Beyond Carrier: Can Congress End the Green Light for Outsourcing?

AP Photo/Evan Vucci

People watch as a motorcade carrying President-elect Donald Trump and Vice President-elect Mike Pence arrive for a visit to the Carrier factory, Thursday, December 1, 2016, in Indianapolis, Indiana. 

While millions of Americans were thrilled to see President-elect Trump strong-arm the Carrier Corporation into keeping its Indianapolis plant open, numerous economists, commentators, and lawmakers denounced the deal. Some condemned it as crony capitalism, because Carrier will receive $7 million in state incentives as part of its agreement not to send 800 threatened jobs to Mexico. Others voiced alarm that Trump was singling out and bullying an individual company. 

One of the deal’s most prominent critics was Lawrence Summers, the former Treasury secretary, who wrote an opinion piece with the headline, “Trump’s Carrier deal could permanently damage American capitalism.” Summers wrote, “I have always thought of American capitalism as dominantly rule and law based.” But in the Carrier case, Summers noted, Trump was smashing the rules and predictability that companies and economies rely on. The president-elect was instead engaging in “ad hoc deal capitalism” that, Summers bemoaned, many Americans are now celebrating as a model.

Summers voiced understandable concern that when a president starts hammering individual companies on an unpredictable, ad hoc basis, many companies will rush to curry favor—perhaps by making contributions to the president’s re-election campaign, or hiring people the president wants hired, or lending money to those the president wants assisted. And if a company doesn’t do want Trump wants, he might retaliate, perhaps by pummeling it with vindictive tweets or by pulling billions of dollars in federal contracts. The latter was evidently a major worry for Carrier’s parent company, United Technologies; about one-tenth of its $56 billion in annual revenues comes from federal contracts.

“This,” Summers wrote, “is the world of New York City under Tammany Hall” and “of Putin’s Russia.”

Echoing Summers, Washington Post editorial page editor Fred Hiatt also criticized Trump for singling out Carrier and becoming like Putin, an ad hoc fixer in chief, who gets companies to remedy problems—or else. “There is a whiff of Putinism in the combination of bribery and menace that may have affected Carrier’s decision,” Hiatt wrote. “If this were to become the U.S. government’s standard method of operation, the results would be Russian, too: dwindling investment, slowing economic growth, fewer jobs.”

Summers and Hiatt make a powerful case for how problematic it is when presidents (or presidents-elect) engage in bullying, ad-hoc capitalism. But in calling on Trump to cease and desist, they seem to acquiesce to the status quo—to wit, a norm under which American companies feel they have a green light to ship thousands of jobs overseas.

But Steve Pearlstein, a longtime Post economics columnist, criticized the status quo and applauded Trump for challenging this prevailing norm when he took on Carrier. Pearlstein embraces the view I took in a book I wrote in 2008, The Big Squeeze and in a piece I wrote for The American Prospect last week—that for too long, American companies have felt they have a free hand to outsource thousands of jobs, with Wall Street and investors applauding them and government officials hardly making a peep.

Pearlstein wrote, “There was a time in America when there was an unwritten pact in the business world—workers were loyal to their companies, and successful companies returned that loyalty by sharing some of their profits with their workers in the form of higher wages, job security and support for the local community.” But, Pearlstein added, that social norm began to change in the 1980s, when corporate executives, “incented with boatloads of stock options,” began to focus far more on maximizing shareholder value than on any loyalty to communities or workers. “Indeed,” Pearlstein wrote, “if a corporate executive didn’t have an aggressive plan to shift production overseas, they were criticized by Wall Street and the business press and threatened with takeovers by what we now call ‘activist investors.’ Although the public never much liked the idea of closing plants and shipping jobs overseas, it no longer was socially unacceptable.”

Indeed, in the 1980s and 1990s, moving jobs overseas became not only acceptable, but for many executives, de rigueur.

Now Trump wants to change that norm, but his loud, messy, somewhat capricious way of going about it understandably upsets corporate America. Businesses want predictability, not tirades that single them out. Corporations want to feel assured that if they take a step, they won’t be the one company out of the 100 taking that same step that President Trump decides to pummel.

There are, of course, non-ad hoc ways to change the social norm and make companies think twice before outsourcing jobs. Such systematic approaches normally take the form of legislation (or perhaps executive orders). Legislation to discourage companies from shipping jobs overseas could take several forms:

There could be a law saying that every time a company announces plans to send 100 or more jobs overseas, its executives would be required to attend a public hearing that the local member of Congress would hold in the community where the jobs would be lost. And if a company announces plans to outsource 500 or more jobs, there would be not just that local hearing, but a hearing on Capitol Hill before a congressional committee.

Or there could be a law that states that if a company moves 100 jobs overseas in a year, its corporate tax rate would increase by 1 percentage point; if it moves 500 jobs overseas in a year, its tax rate goes up by 2 percentage points, and if it moves 1,000 jobs, its rate rises by 3 percentage points. (These are seat-of-the-pants numbers, and I imagine that experts can debate what the thresholds should be on the number of jobs and how much tax rates should go up.)

Another disincentive might be that if a company moves 100 jobs overseas in a year, it gets a certain number of demerits that are to be weighed against it when it is applying for federal contracts. Three days before Carrier announced its deal with Trump, Bernie Sanders said he would introduce legislation that would bar companies “from receiving future contracts, tax breaks, grants, or loans from the federal government if they have announced plans to outsource more than 50 jobs overseas.” Many people might see that “50 jobs” threshold as too harsh, but others will certainly applaud Sanders’s approach.

In a news release, Senator Sanders also proposed imposing a special tax that would wipe out whatever money companies save by outsourcing jobs. Sanders writes, “United Technologies estimated that it would save $65 million a year by moving its jobs in Indiana to Mexico. Under this legislation, the company would be required to pay a tax of no less than $65 million a year.” Sanders also proposes that companies that offshore jobs be prohibited from buying back their own stock or “enriching executives through golden parachutes, stock options, bonuses, or other forms of compensation by imposing stiff tax penalties on this compensation.”

Just to be clear, I’m in no way proposing that the federal government offer subsidies on an ad hoc basis to persuade individual companies not to outsource jobs. Such a practice would lend itself to “crony capitalism” and would encourage companies that have no intention of outsourcing jobs to claim that they planned to do so in order to win their share of subsidies.

With business-friendly Republicans retaining control of Congress, these ideas for legislation might prove hard, if not impossible, to enact. But if soon-to-be President Trump were to champion any of these proposals, he might be able to push them through the House and Senate.

Even if Congress refuses to act, a President Trump—or any future president—could adopt a more systematic approach to discouraging outsourcing. Trump could declare that any time a company announces plans to outsource jobs—perhaps 100, perhaps 500—he will send an executive branch official, such as his commerce secretary or a special new czar against offshoring, to hold a public hearing in the community where the jobs would be lost, with the company’s CEO expected (though not required) to attend. Or he might issue an executive order that rejiggers the equation for awarding federal contracts so that companies that outsource jobs are disfavored.

Such steps would go a long way toward changing the social norm that has given executives, pushed by Wall Street, a green light to send jobs overseas.

“Here’s a little secret,” Pearlstein concluded in his Post commentary, “Privately, many of the executives will welcome the change. They chafe under the tyranny of maximizing shareholder value and they don’t like being widely viewed as ruthless and selfish.”

Trump’s deal-making derring-do, of course, was not 100 percent successful. Of the 2,100 jobs in Indiana that Carrier and its parent company originally said would go to Mexico, 1,300 of those jobs are still heading south of the border. With Trump selling himself as a champion of the working class, the Carrier case gives him and congressional Republicans and Democrats a golden opportunity to embrace legislation and policy that declare that the American government no longer views outsourcing jobs as an acceptable corporate norm. 

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