The furious debate in the US over outsourcing and “offshoring” is showing no sign of abating. Strangely, given his habitual lack of understanding of international affairs, President Bush seems to have a better handle on the issue than Democratic presidential challenger John Kerry. Bush’s seemingly laissez-faire attitude belies a pragmatism that contrasts sharply with Kerry’s shrill denunciation of US businesses that are “exporting American jobs.”
While the argument makes for interesting political theater, it is something of a sham.Trying to prevent outsourcing by imposing legislative restraints is likely to be about as effective as trying to hold back a rising tide simply by commanding it to stop. Companies will always find a way around the rules and,worse still, they might decide not just to move their jobs offshore but to move their entire operations offshore.
The fact is, no amount of red tape can stem the restless flow of capital around the globe.And countries that pin their economic hopes on attracting inward investment would do well to take note. In our feature about the scramble among central Europe’s emerging markets to win inward investment (see page 24) we can see clearly that one country’s gain leads to others’ painful losses. Slovakia has just landed a blockbuster deal that might well establish it as the new destination of choice for international capital looking for a toehold in central Europe. Its three closest rivals, Hungary, Poland and the Czech Republic, are left nursing their wounds,well aware that their fortunes might already be on the wane.
Slovakia’s success and the dimming prospects of her neighbors follow a pattern that has been playing out in emerging markets for decades.Tempted by tax breaks, shiny new infrastructure, cheap labor and, more often than not, lax environmental laws, international corporations will happily set up shop.And when the country next door—or on the next continent—offers them a better deal, they’ll probably take it, leaving behind a swath of empty factories and shattered hopes.
And why not? Business is business, after all.Any nation that believes inward investment is anything other than a relatively short-term solution is deluding itself.Today’s oasis, awash with refreshing investment, is tomorrow’s barren desert, and countries need to plan for the day when the money dries up.
They don’t call it liquidity for nothing.