Free trade vs. fair trade

Should protections be enacted to stem job losses from global outsourcing?

MADISON – As the United States faces the prospect of more job losses to global outsourcing, a Madison-area trade expert says that state and local governments need to enact better trade policies to stop the bleeding.

Bob London, president of GlobalQuota, a Stoughton consulting firm, spoke to about 40 people Tuesday at a luncheon presented by the Wisconsin Innovation Network in Madison. He said the 2.7 million manufacturing jobs lost in the United States, including 83,000 manufacturing jobs in Wisconsin since 2001, will likely never return.

Unless some protections and more highly sophisticated trade policies are enacted, the foundation of the U.S. economy will continue to erode to the point where the country will find itself at the mercy of other countries in the global economy, London said, who formerly developed outsourcing programs for the Baby Bell companies.

“I want to know what is going to be left here,” London said. “What is the middle class going to do? It just appears to be total chaos right now.” Coincidentally, while London was citing the need for more controls, President Bush was in Appleton Tuesday promoting free trade.

Bush told a crowd of more than 2,000 at the Fox Cities Performing Arts Center it was shortsighted to enact what he called “isolationist” policies, as it amounts to cutting off small businesses from opportunities while discouraging foreign investment that could create jobs here. The Wisconsin economy is gaining steam thanks to an economic program of tax cuts and free trade, he said on his ninth visit to the state since taking office.

To date, over 30 states have proposed legislation that would bar their state governments from contracting or subcontracting services from companies that employ people who are not U.S. citizens, according to the U.S. Chamber of Commerce.

State legislatures in Colorado, Virginia, Indiana, Nebraska, South Dakota and New Mexico have recently deferred consideration of various bills that would prevent worldwide outsourcing and punish companies that engage in it.

“What we are seeing is nothing other than a new form of protectionism that interferes with a technological revolution and worldwide trade that has led to new products and services that are improving the lives of Americans and others throughout the world,” the U.S. Chamber said in a position paper supporting worldwide outsourcing.

While London’s current role is to help establish trials of foreign-made products and services in the United States, he believes policies need to be enacted that would help level the playing field for U.S. companies.

“We need to have policies that serve a gate-keeping function,” London said. “I am not so sure that protectionism is such a bad policy, right now. I believe the right public policies can keep our companies strong.”

Some of the companies in the European Union have no trouble enacting protectionist policies, London said, adding that France and Germany are experiencing a similar form of economic slippage due to outsourcing similar to the United States’.

The pressure to outsource

The rapid advance of technology, combined with increased capital investment in foreign countries and the need for cheaper products, is driving Wisconsin manufacturers to seek low-cost solutions from offshore operations, said Mike Klonsinski, executive director of the Wisconsin Manufacturing Extension Partnership.

“What we are seeing in Wisconsin is that there is huge pressure for OEMs to look offshore, because there is always the pressure of lower cost, faster delivery and increased quality,” Klonsinski said, whose organization provides technical assistance to Wisconsin manufacturers. “When the world gets closer, there is going to be that huge pressure to meet customer needs in a better way, and sometimes offshoring makes sense.”

But the pressure to outsource takes a toll on jobs and industries, and results in less job security along with a trend toward lower pay and benefits, Klonsinski said.

While global outsourcing keeps prices low for consumers, there is no guarantee the jobs already lost will be replaced by higher-paying jobs.

“When the manufacturing jobs go out, we lose some of our infrastructure,” London added. “We lose production, intellectual property and it puts us at the mercy of the rest of the world which affects our national security. At this rate, we are all going to be flipping burgers or working at Wal-Mart 20 hours per week.”

Outsourcing is not always the right choice for companies, as there are increased challenges that come with outsourcing and dealing with supply chains around the globe, Klonsinski said.

“Wisconsin manufacturers can get pretty creative about how they can produce a faster, cheaper product. I think in some cases, not all of the elements are considered when you make the choice to outsource. One of the things that concerns us is that we seem too willing to throw in the towel instead of hanging in there and playing the game,” Klonsinski added.

In recent years, outsourcing activities have crescendoed thanks to rapid advancements in communications technology, the advent of global shipping services by UPS and FedEx and expanded free trade through NAFTA and the World Trade Organization.

“None of this stuff is new,” London said. “It just seems to have reached a critical level that has just blown the doors off of everything.”

One argument against outsourcing, according to Madison consultant Thomas Caldwell, is that a company can invest too much time setting up an outsourcing supply chain, which diverts time from meeting more critical business problems.

“You can have a company that is making a product that is on the verge of obsolescence,” said Caldwell, a former chief executive officer of Madison-Kipp who has extensive experience in overseas markets, including China. “It may be way behind in developing the next generation of product when they are concentrating on outsourcing the current generation.”

Opportunities lost?

London said governments in foreign countries are typically much more strategic in planning and developing their own industries, as they direct research and conduct trial-to-market activities. He maintains state governments are missing tactical opportunities to leverage existing industries to sell products and services across the globe.

As an example, he said Wisconsin is perfectly positioned to capitalize on the worldwide threat of mad cow disease by moving the dairy industry into production of organic beef. Such a move would accelerate business opportunities both here and abroad, he said.

While governments of foreign countries are more advanced in planning and developing their industries, the United States continues to deal in old market concepts, which is essentially built on chaos theory, London observed.

“U.S. corporations are like lemmings,” he said. “They smell an opportunity, and even if it is three-quarters baked, they go for it. This is the way corporations and industry work. It’s the flavor of the day. And, as a result, we are really giving away the baby and the bathwater.”

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John Rondy is a freelance writer based in Milwaukee. He can be reached at jrondy@wistechnology.com.