/javascript" src="../static/js/analytics.js"> CalTrade Report - CTR COMMENTARY: Captain K and the Not-So-Wonderful O CalTrade Report, Senator John Kerry, outsourcing, international trade - CTR COMMENTARY: Captain K and the Not-So-Wonderful O - Kerry and the Pirates sweep across the land conjuring the specter of Benedict Arnold CalTrade Report Asia Quake Victims 03/31/04 - ''It would appear that the need to politically posture has led some who should think better of the American people to render complex multi-dimensional issues like America's role in an increasingly global economy into easy-to-digest, microwave-able sound-bites and simplistic bumper-sticker mantras.'' - 03/31/04 - ''It would appear that the need to politically posture has led some who should think better of the American people to render complex multi-dimensional issues like America's role in an increasingly global economy into easy-to-digest, microwave-able sound-bites and simplistic bumper-sticker mantras.'' - CTR COMMENTARY: Captain K and the Not-So-Wonderful O CalTrade Report, Senator John Kerry, outsourcing, international trade - CTR COMMENTARY: Captain K and the Not-So-Wonderful O


Tuesday, June 13, 2006


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CTR COMMENTARY: Captain K and the Not-So-Wonderful O

Kerry and the Pirates sweep across the land conjuring the specter of Benedict Arnold

LOS ANGELES - 03/31/04 - Years ago, the great American satirist and cartoonist James Thurber penned "The Wonderful O," the hilarious, fanciful story of a dastardly group of pirates who invade the mythical island of Ooroo looking for treasure.

It seems the pirate band is lead by one Captain Black, who hates the letter O because when he was a child his mother got stuck in a porthole, and he couldn't pull her in, so he had to push her out.

Bye, Mom.

By and by, he banishes from Ooroo any speech -either written or spoken - every word and name which contains the letter O.

"I'll get rid of the letter O, in upper case and lower," he declares. "All words in books or signs with an O in them shall have the O erased or painted out. We'll print new books and paint new signs without an O in them."

This, of course, has significant implications - how do you then pronounce Ooroo?

How could there be youngsters, or oldsters, or books, if there weren't any "O"?
"We can't tell shot from shoot or hot from hoot," the blacksmith says in a meeting with other townsfolk. "Oft becomes the same as foot, and odd the same as dodo. Something must be done at once or we shall never know what we are saying."

Black may have stripped the language of its Os but, in the end, he can't break the people's spirit, and eventually he and his crew hoist anchor and sail away into the sunset, leaving the people and their island with all their Os intact.

Great story, but there's a darker lesson to be learned particularly today in a politically-charged atmosphere where the line between fantasy and reality - the line between what's appropriate to entertain children and what's appropriate to educate adults - continues to blur as the November presidential election nears.

It would appear that the need to politically posture has led some who should think better of the American people to trivialize complex multi-dimensional issues like America's role in an increasingly global economy into easy-to-digest, microwave-able sound-bites and simplistic bumper-sticker mantras.
And so, the trumpet sounds and we see enter from stage left Captain John F. Kerry - snow boarder extraordinaire and hip-hop aficionado - and his band of pirates intent on excising the sinister, evil Not-So-Wonderful O - outsourcing - from America's corporate lexicon.

Ban it, he shouts from the rooftops. Outlaw it, he intones. Companies that O are "Benedict Arnolds." They are, he says, traitors.

And all the little children - from Charleston to Hollywood and all points in between - are lapping it up.

At Wayne State University in Detroit, Kerry put it all on the line telling the assembled multitude that he would eliminate the tax break that allows US companies with foreign operations to defer tax payments on income earned abroad.

Defer it, that is, until that revenue is "brought back to the US" - a period, economists say, could stretch into years - and, at the same time, require the affected US companies to pay taxes on that same income the very year it is earned.
It may sound good to some with their own agendas, but Kerry and his pirate band should take a step back and see what the grown-ups have to say.

"The tax deferral is a very minor reason for why companies move jobs overseas," said David Wyss, chief economist for Standard & Poors in New York with the Business Roundtable, which represents some 150 of the country's largest corporations, saying that the Kerry antidote would go a "long way" in destroying much of their hard-earned overseas market share.

According to the San Jose-headquartered Information Technology Association of America (ITAA), outsourcing will, in the long run, lower inflation, create jobs, and boost productivity in the US and around the world.

Outsourcing, a recent ITAA report based on a survey of its 500 member companies found, "dramatically reduces labor costs, allowing companies to sell goods ranging from software to tax-preparation services at lower costs or higher profit margins. Greater profits theoretically allow companies to buy new equipment, build laboratories, and conduct scientific experimentation - even in the expensive Silicon Valley and other US high-tech hubs."

Savings from outsourcing allowed companies in the high-tech field to create 90,000 new jobs last year, with one in ten of them in the Silicon Valley or elsewhere in California. The report concluded that by 2008, outsourcing would create more than 317,000 new high-tech jobs, 34,000 in California alone.

Catherine Mann of the Institute for International Economics in Washington recently told business columnist Jim Flanigan of the Los Angeles Times that government data shows that even as the US economy shed 71,000 software programmer jobs from 1999 through 2002 that paid an average of $55,000 a year, it created 125,000 jobs at the software engineering level, which paid $74,000 annually.

The reality is inescapable, Flanigan concludes: "Just because other countries are now able to take away high-skill jobs because their own economies have leaped ahead, it doesn't mean the US is standing still."

It's that phenomenon that Captain Kerry and the Pirates would rather you not know about - reverse outsourcing.

"Any way you slice it, the world is creating or transferring more jobs to the US than we are doing to the rest of the world," said Daniel Griswold, a trade specialist at the Washington, DC-based Cato Institute quoted in a recent article published by the Bloomberg Business News.

According to the Bloomberg article, scores of foreign-owned companies have O'd by building manufacturing facilities and service centers in the US putting thousands of Americans to work.
"The movement of jobs abroad has been blown out of proportion mainly because US companies have been slow to increase hiring," Martin Bally, former chairman of President Bill Clinton's Council of Economic Advisors, told Bloomberg. "There was lots of offshoring going on in the 1990s, but job growth was so strong in the US that nobody really took much notice."

A job growth trend that actually surged over the past several years, largely due to increased foreign investment in the US and reverse-outsourcing by overseas manufacturers.

The US Commerce Department recently released figures showing that the number of Americans working for the US affiliates of majority non-US headquartered companies grew by 4.7 million from 1997 to 2001. During the same period, the number of non-Americans working at affiliates of majority-owned US-based companies overseas rose by 2.8 million.

The creation of jobs outside the US by American companies "hasn't played a significant role in the current 'jobless recovery,'" said Bally, now a Senior Fellow at the non-partisan Institute for International Economics in Washington.

Let's bring it all a little closer to home.

Consider this: Over the last 18 months, Vestas Wind Systems Of Denmark, Taiwan-based Teco Electric & Machinery Company, and India's Essel Propack Ltd. have built major manufacturing plants in the US.
Hold on. There's more.
According to Bloomberg, more than a score of major foreign-owned companies are planning to increase their hiring in the US over the next year. The list includes Japan's Nissan Motor Company which employs more than 3,000 people in Canton, Mississippi; German appliance distributor maker BSH Bosch and Siemens Hausergate GmbH with 1,300 workers at their joint-venture facility in New Bern, North Carolina; and Magna International of Canada with almost 800 employees at its plant in Bowling Green, Kentucky.

Last year, DaimlerChrysler AG of Germany, which has put 2,000-plus people to work at a recently-opened plant in Vance, Alabama, announced that it would be competing with giant auto makers Ford and General Motors in selling cars produced at their US facilities in the burgeoning China market.
It's interesting to note that all three carmakers' operations rely heavily on component assemblies and parts manufactured in Mexico, Malaysia, Canada, and a dozen other countries.
And in one particularly unique example, Transcontinental Inc., the giant Canadian commercial printer and newspaper publisher, announced recently that it would be outsourcing the Montreal operations of its internal magazine subscription division to Indas, a Toronto-based publishing services provider, a company that - of all things - happens to be a wholly-owned subsidiary of the US-based Hearst Group.

At this point it's interesting to speculate how Captain Kerry's life style would be impacted by his own tax proposal - a life-style that has been largely subsidized by the profits emanating from the success of his wife's family-owned company, the H.J. Heinz Company, which currently derives 60% of its revenues from international sales and operates 57 of its 79 manufacturing facilities outside the US.

During Kerry's recent fund-raising swing through California, he spent a considerable amount of time hob-knobbing with the Hollywood elite.

His time would have been better spent if he'd had a collective epiphany with members of the California State Senate and Assembly to chide them into putting more effort into getting California back on the path to global competitiveness after years of legislative neglect and mismanagement.

True, last October's recall election that ousted Gray Davis from the Governor's Office and the dismantling of the poorly managed Technology, Trade & Commerce Agency were major steps in the right direction, but much still needs to be addressed by a legislature gazes uncomprehendingly with great cow eyes at issues of genuine import and chooses, instead, to waste valuable time and scarce money studying the value of feng shui, the critical importance of self-esteem, and lowering the legal voting age to 14.
Perhaps Captain Kerry and the legislative herd in Sacramento could have wisely invested some time in studying why several of the companies mentioned earlier - Nissan, DaimlerChrysler, Vestas, and Magna International, for example - initially considered building their US facilities in California, but were driven-off by the state's quagmire of a business climate.
Perhaps, they could have talked about a pair of economic surveys published last year that ranked California near the bottom of the list of states "friendly to business."
They would have learned that the Coalition for California Jobs (CCJ) found that increasing utility costs, a high cost of living, California's overall tax burden, a complex and often contradictory regulatory structure, and rising workers compensation costs have combined to form a fetid environment for business growth in the state.
"California's business climate is not competitive with other states. For years, the legislature has added burdens, costs, and mandates that have taken their toll. When companies look at business climates of the major states with which we compete, we just don't fare very well," commented Allan Zaremberg, president of the California Chamber of Commerce, which backed the CCJ survey.

The Washington, DC-based Tax Foundation also took a sobering swipe at California in its State Business Tax Climate Index ranking the state in 41st place in terms of business-friendly tax, regulatory and administrative structures.

Perhaps they could have learned something of value, and they could be moved to act responsibly, but maybe that's to much to ask as just a few weeks ago State Senator Liz Figueroa introduces legislation in Sacramento that would prohibit the state from awarding contracts to companies that - you guessed it - outsource.

Another bill would forbid the state from contracting any and all call center jobs to foreign countries, a move spurred by the recent disclosure that contract workers in India and Mexico were handling calls from California welfare recipients.

"The time has come for us in state government to get a detailed handle on the state of off-shoring," said Senator Joe Dunn, a supporter of the legislation.

No, Senator. With all due respect, the time has come for you and your fellows to invest the time in turning California into the magnet for foreign investment and the dynamo of international business it, sadly, used to be.
Captain Kerry and his pirate band, as well as the state's exasperatingly dense Legislature, need to understand that what makes the economies of California, and the nation, function lies not in Washington, or Sacramento, or Hollywood, or Berkeley, but in the aspirations of their people to prosper in a continually globalizing economy.

Captain Black and his band left Ooroo in exasperation when they found that there were four words with an O that the people refused to deface - love, hope, valor, and freedom.
No, Captain Kerry; No, Senator Dunn.
The time has not come to excise The Evil O from our lexicon.

The time has come for you to understand that the United States economy exists in a global context and the most productive way for the world's nations to interact with one another is through two-way trade? - trade that takes many forms and is manifested in a wide variety of ways, including, yes, outsourcing.
The time has come for you to put aside your fear-mongering partisanship wrapped pseudo-patriotism, and display a genuine love for your country by instilling hope and exemplifying the valor that should bolster those whose hard work keeps our country a bulwark of free enterprise and competitive in the world marketplace.

Give American business the benefit of the doubt, gentlemen.

After all, we're grown-ups; not angst-riddled child-like adults burdened with issues of self-esteem, wandering in the dark through a room booby-trapped with improperly positioned furniture.

We don't need - or want - an America that hides under the bed behind a wall of protectionist sandbags. We're American business and we can compete in any market in the world. We can learn and adapt.

The question is: Can you, Senator Kerry? Can you, Senator Dunn?

Please, pick up the phone and give us a call, and let us know sometime before November. We'll get the word.
Who knows, maybe the call will be routed through Madras or Dublin.

Oh, and, if you were wondering - no, I'm not a Republican.

Your comments are appreciated.


Michael D. White
The CalTrade Report
T: 323-255-6565

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