Bacon's Rebellion

James A. Bacon


 

Baconometer

Way overdone

One More Time, Now...

 

Free trade, even out-sourcing, is good for Virginia's economy. The losers from open markets may be highly visible but the winners are far more numerous.


 

Lou Dobbs has a great shtick on Cable News Network. In a regular feature he calls “Exporting America,” the avuncular anchorman chronicles the loss of American jobs to cheap overseas labor markets. As United States companies move manufacturing and service operations abroad, he argues, American consumers run up record imports. With the U.S. balance of payments deficit reaching a record half trillion dollars a year, Americans are selling their assets to pay for unsustainable consumption.

 

It’s the kind of storyline that’s guaranteed to pump up ratings. Heroic Lou stands up for the little guy while greedy corporate executives hollow out the country’s economic base in pursuit of short-term profit. The economy-is-going-to-hell narrative also appeals to those who would like to see a change in presidential administrations in Washington, D.C. Given the drumbeat of downbeat stories in the face of bounding productivity, rising profits and rapid job creation, there’s little wonder that Americans are still wary about the economy.

 

It’s true that U.S. companies are exporting jobs and capital overseas and that government and consumers are running up worrisome indebtedness. But there’s encouraging news, too. What Dobbs neglects to mention is that foreigners are exporting capital – and jobs -- to the United States. They’re not all buying U.S. Treasury bills and trophy real estate properties. Asian, European and even Mexican companies are investing in productive assets and putting Americans to work. Meanwhile, American companies are making money overseas selling products and services never imaginable a decade ago.

 

If Lou Dobbs would descend from his studio perch and descend into the trenches of the American economy like I do, he’d get a very different picture. Every week, I publish VA Newswire, a wrap-up of top business stories around the Commonwealth. I am continually amazed at the extent to which Virginians conduct business with foreign enterprises and sell to foreign markets. Consider this list of deals and transactions that VA Newswire reported in just the past two weeks. (You'll never see them on Lou Dobbs Tonight!)

 

  • Framatome ANP, a Lynchburg-based unit of the French-based Arreva Group, is investing $20 million in a 70,000-square-foot service center to increase the company’s capacity to refurbish nuclear power plant equipment.

  • Evergreen Enterprises, a Richmond home décor and garden accessory company, is acquiring the assets of a New Jersey manufacturing facility and relocating work to Richmond. Started by two Chinese graduates of Old Dominion University, Evergreen out-sources some of its manufacturing to China, but employs American artists to design products that will appeal to American consumers.

  • Ashbury International Group, of Sterling, has won a five-year, $156 million contract to supply advanced binocular laser range-finder systems to the U.S. Army. The equipment will be manufactured by Vectoronix AG of Switzerland.

  • ZyLAB, a McLean developer of document-imaging and text-retrieval software, will help the Italian Justice Ministry sort through some 500,000 documents to assist in the prosecution the massive Parmalat fraud case.

  • Inphomatch, a Chantilly provider of mobile messaging services, will supply the technology that allows Verizon Wireless subscribers to send text messages to subscribers of other wireless companies in more than 28 countries in Europe, Latin America and the Asian Rim.

  • Sumitomo Corporation of America, a unit of a Japanese trading company, has acquired Oxford Finance Corporation of Alexandria, for $77 million. The transaction will enable Oxford to provide American clients and venture capitalists with “a direct link to the Japanese life science market for collaborative partnerships, distribution agreements and equity investments.”

  • Ascend Therapeutics, a Herndon company licensing a Belgian technology and financed by a European investor, is winding up Phase II clinical trials of TamoGel, a system for delivering through the skin a drug for treatment of severe breast pain. The 10-person company expects to double employment by the end of the year and to grow another 50 percent in 2005.

  • Smithfield Foods, the Smithfield-based pork processing giant, has purchased Jean Caby, a French producer of hams, sausages and hot dogs, which it will merge with its other French units to create a $466 million-a-year meat company.

  • Primus Telecommunications, Inc., a McLean company founded by an Indian immigrant, has introduced a Voice over Internet (VoIP) telephone service that reaches 150 companies and offers free, unlimited calling to Western Europe.

And that's just the past two weeks. Go back a couple of more weeks and you'll read about a Roanoke software company signing a deal with a Qatari liquid natural gas company, an Arlington company designing warships for the Australian navy, a Falls Church company negotiating waste-to-energy deals in Bulgaria, and a Sterling designer of high-end tableware selling equity to a German company in a strategic investment. 

 

Show me the downside of any of these deals! I suppose you could complain about the Ashbury contract in which an American company served as an intermediary for the $156 million sale of laser range-finder systems to the U.S. military. That could run up the U.S. balance-of-trade deficit. But who could argue the desirability of equipping our soldiers with range-finding equipment that will increase the accuracy of their weapons systems? We’re getting something we really need out of the deal.

 

Or, I suppose, Sumitomo’s purchase of Oxford Finance could be construed as the “buying of America.” But who could dispute the desirability of a deal that helps Americans forge closer relationships with players in the Japanese life sciences sector? Should we prefer that the Japanese build those relationships with the Europeans and not us? We want to be connected to the sources of innovation and creativity in Japan.

 

No question, large swaths of Virginia’s economy have been hammered by an open trading system that forces workers in old industries like furniture and textiles to compete against Mexicans and Chinese earning one fifth, even one tenth, of their wages. Tens of thousands of Virginia factory workers have lost their jobs in the current recession, most of which will never return.

 

But the opportunities are tremendous for those willing and able to learn skills demanded by leading-edge businesses and, when necessary, relocate to regions where the new jobs are being created. Look what’s happening in Northern Virginia. Companies are reaping revenues by supplying text-retrieval software, providing technology that interconnects different wireless phone systems, and delivering VoIP telephone service to American and European customers. No one had even conceived of such things 10 years ago.

 

Meanwhile, a French company is investing money into a nuclear power service facility in Lynchburg, while a Belgian company is investing in an American biotech start-up. Anti-globalists in Europe are complaining bitterly, no doubt, of the “export” of capital and jobs to the United States – while criticizing Smithfield Foods’ investment and job creation in the French food industry. Look what McDonalds has done to French cuisine? Zut alors! Can ze porc packers in Smithfield be any better?

 

I can assure you that the new jobs being created by Framatome, Evergreen, Zylab, Ascend and the rest require much higher level cognitive skills and education -- and offer compensation to match -- than the jobs that are being "exported" abroad.

 

Virginians benefit by free-and-open trade and investment in a number of other ways.

 

First, even the most economically illiterate person can see that global trade brings lower cost goods. Just go to Wal-Mart! Foreign competition and the ability to out-source overseas have played a key role in keeping inflation in check. It’s no accident that the most inflation-prone sectors of the U.S. economy – government, education and healthcare – are sectors immune to foreign competition and out-sourcing. Restrained prices have enabled the Federal Reserve Board to pursue a more stimulative economic policy, with the lowest interest rates in decades, than would have been possible otherwise.

 

Second, globalization creates wealth in previously poor countries, expanding the market for U.S. goods and services. As China, India, Mexico and other developing countries sprout large middle classes, millions of people will begin buying American products and services: sipping Coca-Colas, lighting up with Marlboro cigarettes, opening up check accounts with Citibank and running Microsoft operating systems on their computers.

 

Third, accessing lower-cost manufacturing and services makes U.S. enterprises more competitive. Think of it this way: What if European and Japanese firms enjoyed the cost advantages of out-sourcing to China/India and Americans didn’t? How long could U.S. companies stay competitive? How long would U.S. companies be able to support the upper-echelon jobs in in R&D, product development, brand building, deal making and global supply-chain management?

 

Conversely, if U.S. firms are quicker to out-source to India, China and other developing countries, they can better compete against their peers in other advanced economies. Higher profitability allows them to create more opportunities for Americans performing tasks requiring critical thinking, problem solving and specialized bodies of knowledge, all of which are very difficult to out-source.

 

The path to prosperity is not for U.S. firms to hunker down behind protectionist walls. It’s to focus on high value-added economic activities. And the challenge for Virginia communities is not to protect old-and-dying industries but to stimulate the creation of new ones.

 

As Virginians, we must create a culture of innovation, creativity, productivity and entrepreneurial risk taking – and embrace the challenges and opportunities that come with participation in global markets.

 

-- June 21, 2004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fire back!

 

You can berate Bacon at [email protected]

baconsrebellion.com

 

Or read his profile here.

 

 
 

 

Read former Gov. Gerald L. Baliles on free trade in the June 7, 2004 edition of Bacon's Rebellion:

 

In Defense of Free Trade

 

Critics of free trade harp on the jobs that Virginians lose to foreigners. They don't talk about the jobs and business opportunities  created by open access to the world's markets.