Insourcing Jobs Can Only Happen with States’ Help

Much of President Barack Obama's federal effort to bring jobs back home depends on states' ability to educate and train workers.
April 2012
Donald F. Kettl
By Donald F. Kettl  |  Columnist
Sid Richardson Professor at the LBJ School of Public Affairs at the University of Texas at Austin

Early last year, President Obama met with top Silicon Valley entrepreneurs. After decades of watching companies outsource jobs to other countries, the president wondered, can we bring them back by insourcing? Obama zeroed in on Apple’s then-CEO Steve Jobs. How could Apple, the most successful IT firm on the globe, bring the manufacture of iPhones back to the United States?

Jobs’ answer was simple. “Those jobs aren’t coming back.” Much of the company’s engineering is done in the U.S., but almost everything in the array of Apple products is manufactured abroad. When Apple needs fast production changes and high-quality results, foreign manufacturers can do what American companies can’t.

We’ve lost a staggering number of manufacturing jobs. In the past decade, work in manufacturing shrank nearly a third, from 16.9 million in 2000 to 11.5 million in 2009. A February study by the Pew Charitable Trusts concluded that “many of the manufacturing jobs that were lost have not returned.”

With the issue plaguing him in the presidential race, Obama held a White House forum in January featuring companies that had insourced jobs, whether by bringing them back to the U.S. or by creating new ones. The forum celebrated companies that had returned call centers, among other functions, to our shores. One firm, GalaxE.Solutions, received accolades for its Outsource to Detroit campaign, which is focused on hiring 500 IT professionals in the next five years.

Then, in his State of the Union address, Obama highlighted Master Lock, which has brought several jobs back from abroad. For the “first time in 15 years,” Obama told Congress, “Master Lock’s unionized plant in Milwaukee is running at full capacity.”

How to convince other companies to follow their lead? In his speech, the president laid out a plan that proposed eliminating tax deductions for companies moving jobs overseas and imposing a minimum tax on multinational companies, even if they generate some of their profits abroad. He called for bigger tax cuts for U.S. manufacturers and for providing “help financing a new plan, equipment or training for new workers.” Rounding out his list: Get tough on unfair trading practices, equip 2 million Americans with high-demand job skills through a one-stop job training system, have states require students to remain in high school until age 18, increase student aid for college, ensure states provide more higher education support and rein in college tuition costs.

This is a tall order, from changes in tax breaks for companies that create jobs to a transformation of the job training system. It calls for states to make major investments in higher education and community colleges while holding down tuition, and it calls for regulatory changes in compulsory school attendance laws. In fact, much of Obama’s federal job-creation effort is really a state-based strategy.

Since the 1960s, job training and development has been a federal-state partnership, with states in the operational lead. The big expansion of federal job training programs in the 1970s came via block grants with federal cash and local responsibility.

The Master Lock story, though, shows just how hard it will be for the states to change gears on the globalization engine. A Milwaukee Journal Sentinel article found that the company began shifting jobs from Wisconsin to China in the mid-’90s because of cheaper labor costs. A few years later, Master Lock expanded production in Mexico. In recent years, however, enhanced automation, better equipment and improved material management helped the company vastly increase its manufacturing efficiency in Milwaukee. Because of this lean manufacturing approach, the company now produces components to sell in China.

That’s led to jobs shifting back to the U.S. Yes, Master Lock is running at full capacity, but with 750 fewer workers than it had in Milwaukee 15 years ago. And it still has factories in Mexico and China.

This is a lesson for the jobs debate. Even if many of the lower-skilled jobs that went to foreign factories aren’t returning, America still has a strong future in manufacturing. However, it will likely follow the Master Lock insourcing model: fewer workers in more sophisticated factories doing more highly skilled jobs at good pay. These jobs will build on America’s comparative advantage, engineering sophistication and innovative know-how. But they won’t be the large-scale assembly jobs that Apple and other global firms long ago outsourced to China for making the latest consumer products.

Still, the feds do have a part to play in returning jobs to America, say insourcing experts. The federal government can help level the international playing field in tax and trade policy, and tax incentives can help. They can also lower barriers for international trade.

But neither bargaining nor incentives can fill the gap if workers aren’t up to the job. In the end, insourcing is about upsizing education, and that buck stops in our local schools, community colleges and universities. State and local governments will have to be the engine that drives that future, since so much of the future relies on skilled and creative workers with a high-quality education.