"Productivity" A Straw Man In The Outsourcing Debate

by Thom Hartmann

Thomas Jefferson wrote in a September 28, 1821 letter, "The government of the United States, at a very early period, when establishing its tariff on foreign importations, were very much guided in their selection of objects by a desire to encourage manufactures within ourselves."

Conservatives don't want you to know this, and -- even more frenetically -- are working to prevent any discussion of "protectionist" tariffs on labor. Their main argument -- a straw man -- is that "productivity" is responsible for the loss of American jobs, not a fundamental realignment in the rules of the game of business starting in the Reagan era and climaxing with NAFTA and GATT/WTO.

Business publications love to quote 19th century economist David Ricardo as saying, in "On Wages," his 1817 work, "Labour, like all other things which are purchased and sold, and which may be increased or diminished in quantity, has its natural and its market price."

Thus, they say, it's natural that American wages should have been in a free fall ever since Bill Clinton signed NAFTA and GATT: America's roughly 100-million workers now have to compete "on a level playing field" with five billion impoverished people around the world. Offshoring is simply the normal extension, they say, of Ricardo's classic view of economics.

What they forget is that Ricardo also wrote, in the following sentence, "The natural price of labour is that price which is necessary to enable the labourers, one with another, to subsist and to perpetuate their race, without either increase or diminution."

In other words, labor is part of the game of business, and one of the first goals of the game of business is "to perpetuate" the working class's existence.

Yet everybody knows that games played without rules won't work. Boxers are divided into categories to ensure relative fairness in fights; baseball rules define the type of bats that can be used; football players are limited in how they can use their hands so they don't injure opponents or get unfair advantage.

What's lost on many Americans is that business is a game, too. The rules are defined by We the People through our elected representatives, and the goal is to provide for the "life, liberty, and pursuit of happiness" of American citizens.

The question Americans have faced since the first arguments between Jefferson and Hamilton in the 1780s was whether the game of business should be played with the primary goal of enriching the few, or -- while allowing the few to enrich themselves -- to enhance the quality of life of the many at the same time.

Modern conservatives suggest that if the rich win first, benefits will "trickle down" on the rest of us. Protecting workers, they say, will produce dislocations and abnormalities from the "free market." For example, they suggest that when minimum wages are fixed by government, and labor can lawfully bargain to increase wages by increasing scarcity of labor through union actions, that results in an increase in prices, ultimately hurting "the working person."

But Ricardo disagreed that rising wages first increased prices. He noted, "On the contrary, a rise of wages, from the circumstance of the labourer being more liberally rewarded, or from a difficulty of procuring the necessaries on which wages are expended, does not, except in some instances, produce the effect of raising price, but has a great effect in lowering profits."

And when wages go down, profits go up. American wages have been going down steadily since Reagan first reintroduced conservative economics in 1980, and American corporations just reported two of their most profitable quarters in decades. In part, this is because wages are not only going down within the US, but because U.S.-level wages are being replaced by India- and China-level wages through outsourcing and offshoring.

"But offshoring isn't the problem for American workers!" conservatives shout. "It's the increase in productivity. American businesses need fewer workers because automation and hard work have made our workers more productive."

This is a tragic lie, and it's been bought hook, line, and sinker by most American politicians and even many economists.

Productivity is, very simply, the measurement of how many products or services can be produced for how many dollars of labor expended. But offshoring distorts productivity figures in two ways.

First, foreign labor is cheaper, but produces nearly identical amounts of product or service. The result is "increased productivity."

Second, many corporations don't put offshore labor onto their balance sheets as a labor expense. Because they hire offshore companies as subcontractors to do work previously done by their own employees, they get to reduce the number and cost of their employees while having an only slightly increased line-item on their P&L for the subcontractor. The result is that it looks like their remaining employees are getting more done, because the offshore employees are no longer counted in the productivity figures.

But the Indians and Chinese know something you won't hear on conservative "business" programs. While China and India eagerly let multinational corporations move work from America to their nations, they fiercely protect their own domestic industries primarily through the use of tariffs -- taxes on imported goods -- and the strict regulation of imported labor.

We should do the same. To return balance to the international game of business, America can again use tariffs to balance trade relationships. This is not a new idea, by the way -- it's how America has protected its economy from the founding of this nation right up until Clinton signed NAFTA and GATT.

For example, Jefferson wrote in his diary on March 11, 1792, "Hamilton had drawn Ternant into a conversation on the subject of the treaty of commerce recommended by the National Assembly of France to be negotiated with us." France wanted concessions from America as a way of enhancing international relations, but was unwilling to reduce her own tariffs. Jefferson noted, "Hamilton communicated this to the President, who came into it, and proposed it to me. I disapproved of it, observing, that such a volunteer project would be binding on us, and not them; that it would enable them to find out how far we would go, and avail themselves of it."

George Washington was more of Hamilton's mind. "However," Jefferson wrote, "the President thought it worth trying, and I acquiesced. I prepared a plan of treaty for exchanging the privileges of native subjects, and fixing all duties forever as they now stood. Hamilton did not like this way of fixing the duties, because, he said, many articles here would bear to be raised, and therefore, he would prepare a tariff. He did so, raising duties for the French, from twenty-five to fifty per cent. So they were to give us the privileges of native subjects, and we, as a compensation, were to make them pay higher duties."

The deal ultimately fell through -- Jefferson saw it as Machiavellian scheme by Hamilton to try to irritate England -- but it shows how tariffs were an important aspect of American foreign policy from the administration of George Washington up until Bill Clinton got us into the World Trade Organization, thus eliminating most tariffs and trade "restrictions," letting multinational corporations instead of sovereign nations write the rules of international business.

To solve the crisis of the disappearance of America's middle class the United States should pull out of the WTO and other multilateral treaties that give corporations the power to enforce their will on our government and on our workers. This will again allow us to impose leveling tariffs on work done overseas. Offshore labor can then be set in price -- by adding tariffs to it -- to equal a living wage in the United States.

If a company wants to hire people to answer the phone in India for two dollars an hour, fine. Let them do it -- and pay a $10/hour tariff on top of the $2/hour wage. Most will simply return to the United States for their labor, and those that don't will enhance government coffers with funds that can be used for national healthcare and education of our workforce.

By walking away from the ABM and Kyoto accords, George W. Bush taught Americans that we really do have the power to simply ignore or disavow international treaties we've already committed to. It's time to apply that experience to GATT/WTO/NAFTA and return to our Founders' ideal of a nation where the rules of trade and business are, as Jefferson said, "very much guided" by the interests of We the People, rather than a handful of multinational corporations.