Stop Using the Word "Outsourcing"

By MIKE NICHOLS | August 2014

Can we please stop using the word “outsourcing”?

The term became popular about 25 years ago and was originally just a synonym for contracting-out something a business had once done “in-house.” One of the first uses in the Milwaukee Journal Sentinel was in a 1990 article about First Bank Milwaukee “outsourcing” back-office, data processing to FIserv, another local company.  

Words, though, evolve just like economies do, and over time “outsourcing” also became a synonym for “offshoring,” or relocating some part of a business to another country. “Financial savings from lower international labor rates is a big motivation for outsourcing/offshoring,” states  Wikipedia.

“Outsourcing” today, then again, often describes situations that clearly involve a lot more than penny-pinching corporate titans seeking cheap labor in a sweatshop somewhere when they really could have just used workers at home.

When Johnson Controls announced a couple months ago that it was teaming up with an affiliate of China’s biggest car manufacturer to form the world’s largest auto-interiors company in Shanghai, it was widely described as “outsourcing.” Never mind that Johnson Controls is a global leviathan that had overall sales of $8 billion in China last year and is looking for the best way to help feed the meteoric growth of the Chinese auto industry.

Hey, how come these villainous corporate leaders can’t build a new plant in Milwaukee or Glendale and just truck everything over to Shanghai?

“Expanding” or “growing” or “selling in foreign markets where there are billions of customers hungry for American stuff” would be a lot more accurate descriptions than “outsourcing.” But those words don’t fit the agendas of lazy writers and hyperactive political operatives often looking for a certain pejorative spin. They can get away with it because “outsourcing” can mean anything to anyone.The word has become so amorphous as to be meaningless.

This is no doubt  irritating to companies like Eaton and Trek and Plexus that have recently been caught in the political  crossfire; but it’s also confusing when the word gets bandied about in policy discussions at the Wisconsin Economic Development Corporation.

Democratic Assembly Minority Leader Peter Barca, who sits on the WEDC Board, raised the issue of what he called this “whole outsourcing thing” at a recent WEDC meeting, proposing that recipients of WEDC assistance, as he put it,  “contact WEDC immediately … if they intend to outsource any products in conjunction with the money they receive.”

Gov. Scott Walker, who chairs the same board, expanded the conversation to include “outsourcing not just overseas but, frankly I think, even the question of providing assistance to companies that send jobs anywhere outside the state of Wisconsin, whether it’s to China or Illinois for that matter.”

At one point in the meeting, the governor made a pretty definitive statement. “I don’t think any of us want taxpayers’ money going in any way to a company or organization that is going to send jobs outside of the state,” he said. “We want them so they invest in either adding jobs, maintaining jobs and/or making a capital investment.”

Then again, he also suggested he knows things aren’t as simple as some might think.

“So,” he replied to Barca, “your point though on that, just so I am clear, is a notification? Because I was thinking about this since you had raised it earlier. You know, what is the right measure and what is the mechanism for that, because depending on the company – particularly global companies that have operations elsewhere – if they are reducing employees in this state, the question is. ‘Are they reducing (them) because they are sending them somewhere else?’ Or, like in the case of one company  that just was in the news recently, they didn’t send them anywhere else. They lost a customer and so they just had to reduce the number of employees until they got some of that work back . . . So as I understand it, your recommendation is just a notification so that we’re aware. And then the next step potentially would be, in terms of making any changes, there would have to be some mechanism to measure that.”

Barca’s staff later told me in an email that the state representative wants companies to notify WEDC  of both  “any changes in employment status and if any outsourcing has occurred.”

“Requiring notification of changes to company status will help WEDC ensure that taxpayer assistance is never being used to support outsourcing and also where possible activate clawback provisions to help recoup taxpayer money when contractual obligations are not being met,” said the email.

You don’t have to be a laid-off factory worker sitting in the bar on Tuesday afternoon next to a vacant plant to oppose the use of Wisconsinites’ hard-earned tax dollars to subsidize jobs in China. But there are already precautions in place to help prevent that sort of thing.

Companies that receive WEDC assistance already have to submit annual,  performance reports detailing how many workers they have, how much they make, and how many jobs have been created or retained as well as capital investment figures. If the numbers aren’t what a firm promised in relation to a particular site or project, the firm doesn’t get the tax credits they were offered. And if the WEDC assistance came upfront in the form of a loan or a grant, WEDC is already supposed to exercise claw-back provisions and try to recoup taxpayer money.

So when they talk about additional notifications regarding “outsourcing,” it’s unclear what more that that would accomplish. WEDC staff has been asked to come up with “various options.” But all they have so far, I’m guessing, is various questions about how much more a company could be penalized for “outsourcing,” and what “outsourcing” even means.

Some might argue that most companies shouldn’t be getting taxpayer-funded incentives at all and that such arrangements too often devolve into crony-capitalism. If that’s the argument, they ought to make it. But any suggestion that companies can’t expand elsewhere, take advantage of the global markets  and still be eligible for the same incentives that less successful and less ambitious people are being offered back here at home makes me wish someone would clarify what in the big, wide world they’re talking about exactly.

Just like when I hear somebody use the outmoded, antiquated term that puts a confusing and negative wrapper around what is often a necessary and admirable practice: “outsourcing.”

Mike Nichols is president of the Wisconsin Policy Research Institute.