Exporting America by Lou Dobbs

What follows is another guest review (see here for background). The guest author this time around is Ben Heller. Ben runs emerging markets investments for a hedge fund in New York and writes regularly at The bandarlog. He graciously agreed to bring his expertise to the review below.

Every so often a technical economic question grabs the attention of the American people. The battle of the monometallism versus “Free Silver” obsessed late nineteenth century Americans. Here at the dawn of the twenty-first century, the alleged migration of production of goods and services from the U.S. to developing countries, so-called “outsourcing”, threatens to become a similar cause celebre.

Lou Dobbs has used his perch at CNN Business to lead the charge against outsourcing. Every week, he broadcasts on his program a list of companies which have recently moved jobs offshore (or so Dobbs alleges), in an effort to make his viewers aware of what he sees as a near-treasonous betrayal of American workers. No longer content with running a periodic televised roll of shame, Dobbs decided to turn his arguments against outsourcing into a book. The result, Exporting America: Why Corporate Greed Is Shipping Jobs Overseas, turns out in form to be more essay than book and in content less essay than screed.

In the early 1890s, William “Coin” Harvey galvanized the debate on the burning economic issue of his day, penning the most widely read popular tract in favor of bimetallism. Coin’s Financial School took the form of a series of lectures deliver by a fictional young man, the eponymous “Coin”, explaining the virtues of “Free Silver” and the evils of the gold standard. As technical economics, the book is bunk. Yet it articulated the popular anxiety about deflation and indignation at how the falling price level boosted the real value of creditors’ claims on debtors. It less traced out a compelling argument than it captured and crystallized an unsettled popular mood. Lou Dobbs has donned the mantle of “Coin” Harvey for the outsourcing debate, eschewing sophisticated economic reasoning in favor of polemic and purporting to champion the interests of the working man against the greed of Wall Street. Coin’s Financial School and Exporting America even manifest some formal similarities. Harvey depicts several prominent proponents of the gold standard coming to his lectures and trying to refute him. Not surprisingly, young Coin bests them all. Dobbs has cast a long portion of his book as a numbered list of objections, each of which Dobbs rebuts (to his satisfaction, anyway) in a few short paragraphs. Dueling with straw men has ever proven more popular than facing down flesh-and-blood critics.

Dobbs argues that technological, economic, and political factors – grouped by some under the broad rubric of “globalization” – have conspired to make outsourcing irresistible to a growing array of businesses. Advancing communication technology allows companies to cheaply and effectively knit together geographically disbursed sites. Inexpensive bandwidth means routing a call to Bangalore costs little more than sending it to Bangor. A growing web of bilateral free trade and investment protection treaties, most prominently NAFTA (but also CAFTA, the Caribbean Basin Initiative, the Andean Trade Preference Act) have at once lowered tariff and non-tariff barriers and reduced the political risk of investing in productive capacity overseas. The WTO threatens to further expand the domain of free trade. Companies take advantage of lower prevailing wages and looser regulations in foreign countries in order to cut costs. Outsourcing started in manufacturing but has recently accelerated in services provision. Mindful of his readership, Dobbs makes much of the idea that services outsourcing now renders “knowledge workers” vulnerable. As a result of outsourcing, U.S. workers are thrown out of work or face depressed wages, the U.S. current account balance deteriorates, and America sinks deeper into debt to the rest of the world. It’s all a result of “greedy corporations” bent on “exporting America.” Dobbs attention tends to wander off the main path, managing, for example, to bewail U.S. dependence on foreign oil. This is hard to pin on outsourcing unless the laws of geology have recently been repealed or it can be shown that Pleistocene sea life decided to rest in Middle Eastern rock out of greedy and un-American motives.

Dobbs’ case bogs down in a thicket of contradiction, and only manages to propel itself forward on the intensity of his ardent self-righteousness. American companies relocate plants and call centers to countries like China and India in order to exploit the starvation wages that prevail there. However, Dobbs several times wonders why companies would sell out their workers for what he characterizes as “small savings.” American workers are, Dobbs alleges, helpless to compete with modern-day coolies of Asia, but at the same time he proclaims that American workers are the best and most productive in the world. Companies get away with outsourcing because they have managed to buy off politicians with vast campaign contributions. And yet, somehow this wholesale purchase of the political class has not given companies the power to loosen the workplace safety, labor, and environmental regulations which Dobbs accuses companies of moving offshore to avoid. When one of these pesky paradoxes threatens to thwart his rhetorical juggernaut, Dobbs either hides behind the flag – declaring the greatness of America and its people and censoriously wondering how corporations have the temerity to betray it by moving activities overseas – or changes the subject to himself. More precisely, he describes, in an indignant tone that ill-conceals his pleasure at getting attention, the various criticisms to which he has been subjected for his stand on outsourcing. Lou Dobbs is no doubt passionate about outsourcing, but not to the extent that he has no passion to spare for his other favorite topic, namely the courage in the face of persecution of Mr. Lou Dobbs, tribunus populi.

“Coin” Harvey was not a professional economist – and his technical ignorance led him into a number of perplexities – nor is Dobbs. He makes an effort to sketch out the consequences of outsourcing, but winds up wildly off the mark. Common sense can take you a long way, but very few people can do general equilibrium economics in their heads.
While Dobbs largely passes over immigration, it plays an important part in a broader process of global labor market arbitrage of which outsourcing is one component. Both have put downward pressure on wages, but likewise they have much to do with the fact that those wages can be spent on such startling bargains as $100 DVD players. Globalization has coincided with robust growth in both the countries to which business processes are outsourced and the U.S. Global labor arbitrage is at the heart of a productivity revolution. Dobbs might concede this point, but nonetheless object that the fruits of productivity growth accrue entirely to “greedy corporations” at the expense of U.S. workers. He might be surprised to know that labor’s share of national income in the U.S.(total compensation) has moved from approximately 70% in 1984 to… approximately 70% in 2004. That is not to say that Americans who have lost their jobs when companies move business processes overseas have not suffered; nor that global labor arbitrage has not had distributional consequences within the American workforce. Call-center work will most likely become less remunerative and less common in the U.S. over time. To Dobbs, this smacks of injustice. But is it morally obvious that someone is entitled to a do a job for $10/hr badly that someone in India is willing to do well for $1/hr, merely because he holds an American passport? For Dobbs, the ethical principal of “solidarity among Americans” stands paramount. Ethical principles, alas, are not as clear as facts. Lou Dobbs’ view is fine for proud nationalists, but what about those with a more catholic perspective? And in what sense are U.S.-domiciled corporations with customers all over the world, owned by shareholders all over the world, really even American?

Richard Hofstadter, in a famous essay on “Coin’s Financial School” maintained that for all his popular influence, Harvey was a “crank.” Lou Dobbs demonstrates that a century on, this is one occupation that hasn’t been entirely moved offshore.

Kevin Holtsberry
I work in communications and public affairs. I try to squeeze in as much reading as I can while still spending time with my wife and two kids (and cheering on the Pittsburgh Steelers and Michigan Wolverines during football season).