[Congressional Record (Bound Edition), Volume 150 (2004), Part 8]
[Senate]
[Pages 10792-10795]
[From the U.S. Government Publishing Office, www.gpo.gov]




                 OFFSHORE OUTSOURCING OF AMERICAN JOBS

  Mr. LIEBERMAN. Mr. President, today I would like to discuss a major 
40-page white paper my office has now released about the outsourcing of 
American jobs overseas, and the larger challenge it represents to our 
economic future. The paper attempts to reach beyond the current debate 
and focus on the next wave of this challenge, which potentially could 
affect high end research and development jobs, as well as manufacturing 
and call center jobs. The implications of this trend are profound: it 
threatens America's competitive advantage in an era when the entire 
world is competing based on free enterprise economics and open trade--
one of our longstanding goals.
  Seen in this light, the challenge is more fundamental, and requires 
that we fundamentally rethink America's competitiveness strategy over 
the long-term. What we have thought was our nation's ultimate 
competitive advantage--our high end R&D prowess--may be challenged.
  There has been little informed discussion of the fundamental long 
term challenge of offshoring high end engineering, research and 
development jobs. Nor have many acknowledged how our nation's 
irresponsible fiscal policy has undermined U.S. competitiveness. The 
debate needs to focus on our own needs and solutions, and not simply 
decry other countries and their industries for rising to challenge us 
in the global economy.
  To meet this challenge, we have to face some hard facts. The American 
economy may be failing to adapt to fundamental changes and to growing 
competition in the global economy. We are not just losing jobs--we may 
be losing critical parts of our innovation infrastructure, and with 
them, our competitive edge in the global marketplace. The offshore 
outsourcing of jobs is just the tip of an economic iceberg that America 
is sailing towards.
  Here is one measurement of the size of it. An analysis by the 
Institute of Business and Economic Research at UC Berkeley estimates 
that 14 million American jobs are at risk. If that's accurate, our 
economic vitality and national security are in jeopardy. As the 
President's Council of Advisors on Science and Technology concluded 
recently, ``Maintenance of U.S. technical preeminence is not forever 
assured.'' Carly Fiorina put it more succinctly and memorably: ``There 
is no job that is America's God given right anymore.''
  How do we reassert our world economic leadership and regain our 
innovation advantage in a more competitive world? And how do we do so 
without turning a blind eye to the very real pain that many American 
workers are feeling as a result of the churning in the global job 
market? These are the big questions we must answer together--private 
and public sectors, business and labor, even Democrats, Republicans, 
and Independents.
  But first, we have to better understand what is occurring. 
Outsourcing is not new. It is really just a variation of the division 
of labor, a defining feature of capitalism. In a competitive 
marketplace, with its premium on efficiency, businesses naturally focus 
their limited resources on their most profitable operations while 
subcontracting--or out-sourcing--functions that can be performed more 
efficiently and cheaply elsewhere. Jobs shift as a result.
  What is new about outsourcing today is its global reach. 
Technological innovations in transportation and communication have 
erased geographic borders. Physical proximity to the point of sale is 
no longer the absolute economic necessity it used to be, particularly 
for service jobs.
  We know that manufacturing jobs have been shifting overseas for some 
time. But now the services sector is being hit hard by offshore 
outsourc-
ing--and that hurts. The services sector provides 83 percent of 
America's jobs, employing 86 million people. It dominates our economy. 
Customer call centers and data entry facilities are being relocated to 
places where capable labor can be found at lower wage levels. High-
speed digital technologies make a connection between Boston and 
Bangalore as fast as between Boston and Baltimore.
  But offshoring is no longer limited to entry-level services jobs. 
Higher skilled professional jobs like computer chip design, 
programming, architecture, engineering, consulting, automotive design, 
and pharmaceutical research are beginning to go overseas. That is the 
bulk of the iceberg below the surface of the sea. The outsourcing of 
R&D is probably the most alarming illustration of this new problem. 
American companies now invest $17 billion in R&D abroad every year. IT 
multinationals have now established 223 R&D centers in China alone.
  One study by Forrester Research estimates that over the next 15 
years, 3.3 million U.S. service jobs and $136 billion in wages will 
move offshore. Another by McKinsey's Global Institute suggests that the 
number of U.S. services jobs lost to offshoring will accelerate at an 
annual rate of 30 to 40 percent during the next five years.
  Because the government collects no official data on offshore 
outsourcing in the services sector, we cannot be at all certain of 
these figures. But we can be certain that, although the offshore 
outsourcing problem in the high-end services sector may not be acute at 
the moment, it will be in the near future if current trends continue. 
If a software programmer in India earning $7,000 a year can do the same 
work as a software programmer in the United States making $64,000 a 
year, it is only a matter of time before more of those jobs relocate 
overseas.
  The Washington response to offshore outsourcing has been predictable: 
politicians and policy makers jump to predetermined conclusions and 
finger the usual suspects.
  On the one hand, we have the do nothings who profess an abiding and 
absolute faith in laissez faire capitalism, and see any government 
intervention as self-defeating. In fact, they argue that jobs flowing 
overseas are healthy, that they are evidence that the system is 
working, and that we have nothing to worry about.
  The problem with this view, of course, is that we do have something 
to worry about. Not only does rising unemployment take a real human 
toll, it also eats away at our ability to create new jobs. Advanced 
production capabilities and research and development jobs are strategic 
assets that have defined our nation's competitive advantage. While 
proximity to the point of sale is less critical, geography still 
matters in the innovation process. Countries and regions that cluster 
university and industry research, knowledge-based start-ups, capital 
for entrepreneurs support from larger firms, and advanced 
manufacturing--with the talent to support all of this capture new 
industries.
  As we lose jobs to foreign countries, especially high-skilled 
services jobs, we lose critical parts of our innovation 
infrastructure--labor, capital, knowledge, facilities, and technology--
and

[[Page 10793]]

with them, the engine of job creation. To cash in on our crops, we are 
moving the farm--and with it, the promise of future economic harvests.
  On the other hand, you have the do anythings who will do anything 
that might save some jobs today, even if it means losing more tomorrow. 
Protectionism is their favorite tool--raising higher and higher trade 
barriers on the unproven argument that it will make it harder and 
harder for jobs to go overseas.
  In their attempts to build a tall wall to stop offshore outsourcing, 
the do anythings are falling into a trap. Trying to keep jobs in our 
own borders through protectionist measures will only keep other jobs 
out. It will also invite retaliation from beyond our borders that will 
cost us many of the millions of American jobs that are based on 
exports.
  The bottom line is that both the do nothings and the do anythings are 
wrong. Neither gets to the heart of the outsourcing problem--America's 
failure to innovate. That's what we all need to do something--the right 
thing--about.
  To stop offshore outsourcing and preserve American jobs, America 
needs to rise to the international competition and grow again through 
innovation. There is no other way. Leaving it all to the markets won't 
work. Hiding behind a wall won't work. Attempting to rig the game won't 
work. Only education, innovation, investment, trade, training and hard 
work will give us the growth and jobs we want and need.
  In my white paper, I lay out a number of suggestions about how we can 
achieve this. Let me highlight a few.
  First, we must encourage greater innovation and technology 
development. Basic research and development have been essential to 
creating the kind of technological breakthroughs that create jobs and 
reap profits. But the high costs and high risk associated with early 
stage R&D make the needed investments burdensome for many businesses. 
Federal funding is crucial here, but federal R&D spending as a percent 
of GDP has been in steady decline since the mid-1960's--it is less than 
half of what it was then.
  We need to reinvest in R&D. And we need to reorganize our innovation 
ecosystem to bring on innovations much faster. Tax incentives for R&D 
investment are one means of doing so. We should make the R&D tax credit 
permanent, and restructure it to spur collaborative research.
  We also need to look at the kind of R&D we do. Although the United 
States is overwhelmingly a service economy, our federal and corporate 
R&D is geared to manufacturing. Corporate R&D is now 68 percent of the 
total national R&D expenditures--and 62 percent of that amount is still 
focused on manufacturing. But much of the offshore outsourcing 
challenge will hit our services sector. That is why we must add a new 
services sector emphasis to our R&D investments. Government and 
industry should review their R&D portfolios and raise their investments 
in services research.
  Second, we must recognize that no matter how much we innovate, some 
people are going to lose the jobs they have now. We need to shore up 
our safety nets to help those hurt by offshore outsourcing. We need, 
for example, to extend coverage of Trade Adjustment Assistance programs 
to support and retrain service workers who lose their jobs due to 
trade. We should also experiment with new concepts like wage loss 
insurance, offered as part of severance and paid for by a small 
percentage of the employer's savings from offshoring.
  Third, we need to strengthen our trade policies. America will prosper 
by selling high value goods and services to other nations, not by 
shutting ourselves off from competition and markets. We need to 
innovate new goods and services and lower trade barriers abroad to 
start to reverse our trade deficits, so trade becomes a net jobs 
insourcer--not a net outsourcer. Overseas markets for American exports 
are critical to our economic well-being, already directly supporting 12 
million American jobs and indirectly many, many more. We can't lose 
those jobs. We can and must add to them.
  But pirates do prey in international economic waters, stealing 
American jobs by breaking trade rules or exploiting trade loopholes. We 
need to crackdown on cheating--and that will take strong government 
action. Our Federal trade agencies are oriented to negotiating trade 
agreements; they focus less on the difficult implementation and 
enforcement of those agreements. We must do both.
  Foreign currency manipulation and intellectual property theft are 
forms of piracy that also must be fought and stopped.
  To illustrate the impact of unfair trade practices on American 
competitiveness, and what we can do about it, let me discuss one sector 
I have followed over the years--semiconductors, the highest end of U.S. 
manufacturing. In the 1980's, America was close to losing this sector 
to Japan. But we battled back, and thanks to innovations that grew from 
a creative public-private partnership called Sematech, we secured our 
world semiconductor dominance. It provided a key boost to our growth 
rate and IT leadership in the 90's.
  But now, we are at risk of losing that dominance--this time to China. 
The Chinese government is using straight industrial subsidies to 
capture semiconductors: from value-added tax subsidies--which are in 
violation of WTO agreements--to plant subsidies, to worker subsidies. 
China's currency manipulation further skews the competition.
  After neglecting this issue for too long, the U.S. Trade 
Representative finally insisted in March on consultations with the 
Chinese on VAT subsidies for semiconductors. If these talks fail, we 
should not hesitate to bring a WTO case against China. The loss of most 
of our semiconductor industry will not only weaken our economy--it will 
threaten our national security. The U.S. Department of Defense needs to 
reenter the R&D field with industry and work to spur new semiconductor 
advances.
  Fourth, our talent base is what ultimately sizes our economy, yet the 
number of U.S. graduates in engineering and physical science is 
dropping 1 percent a year. In China, 45 percent of all graduating 
students received their degree in engineering. In the United States, 
it's only 5 percent. Education reforms are no longer a policy option 
for us. They are a necessity, from kindergarten through university 
diploma.
  We also need a whole new approach to job training. This century, 60 
percent of the new jobs will require skills held by only 20 percent of 
today's workforce. That is one huge skills gap that we must fill fast 
if we want to remain competitive. One way to do so is to build stronger 
partnerships between companies and community colleges to ensure workers 
get the training they need. Increasing the number of graduates in 
science, technology, engineering and mathematics through incentive 
grants and special scholarships is another way to fill the skills gap.
  Updating our methods of training to 21st century standards is also 
important. One way to do so is to train workers by using interactive 
internet gaming technology to foster better knowledge retention, 
promote continual skills updating, and even have fun. IT has 
transformed many sectors--it is time it got to training.
  Finally, we need to get our federal fiscal house in order. Our 
staggering $550 billion current annual deficit, and the course we are 
on to add $10 trillion to the deficit in the next decade, will 
eventually raise interest rates. The Medicare Trustees told us last 
month that our unfunded liabilities are $72 trillion. That's right--$72 
trillion. Meanwhile, other nations are buying our debt and are 
acquiring too much influence over our future. Foreign nationals hold 46 
percent of the U.S. national debt. China and Japan together hold $662 
billion. We must get our fiscal house in order to stay strong, 
independent and competitive.
  To begin to act on such proposals and meet the challenges of offshore 
outsourcing, we first need an injection of political will--bipartisan 
political will--and that's not easy to find in Washington these days.

[[Page 10794]]

  In the mid-1980's, we faced a similar political deadlock on economic 
policy. We were in the midst of a recession and our two political 
parties were driven to the opposite poles of economic policy. 
Republicans favored deeper and deeper tax cuts to stimulate job growth 
while sending the deficit through the roof. Democrats pushed for more 
protectionism and an industrial policy. Neither side thought it could 
compromise without risking the support of its political base. It sounds 
familiar, doesn't it?
  The creation of a bipartisan commission that focused on the 
unemployment problem in a cool-headed, depoliticized way helped to 
break the deadlock. The President's Commission on Industrial 
Competitiveness, known as the ``Young Commission,'' was proposed by 
President Reagan, supported by the Democratic Congress, and chaired by 
Helwett-Packard CEO John Young. It brought all sides to the table and 
forced each to acknowledge the hard facts that shaped the debate.
  That Commission proposed the first generation of reforms that became 
a bipartisan competitiveness agenda. Public-private collaborations 
instead of industrial supports, R&D investments in information 
technology, became a foundation for the economic boom of the 90's.
  That is exactly the kind of initiative we need today: a new Young 
Commission, charged with analyzing the impact of global economic 
changes on the American economy, including the offshore outsourcing 
problem, and offering nonpartisan proposals to preserve our innovation 
infrastructure and create more high-wage American jobs.
  We face a dramatically different set of economic competitors now than 
in the 80's. We have a much more complex set of competitive problems. 
That's why we need a new generation of competitive solutions if we are 
going to restore our economic leadership. Some of these solutions will 
look similar to the kinds I am proposing in my white paper today. Some 
may not. But regardless, a consensus must be built that would rule out 
the extremes and rule in the progressive course needed to meet the new 
foreign competition.
  At the beginning of the last century, America faced equally profound 
economic and social changes. In his inaugural address, President 
Theodore Roosevelt noted that, ``Modern Life is both complex and 
intense. And the tremendous changes wrought by the extraordinary 
industrial development of the last half century are felt in every fiber 
of our social and political being.''
  He went on to say that, ``There is no good reason why we should fear 
the future. But there is every reason why we should face it seriously--
neither hiding from ourselves the gravity of the problems before us, 
nor fearing to approach these problems with the unbending, unflinching 
purpose to solve them.''
  To meet the challenge of offshore outsourcing, we need to summon up 
the same honesty, seriousness, and sense of national purpose that TR 
called for a century ago. If we do, I am confident we will prevail, the 
American economy will keep on growing, and the next generation of 
Americans will live better and better lives.
  To conclude, I would like to submit for the record for the benefit of 
my colleagues a summary of the white paper, which is posted on my 
Senate website with the title ``Offshore Outsourcing and America's 
Competitive Edge: Losing out in the High Technology R&D and Services 
Sectors,'' that my staff and I have worked on in the hope it will 
stimulate a better, broader response to the long-term implications of 
offshore outsourcing. I want to thank my staffers Elka Koehler, Sara 
Hagigh, Bill Bonvillian, and Chuck Ludlam for their work on this 
report.
  Mr. President, I ask unanimous consent to print the white paper 
summary in the Record.
  There being no objection, the material was ordered to be printed in 
the Record as follows:

                         Summary of White Paper

       The United States has enjoyed unparalleled technological 
     leadership for decades. Our capacity for innovation has 
     continued to create jobs and raise living standards despite 
     the ongoing migration of manufacturing to foreign nations in 
     the past decade. However, a new, potentially more dangerous 
     migration is upon us. The rising trend of outsourcing high 
     technology manufacturing and high-end services jobs to 
     overseas presents a new and fundamentally different 
     phenomenon. This new trend is far bigger and more complicated 
     than the current debate suggests. Key components of our 
     innovation infrastructure such as knowledge and capital have 
     become highly mobile. If our engineering, design, and 
     research and development (R&D) capabilities continue to 
     follow the manufacturing and services facilities going 
     abroad, our competitiveness will be weakened, putting our 
     economic prosperity and national security at risk.
       The offshoring of facilities, labor, capital, technology, 
     and information not only hurts our workers, but also 
     threatens the backbone of our knowledge-based economy. 
     Emerging nations such as China and India have realized that 
     technological leadership leads to economic prosperity. Their 
     governments are committed to attracting business investments, 
     technology transfer, and knowledge inflow into their 
     countries through industrial policies, subsidies, and 
     business incentives. The offshoring trend will most likely 
     accelerate and spread as more U.S. companies figure out how 
     to efficiently exploit these incentives, not to mention the 
     large pools of educated low cost foreign labor. Enabled by 
     high speed telecommunication connections, the recent 
     migration of labor-intensive services jobs was primarily 
     motivated by the potential of up to a 90% savings in labor 
     costs.
       The innovation structure that served us well in the face of 
     less formidable competition is no longer sufficient in the 
     face of this new fierce global competition. Key components of 
     our innovation infrastructure are deteriorating as federal 
     funding of R&D, the number of science and technology 
     graduates, and business investments in the U.S. continue to 
     decline. Our innovation capacity is further undermined by the 
     massive budget deficits which threaten future federal 
     investments in R&D and education, and increase our exposure 
     to currency manipulation by foreign lenders. This 
     subsequently leads to the loss of manufacturing and service 
     jobs. Our competitiveness is further comprised by 
     international trade agreements that are not adequately 
     enforced when our trade partners fail to live up to their 
     commitments.
       We can no longer afford to continue in this 
     Administration's path of denial and inaction. There are no 
     assurances that we will remain a global leader in innovation, 
     and maintain our jobs, our standard of living, and our global 
     market share. If our current employment and education trends 
     are an indication of where we are heading, we will eventually 
     fall behind those countries that are aggressively investing 
     in their people, education, R&D, and businesses.
       It is time to begin a national debate on restoring U.S. 
     competitiveness so that we can remain at the cutting edge of 
     innovation. This report presents a five part strategy to 
     addresss offshoring, including developing policies that 
     encourage greater investments in federal and industrial R&D, 
     K-16 education and lifelong training, commercialization and 
     businesses, and technological infrastructures such as 
     broadband. Concurrently, it is essential that we assist our 
     displaced workforce by extending compensation benefits and 
     providing rapid retraining programs. We need to confront 
     emerging nations that are aspiring to lead by fighting for 
     greater access to overseas markets for goods and services, 
     enforcing fair trade practices, and vigorously defending our 
     intellectual property rights. Lastly, we must address our 
     nation's irresponsible fiscal policy which makes us dependent 
     on foreign purchases of U.S. securities and facilitates 
     currency manipulation, further exacerbating the loss of our 
     manufacturing and services jobs. By taking these proactive 
     steps, we can create an environment that enables Americans to 
     invent and develop the future waves of innovations that will 
     keep quality jobs in U.S. shores.
       Following is a summary of my five-part strategy to address 
     offshoring.

     1. IMPROVE SAFETY NETS TO ASSIST AFFECTED WORKERS

       Extend coverage of Trade Adjustment Assistance programs to 
     support and retrain displaced services workers
       Provide 3 months notice to workers when they lose their 
     jobs to offshoring
       Encourage corporate-sponsored insurance for wage loss
       Encourage proactive instead of reactive training, 
     continuous skills updating (e.g. use of Internet gaming and 
     other technologies)
       Provide agile and rapid retraining for displaced workforce
       Reform and enforce guest visa regulations

     2. ENCOURAGE GREATER INNOVATION AND TECHNOLOGY DEVELOPMENT

       Increase federal funding in R&D, particularly early stage 
     R&D
       Encourage corporate investment in R&D (e.g. permanent and 
     improved collaborative R&D tax credits)
       Greater emphasis on services sector in R&D investments
       Innovation in services (e.g. greater integration of IT 
     advances in sectors such as healthcare, construction and 
     education services)
       Invest in broadband infrastructure
       Create environment that rewards risk taken by firms (e.g. 
     eliminate capital gains

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     for new investments in small companies; ``make it in USA'' 
     tax incentives to domestic firms; accelerate asset 
     depreciation schedules)

     3. INVEST IN HUMAN CAPITAL THROUGH EDUCATION AND TRAINING

       Revitalize workforce training and education by bridging 
     institutional gaps between education and industry
       Expand R&D tax credit to encourage industry-university 
     collaboration on science and technology research
       Stronger partnerships between companies and community 
     colleges for worker training
       Increase graduates in science, technology, engineering, 
     mathematics through incentive grants and special scholarships
       Enable retired scientists' participation in education
       Improve college readiness through K-16 partnerships

     4. ESTABLISH AND ENFORCE EFFECTIVE TRADE POLICIES

       Ensure greater access to world markets for U.S. exports
       Link additional access to U.S. market to genuine 
     liberalization in overseas markets in both goods and services
       Bring WTO dispute settlement cases when trade violations 
     occur
       End unfair currency practices in international trade (enact 
     S. 1592, ``Fair Currency Enforcement Act of 2003'')
       Vigorously defend U.S. intellectual property rights to 
     prevent foreign piracy and counterfeiting
       Incorporate workers' rights and environmental protection in 
     trade agreements

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