Insourcing Trend Strictly A Myth

The cover of Atlantic magazine’s December issue boldly assures America: “Comeback: Why The Future of Industry Is In America,” with the headlines pronounced against a backdrop bearing the glossy sheen of a brand-new American-made product. Coupled with numerous speeches by President Obama proclaiming an “insourcing” trend as well as a raft of recent media stories by Bloomberg News, NPR, CNBC, and many others, the Atlantic drove home a message that tens of millions of anxiety-wracked Americans have been waiting to hear: manufacturing and family-sustaining “middle-class” jobs that once seemed gone are coming back to our shores.

Those proclaiming the advent of insourcing on a massive scale say that it is being driven by higher Chinese manufacturing wages, rising shipping costs, and business leaders’ growing concern with shortening the turnaround time between a product’s design and the actual start of production.

The Atlantic stories have ignited hope across the political spectrum and up and down the economic ladder, as they reinforce the notion that America will finally start becoming a nation, “that produces stuff” again, instead of relying on an economy built on financial speculation. Unfortunately, insourcing is not an exciting new trend. It is no trend at all. Instead, according to international economist Robert Scott of the Economic Policy Institute, it is “mostly a mirage.” Scott argues, “It’s Kabuki theater that various CEOs and the White House are trying to sell to the public. The fact is that the growth of exports has slowed dramatically. More importantly, imports have grown faster than exports since the recovery began.

“I have seen no evidence of this [insourcing] in our trade performance. The U.S. trade deficit [in goods] has risen much faster than the GDP the past three years,” reaching $738.4 billion in goods for 2011. The total deficit including services was $599.9 billion…. “To make matters worse, we import labor intensive products that displace millions of jobs and export things like petro products and pharmaceuticals that are extremely capital intensive and support very few jobs. So it’s a lose-lose-lose story.”

The talk of an “insourcing trend” is belied by data, Scott says, that show a continuing outflow of U.S. manufacturing jobs and a continuing overall drop in factory employment over the past 15 years, with numbers buoyed up slightly by the economic recovery.

Despite an existence that is strictly mystical, the notion of an insourcing trend has enormous appeal throughout America. Chris Townsend, the long-time political director of the United Radio Machine and Electrical Workers (UE), a union deeply wounded by the “offshoring” of U.S. jobs to repressive low-wage nations like Mexico and China, has been stunned by the way that the Atlantic articles have resonated across America. From an op-ed by the right-wing president of the National Association of Manufacturers to many progressive websites, the Atlantic articles by Charles Fishman and James Fellows have been “growing exponentially in [their] reach.”

The trend hailed by the Atlantic touches both the populist “stop offshoring” sentiment and the unrestrained entrepreneurial mentality whose sharp conflict was a subtext in the 2012 presidential race. A 2010 poll (10/2/10, Wall St. Journal) showed that 86 percent of Americans—with nearly equivalent numbers among Democrats and Republicans as well as industrial workers and executives—believe that the offshoring of jobs is the major source of the nation’s economic problems. These findings echoed a Fortune poll (1/23/08), showing, “The explanation for the current economic slowdown most frequently cited by respondents: ‘U.S. companies sending jobs overseas where labor is cheaper’.”

For workers, says Townsend, the reports of jobs returning to America are eagerly greeted by people who have watched some 6 million U.S. manufacturing jobs—about one-third of the total—disappear since 1998. “I am sure many union members have heard about this alleged ‘insourcing’ trend, and probably like what they hear—even recognizing the downsides. It is the ‘news’ that everyone wants to hear, so it is getting good ratings.”

For businesspeople, the talk of insourcing is a reassuring return to normalcy when production was carried on locally under their watchful eyes, when suppliers were familiar local operators and participation in building America’s industrial might was a source of pride. However, insourcing is essentially a political fairy tale designed to lull listeners into complacency. 

More dangerously, the false promise of insourcing diverts public discourse away from the crises facing working people: the sharp erosion of U.S. wages and living standards—which will require the restoration of union organizing rights trampled into meaninglessness by decades of incessant and flagrant employer violations, enabled by government and elite media indifference.

“Free trade” agreements, like the NAFTA-style Trans-Pacific Partnership (TPP) now being negotiated, encourage intensified offshoring of jobs and undermine democracy by bestowing corporations with the power to pursue legal actions against democratically-created laws of sovereign governments.

“While the election season seized everyone’s attention, government officials and 600 official corporate ‘advisors’ were working behind closed doors to complete the Trans-Pacific Partnership,” explains Lori Wallach, executive director of Public Citizen’s Global Trade Watch.

“The TPP is the latest strategy by the same gang who got us into the North American Free Trade Agreement and pushed for the expansion of the World Trade Organization American job-offshorers like GE and Caterpillar; banksters like Citi; pharmaceutical price-gouging giants like Pfizer; oil, gas, and mining multinationals like Chevron and Exxon; and agribusiness monopolists like Cargill and Monsanto.”

The TPP threatens to add to the tide of family-supporting jobs flowing out of the U.S., mostly to low-wage nations where labor rights are crushed and environmental considerations ignored in the chase for maximum profit. While China’s attractiveness to U.S. corporations may be dimming slightly, says Arthur Stamoulis, director of the Citizens Trade Campaign, “The TPP…would improve manufacturers’, brands’ and retailers’ access to even lower-cost labor markets in countries like Vietnam and Malaysia—creating incentives to offshore to those countries, while simultaneously undercutting Chinese wages and working conditions.”

The EPI’s Robert Scott, after examining the trends of the last several years, concludes, “U.S.-based multinational firms are importing vast quantities of manufactured goods, up about 40 percent in the last couple years. These firms are importing cheap components. With more and more cheap inputs, they can expand their output without much hiring in the U.S. So profits are rising and wages are not.

“We’ve had 6 million net losses in manufacturing since 1998, even including gains of about 500,000 since January 2010.” Jobs continue to flow out of the U.S. Some of the job loss is caused by the replacement of U.S.-made parts and products by foreign-made goods often subsidized by their government. A significant chunk is due to U.S. firms manufacturing overseas in low-wage subsidiaries and bringing the products back into the U.S. Amid all the talk about China as a rising industrial power, there is little mention that 60 percent of its exports come from U.S. or other foreign-owned firms.

The Wall Street Journal’s David Wessel, using Commerce Department figures, reported (4/19/11) that, “U.S. multinational corporations that employ 20 percent of all U.S. workers, are increasingly hiring overseas workers.

“U.S. multinational corporations, the big brand-name companies that employ a fifth of all American workers, have been hiring abroad while cutting back at home, sharpening the debate over globalization’s effect on the U.S. economy.... The companies cut their work forces in the U.S. by 2.9 million during the 2000s while increasing employment overseas by 2.4 million, new data from the U.S. Commerce Department show. That’s a big switch from the 1990s, when they added jobs everywhere: 4.4 million in the U.S. and 2.7 million abroad.”

Even insourcing cheerleader Fishman concedes, “The country lost factory jobs 7 times faster between 2000 and 2010 than it did between 1980 and 2000.” To simply offset this enormous outflow of jobs, the current trickle of jobs coming back to the U.S., to which insourcing enthusiasts point with predictions of future successes, would have to rise meteorically.

Long-time manufacturing expert Dan Luria, an economics PhD who has worked for over 20 years in trying to sustain and stimulate manufacturing in Michigan, dismisses insourcing as mere wishful thinking contradicted by the harsh realities of how giant U.S. firms are actually investing their money outside the U.S. Luria argues that all the declarations about insourcing are based on “the same four or five anecdotes,” with several featuring sharply-reduced wages—hardly a cause for celebration.

Each of the major “successes” in insourcing cited by Fishman and Fallows in the Atlantic seem to crumble—or at least be recognized as microscopic in significance—when subjected to less adulation and more scrutiny. Whether celebrating an old-line manufacturer like GE opening a new production line in Louisville, a recently-emerged giant like Apple supposedly taking charge of improved conditions at its Foxconn supplier in China while bringing back jobs to the Bay Area, or a new association of small factory owners in San Francisco, Fishman and Fallows breathlessly keep announcing a soon-to-arrive industrial renaissance.

Fallows, for example, declares “these changes portend better possibilities for American manufacturers and American job growth than at any other time since Rust Belt desolation and the hollowing-out of the American working class came to the grim inevitabilities of the globalized industrial age.” However, the evidence of such an insourcing boom promoted with such aggressive salesmanship by Fishman and Fallows evaporates rapidly once examined, as with cases like General Electric, Master Lock, Apple, and its crucial partner, Foxconn.

General Electric

Fishman’s argument for an insourcing revolution is largely based on his observations about GE’s decision to install several new production lines at its long-moribund Appliance Park in Louisville, Kentucky. In 2012, “something curious and hopeful has begun to happen, something that cannot be explained merely by the ebbing of the Great Recession and with it the cyclical return of recently laid-off workers,” Fishman gushes. GE is spending $800 million on production lines that will produce water heaters, French-door refrigerators, and “trendy front-loading washers and dryers that Americans love. GE has never before made those in the United States,” Fishman informs us.

According to Fishman, the commitment to Appliance Park in Louisville represents a major shift in the thinking of GE and its highly influential CEO Jeff Immelt, showing a renewed belief in the importance of manufacturing in America. In the recent past, then-CEO of GE Jack Welch once infamously stated, “Ideally, I’d have every plant I own on a barge,” thereby being able to quickly exploit the latest opportunity for even lower-wage labor. Immelt, who has served as chair of President Obama’s Commission on Competitiveness and Jobs, voiced a different philosophy when he wrote in Harvard Business Review, that the offshoring of jobs is “quickly becoming mostly outdated as a business model for GE Appliances.” Immelt expounded on that theme in an op-ed (4/21/11, Washington Post): “[T]here is nothing inevitable about America’s declining manufacturing competitiveness if we work together to reverse it,” he wrote. “For example, we have returned many GE appliance manufacturing jobs to the States by collaborating with our unions and making our operations more efficient.”

The implications of GE’s decision to invest in Louisville are thus earthshaking for Americans, according to Fishman. “What has happened? Just 5 years ago, not to mention 10 or 20 years ago, the unchallenged logic of the global economy was that you couldn’t manufacture much besides a fast-food hamburger in the United States. Now the CEO of America’s leading industrial manufacturing company says it’s not Appliance Park that’s obsolete—it’s offshoring that is.”

However, the remarkably credulous Fishman fails to measure GE’s performance against Immelt’s rhetoric. For example, General Electric—which Fishman cites as a symbol of the insourcing phenomenon—slashed its U.S. employment 15.8 percent, from about 162,000 in 2000 to 132,000 in 2010, while making a small increase in its overseas workforce. Since then, GE has shifted the headquarters of its medical equipment division to China from a Milwaukee, Wisconsin suburb, virtually assuring that future cutting-edge equipment will be designed and manufactured in China while the Wisconsin plant is relegated to turning out increasingly-dated equipment until they are completely obsolete, observes Frank Emspak of the University of Wisconsin.

While Immelt has been busy giving speeches about the need to rebuild U.S. manufacturing, his underlings have been carrying out his orders to close down U.S. plants. “My GE plant closing list stands at 32 plants closed for a loss of about 4,000 jobs, just since 2008,” says Chris Townsend of the UE. “When GE was confronted with this list, they have refused to discuss it, and off-the-record chats with GE staffers suggest that’s because the actual list is more extensive than I was able to compile.”

Since Townsend originally made the comment, eight additional closings of GE plants around the nation—in Chicago, Pittsburgh, Houston, Minneapolis, Charlestown, West Virginia, and three more in Ohio—Warren, Ravenna, Newcomerstown—have been announced, bringing the total to at least 40 GE shutdowns since 2008.

Although Immelt may proclaim that there is “nothing inevitable” about U.S. firms abandoning domestic manufacturing,” it is becoming clear that drive for maximum profits is fueling ever more closings. The jobs from the much-heralded new production lines in Louisville are being counter-balanced by a much larger wave of job losses at GE facilities around the nation.

GE’s investment in its U.S. operations is a mere 25 percent of its global spending, Luria points out. “In 2011, GE invested $8 billion around the world, $2 billion of that in the U.S. The same year, Samsung—a company the same size as GE—invested $38 billion, including $2 billion in the U.S. and $29 billion in its home country.”

Considerably downplayed in Fishman’s account are the low pay and local-government subsidies which GE demanded before re-investing in Appliance Park. In the eyes of the United Electrical workers’ Townsend, the low wages at Appliance Park are part of a sustained effort by GE and other highly-profitable U.S. firms to drive down wages (see “The War on Wages,” Z, December 2012). For example, starting wages in manufacturing in the U.S. are 50 percent lower than they were six years ago, according to former Labor Secretary Robert Reich. Fully 58 percent of the jobs created in the economic recovery pay between $7.69 and $13.83 an hour (NY Times, 8/31/12). For its part, GE has bluntly informed Townsend and representatives of other unions that it now considers $13 an hour to be a “competitive” wage.

With U.S. firms turning to repressive low-wage nations for more production, incomes in the U.S. are falling. “Adjusted for inflation, real wages have stagnated or fallen. A typical male worker’s income in 2011 ($32,986) was lower than it was in 1968 ($33,880), according to former World Bank chief economist and Nobel Prize laureate Joseph Stiglitz (NYT, 1/20 /13). In Louisville, the GE investment “was conditioned on sharp wage and benefit cuts: workers assigned to the new water heater line will earn less than 60 percent of U.S. service-sector workers, notes manufacturing specialist Luria:“ The nearly 50 percent of them that are their families’ sole earners will qualify for food stamps and, depending on family size, Medicaid.”

This underscores a submerged theme in the discussion about insourcing. While insourcing strategists stress the significance of rising Chinese wages lowering the differential with U.S. workers, their implicit message calls for U.S. workers to accept lower wages to further reduce the difference. Luria spotlights this problem: “Nearly all of the cheerful anecdotes about bringing work back here fail to draw the obvious conclusion: if manufacturing ‘comes back’ as a low-wage industry, why would we want it? ”

Along with the establishment of a new poverty-wage structure in Louisville, GE cut the wages of some workers at its non-union Mebane, North Carolina plant by 45 percent. “We have discovered new GE workers being hired in product assembly in New Jersey as low as $8 an hour at the end of 2012,” reports Townsend.

GE’s relentless drive to squeeze down wages is hardly created by any sense of financial desperation. The firm earned profits of more than $14 billion in both 2010 and 2011, while paying “at most two percent of its $80.2 billion in U.S. pretax profits in federal income taxes over the last 10 years,” according to a Citizen for Tax Justice report (2/27/12). The Wall Street Journal reported (1/4/13) that GE plans to invest much of its untaxed profits overseas: “GE saved $8.8 billion on ‘lower-taxed global operations,’ from 2009-2011, according to its latest 10-K. The company also made a decision in 2009 ‘to indefinitely reinvest prior-year earnings outside the U.S.’” CEO Jeffrey Immelt took home a massive $21,581,228 in 2012, according to CEOPayWatch.

Master Lock

The giant, fortress-like Master Lock factory in one of Milwaukee’s most deeply impoverished central cities—filled with vacant factories and dilapidated homes—has been widely touted as another insourcing success story. While GE has been viewed by Fishman and others as following an intelligent new business strategy with insourcing, the Master Lock Corporation in Milwaukee has been celebrated as a firm that has recognized the value of its American workforce as it returned jobs to Milwaukee.

President Obama associated Master Lock’s insourcing of about 100 jobs—out of about 800 it had sent to Mexico and China—with a populist economic strategy that he has thus far steered clear of pursuing. Before a cheering crowd of about 1,000—including numerous local dignitaries and about 400 Master Lock workers belonging to the UAW Local 469—Obama declared: “Milwaukee, we are not going back to an economy that’s weakened by outsourcing and bad debt and phony financial profits. We need an economy that is built to last, that is built on American manufacturing, and American know-how and American-made energy and skills for American workers, and the renewal of American values of hard work and fair play and shared responsibility.”

But the willingness of both Master Lock and Obama to seriously deal with outsourcing (a general term for any sub-contracting to lower-paying firms that is often used interchangeably with the more specific “offshoring” label for moving jobs outside the U.S.). Obama, for example, claimed that U.S. taxes on corporations were among the highest in the world and proposed tax cuts for corporations returning jobs to America. This proposal ignored the inconvenient fact that many of the nation’s largest corporations shipping jobs overseas already pay little or nothing in federal corporate taxes.

The limited extent of Master Lock’s commitment to insourcing did not escape the New York Times’ David Firestone, who observed, “It’s great that the lock factory is now running at full capacity with a workforce of 412, but Mr. Obama omitted a key fact: 15 years ago the Milwaukee factory employed 1,154 workers.” Further, at the time of Obama’s visit hailing Master Lock’s addition of 100 jobs, other state corporations continued to offshore jobs, with three Wisconsin firms recently announcing major job shifts to Mexico and a fourth threatened workers with a move to Mexico if they went on strike.

Apple And Foxconn

The Apple Corporation has endured a firestorm of criticism over the last year, with some blasting its unwillingness to create employment in the U.S., but a much larger wave of protest was ignited by horrendous conditions at its huge, 230,000-worker subcontractor Foxconn, which have driven a number of workers to commit suicide. But Fallows provides a reassuring account of conditions at Foxconn, telling readers that Apple is forcing Foxconn—whose workers assemble iPhones—to improve pay significantly, ease overtime, and relent on the almost prison-like atmosphere experienced by workers toiling on Foxconn assembly lines and living in its crowded dormitories.

Fallows’s rose-tinted account focuses on relatively trivial details such as Foxconn workers no longer being required to wear uniforms, and avoids any mention of crucial facts that would establish a context for Apple’s policies. For example, Fallows neglects to tell readers that Apple generates a profit of $400,000 per worker annually. He tells us that workers have enjoyed several pay increases and are now being paid about $2 an hour and no longer face long hours of mandatory overtime.

However, according to reports compiled by the Hong Kong-based Students and Scholars against Corporate Misbehavior (SACOM), as well as information compiled by Isaac Shapiro of the Economic Policy Institute, Foxconn continues to commit flagrant violations of even the weak standards imposed by Chinese law. In particular, protections against excessive overtime .

SACOM concluded in a September 20 report, “It is disappointing that no matter how advanced the technology introduced by Apple is, the old problems in working conditions remain at its major supplier Foxconn.”

But Fallows neglects any mention of SACOM’s reports that undercut the positive findings of the Fair Labor Standards Association which have grabbed wide media attention. Meanwhile, U.S. media have heralded the decision to create about 35 jobs producing an Apple computer line in the San Francisco area, as announced by Apple CEO Tim Cook. Labor scholar Frank Emspak scoffs, “Adding 35 jobs in San Francisco—when there is a quarter of a million jobs involved—is not a manufacturing policy.”

Fallows then moves into a set of policy proposals that entirely bypass the morality of U.S. firms building their success on the brutal repression of workers, the crushing of press freedom, and environmental destruction. Equally, Fallows ignores the sharply declining wages and buying power of U.S. workers and accepts without question the morality of moving U.S. jobs overseas.

Deaf to these fundamental problems, Fallows proposes expanded training programs, oblivious to the predictable failure of re-training when the supply of family-supporting jobs is so small and being steadily depleted. He also calls for “negotiations to open up markets”—which in the language of America’s economic and political elites, presumably means NAFTA-style trade agreements like the TPP that incentivize the shift of more jobs to low-wage nations and give investors privileged status relative to democratic governments.

Fallows, in a perverse twist, seems to advocate that, in order to foster the mythical insourcing trend he has concocted, the offshoring of more U.S. jobs should be encouraged through more “free-trade” agreements. Meanwhile, the evidence for America’s manufacturing “comeback” cited by the Atlantic authors comes from the comparatively small GE investment in the U.S. cited by Fishman—conditioned on poverty-level wages and public subsidies—against the vast backdrop of GE slashing its domestic employment and building its overseas production capacity

While Fishman, Fallows, and the Atlantic tell readers that an industrial recovery is on the way with manufacturing jobs returning to the U.S., they are deflecting attention away from the human costs of a continuing industrial exodus driven by the maximization of profit. This outflow of jobs has shattering consequences for workers and communities.

Chris Hedges writes in Days of Destruction, Days of Revolt, “Whole sections of U.S. cities, because of the ability to export manufacturing overseas, are industrial ghost towns. The human cost of this relentless search for greater profit is never factored into the balance sheets of corporations. If prison labor or subsistence labor in China or India or Vietnam makes them more money, if it is possible to hire workers in Bangladesh sweatshops for 22 cents an hour, corporations follow this awful logic to its conclusion.”

Z

Roger Bybee is a Milwaukee-based freelance writer and University of Illinois visiting professor. His articles have appeared in Dollars and Sense, the Progressive, and other publications.