October 10, 2010
October 10, 2010
Offshoring: Myths and Facts
by John Murphy
U.S. Chamber of Commerce
Myth: The United States is suffering a “race to the bottom” as U.S. companies move production to low-wage countries.
Fact: If this argument held water, Haiti would be awash in foreign investment. In fact, three-quarters of U.S. multinationals’ capital expenditures are in the United States, and three-quarters of U.S. multinationals’ capital expenditures abroad are in high-wage countries that have labor standards similar to those in the United States, according to the Bureau of Economic Analysis (BEA). This sounds more like a ladder to the top.
When U.S. multinationals do invest in developing countries, they often create the best paying jobs around, with the best working conditions.
Myth: U.S. multinationals are moving production to low-wage countries so they can sell their goods back into the U.S. market.
Fact: If U.S. firms are investing abroad to sell into the U.S. market, they are certainly doing a poor job of it. A recent study by Matthew Slaughter based on BEA statistics found that 90% of the production of foreign affiliates of U.S. multinational companies is sold outside the United States. Just 10% of their production is exported to the United States.
The principal reason U.S. firms invest abroad is because it is often the only way to do business in foreign markets, for instance, in the case of services such as insurance, or to manufacture products that can be shipped only at great expense, such as potato chips.
While U.S. investment abroad generates little in the way of U.S. imports, it is vital to American exports. The Slaughter study found that U.S. companies that have invested abroad accounted for nearly half of U.S. merchandise exports.
Myth: When a multinational corporation creates a job abroad, it eliminates a job in the United States.
Fact: The worldwide economy isn’t a zero sum game. The Slaughter study found that U.S. companies that invest abroad create 2.3 jobs in the United States for every one they create overseas. It also found that U.S. companies that invest abroad tend to be more successful in ways that help U.S. workers: specifically, such firms pay their U.S. workers higher wages, and they create more jobs in the United States.
Investment from abroad also benefits Americans. Foreign investment in the United States totals more than $2 trillion and sustains five million U.S. jobs with an annual payroll of $350 billion.
Here’s hoping these facts aren’t lost in the politicking of the day.
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