A Different Take On Outsourcing

from the not-quite-true dept

OldYeller writes “While I’m a big free-market proponent (even though my employer’s in-process merger may cost me my job), a recent commentary piece in Business Week gave me pause for thought on offshoring. In a nutshell, the author argues that free markets serve everyone because whatever is being lost (manufacturing jobs) is replaced by something as good or better (service/technology jobs). However, after nearly 200 years of fitting reality this doctrine, called Comparative Advantage, seems to suddenly be less valid. The catch is that with today’s connecting/integrating technologies, the barriers to remotely sourcing almost any tradeable good or service have fallen to the point that we’re now just experiencing labor arbitrage instead of markets seeking balance. The historic friction in adapting to change globally is what allowed ‘first-mover’ advantages to outweigh the losses of mature/commodity offerings. Now, as fast as you can invent a high-value service, it will be sourced to the lowest-cost provider, and the window of opportunity for high-cost countries like the US to build employment around innovative change shrinks. This is great from a global efficiency perspective, but it implies that the best survival strategy for many American job seekers is to focus on personal-contact professions that can’t be done remotely (ie health care), but there will only be so many of those to go around.” Absolutely a worthwhile article, but there are a few problems with it: it makes the very wrong assumption that “labor” when it comes to knowledge jobs, is a commodity input and cheaper is always better. As many companies that are bringing their work back to the US are discovering, this just isn’t true. There are many jobs that really do require specific knowledge and experience from specific people. Plus, more jobs than you would think actually do require local knowledge and accessibility. Finally, the article (as all of the anti-offshoring articles do) ignores the simple fact that every time large market shifts like this occur, it creates new opportunities. Wherever there’s a problem, there’s an opportunity to solve it. Some people are complaining that offshoring is putting people out of work. All that says to me is that there are a lot of available, experienced, smart people out there. That’s an untapped resource. That’s an opportunity.

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Comments on “A Different Take On Outsourcing”

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DV Henkel-Wallace says:

Comparative Advantage _is_ labor arbitrage

What is buying a good from overseas but labor arbitrage, ultimately? (admittedly this is a Marxist viewpoint, i.e. Labor Theory of Value, but Marx wasn’t a total idiot). If someone can produce a car that’s as good and less expensive than the local version, it’s in “everybody’s” interest for the cheaper one to be bought.

I say “everybody” because it sucks for the manufacturer of the more expensive one, but we (via the government) should help that person directly, not indirectly via tariffs etc.

There’s likely to be a long-term leveling which implies the US per-capita GDP growing a lot more slowly than some “backward” countries. That’s still preferable to huge gobs of foreign aid (just transfer payments) and is still going to make everyone on the planet, in the aggregate, better off.

m says:

Re: comparative advantage=profits ONLY for elite

Overall economic efficiency=sweatshop wages. What this “employer” doesn’t realize is that once the workers are economically subdued there won’t be enough disposible worker income to BUY THE SAME EMPLOYERS PRODUCTS resulting in the demise of said employer’s company! JUSTICE!!!

mhh5 says:

economic luddites?

Anecdotal examples of workers losing jobs do not prove that economic efficiencies are undesireable…. I think everyone understands that losing a job can be a horrible, perhaps life-changing event. But isn’t our generation supposed to expect to work at 7 different careers on average? If you’re really worried about your job being outsourced, then aim your career towards more outsource-resistant jobs…?

randychott (user link) says:


First off it is an absolute advantage based off wages. Developing country wages are less than that of industiral countries. The Industrial country workers will not be able to compete with the wages of those in developing countries. Other than wages there is nothing to consider in terms of efficiency.

Thats why the jobs are going. Technology and standards via outsourcing and automation will kill far more jobs than they create. The problem will get worse. Most predictions show and state that the offshoring is only beginning. Furthermore, it is a new way of doing business. Those that are reaping the most from off-shoring are setting up sites in the remote countries. We never see how many jobs are lost as a result of this. Eventually companies will go to the model that GE is taking. GE has over 20,000 Indian employees performing over 700 business processes for the company estimated to save the company 3.5 million a year. The only thing that keeps companies here where its expensive to conduct business is that the US economy fuels about 25 percent of the worlds economy. American workers represent two-thirds of that economy. If you continue to out-source that model it will change as all economies do. Economics is not dynamic. New variables such as the internet and technologies change it all the time. What we are seeing is a change.

People like to say the economic cycle is broke everytime it is challenged. Compare this one to the others and it is different. All the statistics about it are different to. What new jobs are coming? Which ones that will stay here? The supply and demand rule always applies as well as the employers market rule. As these parts of the equation change so does everything else.
Every country on the face of this earth has an unemployment figure. Globalization only promotes a downward spiral of living for all its workers as they are forced to compete in an employers market. Globalization like it or not makes an employers market. In time, and over time things will get worse for workers not better. Ask Mexico what they think about globalization after they lost most of their jobs to China.
For every example that you can come up with that demonstrates a savings to the consumer from competition i can show you one where the company has chosen the higher profit margin.

Economic models are way to idealistic. Assuming things are way too rosy. They are flawed.

Im not an economist and not about to pretend I even rate to debate over the terms and idealogy of it. But if you do any reading you can see that income inequality and poverty havent really gotten any better. If you choose to bring up china and india as models to debate that then I would point out that they have opened up their borders but at their pace under their control. They still have tariffs to protect their country.

The IMF is so flawed and had so many statistics of proof against it that the only people that can speak on their behalf for any positive matter are people that are still hoping to make it better or those getting rich off its policies.

Whats the answer? I dont know. Im all for making the place a better world but you really have to make sure that it does. Can the world support global capitalism. Ecologists say no plain and simple. At least not the level the US is consuming resources.

Do global corporations care about consumer rights or benefits? Laugh! We dont allow slavery or child labor here so we go to other countiries that do. Corporations are in it for the money. Only laws make them ethical. Going to globalization which pushes for the deregulation of laws for workers and or the land will not help make the world a better place. In the long run even if you manage to put globalization into effect every where it will hurt not help.

Do you think the unemployed really care if tooth paste is 40 cents cheaper when they have no job?

Wal-Mart is the future. Go read up on them. They pay their people below the poverty line and give their employees a URl to a Government web cite that allows them to enroll for food stamps. As far as i know Wal-Mart a global corporation has no creditable forseeable competion that will last over the coarse of time with them.

Thats consumer benefit for you. The question is at what cost do you want it?

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