insourcing

OUT: Outsourcing. IN: Insourcing.

Scott Paul — Wed, 11 Jan 2012 16:50:48 -0500

Insourcing. That’s at the top of my trending list for 2012. But, how do we make reshoring—bringing job back from overseas—real? For America to have a thriving economy and lower unemployment, we need to create more good-paying jobs. And to do that, we’ll have to win back some of the jobs that have been shipped overseas for the past decade.

President Obama, to his great credit, gathered about a dozen businesses and many more experts at the White House to strategize on how to bring manufacturing jobs back to America. Within the past year, major consulting firms have published a litany of reports urging businesses to take a look at reshoring. This week, the White House issued its own report.

There is no doubt that some progress has been made. American manufacturing jobs have grown over the past two years—the first time that’s happened in more than 15 years. Our nation gained 23,000 manufacturing jobs in December alone. Other manufacturing indicators—sales outlook, growth in output—have also been in consistently positive territory. The Center for Automotive Research predicts that the auto industry and its suppliers alone could add 167,000 American jobs over the next three years.

Here are five things the President should highlight in the State of the Union address to ensure that the significant trickle of reshored jobs becomes a genuine trend:

Adopt insourcing tax incentives, such as extending a domestic manufacturing tax credit for clean energy and enlarging a deduction for US manufacturing activity. Also, improve the research and development tax credit by making it more generous for innovation that is actually commercialized in America. Finally, adopt a federal tax incentive for companies that reshore high-paying jobs.
Work to balance our trade account by continuing aggressive trade enforcement, where a major hat tip should be given to the Obama Administration for its support of domestic industries. But, the Administration must also work to stop China’s currency manipulation and lower our record trade deficit with that nation.
Invest in infrastructure to make our economy more efficient, our businesses more competitive, and to create some demand for manufactured materials.
Apply Buy America laws to make sure that our manufacturers get a reasonable preference for federal procurement on everything from commemorative wristbands to major bridge reconstruction. The Department of Transportation does a good job of applying the Buy America laws on the books, but other agencies need to step up, and loopholes need to be closed.
Invest in our workers to ensure we have skilled human capital on the factory floor, in the research lab, and in the executive suite. Our educational system is built towards guiding every child into a four year college and every MBA onto Wall Street. That shouldn’t be the case. We must rebuild our vocational education system from the ground up, or we will never make manufacturing great again.

There are also factors beyond our control that can help—or hurt—these efforts to reshore jobs: namely, the value of the dollar, shipping costs, and consumer preferences. But, if you think we can’t be a manufacturing powerhouse as a high-wage nation, then think again. Germany, where average manufacturing wages are in some cases double that of American wages, has balanced trade with China (we have an annual $272 billion deficit) and over 20 percent of its economy in manufacturing (we have 11 percent).

It’s clear from the job numbers, as well as voter sentiment, that Made in America is starting to make its way back. But we want reshoring to be more than a slogan—we want it to be our national policy.

Use State 'Buy American' Rules To Promote Insourcing

Dave Johnson — Wed, 11 Jan 2012 14:18:55 -0500

President Obama is hosting a forum on "insourcing" today. We need to bring jobs back to America, and restore our "industrial commons." One way to help move this along is for states to require "Buy American" in their procurement rules. This is legal and here's the big thing -- it saves states money.

In December Steelworkers President Leo Gerard wrote a strong post, Antidote For Stupidity Of Shipping Tax-Dollar-Financed Jobs Overseas, writing,

Amid prolonged, painfully high unemployment, ABC News Anchor Diane Sawyer for the past year tirelessly advocated a simple solution – buy American-made products. She clearly explained the reasoning: every American dollar spent on an American-made product helps create an American job.

Repeat and amplify: Every dollar spent on an American-made product helps create an American job.

Buy American Legislation

Gerard wrote,

Now there’s an antidote for California’s stupidity. It is legislation called the Invest in American Jobs Act. Championed by U.S. Rep. Nick J. Rahall, (D-W.Va.) and Senators Sherrod Brown, (D-Ohio), Bob Casey, (D-Pa.), and Debbie Stabenow (D-Mich.), it would strengthen existing requirements for buying American products when federal tax dollars pay for construction of highway, bridge, public transit, rail, water systems and aviation infrastructure equipment.

California Example

California decided to "save money" by purchasing Chinese steel to build the new Bay Bridge. Gerard writes about the disaster that brought to California. Never mind all the problems with the quality, the welds, the delays, and the problems overseeing the work that he described... Gerard also gets into the hidden costs to the state and country from the loss of business and the loss of jobs this caused:

Also, Schwarzenegger’s estimate that $400 million would be saved failed to account for the wages American workers lost, the taxes they would have paid, or the multiplier effect on the economy when workers spend their wages in their hometowns. In addition, Schwarzenegger’s estimate failed to account for the downside of hiring Chinese workers with American tax dollars, or in this case, bridge toll receipts. That includes unemployment compensation, Medicare fees and other costs borne by governments for joblessness.

The Investigative Reporting Workshop at the American University School of Communication included a story about the Bay Bridge project by two-time Pulitzer Prize winning investigative reporters Donald L. Bartlett and James B. Steele in a series called What Went Wrong: the Betrayal of the American Dream.

In their report about California sending the bridge work to China, Bartlett and Steel quote Tom Hickman, vice president of Oregon Iron Works in Clackamas, Ore., one of the American companies that tried to form a consortium to perform the Bay Bridge work. Here’s what Hickman said about the jobs California denied American workers and the work California denied his America company:

“These jobs are living-wage jobs and family-wage jobs. They provide health and welfare benefits, 401(k)s and pensions. Our facilities meet all of the environmental requirements, and it just is a very, very difficult thing to compete with the Chinese when you are really competing with the Chinese government (which subsidizes Chinese industry).”

Caltrans argued that no American company had the facilities to perform the work. Hickman said the consortium could have done it. But if government agencies like Caltrans continue to ignore the real costs of shipping work to China, American factories will continue to close. America lost 55,000 manufacturers over the past decade. If that doesn’t stop, at some point, America will forfeit the capacity to perform this kind of work.

Buying steel from another country proved to be a disaster for California every way you look at it.

Buy American Costs LESS

California "saved money" by purchasing Chinese steel to build the new Bay Bridge. In fact, the one government agency that built the bridge may have "saved money." But what about the other costs to government and the rest of us because of the jobs lost from not making that steel here? What about the lost taxes from the unemployed workers and the American steel companies that would have provided the steel -- and their suppliers ? What about the unemployment, food stamps, Medicaid, and all the other "safety net" costs that resulted? What about the loss of business to grocery stores and gas stations near the steel plants, and near all the suppliers that had to lay people off, and the lost sales taxes, etc?

When you add in the cost of losing jobs, factories, companies, industries and communities that result from decisions like this, you start to see that it really doesn't make sense to "save money" by buying things made elsewhere.

BART Buys American

The Bay Area Rapid Transit district learned a lesson from the Chinese steel debacle and last year introduced a Buy American policy. BART Adopts "Buy America" – First in U.S., Agency Says,

The Bay Area Rapid Transit district has become the nation's first transit agency to approve a "Buy America" policy, BART said.

The new Buy America Bid Preference policy, adopted unanimously by the BART board Thursday, "gives preferences to rail car manufacturers who create jobs in the U.S.A.," according to a BART news release Friday.

BART is preparing to award $3 billion in contracts for its new fleet of train cars, which the agency calls the "Fleet of the Future."

Buy American Policies

If we really want to start insourcing American jobs, then we should put our policies where our mouths are. "Buy American" provisions should be a mandate on federal, state and local government purchases, consistent with our trade laws. There is no reason our own government should be undermining American manufacturers. To accomplish this, our bottom line for federal procurement should be:

All federal spending should have "buy America" provisions giving American workers and businesses the first shot at procurement contracts.
New federal loan guarantees for energy projects should require the utilization of domestic supply chains for construction.
Our military equipment, technology and supply purchases should have increased domestic content requirements.
Renewable and traditional energy projects should use American materials in construction.

State-level spending should have similar requirements, and this panel will discuss these, and strategies to getting them in place.

Today many state-level procurement laws are very weak. As a result, a lot of tax dollars go to purchase goods made overseas instead of goods made in the USA. The impact of this often includes delays or cost overruns such as what happened with the San Francisco to Oakland California Bay Bridge, as well as the loss of jobs and revenue in the US.

The idea that national and state governments should "Buy American" isn't in any way a partisan issue. If you look at polling you find that Republicans as well as Democrats believe that at least now while we are in economic distress, and trading "partners" are selling to us but not buying from us, our tax dollars should be supporting American companies and jobs.

There is a reason countries like China are working so hard to get this business.

Can We 'Insource' Jobs?

Dave Johnson — Tue, 10 Jan 2012 13:51:34 -0500

President Obama will host a forum on insourcing jobs Wednesday. The forum will feature leaders of several companies who have already shifted jobs back home and are encouraging others to do the same. According to the White House,

On Wednesday, January 11, 2012, President Obama and Vice President Biden will host an “Insourcing American Jobs” forum at the White House focused on the increasing trend of companies choosing to “insource” jobs and invest in growing in the United States.

As part of the “Insourcing American Jobs” forum, the President will meet with business leaders, as well as experts on the topic, to discuss why it’s competitive to locate in the United States and what more can be done to work with companies to take similar steps to insource American jobs. Following the meeting, the President will deliver remarks to a group that will include leaders from the government and the private sector that are taking steps to encourage companies to insource and invest in America. In the afternoon, Cabinet officials will host panel discussions with both small and large businesses and experts on insourcing and investing in America.

Leading up to this White House forum, the President said in his Weekly Address, "On Wednesday the White House will host a forum called “Insourcing American Jobs.” We’ll hear from business leaders who are bringing jobs back home and see how we can help other businesses follow their lead."

Headwinds

There are still headwinds pushing against efforts to bring jobs back. While China has allowed its currency to appreciate a bit, it is still undervalued by as much as 30% to 40%, which means goods made in China are priced 30% to 40% lower than goods made here. That's even before the effect of Chinese subsidies, trade violations, suppression of labor rights, cost savings from allowing environmental degradation and other advantages, including their massive investment in infrastructure, are taken into account.

The Wall Street Journal highlighted another problem for manufacturing: In spite of conservative complaints about debt, in truth the safety of U.S. currency makes it attractive and therefore "stronger," especially now, with the worries over the euro. This "flight to safety" has the reverse effect of China's currency manipulation. Where China manipulates its currency to make it "weaker," the strength of the U.S. dollar increases the price in international markets of goods made in the U.S. The WSJ explains, in U.S. Factories Could Suffer From Dollar’s Appeal,

Being a safe haven can be a drag. The euro zone remains the albatross around the global economy’s neck. Any hint about default, a euro-zone break up or banking collapse sends skittish investors into the secure embrace of the U.S. dollar.

... A strong dollar may enhance the U.S.’s sense of pride. But it will be a headwind for U.S. manufacturing.

That isn’t because a weak euro will cut U.S. exports to Europe. The euro zone is in recession and won’t be buying much from any nation.

The challenge will come in emerging markets that have the money and pent-up demand for foreign-made goods.

... A weak euro will give European producers a price advantage in emerging markets. This is especially true for commodity materials, such as chemicals and paper, that compete on price more than brand-name preference.

Can insourcing brings jobs back? Michael Mandel asks at the Wall Street Pit, Can Insourcing Be A Major Source of Job Creation?

Can insourcing be a major source of job creation for the U.S.? The answer is yes, with a caveat. Widespread insourcing–or import recapture, as I like to call it–won’t happen without some help from government policy. In particular, the main role of the government is to provide better data about the relative cost of insourcing vs outsourcing.

Why would better statistics help create new jobs in the U.S. and accelerate insourcing? The reason is hysteresis. Hysteresis is defined as a “lag in response” when the forces acting on a situation have changed. Originally hysteresis worked in favor of keeping jobs in this country, because businesses didn’t want to switch their production to a country thousands of miles away, even if it might be cheaper.But now, with production firmly established in China, India, Mexico, and other low-cost countries, hysteresis is working against the U.S.

Mandel says that the loss of manufacturing ecosystem will make it difficult to bring these jobs back. We have lost suppliers, we have lost some of the "ecosystem" as we "hollowed out" our own manufacturing and our smaller manufacturers will find it very expensive to find the suppliers, etc. if they wish to return manufacturing here. Government can help this by providing better information:

Assuming that production costs really are converging, better information would make it easier for companies to justify the decision to bring jobs back to this country. Right now the safe decision for executives is to continue sourcing from China and India, since they are generally accepted to be ‘low-cost’ countries. It’s like they used to say, you can’t get fired for buying from IBM. It’s the same today–execs can’t get fired for buying from China and India, because everyone assumes that prices are lower there.

In For 2012 Let's Restore Our "Industrial Commons", I explained this phenomenon,

We have been dismantling our "industrial commons." By sending manufacturing out of the country we have been taking apart the supply chains and abandoning the expertise and skills and culture that go with it.

Other Warnings

Last year former Intel CEO Andy Grove sounded a warning about this problem. In How to Make an American Job Before It's Too Late. Grove wrote that we are not just losing jobs to China, we are losing the "chain of experience" that enables new companies and industries to form and to create new jobs and argues for a national economic strategy to preserve our manufacturing and technology base. He lays out a plan: "rebuild our industrial commons,"

The first task is to rebuild our industrial commons. We should develop a system of financial incentives: Levy an extra tax on the product of offshored labor. (If the result is a trade war, treat it like other wars—fight to win.) Keep that money separate. Deposit it in the coffers of what we might call the Scaling Bank of the U.S. and make these sums available to companies that will scale their American operations. Such a system would be a daily reminder that while pursuing our company goals, all of us in business have a responsibility to maintain the industrial base on which we depend and the society whose adaptability—and stability—we may have taken for granted.

We have to start now rebuilding the manufacturing ecosystem - the "industrial commons" that helps us make things here.

CNBC: Made in America Making a Comeback

Dave Johnson — Mon, 29 Mar 2010 01:12:02 -0400

For many years we've been hearing about outsourcing and offshoring. President Obama has started taking steps to rebalance world trade and the pendulum is about to start swinging the other way. More and more often you'll be hearing new words: "insourcing," "on-shoring" and "re-shoring."

Watch this CNBC segment from Friday, Made in America Making a Comeback.

The segment talks about an upcoming Contract Manufacturing Purchasing Fair that focuses on "re-shoring." From their literature:

Objective: A one-stop for OEMs to find competitive U.S.-based sources.
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*As always, the Fair provides an opportunity for OEMs to find quality suppliers in the U.S.

*This year, we are also encouraging OEMs to rethink the sourcing paradigm from “Off-Shored is Cheaper” to “Local Reduces Total Cost of Ownership.”