Offshore outsourcing, visas and the Obama speech

You may have noticed that there’s been a lot of talk by politicians about offshore outsourcing. But when you get to it there isn’t one political leader – Democrat or Republican – who has done a thing about it except Ted Strickland.

Strickland, a former Ohio governor, delivered a speech the other night at the Democratic National Convention. He joined his fellow Democrats of accusing Mitt Romney of being “an outsourcing pioneer” as part of his unabashed “made in America” message.  

Strickland believes offshore outsourcing is bad for Americans. In 2010, then Gov. Strickland issued an executive order barring the use of public funds on offshore services. Using offshore services “deprives Ohioans and other Americans critical employment opportunities,” he wrote.

If you support this view, it sounds good until you realize that Strickland is a mess on this issue.

Let’s go through the evidence.

Let's start with Strickland’s anti-offshoring executive order because it was a zinger. He wrote:  

 “The use of offshore service providers could pose unacceptable data security, and thus privacy and identity theft risks.  There are pervasive service delivery problems with offshore providers, including dissatisfaction with the quality of their services and with the fact that services are being provided offshore.”

How Strickland came to this conclusion is a mystery, considering that his administration in 2007 succeeded in convincing Indian IT services giant Tata Consultancy Services to build a delivery center in Milford, Ohio. The state offered about $19 million in tax credits and other incentives to Tata.

Why would Ohio invest in an offshore provider if, as Strickland wrote, there “are pervasive service delivery problems with offshore providers?”

Ohio’s deal with Tata was noted by the Obama administration.

Strickland was invited to Washington in 2009 as part of a visit by India’s Prime Minister, Manmohan Singh. Official activities included a luncheon at the State Department. Among the 16 people at the head table was Strickland and Ratan Tata, the chairman of the Tata Group.

Obama, at the State Dinner that evening, made this point: "India will play a pivotal role in meeting the major challenges we face today. And this includes my top economic priority, creating good jobs with good wages for the American people," he said.

That was in November, 2009. About six months earlier, Obama said that the U.S. has developed "a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, N.Y."

The Bangalore reference upset the Indians, who wondered what Obama had planned. But since then, the administration has been careful to frame the outsourcing issue as a U.S.-specific tax issue, and not a trade issue. It has avoided mentioning Bangalore since. Ohio’s deal with Tata was an early prop in that message.

Nonetheless, the Indians continually worry about the potential of the U.S. to disrupt offshore outsourcing by cutting access to temporary work visas, the H-1B and L-1.  Strickland’s prominent speaking role at the Democratic convention was a reminder of this always lurking menace. Not to worry.  

At the convention it was left to Laura Tyson, former Clinton administration chair of the Council of Economic Advisors, to put to rest any concerns India might have about Strickland, and other speakers bearing inflammatory outsourcing messages. Tyson spoke with reporters at the convention, including India’s wire service, the Press Trust of India via the Business Standard. The wire service said Tyson is now advising President Barack Obama’s campaign. Tyson is quoted:

"It is important to recognize that insourcing, outsourcing, supply chain complexity, supply chain disaggregation, is here to stay. The challenge for the U.S. is to make the U.S. a very attractive place to do business so the U.S. companies decide to stay, bring back, and foreign companies continue to move here. And we shouldn't do anything, as I said, in a biased way to influence outsourcing or insourcing by our tax codes. We have to change our corporate tax code. The president has embraced that.”

Although Tyson didn’t address the work visa issue directly, her message “that insourcing, outsourcing, supply chain complexity, supply chain disaggregation, is here to stay” is an affirmation of the realities of a globalized world.  

There was nothing that Strickland or Tyson said to challenge the notion that temporary work visas are a necessary part of globalization. The issue has been ignored by both parties at their respective conventions.

The Obama administration will limit offshoring to a tax code problem. The administration has expressed no interest in legislation limiting temporary work visas to 50% of the U.S. workforce as some in Congress have proposed.

When Obama speaks tonight at the convention, do not expect to hear anything different.  

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