- - Tuesday, July 24, 2012

President Obama wants this election to be a debate about outsourcing. The president thinks he can build a case for his re-election around the fact that Bain Capital, a successful investment firm that Mitt Romney once owned and managed, held investments in companies that outsourced some of their production. He is trying to convince the American public that those companies — particularly their owners — are predatory or un-American or both. He thinks the public should vote for him because he says he wouldn’t do that, even if he were ever given the chance.

Seriously, this is a long-overdue discussion. The irony is that the president wants to have it. This is a manifestation of how little the modern Democratic Party knows about this subject and how far it has strayed from where it was a mere decade ago. If the president understood anything about outsourcing, he probably would run from it as if it were the plague, or worse. That is simply because the policies of the modern Democratic Party — in particular, those that the president champions — are at the heart of the outsourcing problem.

American companies outsource the production of goods and services for one simple reason — they have to compete with foreign-based competitors. If their cost structure is not competitive, their products and services cannot be competitive. Under our economic and legal system, management owes a duty to shareholders to be cost-competitive in the marketplace so the shareholders can earn a return on their investments. If they can’t, they need to find another line of business. It is a pretty simple formula. Everyone with meaningful experience in the private sector knows it. Our sitting president, with no such experience, does not.

Companies look at a variety of costs when they consider where to locate production. Taxes, regulatory burdens, labor costs and relations, the legal structure, energy and infrastructure are important among them. Countries (as opposed to companies) like Germany, for example, that are genuinely interested in maintaining and promoting their industrial base, pay attention to those factors and consider them in the development and implementation of their economic policies. Their secret formula is to eliminate as many of the incentives to outsource as they can. Imagine that.

For its part, Washington doesn’t like to worry about this issue. American politicians like to talk about the need for U.S.-based companies to be competitive but generally are unwilling or unable to acknowledge government’s role in those efforts, much less to do anything about it. As for the bureaucracy, you won’t find a discussion of it in the Federal Register. In fact, important constituencies actually promote policies that make the United States a less, not more, competitive location for industry. Those constituencies seem to rule the Democratic Party.

Take taxes as an example. Corporations are supposed to be vehicles for the accumulation of productive capital. In the United States, they aren’t. A federal corporate tax rate of 35 percent is not only counterproductive, it is insane. It is one of the highest corporate tax rates in the world. There is a message here. The United States is one of the last places on the planet where productive capital should want to be. So outsourcing looks not only prudent, but downright necessary. What is the president’s answer to that, you might ask? He wants to apply that same confiscatory rate to all of the global activities of U.S.-based corporations. That would make them even less competitive with foreign companies, of course. But he does not know that. He has never been part of the private sector.

The corporate tax rate is so high that most businesses in the United States elect to be taxed as individuals. They can be more competitive that way. That makes no sense, and it makes it impossible to develop rational tax policy. You can’t raise tax rates on overpaid movie stars without hurting small businesses and job generators. But the president doesn’t know that, either. Community organizers, whatever they do, do not contribute to economic growth.

As far as regulatory burdens go, this administration has unleashed the furies of the bureaucracy on a helpless private sector. The administration’s answer seems to be that considering the costs of its regulatory initiatives is a “false choice.” On labor and the legal system, we all know the answer. Germany recently reformed its labor rules to make itself more competitive and would not tolerate an irresponsible legal system. Its producers do well in global markets. Ours don’t quite.

On the important questions of energy and infrastructure, the administration actually had, and squandered, opportunities to make a difference. It killed a North American energy pipeline because the environmental lobby objected to the form of energy. Its regulators are threatening American sufficiency in clean natural gas. Democrats preferred to spend billions in stimulus funds on bribing their public-sector constituencies rather than on investing in critically important infrastructure. We know why: Most infrastructure work is done by the private sector. It’s doing fine, Mr. Obama says. And to make matters worse, the stimulus program was so poorly managed that significant “investments” of those public funds were made overseas. So who is the problem, exactly?

The president has a response to all those who dare to make rational economic decisions in response to irrational political ones: punishment. If they move jobs overseas, he will raise their taxes. If a company chooses to relocate overseas, a process called inversion, he will raise its taxes. If individuals decide they have had enough, he will impose tax penalties on them, too. You can check out anytime you want, but you never can leave.

The economically and politically bankrupt state we used to call the Soviet Union had an Iron Curtain. America may soon have its own version — a copper curtain. Washington needs all the pennies you can spare and then some, thank you. The problem is that it did not work with the Soviet Union and it won’t work here. Just ask that prominent, well-rewarded and aptly named Democratic donor, Denise Rich, who renounced her U.S. passport. Faced with irrational economic leadership, people and businesses will still go elsewhere. If you are dumb enough to think differently, just vote for more and find out.

When the American public really focuses on this issue, it may well become the bane of the Obama campaign instead of a gift from Bain. We’ll see. Let the discussion begin.

Warren L. Dean Jr. is a lawyer and an adjunct professor at Georgetown Law Center.