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Paul Krugman believes the US can solve economic problems. (photo: public domain)
Paul Krugman believes the US can solve economic problems. (photo: public domain)

Romney Knows Outsourcing Not Creating Jobs

By Paul Krugman, The New York Times

06 July 12


n a better America, Mitt Romney would be running for president on the strength of his major achievement as governor of Massachusetts: a health reform that was identical in all important respects to the health reform enacted by President Obama. By the way, the Massachusetts reform is working pretty well and has overwhelming popular support.

In reality, however, Mr. Romney is doing no such thing, bitterly denouncing the Supreme Court for upholding the constitutionality of his own health care plan. His case for becoming president relies, instead, on his claim that, having been a successful businessman, he knows how to create jobs.

This, in turn, means that however much the Romney campaign may wish otherwise, the nature of that business career is fair game. How did Mr. Romney make all that money? Was it in ways suggesting that what was good for Bain Capital, the private equity firm that made him rich, would also be good for America?

And the answer is no.

The truth is that even if Mr. Romney had been a classic captain of industry, a present-day Andrew Carnegie, his career wouldn’t have prepared him to manage the economy. A country is not a company (despite globalization, America still sells 86 percent of what it makes to itself), and the tools of macroeconomic policy — interest rates, tax rates, spending programs — have no counterparts on a corporate organization chart. Did I mention that Herbert Hoover actually was a great businessman in the classic mold?

In any case, however, Mr. Romney wasn’t that kind of businessman. Bain didn’t build businesses; it bought and sold them. Sometimes its takeovers led to new hiring; often they led to layoffs, wage cuts and lost benefits. On some occasions, Bain made a profit even as its takeover target was driven out of business. None of this sounds like the kind of record that should reassure American workers looking for an economic savior.

And then there’s the business about outsourcing.

Two weeks ago, The Washington Post reported that Bain had invested in companies whose specialty was helping other companies move jobs overseas. The Romney campaign went ballistic, demanding — unsuccessfully — that The Post retract the report on the basis of an unconvincing “fact sheet” consisting largely of executive testimonials.

What was more interesting was the campaign’s insistence that The Post had misled readers by failing to distinguish between “offshoring” — moving jobs abroad — and “outsourcing,” which simply means having an external contractor perform services that could have been performed in-house.

Now, if the Romney campaign really believed in its own alleged free-market principles, it would have defended the right of corporations to do whatever maximizes their profits, even if that means shipping jobs overseas. Instead, however, the campaign effectively conceded that offshoring is bad but insisted that outsourcing is O.K. as long as the contractor is another American firm.

That is, however, a very dubious assertion.

Consider one of Mr. Romney’s most famous remarks: “Corporations are people, my friend.” When the audience jeered, he elaborated: “Everything corporations earn ultimately goes to people. Where do you think it goes? Whose pockets? Whose pockets? People’s pockets.” This is undoubtedly true, once you take into account the pockets of, say, partners at Bain Capital (who, I hasten to add, are, indeed, people). But one of the main points of outsourcing is to ensure that as little as possible of what corporations earn goes into the pockets of the people who actually work for those corporations.

Why, for example, do many large companies now outsource cleaning and security to outside contractors? Surely the answer is, in large part, that outside contractors can hire cheap labor that isn’t represented by the union and can’t participate in the company health and retirement plans. And, sure enough, recent academic research finds that outsourced janitors and guards receive substantially lower wages and worse benefits than their in-house counterparts.

Just to be clear, outsourcing is only one source of the huge disconnect between a tiny elite and ordinary American workers, a disconnect that has been growing for more than 30 years. And Bain, in turn, was only one player in the growth of outsourcing. So Mitt Romney didn’t personally, single-handedly, destroy the middle-class society we used to have. He was, however, an enthusiastic and very well remunerated participant in the process of destruction; if Bain got involved with your company, one way or another, the odds were pretty good that even if your job survived you ended up with lower pay and diminished benefits.

In short, what was good for Bain Capital definitely wasn’t good for America. And, as I said at the beginning, the Obama campaign has every right to point that out. your social media marketing partner


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+22 # Rick Levy 2012-07-07 00:02
Outsourcing, offshoring. You say tomato, I say tomahto. Either way the employee of the company that does either or both is screwed.
-16 # MidwestTom 2012-07-07 08:36
And we all buy phones and televisions made elsewhere. The truth is that if an American manufacturer wants to actually sell his products, he has to consider outsourcing where wages are much lower. Thousands of companies have gone bankrupt who did not outsource. We,come to the free trade world.
-5 # Ralph Averill 2012-07-07 17:47
I don't understand all the thumbs down. Your post is absolutely true.
+6 # rockieball 2012-07-08 07:23
I disagree. What is made in the USA today? Almost nothing. The factories were moved to other countries for cheep labor and bigger profits. At the same time the corporations lobbied for lower import tariffs and free trade that under cut the American worker. The excuse was given that Americans do not want to pay a lot for goods. Well in the 50's, 60's and 70's we did and could afford it because we were making the wages to afford the American goods which were 1000% better quality. We need to go back to high tariffs, taxing import goods and taxing any Corporation as a foreign corporation if they have more employees making goods in other countries or have no manufacturing in this Country.
But the Republicons cry "Protectionism, " making it sound like a bad word when in fact that is what a countries government is suppose to do. Not only protect it's citizens from foreign military actions but also from other countries under cutting the economy and putting it's own citizens out of work.
+2 # mdhome 2012-07-08 08:22
Can you tell me how people are going to buy anything when their income is 0?
+3 # mdhome 2012-07-08 08:26
But one of the main points of outsourcing is to ensure that as little as possible of what corporations earn goes into the pockets of the people who actually work for those corporations.

And what are these people to use for money to buy your product?
0 # AMLLLLL 2012-07-09 13:45
It's not just the outsourcing and lowering wages and benefits, it's the clinging to the policies that made these things legal. The 99% are the job creators, since all these corporations are feeling 'uncertain' not about taxes, but about DEMAND. When demand is present, taxation is less relevant, because everyone is doing better.

And you're right; the top 1% believe in this new normal in which you grab all the profits now and f*&k the future.
+1 # tonywicher 2012-07-08 12:27
Quoting MidwestTom:
And we all buy phones and televisions made elsewhere. The truth is that if an American manufacturer wants to actually sell his products, he has to consider outsourcing where wages are much lower. Thousands of companies have gone bankrupt who did not outsource. We,come to the free trade world.

Yeah, and welcome to depression, unemployment and a collapsed economy, too. "Free trade" IS the problem. Trade managed in the national interest with protection of worker's wages both through restored union bargaining rights and suitable tarriff protections. All this is what the international banker advocates of "free trade" like Romney don't want.
0 # AMLLLLL 2012-07-09 13:45
Yes. FAIR trade is more on the mark.
+22 # duitdon 2012-07-07 00:12
I find it incredible that half of Americans don't seem to care about the callousness of the man they would make president. His words show that Mr. Romney certainly has no heart and this statement indicates that the director of his central nervous system is also missing. Read the article quoting him directly about outsourcing.
+12 # papabob 2012-07-07 01:42
As the Romney campaign debates itself about whether the Affordable Care Act’s individual mandate is an evil tax or an unconstitutiona l penalty, it’s worth remembering that Lestwe Lest we forget.

Republican presidential icon Ronald Reagan imposed his own national healthcare mandate on the country. The mandate is well known today — it requires emergency rooms to treat anyone in need, regardless of their ability to pay — but the fact that Reagan signed it into law is often forgotten.

--ALEX SEITZ-WALD from Campaign For America’s Future
+17 # PaineRad 2012-07-07 02:44
If a corporation is a person because it serves as a conduit to humans, are the water pipes in my house a person for the same reason? The logic is nonexistent. The entire premise is utter nonsense.

Besides, retained earnings are never passed on to humans so long as the corporation exists.
+27 # Ralph Averill 2012-07-07 03:53
Businesses do NOT "create" jobs. No business person sits down and thinks "How can I do this project with as many people as possible? And how can I pay them as much as possible."
Only demand "creates" jobs.
+1 # mdhome 2012-07-08 08:24
Please tell me what are you going to use to pay for these items when 100% of your income is spent on food
+21 # soularddave 2012-07-07 06:08
As a person from St. Louis, I have to remember the infamous Carl Ican. This guy bought St. Louis Car Company. It was a long time manufacturing firm that made railroad cars. Lots of Union workers who had been contributing to their pension fund for their whole career, and a perfectly usable product in big, durable, railroad rollingstock.
What does Carl Ican do? He raids the pension funds and buys TWA, an airline with its major hub in St. Louis, Missouri.
Workers are left without their retirement money and Ican has an airline that gets lots of "development dollars" from Federal, State, and Local governments.
Then he sells the Airline which moves its planes out of St. Louis. Ican gets rich and workers lose everything they've worked for.

Ican for President!!
+18 # juliajayne 2012-07-07 07:29
Mitt is a patrician "elite", out of touch with ordinary people whom he apparently sees as chess pieces in a great gambit to make as much money as humanly possible. Such a predacious individual seems like he has no moral compass, in my opinion.

And if he's running from his dubious achievements at Bain and his not so dubious achievement - his signature health care bill - what has he to offer us? Hell, this guy won't even acknowledge his Morman faith! He's the ultimate manifestation of everything we need to be fighting against!

I do hope he continues to be called out for his callowness, hollowness and mendacity! Thank you Mr. Krugman for trying to get the word out, not just on Romney, but the economy and how to fix it.
-30 # jimattrell 2012-07-07 07:57
Geez, how about writing about Hollywood Movie Stars, Sports Heroes, Union Leaders etc who make huge sums of money and do nothing to create jobs. Surely you hav something mor interesting to write about than this? How about writing about another depressing jobs report and why that's happening?
-4 # slow_learner 2012-07-07 12:01
+12 # AndreM5 2012-07-07 12:30
Uh, well, perhaps because they have not been running for President for 6 YEARS! Gee whiz.
-13 # Innocent Victim 2012-07-07 09:17
If Obama were not a war criminal, shredder of the Bill of Rights, all around liar, the choice, Romney or Obama, would be a real choice. The reality is there is no choice. Romney is liable to be as bad a war criminal, imperialist, war monger as has been Obama. On domestic matters, Obama has an edge over Romney, but Romney is a flip-flopper. He'll go whichever way the political wind is blowing no matter what he has said in the past.

For me, there is no morally superior choice. One is as immoral as the other. I shall vote for a third candidate, if there is one I like. Otherwise, I shall write in Ralph Nader. I cannot vote for a war criminal or a future war criminal.
+7 # Susan1989 2012-07-07 20:27
What made anyone believe that running Bain had any similarity to running the country. If Mr. Romney loves his country so much, why did he never serve in the military? I wonder if any of his children did? Possibly in his eyes, this was only for the "common folk". Say what you will about the Kennedys, but many of them saw this as their civic responsibility. Now we have candidates who view themselves as above all of this.
+1 # AMLLLLL 2012-07-09 13:54
Romney not only obtained deferments, but actively campaigned for the war. "YEAH, SEND THOSE OTHER SONS OF B*&CHES OVER THERE!" What a coward!
+1 # edwin_ 2012-07-07 20:39
what about the 5 million asians here on h1-b visas taking $50/hr american jobs in the banking and hi tech industries? these are the same number saved in the detroit auto bailout.Why is nobody addressing this problem
the USA is "INSOURCING" and allowing H1B personnel to come here to take our jobs . No other country will allow this
+1 # brux 2012-07-08 00:53
Funny that instead of the candidates running on their ideas we have corporations that find a basic cookie-cutter appealing candidate and then tell them what to say to appeal to some manufactured segment of the public.

We are being invaded by money from abroad and the clowns who are running our country and want to take the money up for grabs are rationalizing their greed and treason by twisting capitalism into something it was never intended to be.
0 # tonywicher 2012-07-08 12:51
We need strong government policies to make a "free market" system function and remain stable. Without honest strong regulation, which provides the laws, the conduits within which a free market runs, the economy becomes unstable and collapses. How many times must we learn this lesson?
+1 # AMLLLLL 2012-07-09 13:57
Even Grover Norquist is seen openly declaring," We just need someone who can push a pen, and we'll tell them what to do." Nice.

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