on state and federal levels in the United

States are working tirelessly to pass legislation, standardizing the practice in hopes of protecting

the millions of Americans displaced and unemployed. One such code is the Appropriations Bill

H. R. 2673 which became Public Law No. 108-199 in January, 2004. Public Law 108-199 began

in the House of Representatives as H.R. 2989. It was amended by Senators Craig Thomas and

George Voinovich (Congressional Record), and the measure became law on January 23, 2004 as

a part of the Appropriations Bill H.R. 2673. Public Law 108-199 is an Administrative Law,

which means it is enforced by the executive branch, and meant to regulate international trade,

manufacturing, pollution, and taxation. This particular measure is groundbreaking in that it

disallows government funds to be used to pay for contracts that employ people or companies

outside the United States to do government related work. While Section 533 of Public Law 108-

199 targets a very small percentage of the American workforce, the enactment of this mandate

set precedence for future Protectionist legislation.

Another U.S. Bill, H.R. 3596, was introduced in December 2011 and is currently in

Congress now. It has been coined the United States Call Center and Consumer Protection Act

(Bishop). This proposed legislation would make companies that outsource ineligible for federal

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grants or loans. Proposed by Congressman Tim Bishop (D-NY), this Act would enable the

United States Department of Labor to monitor organizations that outsource jobs outside of the

U.S., preventing them from receiving any grant money for a minimum of five years. This

mandate targets companies that receive millions of dollars in tax incentives to open U.S. based

call centers, only to relocate the operation overseas shortly thereafter. Additionally, the Bill

would make any call center operation failing to disclose its offshore location to the Labor

Department subject to ten-thousand dollars a day in penalties. So far the Bill has as many as one

hundred six lawmakers as its co-sponsors (Epstein). Congressman Bishop has been quoted as

saying Taxpayer dollars should not be supporting companies that choose protecting their bottom

line over protecting their customers (Deccan Herald).

In the Global Market today, the technologies afforded to American citizens may have

changed, but the fundamental ideas of Protectionism still apply. Just as technical knowledge and

innovation have evolved, so must American policy in order for this country to fully embrace and

profit from these advancements, responsibly. The first economic policy ever implemented in the

United States was Protectionism, in which as defined by Webster is the theory or practice of

fostering, or developing home industries by protecting them from foreign competition through

restrictions on foreign competitors. Clearly, this call for regulation and standards is not a new

one. James Madison, George Washington, Thomas Jefferson and other of our founding fathers

believed that it is wrong for industry to succeed at the ultimate demise of the consumer, and in

parallel, the American worker. Abraham Lincoln was strongly opposed to Free Trade, arguing in

defense of a greater concern: our moral economy. If the relationship between corporate profits

and the welfare of American consumers and workers were balanced, both can coexist. The

current state of financial crisis in the United States can be reduced by reforming the current tax

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codes and mandating minimum standards of employment for American corporations who wish to

outsource parts of their businesses.

There are numerous organizations that have been put into place over the years to regulate

fair trade; some believe strongly that free trade benefits everyone involved. Others claim, as I

do, that under the current system of checks and balances the wealth generated by free trade is

amassed by a miniscule percentage of the population. This unfair distribution of wealth is

adding insult to the injury of unemployment, and has led to recent uprisings of groups like the

well-known Occupy Movement. As things stand now, the ninety-nine percent bears the

burden of sacrifice while the wealthy one-percent enjoys the spoils. The rich are getting richer;

so rich in fact that Apple, Inc. alone profited $400,000 per employee in 2011 alone. How? On

the backs of the misfortunate millions without work in this country, and with the lives lost in

China because of abusive and inhumane working environments. A quote from a New York Times

article sums it up best: Given Apples prominence and leadership in global manufacturing, if

the company were to radically change its ways, it could overhaul how business is done. Every

company wants to be Apple, says Sasha Leshnev at the Enough Project, a group focused on

corporate accountability. If they committed to building a conflict-free iPhone, it would

transform technology (Duhigg and Barboza). The crux of the problem, however, is that Apple,

nor any other American manufacturer for that matter, are obligated to run their operations based

on ethics. The language spoken by the corporate elite is: dollars. Money talks. And who

knows the language of the dollar better than the United States Government. Eliminate tax breaks

for companies that outsource their labor. Reduce or remove the subsidies and land grants for

employers who chose to use foreign labor instead of qualified American workers. The argument

that Americans are not adequately skilled to perform goods producing functions is an outright

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fallacy. Perhaps one of the downfalls of our domestic workforce is that we are too attached to

things like forty-hour work weeks, and owning our own homes rather than living in cramped

dormitories where we can be called to the factory floor at any hour of the day or night. Not only

are these conditions unacceptable to American workers, they should be unacceptable to

everyone. It is our responsibility as a nation to draw the line, and make a distinction between

doing well, and doing wrong. Profiting at the expense of other human beings is an unequivocal

wrong. Knowing it is happening yet choosing to do nothing about it is equally as wrong. As a

country, we have the technology, the manpower and the mind power to find an amicable solution

and its going to have to start with our legal system. Rules need to be set for those who cant

seem to rule themselves, starting with the large corporations.

There is an adage that says the rising water lifts all boats. If the rising water is success,

and all boats are all people, I fear that without proper standards and regulations, that same water

can also fill all lungs. With government regulation, determination and fairness, the economic

ideal of this adage can be achieved. Without it, were drowning. Were drowning at the speed of

innovation.

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