America / Economy / Fiscal policy / Politics / U.S. Domestic Policy / Uncategorized

Demonizing Multinationals: How President Obama Avoids a Policy Discussion and Prevents America From Moving Forward

In demonizing Bain for outsourcing, President Obama is implicitly criticizing the act of outsourcing itself without the facts to back himself up. Of the 598 American companies on Forbes world’s largest firms list, only 15 percent publically report their foreign employment numbers. While President Obama’s blind attacks on this legal right are clearly groundless, the attacks themselves engrain hostility towards foreign employment. As a result, the President is only discouraging firms from reporting overseas workers and shielding the American public from this information.

While President Obama’s attacks are unwarranted based on public information, they also contradict information we do have. Evaluations of the Bureau of Economic Analysis’s (BEA’s) “U.S. Direct Investment Abroad” tend to show that with an increase in foreign employment, there is an increase domestic employment as well. Using BEA data Desai, Foley, and Hines (2008) find that with a 10 percent increase in foreign compensation, there is a 3.7 percent increase in domestic compensation. Likewise, with BEA data Slaughter (2010) finds that from 1988 to 2007 as foreign affiliates added 5.2 million jobs abroad, domestic parent companies added 4.3 million jobs at home. Slaughter also observes that the average salary of these domestic employees is 18.7 percent above the average of the rest of the U.S. private sector. In preparing this report, the BEA conducts a confidential benchmark survey that requires multinationals to disclose overseas employment. Although these reports are the best we have to analyze the effects of outsourcing, they only come out once every five years. While we lack information on foreign employment, President Obama’s criticisms of outsourcing could restrict that information even more.

Although multinationals willingly report plants and machines abroad, when it comes to the simple statistic of foreign employment, very few publically acknowledge it. Moreover, of the companies that do report foreign employment, many only do so by indicating total workforce and domestic employment, making the reader do the math. So what is it about foreign employment that 85 percent of U.S. multinationals chose to not publically disclose?

There tends to be a cultural faux pas in hiring workers abroad. Many in the U.S. think that these companies are only shipping jobs to places like India and China to utilize cheap labor. However, this does not tell the entire story. According to the BEA’s preliminary results of its 2009 benchmark survey, 49 percent of employees of majority owned foreign affiliates are in Canada and Europe, where labor laws tend to be much more stringent than in the U.S.

Since most firms don’t publically report overseas employment information, it is much more difficult for other data collection services to compile these figures and allow researchers outside the BEA to explore this phenomenon. Being in a country and time period that prides itself on freedom of information, instead of chastising multinationals for hiring abroad, we should welcome honest data from companies that are exercising their legal rights. In addition, more information on foreign operations could improve our ability to gauge how hiring abroad affects our national economy.

So what is the solution to this problem? Some, such as Rep. Gary Peters, argue that the government should enact a law that forces companies to report overseas employment. However, I believe that this only perpetuates President Obama’s protectionist sentiment. Instead, we need to accept the reality of our increasingly integrated global economy and drop our uninformed hostility towards overseas operations.

President Obama, however, is moving in the opposite direction. Even though analyses of BEA data demonstrate that overseas operations improve our domestic economy, President Obama continues to attack multinationals for “shipping” jobs overseas. The net effect of the President’s attacks is that the American public lacks the information needed to fully embrace this policy discussion and to weigh the pros and cons of competing abroad.

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