How is outsourcing good for the economy?

Great Debates
81

I’ll just give the short answer paraphrased from the Capital Markets section of my Fundamentals of Investments for Financial Planning textbook.

The short answer is that outsourcing might be good for the economy depending on what kind of outsourcing we are talking about. Outsourcing comes in at least two flavors, both of which are going on all the time in any economy.

The first is the BIG SUCK variety of outsourcing heralded in such tomes of knowledge as Who Moved My Cheese.

The BIG SUCK is when the workers in your economy are lazy, shiftless, incompetant and entitlement minded and the workers in some other economy are industrious, skilled, well-trained, eager to please, and will work 100 hours a weak for dog biscuits. The jobs flee to the other economy because your workers are unwilling to lower themselves to the salary level the other workers will and are also unwilling to put in the effort that the other workers do. They complain about not being able to get a job, but the actual fact is they are unwilling to work at the level of demand that exists. They have dealt themselves out of the job market.

To be fair, lest it seem I’m making a value judgement (God forbid,) the economy may have dealt them out of the job market as well. If your currency is very strong and in high demand that means that your workers who must buy everything in your currency are receiving poor value while the workers in the other economy are receiving superior value because they are being paid in terms of your currency which converts into theirs at an advantage. Usually, there’s a combination of both these things.

The BIG SUCK is essentially self-correcting, though painfully so. Once all the value has been sucked out of your currency things tend to switch around and your outsourced workers become shiftless, lazy, entitlement minded and generally no where near as value oriented and industrious as your home economy workers who have become lean and mean and hungry and appreciative for whatever comes their way.

There is no getting around the fact that the BIG SUCK sucks while it is going on and in some cases can take decades to work itself out, so it’s not like we should just stand and watch the Big Suck.
The second kind of outsourcing is what we shall call UTOPIAN OUTSOURCING. UTOPIAN OUTSOURCING means your economy is fucking great you just can’t beleive it. Here’s how it works. The Superworkers in your economy come up with a new industry that takes the world be storm, something like the automobile. Your scientists invent the thing, your engineers refine it, your workers build it. Everybody has to have it and they pay big for it, and your economy rules the world. Everybody envies you.

Everybody envies you so much that they start making automobiles. Shitty knock-offs, but automobiles nonetheless. They are really shitty, but at least these knock-offs are cheap. The economies producing them don’t have any of the capital costs of the innovation that went into it from your economy and workers. Eventually the knock-offs stop sucking so bad because these other economies while unable to innovate are able to refine your idea. More and more automobiles are being made elsewhere. Everybody can make them. Once this happens they no longer command the marketplace. “UH-Oh!” you think. “My workers are getting screwed!”

The fact is, I should slap you silly for even thinking such a thing. How dare you underestimate your workers! While all the other economies are saying “HA ha! look at all these jobs we got from you, Neener, neener, neener!” your workers aren’t sitting on their asses. They are utopian supermen. They have innovated again, and produced something called “The Computer.” Everybody has to have one. They command a premium, and your economy goes singing along as your workers continue to innovate.

Utopian Outsourcing is a wonderful thing. What it means is that you are handing off jobs to other economies once their relative value starts to diminish, thus freeing up your workers to produce new higher value products.
Clearly the former kind of outsourcing sucks and the latter is pretty cool. The problem is that in both kinds people lose jobs and can’t get new ones, and not everybody who produces automobiles can transition to computers or what have you.

Outsourcing can be great, or it can suck. It depends on what kind of outsourcing we are talking about, and both kinds are going on, in various degrees, all the time.

82

Now I’m certainly no economist, but I get really, really tired of overpaid tech workers complaining about how underpaid they are. Let’s face it, for a while ther IT salaries were completely out of whack with the level of education and experience a lot of IT jobs required.

Why should a brand-new CS grad be making $60-70k, when new grads even in other technical fields weren’t making anything close to that? Why should a liberal arts grad who took a couple months’ worth of Web design classes be making that kind of bank? It just didn’t make any sense, and it was overripe for an upheaval. And why is an Indian college grad somehow less worthy of the opportunity to earn a decent living than an American college grad? We’re all human beings, you know.

However, I think y’all could use a bit of levity, so I bring you:

“Outsourcing Thomas Friedman”
By Tamish Phreedman

http://www.exile.ru/2004-April-04/outsourcing_thomas_friedman.html

83

You say that as if “trade barriers” were something unthinkable or un-American. In fact, trade barriers in the form of high protective tarrifs – to protect American industries from having to compete with foreign ones for the domestic market – were central to American national economic policy from the early 19th Century to the 1920s. And, while they were used, they worked as intended. We dropped them after WWII left the U.S. as the world’s principal industrial powerhouse and exporter of manufactured goods. But that does not preclude the possibility of erecting some new kind of trade barriers adapted to protect American workers’ earning prospects under present global economic circumstances – does it?

84

Damned funny! Though admittedly, I’d like to see him outsourced …

85

You’re wrong about that. I make that point because most people understand that trade barriers generally are bad economic policy. That is mainstream economic thinking. If you can understand that, then you should be able to understand why barriers to “outsourcing” are also bad. They amount to the same thing. It’s not about being un-American, it’s about being bad economic policy.

86

I am curious if you believe there are instances where trade barriers are good economic policy for the US, and if so why?

87

I suppose there might be, in certain very unusual circumstances; ie, as the result of some sudden, unpredictable catasptrophic crisis. But they would have to be temporary, and I have little faith in the government’s ability to rescind the tarrifs once the crisis was over. In light of that, I suspect that trade barriers will almost certainly do more harm than good. But it’s hard to speculate about all possible scenarios. What particular scenario did you have in mind?

88

I am not really here for a debate, I just found this thread quite educational. As for specific scenarios, the US has in recent years imposed a tariff on importing Canadian softwood lumber, and I was also thinking of punitive embargos like the one against Cuba.

89

I’m not familiar with the Candadian lumber issue, but it seems to me that most tarrifs have a political motive more than anything else. The steel tarrifs Bush imposed are a good example. The Cuban trade embargo is surely nothing more than a political gesture.

I suppose it would make sense to impose a trade embargo during war. It wouldn’t make sense for US companies to be trading with Germnay and Japan during WWII. If that wasn’t considered treason, I can see where it would be.

90

Well, since labor costs are about 80% of the build cost of ana automobile, GM-SATURN should close all of their domestic plants and set up shop in China! If this would be optimal, what do we do wth the 400,000 domestic workers left jobless? Of course! They can all become:
-hamburger flippers at McDonals
-divorce lawyers
-govern,ment workers
Sure, outsourcing is OK-if you have trade with the country that you outsource to. Take China: it sells everything to us and tries to buy nothing. Are we best served by allowing China to destroy allof our domestic industries? Heck,lets ship textiles, autos, electronics, everything to China!
Don’t belive that domestic industry is being hollowed out? The US Navy is making plans to certify shipyards in Korea-against the day when there will be NO domestic shipyards to build combat ships for the navy. I am not advocating trade barriers-only saying that there has to be a balance of some kind in opur foreighn trade. of course, if the Chinese want to accept little green pieces of paper for their TVs. toys, and clothing, then maybe we should sit back and let the party continue!

91

right now … this very moments … as we speak … the Bush Admin. supports trade barriers against Asian shrimp (they’ve learned how to farm shrimp over there, it’s very cheap and very good, but we gotta be protected) and sugar (to keep those Batista Cubans who have the big sugar farms carved out of the Florida Everglades happy).

So, maybe the Bushistas think trade barriers are good, eh?

92

The problem with you and other conservatives, John, is that you can’t see how the free market could be improved, how it could possibly be any better than it is right now. I see layoffs and firings and the human misery that accompanies them as bad things, proof that the free market economy isn’t where it should be as yet, as an economic system. Any system that causes so much human misery is ripe for improvement.

I’m not averse to dealing with it in ways that don’t change the way the free market operates, such as by setting up an extensive safety net and so forth, but generally the same conservatives that support the free market oppose social safety nets even though one of the logical outcomes of the free market is a certain amount of unemployment – and one of the practical effects of the free market is LOTS of unemploment.

This is basically why you have no cred with me … your attachment to the free market seems emotional rather than logical … you seem to need it to work the way it does for reasons that wouldn’t stand up under conscious scrutiny. Your rationales for why we can’t in any way alter the free market or the way society responds to it come off as irrationales, for that reason.

93

C’mon, Eva, you’re not being completely fair here. The Indian programmers who make $15,000 a year are living in a country where that $15,000 can buy a HUGE amount in comparison to the U.S. – I don’t have the exact numbers, but they are probably living as well or possibly better than their U.S. counterparts who make $60K-$100K. So the value of the worker is the same in each society, it’s just that one society has generally lower costs and salaries than the other.

I also find it funny that in a thread where some people insist that people who are paid $5 to $8 an hour for their labor are worth no more than that because in a free market, what you are worth is what you are paid, no matter what that happens to be, other people are saying programmers aren’t “worth” $60-$100K a year. C’mon, people make up your mind. Either a person’s worth is determined exactly by their wages, or it isn’t.

94

Good try John,, but I don’t want to keep playing serve-and-volley with you. It’s obvious we’re acting out the all too familiar scenario of liberal and conservative talking past each other. I’m trying to describe general trends that affect people and all you want is hard data you can take to the bank. Sorry to take up your time; feel free to bill me. :rolleyes:

95

So, Scylla, you would support the development of extensive safety nets to support workers harmed by the Big Suck?

96

John, don’t you get it? When you’re laid off you have no income. No money. If you have saved, that money can help, but only for so long. Without a safety net, you stand to lose your home, your family … everything save your life and maybe that, too, since you also lose health insurance.

Nobody’s guaranteed a job, but maybe we should make not having a job less than catastrophic.

97

And for good reason. At the bottom of most free marketers’ schemes you will find trickle-down economics, which famously and historically did not work during the Reagan years.

This I think is why the economy tends to do better during Democratic presidencies as opposed to Republican presidencies – the Dems tend to enact policies that help the middle class, which makes the economy more robust. The Pubbies tend to enact policies that help only the upper class, which makes the economy weaker. Money tends to trickle up, not down.

98

Right. As I said in the OP, this was more of a GQ for me. I agree that it has been instructive.

I’m still not in the mood for debating. Doncha hate it when life takes the wind out of your sails?

99

I’m just stating the accepted economic theories. I’m not saying if they are (morally) “right” or “fair”. There’s a reason they call Economics “The Dismal Science”. We in America have fallen in love with our sense of righteous entitlement. We all deserve big houses and cars and plasma screens while the rest of the world is to be mocked in heathen Third World poverty.

Well you do get unemployment if you are laid off and it can be up to $405 a week in NY state. Most evil corporations usually give you a severence package of a few weeks up to even an entire year of your salary. The fact is that most people do recover from the loss of a job eventually.

I will agree with you on this point that there appropriate safety nets in place so that the unemployed can seek other employment without becoming destitute.

100

outsourcing stimulates the economy in a way. since products and services will become cheaper, people will put more money into various parts of the economy. the businesses will eventually use thtis money to open new sectors and create new jobs. however, this can take time and all the struggles of people who find themselves unemployed despite qualifications outweigh the benefits of outsourcing in many cases (imo).