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The Full Outsourcing Discussion
GileadGreene writes "Thomas Friedman of the New York Times recently did an interesting Op-Ed piece about the "silver lining of overseas outsourcing": the growth that it generates in the US job market as Indian companies outsource work that US workers are better at. Apparently total exports from US companies to India have grown from $2.5 billion in 1990 to $4.1 billion in 2002 as well. So maybe this outsourcing thing isn't so bad after all." Ultimately, free trade works out well; I think one of the issues is that white collar jobs are just beginning to feel the pinch, and are acting like manufacturers did in the 1970s and 1980s.
Hemos adds: Ultimately, free trade works out well
then I read this in the article:
"look around this office." All the computers are from Compaq. The basic software is from Microsoft. The phones are from Lucent. The air-conditioning is by Carrier, and even the bottled water is by Coke, because when it comes to drinking water in India, people want a trusted brand. On top of all this, Nagarajan said, 90 percent of the shares in 24/7 are owned by U.S. investors.
OK, so that's how Free Trade works out well: domestic workers are put out of jobs but the big multinationals reap the benefits. Where are the phones from Lucent and the the Carrier air conditioners manufacturered? Where does Coke bottle the water? They don't ship it over from the US. They probably have a filtering and bottling plant down the street.
The 90% of the shares owned by US investors aren't owned by your next door neighbours, they're owned by multimillionaire investment traders. They don't give a shit about the people making them the money, they're just cogs in their money-machine.
Saying Free Trade works out well because faceless corporation make billions is just plain wrong.
Trolling is a art,
The idea that America has an advantage in certain areas always comes up. But what jobs are Americans better at when the definition of doing a job well is increasingly based solely on the cost of labor?
sure.. it's good for the fat cats, but when is life not going to be? the points brought up in the article - All the computers are from Compaq. The basic software is from Microsoft. The phones are from Lucent. The air-conditioning is by Carrier, and even the bottled water is by Coke - wherever the offices are in the world these things will be provided by these companies or such like. The only people whose pockets are getting lined are the Fat Cat's, not Joe Geek who just got pushed out of a job.
tim
Now, could you please answer just one question? We in the US were told when we shipped all our manufacturing jobs, and most of our dirty work, to the Third World, that all would be OK, because we would retrain to do the work of the mind. Which supposedly has a higher value.
Now that all the work of the hands is gone, we are starting to ship the work of the mind elsewhere. When the work of the hands and the work of the mind is gone, what exactly is left?
Please be precise, specific, and complete in your answer. Thanks.
sPh
However, this example also illustrates a very important caveat to this whole situation: the competition can only be productive if there is an equal baseline established. As a country, we have decided that certain qualities are important to us, such as a clean environment, worker's rights, education, health care, etc. These are national policies, enshrined in institutions from the EPA to the FDA, and thus every state is subject to the same requirements. And it is here that the comparison with international Free Trade breaks down. If companies in India are not subject to the same requirements, if they are not required to care about the environment etc., then it is not really free trade. American companies can't ever hope to compete, burdened by costs they can't control. Instead, we merely subsidize a temporary exploitation of a less developed country. Once India and other countries develop to a similar level, they will likely begin to care about more of the same things, and at that point competition can begin to truly flourish without a need for restrictions. But in the mean time, I don't see how true Free Trade can exist without unfairly undermining important values we hold.
Free trade does work out well, but the problem is that it does involve both winners and losers, in the short term. The short-term losers know exactly what to blame: free trade. The winners, by and large, are diffused through the entire economy and over the course of many years: they benefit enormously from free trade, but they don't know it.
For centuries, protectionists have traded on this asymmetry. They point to the real, obvious, and acute problems caused by trade, and deny any theoretical 'ivory-tower' benefits because they are in the unknown future. This is the thinking that resulted in the Smoot-Hawley Act in the US, and similar measures throughout the world, contributing to the profound and lasting slump through all of the 1930's.
Today's protectionists, of course, say that they aren't like that, and that they only want to stop 'bad' trade. But what is 'bad' trade? In the end it still boils down to what it has always been: 'bad' trade is trade that adversely impacts politically powerful groups (such as farmers, steelworkers, perhaps now programmers), regardless of the damage such trade restrictions cause to the economy as a whole.
What was true 200 years ago is still true today: protectionism ends up leaving us all poorer.
Drill baby drill - on Mars
It isn't as though the number of manufacturing jobs in the US has shrunk, or real manufacturing wages have fallen, since the 1980s. No, that has not happened at-all.
I don't doubt that free trade will generate a great deal of wealth. The question is - who will get it? In the example of the Coca Cola-brand bottled water sold in the Indian corporate park - how much of that wealth ends up in the hands of white collar workers?
Obviously - those who have power will use it to secure for themselves a share of that wealth. Duh.
This is not even about workers in India and the United States "competing" with eachother.
Let's take an instructive look at the case of caterpillar. Caterpillar (they make tractors) maintains factories both in the United States, and in Germany, and in third world countries. They have, in fact, more factories than they need to build enough tractors to meet demand.
So, when American workers went on strike, they simply increased production in their German (and Mexican, IIRC) factories. The German workers make slightly more than their american counterparts would-have but that doesn't enter into it. With the additional power provided by their international organization, caterpillar was able to break the strike.
So, yes, free trade does generate wealth. But, as with other aspects of trade and commerce (slashdotters are most familiar with the effects of intellectual property law) it will also tend to concentrate existing wealth in the hands of those with the power to take advantage of it.
Pretending, in the case of so-called "free trade" for which ample data is now available, that this is a net benefit for the relatively powerless general population is utterly facetious.
To put it another way - there are all sorts of events, dependent on free trade, might generate wealth for the general population. However, that has no input into the process by which events are made to occur. Events are made to occur because they benefit a particular group of individuals, powerful enough to actualize them. This may or may not have some benefits (lower commodity prices, in this case) for the general population which may or may not outweigh the costs (lower wages, lower employment level) to the general population. Theory can take us this far and from here we should rely on the evidenciary record.
I think it is abundantly clear from the past ten years that the movement of jobs overseas harms the general population more that it benefits the general population.
The good and new comes from no quarter where it is looked for, and is always something different from what is expected.
If you really are old enough to have remembered Goldwater, then you're old enough to have heard these tired arguments every five years every time ANY industry goes overseas. You're also old enough to (supposedly) have some historical context on this. Will all jobs go overseas? Well, over 50 years, almost ALL tech jobs will. I guarantee it. Hell, all the "tech" jobs from 1950 have. Is there anything wrong with that? No, because they're replaced by whatever becomes high tech.
Looked at another way, if the US maintains a static labor market, we will become irrelevant and reduced to 2nd-world status quickly. Would you want to have the same sort of jobs available to Americans now that existed 50 years ago? Of course not, because bolt-turning jobs don't pay well, because anyone in the world can do that now. Unless the US keeps innovating, there's nothing to sustain the high salaries commanded by US labor. Unfortunately, we haven't figured out a totally painless way of getting rid of jobs that become less-needed as we innovate, but getting rid of certain jobs has to happen. Don't worry, assuming the US economy stays healthy over the long term, they WILL be replaced. This has occurred in a healthy manner for 100 years. Note that the total loss of manufacturing jobs that has occurred over the last 50 years has had NO ill effect upon the US economy or unemployment. Do you have any reason to suspect this one is different as you claim? Or is it just because the white collar nature of these jobs hits too close to home?
Face it, this isn't a liberal/conservative issue anyway. The US is staring at its onrushing demise just like the USSR was a few years ago. In both cases it will be due to corruption and selfishness.
That's too ridiculous to even be speculative. The USSR collapsed because its centralized economy fundamentally didn't work, and because Reagan tricked them into a military spending spree - which gave us a bunch of debt but killed them. Put it this way - if you're so certain, how about a rough year for the US's USSR-style demise?
The Cato Institute thinks the following:
"The large majority of America's nonfarm workers, about 85 percent, are employed in service-providing industries, construction, and government--sectors where import competition is minimal. To those workers, imports are an unambiguous blessing that spurs innovation, expands consumer choice, and raises real wages." Full Paper Here
Moreover, this breifing goes on to argue employment grows in proportion to imports . There's a fairly rational reason for this, if we can all stop foaming at the mouth long enough to actually think rationally: when employment grows we (consumers) have more cash to spend on goods and services. Since imports are a relatively fixed percentage of the overall economy, whenever the overall economy grows, so must imports. Why am I discussing imports if the argument is over services? Well, services are imported and exported just like goods. So, let's understand the real numbers, here:
The United States had a $64.8 billion trade (BEG ITAL) surplus in services in 2002, despite economic stagnation in Europe and Japan. Services accounted for 30 percent of all U.S. exports and 43 percent ($3.1 billion) of U.S. exports to India. Full Article Here
But, if half of our exports to India are in the form of services why are so many technical jobs going to India? Actually, there's no real evidence that's happening at all. There are two basic erroneous arguments made by the media today supporting the assumptions in this question. First, is the post hoc mistake: because the US economy is losing jobs and because after that happened India started gaining technology jobs, then India must be responsible for losses in American technology jobs. Actually, poor investments by venture capitalists and fund managers caused the loss in US jobs. The fact those losses occured coincidentally with India's technology boom is completely irrelevant.
Second, is the hasty generalization mistake: Bob Smith has just lost his job because his company opened a software development office in India, therefore all American technology jobs must be moving overseas. There just isn't enough evidence to support the generalization made by reporters. We may suspect that India is taking some portion of American jobs, but news reports by well-intentioned NPR and New York Times reporters aren't evidence that its hurting our economy.
All this panic and paranoia about jobs moving overseas doesn't even make sense when we consider the real economics of it. The "entire employment of the US" can't possibly be outsourced. Even if your argument wasn't a textbook example of the slippery slope fallacy, you'd still be wrong on an economic basis. If the USA loses a sufficient number of jobs, i.e. unemployment rises, the consumers will have less capital with which to buy foreign-made products. Domestic workers who are out of work will be willing to work for less, thus driving down the cost of locally made goods. When the cost of local goods and services drops below the cost of foreign made goods and services, then jobs will start to flow back into the USA. Adam Smith's invisible hand at work.
During the Clinton Administration monetary policy for the dollar kept our currency strong, which helped keep prices for foreign made consumer goods low. This was a good thing during that time because Asia and Europe were both in the midst of deep recessions and American consumer spending helped to bolster those economies through that trying time. The Bush Administration has since let the US Dollar sag in relation to other currencies. This has helped decrease the price of American goods and services abroad
"He wrested the world's whereabouts from the heavens And locked the secret in a pocketwatch." - Dava Sobel
> The scenario you've described is not that likely to happen, for a simple reason and that is: India won't be cheap forever! The Indian programmers will eventually start demanding better healthcare, education for the kids etc.
Yes, but India may well be cheap for a very long time. And then there's China. The point is that the potential pool of underemployed labor in the 3rd world is huge,. This pain's going to go on for quite some time before any equilibrium is reached.
>The problem you're facing is to decide between being selfish and saying "all high paid jobs belong to us".
Who said those jobs are "high paid"? Maybe they were reasonably high paid in the US, but these jobs are going to India specifically because they are not high paid there. Just because they're better for Indians than the alternatives doesn't make them high paid. And if Indian pay gets too high, that's when the jobs go to China.
It would seem reasonable to at least attempt to establish a minimum global standard of living to mitigate the race to the bottom. Otherwise, outsourcing becomes slave labor by another name (no health benefits, no job security, no wage leverage). How much difference does it make that the slaves' choices are so limited that they are willing slaves.
Posted from my Android phone. Oh, I can change this? There, that's better...
People are always threatened by free trade, since the benefits are diffuse, but the pain concentrated.
So, here's a thought experiment:
Explain why you think outsourcing to India is bad, or evil, or should be illegal.
And then explain why the same isn't true of outsourcing to say, South Carolina.
South Carolina has lower environmental and labor standards that the rest of the us. Lower wages.
You really want every state to make their own cars? Furniture? Grow their own oranges? Wouldn't that make more jobs everywhere.
In fact, couldn't we cure suburban blight by preventing cities from importing products from their suburbs?
Now, how is that a better alternative?
And how's that meaningfully different than what's happening in India.
And yes, I am a liberal Democrat who works in the technology industry. The job that might get exported is my own. But I've also worked on a job where engineering was in India, and product management was in the US. That particular product was something that wouldn't have been worth doing at US labor rates. In many cases, this isn't a matter of exporting jobs, but creating jobs that didn't exist before, or couldn't have had as much labor behind them.
Another way to think of it: How much extra are you willing to spend on products in order to have them done in the USA. Are you willing to have your support contracts 4x higher to have an American answer them. Are you willing to pay 4x more for clothes? $400 Nikes?
Me neither.
Moreso, I'd rather have Africa get richer exporting food, Pakistan richer exporting clothes, and then get to pay even less for those goods. Ever wonder how much each of us is paying in tax dollars per American farmer?
Note that, if your income stays still, and you pay twice as much for everything, you just had a 50% pay cut. Anyone think outsourcing would get as bad as that? Nope.
As David Ricardo proved a couple of centuries ago, the strongest economy is one where everyone does what they're best at. Trying to pick winners and losers just drags everyone down.
The problem with our economy today isn't outsourcing and free trade. It's the most bolluxed up, politicized, fundamentally ignorant economics team in the history of the country. I would have been hard pressed to find a way to have spent MORE money with LESS economic stimulus than the the Bush economic "plan."
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