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The U.S. Must ‘Reshore’, Not Offshore Jobs (EDITORIAL: Real Clear Markets)

Editorial, Chase Norlin

Every major presidential candidate, even those most beholden to Wall Street, says he or she opposes the offshoring of American jobs. Like vows to “defeat ISIS” and “repair our crumbling infrastructure,” the nationalist cri de couer against “shipping jobs overseas” has become a bipartisan catchphrase of the 2016 race. But political rhetoric is one thing and economic reality is another. Offshoring has become an effective way for U.S. companies to build and manage their products and services.

Look at Apple Computer. Except for the Mac Pro personal computer, possibly the best company in the history of American business doesn’t produce its computers, smartphones, and other gadgets domestically. Its components are sourced throughout the world and assembled in China. Sure, Apple’s products and intellectual property are designed at home. Yet hundreds of thousands of jobs are created abroad just for the firm’s sprawling supply chain.

Apple is not alone. In July, Microsoft’s CEO announced the firm would lay off 18,000 of its workers. As a Silicon-Valley CEO and Bay Area citizen, I see the same scene over and over. The lines to buy the hippest tech gear run around the corner. Yet the unemployment lines in the same neighborhood for middle-class jobs are long too.

Those of us in the tech industry need to be honest: We are creating a world where a handful of senior workers manage a massive low-cost labor source overseas to produce and manage our products and services.

Many Silicon-Valley officials complain about a “talent shortage.” In reality, the shortage is confined to elite programmers who know “Ruby on Rails” or “Full Stack.” Sure, the demand for these positions is strong, but even if we filled them, our jobless rate would not go down much. Only a handful of people can afford to take a boot camp to learn these new skills and get a six-figure software job. And many advanced programming jobs only exist because of an over-inflated venture funding market.

The jobs exist. It’s a matter of creating the infrastructure and incentives to bring them home. On-shoring or re-shoring is the process of doing exactly that. Instead of shipping American jobs abroad, companies ship them back home.

Companies like Kent International recognize the increasing appeal of building their businesses locally. Last year, the bicycle manufacturer shifted its manufacturing from Asia back to the U.S when it realized that the cost to produce its bicycles locally would be cheaper than Asia by 2017. Now the town of Manning, South Carolina has another 175 full-time jobs.

To be sure, few companies have followed Kent’s lead. According to a 2014 survey from IPC-Association of Connecting Electronics Industries, “(o)n-shoring is a relatively rare phenomenon.” But more firms are expected to imitate the bike manufacturer. Indeed, the Boston Consulting Group predicted that 2015 would represent a “tipping point” for American manufacturers to onshore their jobs.

It’s easy to see why. Not only are costs increasing to build products and services overseas, but savvy companies realize that localized operations can create business efficiency and time zone and language advantages that can’t be achieved in foreign countries. There are other reasons to keep labor and production localized: rising international transportation costs, growing concerns around intellectual property theft, and closer proximity to customers.

In my previous company, Emerge Digital Group, we built an internal-training program based on an internship model. We lacked the funds to hire the “best and brightest,” yet I was in for a surprise. The best and brightest weren’t those who could fetch the fattest salaries; they were the ones who worked the hardest and wanted it the most.

Am I alone in thinking that millions of Americans fit this same profile?

To accelerate on-shoring, we need to dedicate more federal and state support to retrain workers into long-term positions. Companies need to provide guidance on that training so they can develop a pipeline of localized labor that performs these jobs at or below the cost they’re paying overseas.

The irony is, federal and state support for retraining is growing and employers increasingly recognize the need to build a pipeline of local talent to fill their hiring needs. Yet the link between employers and our workforce system is thin. That’s a huge disconnect. It’s also a great opportunity.

In this situation, we may need more government involvement not less.

Andy Grove, a founder of Intel, praised Asian governments for their purposeful and thoughtful incentivization of labor markets. “These countries seem to understand that job creation must be the No. 1 objective of state economic policy,” Grove wrote in “How America Can Create Jobs,”an essay. “The government plays a strategic role in setting the priorities and arraying the forces and organization necessary to achieve this goal.”

Grove praised this coordinated effort by government and worried about what happens when production expertise is out of our control and the labor doing the real work is half a world away. We don’t just lose innovation, we lose jobs. I agree.

I see two solutions, the carrot or the stick. We could tax products and services that are produced overseas brought back for domestic consumption. Or we could create incentives for companies to train labor locally that could fill the positions outsourced to foreign markets already. I prefer the latter, as this would be the inverse of what happened at Disney recently when those getting laid off had to train their foreign replacements.

We have everything we need to do this. The money is there, the people are there, the training is there, and the jobs are there.

The U.S. Must ‘Reshore’, Not Offshore Jobs (EDITORIAL: Real Clear Markets)