Why ‘outsourcing’ is a permanent (and necessary) part of the modern economy
The increasingly curious exchange between incumbent Gov. Scott Walker and challenger Mary Burke over the “outsourcing” of jobs illustrates how political campaigns and economic realities seldom mesh.
Outsourcing is not a four-letter word. It is a part of how many companies — large or small, foreign or domestic — do business in the modern world.
If you’re a small business owner in Wisconsin and you’re not quite ready to hire that next full-time employee, you might “outsource” some work to a consultant. That consultant may or may not become your employee in time, but the initial consulting approach gives both parties a chance to see how the relationship works.
If you’re an executive at a large company and are hoping to crack into an emerging market in China, India, or Brazil, an option you must consider is opening a production facility close to the source. That need not threaten production at home — you don’t want to jeopardize your U.S. markets — but it means adding production capacity elsewhere to control costs and open new sales channels.
Outsourcing has become an issue in the governor’s race because Republican Walker has gone after Democrat Burke over the supposed outsourcing of jobs by Trek, the Waterloo-based bicycle manufacturer. Founded by Burke’s father, Richard, and now led by her brother, John, Trek employs about 1,000 people in Wisconsin and another 800 abroad. It cranks out high-quality bikes in Wisconsin as well as Germany, Holland, and China — precisely because Trek wants to be close to those markets, too.
Burke has chastised the Walker administration because the Wisconsin Economic Development Corp. awarded tax credits in 2011 and 2012 to two companies, Eaton Corp. and Plexus Corp., which later outsourced jobs abroad. Eaton is a global firm based in Dublin, Ireland, and it operates a plant in Pewaukee. Plexus is based in Neenah and operates in markets across the world.
The political strategists will continue to slug it out over the details of what happened at Trek, Plexus, and Eaton, but they do so at the peril of ignoring a much bigger picture voters deserve to understand.
Wisconsin represents roughly 2% of the U.S. economy and a fraction of a world economy that is growing relative to the United States, thanks to the emergence of a middle class in countries that previously had little ability to buy American goods and services.
For Wisconsin to prosper, it cannot possibly sell everything it produces — on its farms, in its forests, in its factories, or through its high-tech firms — at home. It must market and sell goods and services to a $72 trillion global economy.
The United States has the largest gross domestic product in the world, but countries such as China, Brazil, and India are moving up the top 10 list. Economic growth rates for the world have been estimated at 3.6% for 2014, compared with 2.8% for the United States and 5.1% for developing countries.
Foreign direct investment is also vital to Wisconsin. Three years ago, the University of Wisconsin System organized a Task Force on Internationalization and Economic Development to take stock of the state’s global assets — and how the university could help leverage them. The report concluded there were 470 foreign-owned operations in Wisconsin at the time, representing 27 countries, with jobs and plants in 51 of the state’s 72 counties. In addition, hundreds of Wisconsin-owned companies do business overseas.
Globalization has become a two-way street. The economies of the United States and Wisconsin are increasingly intertwined with those beyond our borders. An emerging flip side of global outsourcing is “reshoring,” in which companies bring back jobs and production to the United States due to rising labor and transportation costs, regulatory problems, and political instability.
Narrowly drawn political debates can appeal to voters whose values predispose them to believe the worst about an issue. But politics should be about bringing out the best in people and the election-year discourse, which is a unique platform for talking about major challenges.
In this case, that means stepping back and recognizing the Wisconsin economy is tied to global trends that are too large to ignore or wish away. Better yet, the debate should embrace those new realities in a way that helps the state and its residents prosper.
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