How Outsourcing Sabotages Our Economic Future

How outsourcing sabotages our economic future

By Gary Lamphier
Postmedia News
July 23, 2010

'You could say that shipping jobs overseas is no big deal because the high-value work — and much of the profits — remain in the U.S. But what kind of a society are we going to have if it consists of highly paid people doing high-value-added work, and masses of unemployed?”

Take a guess. Who do you think made this statement?

Filmmaker Michael Moore, perhaps? An angry union leader? The mayor of some hard-luck city like Windsor or Cleveland?

Nope. Wrong on all counts. Try Andy Grove, former CEO of Intel, the world's largest maker of computer chips. Grove's thoughtful opinion piece on the U.S. jobs crisis — How to Make an American Job — appeared in the July 5 issue of BusinessWeek. It's worth a read.

For free-enterprise-spouting conservatives, Grove is hard to dismiss. He's no lefty ideologue, inclined to wild-eyed rants about foreigners stealing homegrown jobs. He's one of America's most celebrated entrepreneurs and a Silicon Valley icon. While academics, politicians and economists talk about how to create wealth, Grove has done it. He's the real deal.

When Time named Grove its Man of the Year in 1997, as the 1990s high-tech boom approached its zenith, the mag's editors gushed like a bunch of schoolgirls:

“His character traits are emblematic of this amazing century,” Time pronounced, “a paranoia bred from his having been a refugee from the Nazis and the Communists; an entrepreneurial optimism instilled as an immigrant to a land brimming with freedom and opportunity; and a sharpness tinged with arrogance that comes from being a brilliant mind on the front line of a revolution.”

No, Grove doesn't walk on water, but he's one smart dude. So what is he saying now about America's mighty innovation machine — a machine that has seemingly lost its mojo and its heralded capacity to create new jobs?

Grove says corporate America's obsession with maximizing profits through outsourcing jobs to low-wage countries such as China has been great for Asia, but lousy for America. It has gutted the nation's manufacturing sector, robbing it of the specialized knowledge and skills needed to “scale up” new ideas into commercial products.

Scientists, engineers and designers aren't the only ones who make the knowledge economy work, Grove argues. The people who make stuff matter, too.

Grove's view is the polar opposite of the nonsense spouted by many self-serving corporate types, who insist it doesn't matter where products are built as long as the brains reside here. That kind of thinking may prop up short-term profits, but it has badly eroded U.S. competitiveness.

“Without scaling, we don't just lose jobs — we lose our hold on new technologies. Losing the ability to scale will ultimately damage our capacity to innovate,” he argues.

Today, the total number of manufacturing jobs in the U.S. computer industry is just 166,000, Grove notes. That's lower than it was in 1975. Meanwhile, employment in Asia's computer sector has swelled to 1.5 million.

The trend isn't limited to computers. Grove says China's solar-panel makers are growing by leaps and bounds, while U.S. employment in the sector stagnates.

His solution? Introduce financial incentives to keep manufacturing jobs at home. “If the result is a trade war, treat it like other wars — fight to win,” he says. “Unemployment is corrosive. If what I'm suggesting sounds protectionist, so be it.”

Grove's message should resonate in Alberta, which is struggling to hang on to its high-end manufacturing jobs. Although the employment picture is far healthier in Alberta than it is in the U.S., where nearly 15 million Americans remain jobless, some troubling trends are emerging.

While local fab plants struggle to fill their order books, oilsands producers are quietly outsourcing engineering work and the manufacture of giant modules to suppliers offshore. Imperial Oil's module contract with a South Korean supplier is likely the first of many such deals.

Don't get me wrong. I'm not against competition. It's healthy, provided the playing field is level. But when energy producers in Alberta benefit from the province's attractive oilsands royalties, they should be required to use local suppliers first or justify why they've chosen not to do so.

The province has long argued that oilsands royalties are low — allowing producers to recoup all upfront capital costs before any royalties are charged — precisely because the regime is designed to stimulate activity and create jobs. But when those value-added jobs are being created offshore, how does that help build the province's manufacturing sector? Ditto for bitumen upgrading. Without capturing more upgrader investment and jobs, Alberta is following the same path as the U.S. — it's sabotaging its own economic future.

But don't take it from me. Take it from Andy Grove. “All of us in business have a responsibility,” he says, “to maintain the industrial base on which we depend, and the society whose adaptability — and stability — we may have taken for granted.”

Amen to that.