Oops. That should have been “there is no reason to put particular industries at a global competitive DISadvantage…”
On the contrary. Mechanization creates a new industrial sector, outsourcing just ships your national wealth overseas. The end result of mechanization is new jobs and economic growth, the end result of outsourcing is economic collapse in return for temporarily lower prices. The two are only superficially comparable.
The issue need not be pictured in such ideological terms, John. People who are unemployed, or who are employed at a significantly lower wage, owing to outsourcing, are not putting as much back into the economy by spending it. That’s a negative stimulus. Taken purely in economic terms, without consideration of the human problem, you could ask if the net increase in income for the outsourcing companies is “appropriately” reinvested (in terms of national economic benefit, not in terms of what value it is to them) to a greater, equal, or lesser degree than the counteracting economically-depressing trend of reduced disposable income from the unemployed/lower-paid people.
I have my opinions on this. You no doubt have yours. Couple that with the personal problems that outsourcing raises, and I believe the net effect on the country, looked at more broadly than in purely economic terms, is very much a negative.
This is the way I see it. (And I also agree with laigle, re: mechanization vs. outsourcing.)
Does anyone else think the American Economy is looking more and more like a Ponzi scheme?
New machines that do what? My guess is machines that are even more efficient and eliminate more jobs than the last model.
A downward spiral of labor cost (if it happens) has the same effect on the American economy as an increasing spiral of mechanized efficiency. More US jobs lost, less money spent in the US to do the same work we did yesterday.
I am admittedly ignoring the effects on the foreign economy, whether or not it’s good for them is irrelevant to whether or not it’s good for us.
On preview, there are a couple more items for me to get to… will have to wait for later.
If I were to agree with that analysis, how do you propose that we determine what the national benefit is for any given outsourcing scenario? How does the governmnet correctly predict the future impact of a given industrial sector on the US economy? What evidence is there that a government even CAN do that?
I don’t mean to be snarky, but you haven’t offered one piece of evidence that it is. How about we start with that before we look around for people who simply agree with an unsubstantiated assertion?
JM: * I opperate under the assumption that there is always only a small percentage of citizens UNABLE to work. *
But doesn’t that percentage increase significantly if the number of available jobs shrinks significantly? If many people are thrown out of work, either by outsourcing or by mechanization (which, as you and Cheesesteak note, have some very similar effects), then we’re not just looking at a safety net for an unfortunate few. We’re looking at a need for jobs that the market is temporarily unable or unwilling to provide.
You are right that the market is generally better than government at producing efficient solutions (barring market failures and the like), but you overlook the fact that the market often produces situations that , in the short- and medium-term, are very efficient for capital but disastrous for labor (the mechanization of the textile industry in the 19th century, for example, or manufacturing outsourcing in what is now called the “Rust Belt”).
Yes, I think it’s reasonable to argue that eventually, mechanization will stimulate the formation of significant new employment sectors, and eventually, cheap-labor countries doing our outsourced jobs will gain enough wealth to produce significant new demand for our products and labor. But how long should we expect “eventually” to take, and in the meantime, what should we do about all these unemployed and underemployed and precariously-employed people?
How about an argument that renders yours moot? You and others have offered the notion that in some abstract fashion outsourcing will make the U.S. economy more competitive, thus presumably at some distant time and circumstance, the machinations of the free market will work to our benefit, presumably making up for the lost jobs and income that are the immediate and obvious consequence of outsourcing.
Doesn’t Occam’s Razor suggest that the explanation that outsourcing is a bad thing in and of itself is the preferred one: it is the simpler explanation, it does not rely on what amounts to faith as the “efficiency” explanation does. If you want us to discount the negative effects of outsourcing, it seems to me that it is incumbent on you to demonstrate exactly how the lost jobs will be made up for.
Fuck that shit, I have been ousted from 3 jobs in a row from outsourcing. I dont want a damn handout, I want a job that I can do with a fucked up back and bad joints. I can not work at burger slinging, and I cant work in a mall. I do customer service by telephone/computer as that is what my decrept body can manage. I do not want to push insurance, and I don’t want to do telephone sales. If people want to buy something, then they can make up their own minds [and most insurance is overpriced and not as beneficial as people selling it would like you to believe. Trust me, I am a licensed provider thanks to a previous job.]
If I could have my dream job, I would be reading slush piles, possibly some copy editing, maybe some nice researching of accuracy … at home.
I don’t agree. You replace 1000 welders with machines made by 100 people, there is NO new job for the remaining 900. They are as flat out of work as 900 people from an outsourced call center. The only difference is that instead of giving the job to 100 American, European, or Japanese machinists, you give it to 900 Indians.
From our standpoint, I fail to see the difference. 900 people out of work, company saves money. The new jobs you mention require the economy to grow to accomodate your unemployed. Will the new machine companies grow? Sure, and for every 100 new people they hire another 1000 lose their jobs in another industry.
It’s all part of efficiency and cost management, we’ve been doing this for thousands of years. The only difference here is that it’s finally hitting the Service industry instead of strictly Manufacturing.
As to rendering the point moot… The point is that if outsourcing and mechanization are equivalent economically, to argue that outsourcing hurts the economy is to argue that the industrial revolution was a crock. I don’t have to prove that the industrial revolution was real, do I?
Kimstu and others:
I think it’s important that we start with a problem statement. "Jobs are being outsourced " is NOT a problem statement any more than “goods are being imported” is a problem statement. But if you really want to start with the assumption that outsourcing is bad, and that something needs to be done, then:
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Propose a specific policy solution.
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Demonstrate that that policy has been shown to work.
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If it has never been shown to work before, demonstrate why it SHOULD work, and how it will be repealed if it ends up not working (it being very easy to start a government program, but almost impossible to stop one).
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Look at what unintended consequences might arise for the proposed solution and try to figure out if those are worth the risk.
You’ve got it backwards. It’s the opponents of outsourcing who want the government to tamper with the free market to stop outsourcing. Since you are the one who wants to interfere, it’s up to you to prove that you have thought it through and provide evidence that it will have benefits that make it worth it.
I hate to bring in this same old tired cliche to this argument, but why are we not a nation of unemployed farmers and buggy-whip makers if you were right? Let me list all the thoughts/ common misconceptions I have seen so far in this thread:
“…outsourcing results in cheaper goods and cheaper goods means that more people will buy them from the domestic companies that import them”
INCORRECT - Outsourcing results in freed up resources and capital that can be put to work elsewhere in the economy. The benefit comes to the consumers who can enjoy a higher standard of living by buying more affordable products.
“It seems to me that I am contributing thousands and thousands off dollars less to the economy every year.”
PARTIALLY CORRECT - Your contribution to the economy is your labor, not the money you spend. You are still paying for rent, food, and so on even if you aren’t employed (provided you aren’t destitute). The difference is you are not adding anything in terms of goods or services in exchange for the goods and services you consume.
“Supposedly, there were going to be huge new numbers of jobs from the (putative) burst of economic growth.”
INCORECT - New economic growth comes from innovation. Outsourcing simply uses existing resources more efficiently. The growth will come as companies use the profits to grow and develop new products or markets.
"The whole argument really boils down to the idea that rich people want 99% of the pie, & if they do things that make the pie smaller, "
INCORRECT - Most rich people have significant investments in real estate, stocks, bonds and other instruments ties to the economic health of the country. Even if what you say is true, why would they want to own 99% of a shrinking pie?
“If large american companies can increase their profits by outsourcing, then those improved profits strengthen the country. They allow America to be more competitive on the world stage, and mean that in the end, America will prevail.”
CORRECT - Profits mean companies can grow, hire more workers develop new products.
"Doesn’t Occam’s Razor suggest that the explanation that outsourcing is a bad thing in and of itself is the preferred one: it is the simpler explanation, it does not rely on what amounts to faith as the “efficiency” explanation does. "
INCORRECT - What is “intuitive” or “common sense” to the layperson is not always the correct one in economics. For example, common sense tells you it’s fair to force minimum wages or rent control so that people can maintain a high standard of living. Well, to an economist familiar with basic market theory knows that price cielings or floors basically create a condition where there are more (or not enough) people willing to pay for a product at a given price than there is product available. The results are shortages or gluts.
and let me dispel some additional notions before they even get started:
“There is a finite amount of work to be done”
INCORRECT - Well, maybe there isn’t infinite work, but until we live in some kind of Utopia there is always something more that can be done.
“Small companies are better than large companies”
INCORRECT - The best size company is the one that is most efficiently able to meet the needs of it’s customers.
“Profits are somehow a negative thing”
INCORRECT - Anyone who criticizes companies for wanting to make a profit deserves to be laid off when they don’t.
A thread full of appeals to emotion. In the vein, I’ll answer with an appeal to simple logic. I doubt it will have any impact at all on the howling here, but what the hell…not like this hasn’t been debated ad nausium on this board before.
Lets say you work for a company that makes widgets here in the good old US of A. And lets say that your company competes with other companies making widgets world wide. With me so far? Lets say that your company pays you a wage of $20/hr to make widgets. Not a vast sum, granted, just average really.
Originally your company could compete nicely in the widget arena, holding its own with both price and quality. Unfortunatley, the world has moved on and your company can no longer compete price wise with foreign imports. Whats to be done? Well, they could buy automation if widgets are their core business…i.e. if all they make is widgets. However, if they make widgets and other things too, another option would be to outsource the making of widgets so that they could cut their prices and remain competetive with other companies. Finally, they could always either stop making widgets or close their doors and go out of business.
In all of those scenerios the poor widget makers of the theoretical company are going to lose their jobs (well, those that can’t be employed doing something else). They could either find new employment doing something else or be unemployed…that unfortunate but its reality. Of COURSE they are going to be bitter about it…who wouldn’t be?
What should we do about it? Well, I suppose the government could institute a tarrif on all widget manufacturers trying to import widgets into the US…so that the company could remain competetive at their current prices and keep those widget jobs in the US. They could impose penalties on companies would either automate the production of widgets or outsource widget production. Or the government could do nothing about it at all, leaving it for the market to decide what is best.
If the government imposes tarrifs then the price of widgets (and everything else widget related) is going to go up across the board. This will have the effect of making it more difficult or at least expensive for widget buying consummers to buy widgets. I won’t get into all the OTHER bad things this will do to the economy, but just say that the prices of goods will rise.
If the government instead punishes US companies for automating or outsourcing, this will have the effect of either forcing those US companies to abandon widget production all together or drive those US companies either out of the country or out of business. So, not only the widget makers but everyone employed in those companies in the US will lose their jobs.
Doing nothing, the government simply lets market forces decide the issue. The widget companies who outsource and are able to continue in the widget arena of business and stay competetive will continue to thrive…i.e. they will make money, money that can be taxed by the government. In addition, after the rich steal everything and shit on the little guy ( :rolleyes: ), there will still be money left over for R&D to look at or explore NEW product lines, or figure out new and interesting ways to use widgets in the future. That could spell new jobs in the future…IN the US.
To me, these kinds of discussions are like the old buggy whip chestnut. Those things being outsourced to other countries (or automated) are things the US, due to its relatively high wage scales, are no longer competetive on. Manufacturing, help desk support…these are things that CAN be done more cheaply in many instances overseas. Basically the US worker has priced him/herself out of the market. Keeping US COMPANIES competetive though will enable them to continue to innovate…and at least in theory will allow for future job growth HERE, doing jobs that aren’t suited to outsourcing or initial automation.
To answer the OP: How is outsourcing good for the economy? It isn’t. Its neutral. It simple is a fact of a free market that sometimes and in some ways outsourcing is a good business decision. Keeping US flag companies in the US, paying taxes and competetive with other companies in the world…THATS good for the economy.
Oh, and least some here think that I am talking out my ass, never lost MY job to outsourcing, blah blah blah…I lost my job when Clinton was still in office when the tech bubble was just starting to go tits up. Granted my job wasn’t shipped overseas…we just weren’t competetive anymore and the ENTIRE company folded…EVERYONE lost their jobs. Basically the US IT technicians and engineers priced ourselves out of the market…and new expert systems and automation, as well as a general loathing of things IT related after the bubble burst, made it so there just wsn’t a market for as many IT workers anymore. I was out of work nearly 2 years before I decided, in a shitty economy, to form my own company.
-XT
Yeah, job loss from outsourcing is all the fault of those damn greedy Americans! Why can’t they just accept working for third-world sweatshop wages like everyone else?
Sure, but what good is a nation whose only jobs left are for folks waiting tables and working drive-thru windows?
In general the economic principle of specialization always holds true.
If farmer Joe has 12/hours a day of work time and can produce 200 pounds of corn in 10 hours and 10 pounds of beef in 2 hours he’d do much better to trade with Rancher Jim who is making 90 pounds of beef in 10 hours and 10 pounds of corn in 2 hours.
Both of them would be better off to just completely raise cattle/grow corn (respectively.)
This is proven in real life when you look at a lot of the manufacturing jobs Americans lost in the 60s and 70s. The fact is those were economically inefficient jobs. The Americans were not the best suited to specialize in that area, and thus eventually the economy destroyed those jobs and gave them to people that made an equivalent product for less effort.
This removes inefficiency from the economy and reassigns people to more efficient pursuits.
The problem with the manufacturing jobs was unions had inflated wages well past what the realistic value of the labor was. A guy working an assembly line may have pulled in the equivalent of $65,000/year in today dollars, when in all honesty his labor sans a union would have had a market value of probably half that.
So once these manufacturing jobs were taken away and said laborers did not have the protection of the union, they had to take lower paying jobs, or more correctly jobs that more reflected the market value of their labor.
However this fundamental principle of economics is sort of coming to a “limit” of sorts.
The rule of thumb basically is, if you lose your job due to it being economically inefficient that’s the economy’s way of telling you to educate yourself and get a better job.
The problem now is we have some of the highest educated people losing their jobs to outsourcing. For example radiology has been increasingly outsourced. Telling a guy who has spent probably 8+ years in school and over $100,000 learning radiology to “go back and reeducate yourself” is a tad bit too much. And shows we’re reaching a point where maybe this fundamental principle doesn’t work anymore.
[QUOTE=Cheesesteak]
I don’t agree. You replace 1000 welders with machines made by 100 people, there is NO new job for the remaining 900. They are as flat out of work as 900 people from an outsourced call center. The only difference is that instead of giving the job to 100 American, European, or Japanese machinists, you give it to 900 Indians.
From our standpoint, I fail to see the difference.
[quote]
Sure you do. That’s why you chose to discuss job numbers instead of capital, slicing out the portion of my post that dealt with it. Economic growth and sustainability are based on capital flow. You spend more than you take in for long enough, you go broke. Mechanization provides you with a means for bringing in more money by increasing your production. Outsourcing leaves your production the same, but throws all the money that normally gets recycled into spending capital over the wall.
Imagine, if you will, that there were two electricity companies in town. One charges slightly higher rates, but you own the company and the money is going to come back into your pocket. The other offers lower rates, but they’re going to keep the money. Which one would you buy power from?
You mean the thousands of years that have seen economy after economy collapse into rubble? Those thousands of years? You’re right, everything we’ve done during them must be the path to unmitigated success, just look at how rich Phonecia is now!
Also, efficiency doesn’t mean what economists (especially armchair ones) seem to think it means. Efficiency means spending as little as possible to achieve your goals. Note that latter bit, it’s the part that keeps getting left out. When society (you know, the people whose elected representatives are empowered to regulate trade) defines efficiency, they are talking about providing the highest standard of living to as many people as possible. They aren’t talking about making sure the head of Omnicorp can buy two new yachts instead of one.
Not at all. Although we haven’t exactly seen unparalleled success in our manufacturing sector since we opened our trade borders either.
How would proving it was real make the case as to the extent to which mechanization helps the economy? But hey, nice strawman. :rolleyes:
Mechanization is good for the economy in so far as it increases production resulting in a net growth of the economy. If it costs too much or the economic impact is too little, you’d be a damned fool to go forward with it. In general, that means we successfully move forward with mechanization when we are facing a labor shortage, when we stumble across some extra clever way of doing things, or when we are looking at a large market demand.
Outsourcing, on the other hand, is a self-defeating paradigm. You cut your GDP in order to lower prices, the resulting lower wages reduce your spending ability so you cut GDP more, and so on. Meanwhile you’ve just used up your national wealth funding the creation of an economic adversary. You wind up in a death spiral. There’s a reason a growing economy results in price inflation: as people gain wealth to spend, prices naturally rise to meet their spending range and so on, because there are no upward limits on an inflationary cycle, only on the rate of inflation itself. You cannot base growth on a deflationary cycle, in the end you will hit the bottom and then you have nowhere to go.
There is nothing inherent in mechanization that requires an increase in production, and there is nothing inherent in outsourcing that prevents an increase in production. That comes down to how many customers you have at the price point you can set.
The machines you buy need not come from your economy, so you could just as easily be throwing money over the wall in that case too. Is anyone arguing that we should not buy European or Asian manufactured machines?
Society may define efficiency differently than the people running companies, but Society doesn’t make any decisions as to how you go about providing product to customers. From a corporate perspective, efficiency is producing the same thing for less money, or more things for the same money, that’s pretty much it. When you start deciding to have a higher cost structure because you’re spending money in the “right” places, WalMart will come by and put you out of business, very inefficient.
WRT the Industrial Revolution, I think history has proven that improving efficiency and reducing cost through the use of machines has been broadly positive, without the massive unemployment and poverty that might have been expected. If it can be argued that outsourcing has a effect on our economy similar to mechanization, then it can be argued that the overall results should be similar to the IR, in direction, if not in scale.
[QUOTE=Cheesesteak]
There is nothing inherent in mechanization that requires an increase in production, and there is nothing inherent in outsourcing that prevents an increase in production. That comes down to how many customers you have at the price point you can set.
[quote]
Congratulations, you’ve shown why mechanization is not always a successful option. The difference is that when it is successful, it grows the economy, resulting in price inflation. When outsourcing is successful it shrinks the economy, resulting in price deflation (and the people who aren’t at risk of outsourcing make out like bandits in the short term).
Yes you could. And if you bought enough machines from them, your capital would be gone and their economy would be booming because they invested in technology and manufacturing and you invested in sloth and ineptitude. You are arguing that this would be a victory for the bankrupt party. If instead you built a competing automation economy, you quite possibly turn a profit and remain economically competitive. I am arguing that this would be a victory for the competitor.
You’d better reread your Constitution. The people of the United States, through their elected representatives, are in fact empowered to decide for the CEOs the terms on which they will carry out business internationally, and intranationally across state borders. We can tell them which countries they can trade with, what they can import, how much they can pay for labor, you name it. If they don’t like it, they are free to leave.
Or, of course, to bribe those elected representatives and set up a 24 hour news channel for the purpose of dissemenating disinformation on the subject. I mention it only as a hypothetical.
No, from a corporate perspective efficiency is maximizing profit versus cost while remaining economically viable. Production is a secondary factor. From a CEO perspective (the one that supports outsourcing) efficiency is maximizing personal profit while minimizing corporate expensel. This often entails liquidating the company and sneaking off into the night with the proceeds, the pinnacle of CEO efficiency.
Yes, which is when society gets to step in, shut down Walmart, seize their holdings, and throw a big party over their ashes. The public defines the terms on which business will be carried out in America, not the corporations.
On the contrary, history has shown that mechanization in the absence of publically imposed restraint breeds horrific poverty. It is only by slowing the rate of “progress” to the level where workers can transition that we are able to sustain the human beings for whom the economy exists.
Yes, but that’s a rather large if. It certainly hasn’t been argued here, only asserted. It has, on the other hand, been argued that it is not the same, and as such nobody in their right mind would expect comparable results.