US election focus on jobs could backfire on Ireland

In the super-heated atmosphere of the US presidential campaign, Ireland is at risk of being caught in the crossfire as Obama and Romney slug it out on the issue of outsourcing, writes LARA MARLOWEin Washington

‘OUTSOURCER in chief” is perhaps the strangest epithet levelled by Barack Obama and Mitt Romney against each other in the US presidential race.

Ireland is not yet in the firing line but, should US companies be criticised for creating jobs in Ireland during the campaign, Irish officials have prepared a pre-emptive strike in the heat of a US election debate about outsourcing.

Obama bases his attacks on Romney on a front-page investigative report published by the Washington Post on June 22nd. From 1993, Bain Capital, which was founded by Romney, invested in companies that specialised in relocating US jobs to low-wage countries including China and India, the Post reported, calling Bain “pioneers in the practice of shipping work from the US to overseas call centres and factories making computer components”.

Obama and advertisements broadcast by his campaign in swing states continually emphasise the words “pioneers in outsourcing”. Six companies investigated by the Post – Corporate Software, Stream International, Modus Media, GT Bicycle, SMTC and Hippac, a US subsidiary of Hyundai – began outsourcing customer support or manufacturing during the 1990s.

Independent fact-checkers say much of the outsourcing took place after Romney nominally left Bain in 1999 to organise the Salt Lake City Olympics. His campaign argues that he cannot be held responsible for decisions taken in his absence.

Romney seized on another front-page article published by the Washington Post on July 10th, entitled “Obama struggles to make headway on outsourcing” to label Obama the “outsourcer in chief”. The Post noted Obama’s failure to follow through on his promise during the 2008 campaign to “end tax breaks to companies that ship jobs overseas”, a promise he is again making on the campaign trail.

Obama has also been reluctant to declare China a currency manipulator, something Romney promises to do on his first day in office. Robert Scott of the pro-labour Economic Policy Institute said Chinese exports to the US cost some 450,000 US jobs between 2008 and 2010.

The use of stimulus money to finance “green” energy companies under the 2009 Recovery Act is the basis of the latest Republican attacks on Obama for alleged outsourcing.

On June 10th, the day the Washington Post cited a 2010 study by the Department of Energy which found that 60 per cent of the 40 largest wind farms financed by stimulus money used foreign components, the Republican National Committee set up a website called ObamanomicsOutsourced.compurporting to explain "how Obama shipped the recovery overseas".

The New York Times investigated three companies listed on the Republican website – ABB, Sun Power and Fisker Automotive – and found that the Romney campaign exaggerated or distorted the extent to which stimulus money went overseas.

It is nonetheless true that Fisker, which has received $193 million in federal loans, is assembling its Karma electric car in Finland. And Fisker’s investors include a firm with strong Democratic connections.

As Gerry Murphy, executive director North America for Enterprise Ireland notes: “When economies go down, protectionist measures always go up.”

Though they’re unlikely to see the light of day, changes to the US tax code could inhibit the US Foreign Direct Investment that is crucial to Ireland’s recovery.

At present, a US company operating in Ireland pays the Irish corporate tax rate of 12.5 per cent and is allowed to defer US corporate tax on profits reinvested abroad. Obama’s rhetoric implies that he would end the tax deferral, but he has not clearly stated that. In any case, the Republican-held House of Representatives would block any attempt to do so.

Most US companies prefer to defer tax rather than repatriate profits. Those who repatriate receive a credit for tax paid abroad, but must pay the difference between that and the current US corporate rate of 35 per cent.

Romney has made a vague promise to allow companies to repatriate profits with little or no taxation. George W Bush adopted such a policy on the grounds that it would create jobs in the US, but companies used funds to pay off debt or buy back shares instead.

Obama promised in February to reduce US corporate tax to 28 per cent. Romney says he would reduce it to 25 per cent.

In this election year, any economic activity outside the US is suddenly suspect. Romney is under pressure to explain his personal financial holdings in the Caribbean. John Conlon, executive vice-president North America of IDA Ireland, stresses that Ireland “is not a tax haven. We are a low tax jurisdiction.”

US companies “come to Ireland to operate their European business. They are there for business reasons as well as tax reasons. They are not brass plates like in the Cayman Islands.”

So far, Ireland has barely figured in US media reports about outsourcing. But should the country suddenly get caught in the crossfire of recriminations, Murphy has his ammunition ready.

A recent study by the Center for Transatlantic Relations at Johns Hopkins University found that Ireland and the US employ equal numbers of each other’s citizens: some 110,000 on both sides of the Atlantic.

“It’s the first time we’ve seen the figures between the two used in that fashion,” said Murphy. “If Ireland is pointed at in terms of jobs being moved offshore . . . we should continually point out that Irish companies are creating jobs in the US at the same rate.”

This balance “is an argument that is and should be used”, he continued. “It’s worth putting this out. It would be good that it gets out in the US media that Ireland is an employer in the US – just in case Ireland gets mentioned more in the election rhetoric.”

Irish companies in the US increased hiring by 16 per cent last year, Enterprise Ireland reported earlier this month, a statistic Murphy called “absolutely spectacular”.

Irish companies that want to export to the US find it necessary to set up operations there “because the US is quite an insular country, and it’s impossible to do exports from Ireland remotely,” Murphy added. “You have to look local. You have to look American. American companies will not ring an Irish telephone number.”

Murphy and Conlon argue that outsourcing, an aspect of free trade, strengthens the parent company in Ireland or the US, and eventually creates more jobs at home.

This is also the prevailing view among US economists. Despite protectionist rhetoric by Obama, there are hints it may even be the policy of the White House.

But in the super-heated atmosphere of the election campaign, outsourcing and offshoring will doubtless continue to be used as epithets, and we’re unlikely to see a rational debate about the merits or otherwise of the practice.

“Offshoring is a powerful political symbol, because it seems unpatriotic [helping foreigners at the expense of Americans] and heartless [putting profits over people],” Robert Samuelson writes on the opinion page of the Washington Post.

“But economics is not politics. The success or failure of the next president in reducing unemployment will depend mostly on how much – or how little – his policies influence Americans to spend, hire and shed their present pessimism.”