Globalization isn't easy

Can I Get a ìDuuuuh!î on Insourcing?

Dateline Southwest Flight 860 from BWI to PVD, 26 March

My head feels immediately better upon lift-off. The capital is awash in blooming trees, which is like garlic to this vampire. Good news is, most of such blooms will be gone upon my return in late April.

Great story from Wednesdayís Wall Street Journal (24 March) entitled, ìEver Heard of Insourcing?î Itís by Walter Wriston, former CEO of Citicorp/Citibank. I have been waiting years to read this article and let me tell you why.

My NewRuleSets.Project work with Cantor Fitzgerald taught me plenty about the investment flows that really involve shifting the means of production/service from one country to another. Itís not commercial bank loans and itís not flows into and out of stock markets per se that really drives this process. Rather, itís foreign direct investment (FDI) that involves equity ownership of real assets, real companies, and real factories. FDI is one of the ìfour flowsî that populate my bookís elegant/reductionist model of how globalization advances.

Quick quiz: who is biggest single source of FDI in the world? Who invests most in other countries economies? That would be the U.S., meaning no one sends as much equity-controlling capital around the world as we do, thus no one exports jobs (a.k.a. outsourcing) as much as we do. We do this to gain access to cheaper inputs (raw materials, people, technology, etc.). If your economy and its companies do not constantly seek such cheaper inputs, the goods and services your economy produces will cost more than those from competing nations, meaning youíll lose markets and ultimately your companies will fail, depriving your workforce of the jobs they generate.

So duh! Outsourcing by sending FDI around the planet in search of better opportunities is good, despite the nonsense you hear from unions whose sole purpose in life seems to be making sure their members never have to switch jobs, towns, or careers in their lifetimesóa pointless and ultimately self-defeating goal.

As for politicians ranting on about ìBenedict Arnold CEOs,î this is economic stupidity personified. The problem is not sending jobs abroad, but retraining workers here at home within an economic and social environment that encourages lifetime learning and constant updating and broadening of skill sets.

Second quiz: whoís the biggest target of FDI from around the world? That would be us again, the United States. No one attracts FDI like we do, meaning no one attracts capital and the means of production/service like we do. When Japan invests in a new Toyota factory in the U.S. or when Novartis moves its central R&D facility from Switzerland to Massachusetts, those countries are outsourcing jobs to the U.S., whichóin effectómeans weíre insourcing those same jobs.

All this succinct op-ed points out is that the U.S. economy consistently insources more jobs each year than we outsource. Take that for a blinding glimpse of the obvious! Of course, that churn on jobs means any individualís dream of a single-career life lived in one spot is most likely a chimera, or completely unattainable without significant opportunity and monetary cost. So yeah, globalization isnít easy.

But over time this flow of jobs into the U.S. provides ever-increasing opportunity to improve ourselves, our skill sets, and our overall economy. According to the Organization for International Investment, the U.S. insourced 4.9 million jobs in 1991, with that figure rising to 6.4 million in 2001. Moreover, roughly one-third of those insourced jobs came in the manufacturing sector. Such foreign investment in our productive capacity currently yields just over 1/5th of this countryís annual exports. If this isnít win-win, as the author claims, then what is?