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Commies, Pinkos and... Outsourcers?

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Shipping jobs overseas not nearly as evil as Lou Dobbs would have you believe.

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"Benedict Arnold" CEOs are routinely denounced, derided and denigrated for shipping jobs overseas.

Lou Dobbs, a talking head on CNN (TWX) and author of Exporting America: Why Corporate Greed is Shipping Jobs Overseas, is the best-known cheerleader for this point of view.

Dobbs is wrong: CEOs who outsource jobs to cheaper foreign labor aren't greedy traitors.

No one doubts that the global economy upsets lives. But overall, outsourcing expands the U.S. economy and makes American companies stronger. The United States also benefits from massive foreign investment - "outsourcing," no doubt, for Japanese and German companies fit to be demonized by home-grown politicians and yapping heads in Tokyo and Berlin.

Overall, the American auto industry is doing just fine. It's the remnants of unionized operations in high-tax, high-regulation Michigan -- Ford (F) and General Motors (GM) -- that are hurting. Honda (HMC) produced 1.015 million vehicles in the United States in 2007, a record and the fourth consecutive year of growth.

Toyota (TM) makes parts and builds cars in 13 plants across the nation. Subaru has a manufacturing plant in Indiana. Mercedes-Benz (DAI) builds cars in Alabama. BMW operates in South Carolina.

Note to Dobbs and his cohorts: these foreign-owned companies employ Americans at good wages, pay taxes and meet local environmental concerns.

So what's the gripe?

In 2004, Forrester Research projected that 3.4 million American jobs would be outsourced by 2015. That sounds horrendous, but works out to about 257,000 a year - not a significant hit to an economy that employs about 146 million and has thousands of people lining up at the unemployment office in good times. The Bureau of Labor Statistics estimates that 15 million jobs are eliminated every year as part of the regular economic churn. But the dynamic economy continues to create new jobs and U.S. employment expands overall.

Even in a downbeat economy, the nation faces a shortage of qualified workers. Microsoft (MSFT) announced plans to open a software development center in Vancouver, British Columbia because the same politicians who can't secure the southern border refuse to expand the number of H-1B visas to Red, White and Greenback: Minyanville's Fourth of July meet the demand for talented, well-educated scientific and technical workers. India's top schools turn out world-class engineers. Meanwhile, many U.S. students wander into literature or the theater arts, and law schools churn out thousands of second-rate shysters looking for work.

Politics and sociology aside, illegal immigration indicates a strong economy in need of workers.

The number of U.S. manufacturing jobs has declined, but productivity has increased and exports are up. The U.S. is the world's leading exporter of services: American companies export information technology services valued at $10 billion a year, or about three times what they buy from foreign providers. In fact, the U.S. now accounts for about 20% of services worldwide.

It would be economic suicide for Uncle Sam to prohibit foreign companies from selling services to their U.S. counterparts, but that doesn't mean some short-sighted politicians won't try to snuff increased productivity and future growth in the name of "preserving" jobs at home. That was the pitch for the Smoot-Hawley Tariff Act, signed into law by President Hoover in 1930. The protectionist legislation triggered a global trade war, turned the stock market crash of 1929 into a depression and created the economic devastation in Germany that Hitler exploited in his rise to power.

Those who decry outsourcing overlook the economic climate at home. It's no accident that California, New York, Michigan, Ohio, New Jersey, Pennsylvania and Illinois struggle to attract and retain new businesses because, in general, they're high-tax, high-regulation states. The Sunbelt is booming, but not just because winter is mild: There's no state income tax on earned income in Florida, Tennessee or Texas.

More ominously, outsourcing may be a no-confidence vote in the secondary education provided by public schools. It could also be a tacit thumbs-down on the nation's eroding work ethic.

Companies often knocked for outsourcing jobs include Dell (DELL), Hewlett-Packard (HPQ), IBM (IBM), General Electric (GE) and Intel (INTC). Politicians throwing bricks at them apparently don't notice that they're top U.S. firms and among the world leaders in their fields. Each maintains a large labor force in the U.S.

Outsourcing is a division of labor on a global scale: Design and development of semiconductors will continue in the United States, but manufacturing the chips is becoming increasingly routine and will continue to be shifted to lower-cost plants in Asia. This cuts production costs, but creates a range of logistical problems.

Politicians who knock businesses for outsourcing fail to understand a basic point: Companies that forego cheaper labor or services will lose market share, cut back on research and development, and eventually fade away.

It's a funny thing, but dead companies don't hire.

For more on outsourcing, check out Hoofy and Boo's always astute report.


No positions in stocks mentioned.
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