The real impact of outsourcing

The first line of this Steven Pearlstein column in the July 1 Washington Post caught my eye because of my interest in New England (especially 19th century) history:

“The battle has been going on since at least the 1880s, when the first New England textile mills began moving production to the Carolinas.”

Pearlstein, the 2008 winner of the Pulitzer Prize for commentary (and, incidentally, 1973 Trinity College graduate), writes twice a week on business and the economy for the Post.

This column is devoted to putting the not-so-new concept of outsourcing into context — historical, economic and political — and it’s fascinating.

Pearlstein explains not only what it is private equity firms do, but also how they fit into, and in some ways drove, the U.S. and global economic scene in the 1980s and ’90s. This includes, most saliently, Mitt Romney’s former firm:

“And there was Bain Capital, which mixed a bit of venture capital with corporate turnarounds and investments in family-owned firms that needed more capital, better management and strategic acquisitions to grow to the next level.

“While private-equity managers like to boast that they are free to manage the companies they buy without worrying about changes in quarterly profits, the reality is that their “long term” time horizon is limited. Generally, they allow two or three years for recouping their original cash investment and seven years for selling the whole company again at a handsome profit. The standard strategy has been to load up company executives with so much stock and stock options that they don’t hesitate to make difficult decisions such as shedding divisions, closing plants or outsourcing work overseas.

“Even its competitors agree that Bain was among the most successful at this game, never more so than during the 1990s when Romney was at the helm.”


The column helps one get past the unhelpful Democratic rhetoric about Romney-the-job-killer. (Though I write this, of course, as the GOP ramps up its own Obamacare-is-a-job-killer campaign.)

After opening with Pearlstein’s reference to the Industrial Age, I’ll close with a suggestion, in this Information Age, that we look for the facts, the information, beyond the rhetoric.  His column is a great start.