The debate over "outsourcing" has taken an interesting twist. Its proponents now tout foreign direct investment in the U.S.—a.k.a "insourcing"—as a countervailing source of jobs.
According to this view, foreign companies are generating plenty of new jobs for Americans. They are thereby cushioning the impact of jobs going overseas.
A superficial glance seems to confirm this: Commerce Department data show the number of Americans working for U.S. affiliates of foreign companies grew from 4.9 million in 1991 to 6.5 million in 2001 – an increase of 1.5 million. (Reliable data for 2002 and 2003 are not yet available.)
Although this falls short of the 2.9 million jobs lost to outsourcing over this period, it does represent an offset of about a half. [See Table 1.]
But how firm is this cushion? A recent analysis by the Economic Policy Institute (EPI) deconstructs the numbers. It finds the real job gains from "insourcing" to be far less than the employment figures might suggest. ['Insourcing' myths: Jobs and insourcing, April 6, 2004]
Foreign companies are far more likely to acquire existing U.S. firms than create new companies. This diminishes the net job gains from foreign investment.
From 1991 through 2001:
In fact, foreign companies squeezed millions of Americans out of jobs in order to increase productivity and profits. That explains why, in a decade when foreigners acquired or started companies that employed 4.4 million Americans, net employment growth in foreign-owned companies was just 1.5 million. The difference—2.8 million—represents downsizing by foreign owners after acquiring existing U.S. companies.
In other words, foreign companies have been destroying more jobs than they create.
And here's the VDARE.COM immigration angle: Even the foreign-owned start-ups do not benefit as many U.S.-born workers as might appear.
Reason: many of them seem to reserve the best jobs for immigrants or "guest workers" from their home country.
For example, Tata Consultancy Services America, a Bombay-based IT group with about 6,000 technical consultants working at client locations in North America. Several Wall Street companies have signed up TCS to do their IT work. Seventy percent of the work is done in India. The remaining 30 percent is done stateside by TCS employees, most of whom are Indian.
Lest you think that those 30 percent are Indo-Americans, Arup Gupta [send him email], the President of TCS America, says that most are recent graduates of Indian Universities. American IT grads don't want to work for Tata due to a lack of name recognition for the firm…Gupta claims.
Meanwhile, Tata sponsors thousands of Indian H-1bs to do work that unemployed U.S.-born graduates might jump at…if given a chance.
Oh yes: many of those TCS consultants are trained by the very U.S.-born workers they eventually replace; they in turn train their supervisors from India who are flown over here to learn the American computer systems.
Tata is not alone. Another Indian software company, Infosys Technologies, Ltd., of Bangalore, employs 7,000 workers in North America. But half of them are H-1bs.
Infosys recently announced plans to hire 500 additional workers for a new U.S. subsidiary in California. What was not announced: the bulk of the programming and technology work generated by the new subsidiary will be done in India.
With insourcing friends like this who needs outsourcing enemies?
[Number fans click here for tables.]
Edwin S. Rubenstein (email him) is President of ESR Research Economic Consultants in Indianapolis.