Outsourcing is only half the story.
Politicians love to gripe about the loss of American jobs to cheaper overseas labor, but new manufacturing jobs are being created here as well — by foreign companies that see the US labor market as worth tapping into. This “insourcing” is particularly prevalent in high-value-added industries that require relatively educated and skilled workers, such as automobile and airplane manufacturing. Most recently, the European jet-liner consortium Airbus secured a deal to build a manufacturing plant in Mobile, Alabama.
Such foreign investments in American manufacturing indicate a rejuvenation of an industry that has been lagging for decades. Notably, companies tend to prefer southeastern states, where unions are weaker and laws are friendlier to manufacturers. Toyota has plants in Mississippi, Kentucky, Texas, Alabama, and West Virginia, for instance, employing almost 40,000 people. Mitsubishi’s energy division recently opened a turbine-manufacturing plant in Savannah, Georgia. Meanwhile, Airbus’s chief competitor, the American manufacturer Boeing, has its hands tied by the strong union presence in its Seattle manufacturing hub; union pressure contributed to its failure to open a plant in South Carolina, where labor is cheaper.
Distinct state governments in America provide foreign companies with a unique opportunity to pit states against each other for their business. This often takes the form of special tax incentives or even up-front cash grants. Twenty states have special “closing funds” used as last-minute deal-sweeteners. Florida’s governor can draw up to $2 million from the “Florida Quick Action Closing Fund” without legislative approval, for example. The “Texas Enterprise Fund,” on the other hand, requires approval only from the Governor, Lieutenant Governor, and House Speaker to provide grants. To seal the Airbus deal, Alabama offered Airbus a tax-incentive package worth somewhere between $100 and $150 million.
Critics allege that these incentives are too costly for taxpayers, especially when they primarily benefit foreign corporations. Indeed, many such programs offer money with few or no strings attached, often without any specific guarantee of job creation.
Vying for business at the state government level is certainly something of a new development. Formerly, state competition for business occurred primarily at the federal level, where congressional representatives would seek “pork-barrel” spending to bring industry to their districts. Such practices have come under attack as politicians seek to curb government spending, leaving the states to fend for themselves.
State competition for business also rarely national headlines, as it’s a zero-sum game. One state’s gain is another’s loss; national political campaigns have no need to pay much attention to the phenomenon. At the local level, however, foreign investors can make the difference between economic stagnation and revival, while American manufacturing as a whole stands to benefit substantially by the ever-expanding pool of skilled, educated laborers.
As it stands today, “insourcing” is the new and fragile norm for many states — what this means for the future of our economy remains to be seen.
Austin Schaefer is a sophomore in Jonathan Edwards College.