Romney's role in pioneering the outsourcing of jobs

US presidential hopeful Mitt Romney addresses a campaign rally at Cornwall Iron Furnace in Cornwall, Penn., June 16, 2012.

Jeremy Hobson: The presidential campaign has returned to the issue of private equity and the outsourcing of jobs. President Obama has latched onto a Washington Post report that says private equity firm Bain Capital which Mitt Romney used to run helped pioneer the outsourcing of jobs.

Here's President Obama speaking a few days ago:

President Barack Obama: Let me tell you Tampa, we do not need an outsourcing pioneer in the Oval Office. We need a president who will fight for American jobs, and fight for American manufacturing. That's what my plan will do.

Well for some analysis let's bring in Marketplace economics correspondent Chris Farrell. Good morning.

Chris Farrell: Good morning, Jeremy.

Hobson: So Chris, is it true? Was Romney a pioneer in outsourcing?

Farrell: Yes. Absolutely true, Jeremy. But -- and this "but" is very important -- it was part of the business scene of the time. There are lots of pioneers. Let's give a little bit of context here: U.S. business was having its clock cleaned by Japanese competitors, German competitors, British competitors.

And so people like Romney were coming in and taking over companies, adding on a lot of debt, and looking for efficiency. So what was the mantra? Well, what is our core compentency? What is our business? Outsource everything else.

Hobson: The Romney campaign though, has come back and said: there's a big difference between outsourcing and offshoring, and that distinction was not made in this original story in the Washington Post.

Farrell: The motivation is essentially the same between when you outsource or you go offshore. The big distinction is, offshore -- you're going overseas. So the seminal moment with offshoring was Y2K. You remember Y2K when the computers were going to come down? And a lot of the computer programming was done in India, because they had the expertise.

And all of a sudden business woke up and said: hey, if we can be doing computer programming overseas in India, what about call centers? What about accounting? So in a sense, they're two sides to the same coin, but outsourcing -- which is the bigger topic -- is: you go to a company that has a competency that you don't have; you pay them to do your payroll, to do your IT. Offshoring is, you do that -- overseas.

Hobson: Well politics aside, from a business perspective, Chris, was there any way to escape this outsourcing trend at U.S. companies back in the 80s?

Farrell: No. What was the mantra -- we live in this global economy; this was restructuring to be more productive, to be more efficient. And so this was part of the drive toward higher productivity -- which we saw in the 1990s -- and also taking advantage of a lot of the innovations coming out of Silicon Valley with information technologies. It was part globalization, part of increasing productivity, part of becoming a more competitive nation.

Hobson: Marketplace economics correspondent Chris Farrell, thank you so much.

Farrell: Thanks a lot.

 

 

About the author

Chris Farrell is the economics editor of Marketplace Money.

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