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Paul Gregory: Outsourcer-In-Chief: Obama Of General Motors

August 16, 2012 by econsforromney

At a Colorado pep rally, President Obama praised his GM bailout as an example for American industry to follow.

“The American automobile industry has come roaring back…So now I want to say what we did with the auto industry, we can do it in manufacturing across America. Let’s make sure advanced, high-tech manufacturing jobs take root here, not in China. And that means supporting investment here. Governor Romney … invested in companies that were called ‘pioneers’ of outsourcing. I don’t want to outsource. I want to insource.” Applause!

According to Obama, GM does everything right. It offers high-paying jobs to American workers. It invests at home. GM put American manufacturing back in the high-tech race on American soil. The new GM is good for America, and America is good for GM, as a former GM chairman declared in 1953. GM is back where it should be.

We need to look no further than General Motors’ own figures to learn that GM outsources almost two thirds of its jobs overseas. Less than one in five GM vehicles are manufactured in the United States.

To be exact: GM’s December 31, 2011 annual report shows General Motors of North America accounting for 98,000 of the 207,000 GM jobs worldwide. But 12,000 of these jobs are in Canada and 11,500 are in Mexico. Accordingly, GM has 74,500 jobs in the United States and 122,500 abroad, even after Obama’s touted surge in Detroit jobs. Almost two thirds of GM’s jobs are in other countries.

GM’s outsourcing is not a slip. GM clearly states that foreign investment and outsourcing of jobs are an integral parts of its growth strategy.

Grace D. Lieblein, President and CEO of GM Mexico, for example, proudly announced in a GM Mexico press release:

“75 years ago, General Motors came to our country with a dream to fulfill: turning Mexico into a prosperous nation for the benefit of millions of families. Today, after 75 years into the adventure, we have achieved goals that seemed unattainable, thanks to the efforts and dedication of Mexican talent. During the 75 years GM Mexico has been in operation, the subsidiary has produced 7 million vehicles, 20 million engines, and 4 million transmissions. GM Mexico employs 11,500 direct and about 90,000 indirect employees.”

So it now appears that GM’s goal is to make Mexico prosperous, not the good old US of A! In the same press release, GM heralds its upcoming billion dollar investments in its Mexican plants (versus a $100 million investment in Rochester, New York). It should have saved the Rochester announcement for another day.

GM is no less ambitious with respect to manufacturing in the BRIC countries of Brazil, Russia, India, and China. Again from GM’s annual report:

“We will continue to grow our business under the Baojin, Jiefang, and Wuling brands. We operate in Chinese markets through a number of joint ventures and maintaining good relations with our joint venture partners, which are affiliated with the Chinese government, is an important part of our Chinese growth strategy.”

Seems like a good match: U.S. Government Motors with China’s “national champions.” Well, Obama likes government-private partnerships. Our GM is now in cahoots with the titans of the Chinese Communist Party.

GM has the other BRICS covered as well: “We are increasingly well-positioned in Russia, Brazil and India with a $1 billion investment in Russia to turn out a quarter million vehicles by 2015. GM also touts an almost three billion dollars of investment in Brazil “to increase its capacity and modernize plants in the country.” Not all these investments have turned out well. GM is shutting down in Hugo Chavez’s Venezuela. GM should be warned about doing business in Russia. Putin has a nasty habit of taking over foreign operations when they are on the verge of success.

GM and Boeing are America’s two largest heavy manufacturers. Boeing employs about 25,000 fewer workers worldwide than GM. But Boeing’s investments, unlike GM’s, happen to be at home. A prime example is the $2 billion Boeing invested in a South Carolina plant, which created 3,800 new jobs. It turns out that Boeing’s $2 billion investment went to a right-to-work state. Forget the jobs. Obama’s union supporters raised Cain, and his NLRB blackmailed Boeing into submission as a condition to open the plant.

But perhaps Boeing deserved this harsh treatment as one of Romney’s “pioneers of outsourcing,” to use Obama’s words. No. It turns out that virtually all of Boeing’s employees work in the United States. Boeing does not outsource. GM does and in a big way.

GM got a huge tax break from its Obama-directed bankruptcy. Unlike other corporations that routinely lose their cumulated tax write-offs in bankruptcy proceedings, the new GM will not have to pay federal taxes for the next decade or so. Quite a gift from the Obama car czar in addition to having its bond holders wiped out. What? America’s showcase of corporate virtue is a legal tax scofflaw, like Big Oil, Big Pharma, and Big Wall Street!

Let’s remember Obama’s words at his Colorado rally: “Let’s give tax breaks to companies that are investing here. It’s the right thing to do.” I guess Obama needs to revoke GM’s free pass on taxes and make sure all its bailout money is repaid. It would not be good for the campaign if word got out that TARP and other federal money ended up in Mexico, Brazil, or Russia.

Along with the overwhelming majority of economists, I favor the free flow of goods, services and capital across national boundaries. Outsourcing is a natural part of the global economy. Populist cries against outsourcing represent the equivalent of political trash talk. However, if Obama harps on vague charges against Bain Capital, what’s good for the goose is good for the gander.

But there is a useful point to the GM-Boeing comparison: GM outsourcing is explained, among other things, by $85 per hour UAW wages and benefits, inefficient work rules, controls on corporate compensation, and government dictates of the product mix. Boeing keeps its high-paying manufacturing jobs here because it can still organize its production at lower cost at home than abroad. We “make in America,” when we have the economic freedom to do so.

That is a lesson Obama has yet to learn.

This originally appeared on Forbes.com

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