Perils of Outsourcing

Ludwig von Mises Institute ^ | February 11, 2004 | Cecil E. Bohanon and T. Norman Van Cott

[babyface00]

I'm fireproof.

Good for you. I'm following this thread with great interest, but my experience in the past is that I end up insulting a lot of people with my opinions on this subject, so I've learned to keep them to myself.

Its just too bad we as a country mandate sex education to our children rather than economic education.

[Iris7]

Besides, the basic argument is hopelessly wrong headed. According to the analysis you cite, if all jobs in the country were sent overseas over time we would all get more wealthy as jobs are made obsolete, and in the end, with no one working we would all be fabulously wealthy!

If there is a glaring flaw in a model then it is useful to return to first principles. Prices are set by the most powerful in any economic transaction (surely you cannot take exception to this), and prices are falling for labor here in the USA for this reason. Presumably this trend will not grow to the sky, or more accurately, descend into despair.

[lewislynn]

What Americans pay the Chinese and Indians for software technology measures what the Chinese and Indians can buy in the United States as a result of the outsourcing.

Politicians?

[lelio]

"The best way to learn something is to teach it"

Bumps to that. I say "You don't know something till you try and explain it to someone else." Until that can be done coherently you're kidding yourself that you know the subject.

[lewislynn]

Tell the multitudes who are training their foreign replacements how great their life is about to be.

[Jack Wilson]

My point is: why train for a skill, such as computer programming, when you will not be able to compete price-wise on the world market?

[logician2u]

Its just too bad we as a country mandate sex education to our children rather than economic education.

I'm not convinced that the government schools are the best place to teach about either sex or economics. In fact, if you consider that public schools operate on a socialist economic model where the only competition is for tax money and highly-paid administrators, perhaps mandatory courses in economics would be more of a detriment to learning the subject than we think.

How many teachers -- who, for the most part have never been away from the academic/educational establishment -- do you think are qualified to teach a basic course in Econ?

[Jim Cane]

Besides, the basic argument is hopelessly wrong headed. According to the analysis you cite, if all jobs in the country were sent overseas over time we would all get more wealthy as jobs are made obsolete, and in the end, with no one working we would all be fabulously wealthy!

Current economic pollyannisms theories are free of such cluttering factors as diminishing returns, mob mentality, and human reactions to pain.

[Age of Reason]

It would be great if all those third-world countries stayed third-world countries that we could exploit for their natural resources.

But greedy American businessmen and politicians and educational institutions had to sell those countries the knowledge and machinery to become industrialized, while rationalizing their greed with the thought they are improving lives for millions.

I like old-fashioned imperialism better.

[babyface00]

I'd agree, and probably go a step further in saying government schools are the worst place to teach any subject.

I've noticed in my part of the country, the IT jobs are starting to really come back. The market is really picking up after quite a long slow period. It will be interesting if we once again get to the point where there aren't enough qualified IT people to fill all the open positions and we need to import them again.

[logician2u]

My point is: why train for a skill, such as computer programming . .

That is a good point, and one we need to bear in mind whenever the politicians (or Alan Greenspan) suggest that we need to invest huge sums of public money in "retraining" and such.

Who knows what the needs will be in five, ten, twenty years? What if they guess wrong, as has happened in the past?

Everyone is ultimately the best judge of what he or she wants to do for a career. Subsidizing the temporarily unemployed and training them for another dead-end job not only costs the taxpayers, but sets back the persons who are supposed to be helped.

[jpsb]

In a global market, where labor is a commodity, American labor will not be used for any and all worked that can be done cheaper overseas. Correct?

[logician2u]

That was a very instructive lesson in outsourcing you related. I'll bet the genius who sold that to the boss has a new boss now.

Companies that do things to save money but end up spending more usually need a management shake-up to get back in line. It's a lot easier with a publicly-held corporation, where the stock price reflects the company's prospects, than with a famiily-owned enterprise. It's alway difficult to fire your brother, the marketing manager.

Mistakes happen, that's a part of business.

But we need to allow them to happen, not force them to happen by imposing ridiculous rules and regulations such as "buy American" policies and X% domestic content requirements.

Likewise, offering export subsidies to "balance" international trade does no favor to American consumers. Have you priced a 2x4 lately? Or worse, plywood?

[Squawk 8888]

When you're dealing with people on the other side of the world from a different culture, the communication aspect becomes complex and labor-intensive.

Which is why a lot of Indian firms are opening offices in the USA. We have a major project underway with an Indian software house; the analysts and support personnel are based in Dallas and the code-pushers are back in India. A good analogy to that would be a manufacturer that does design and engineering in the USA and the production in China. In either case the more lucrative jobs remain domestic.

[logician2u]

First of all, I must emphatically disagree with your statement that labor is a commodity.

Very, very few jobs can be performed just anywhere. The outsourcing jobs this article tells about represent such a small fraction of the total labor force as to be nearly invisible -- to all except those displaced.

And "cheaper" is an entirely subjective term. Cheaper than what? For what standard of quality? If an American gets, say, $20 an hour to tighten widgets and has a productivity factor of 1.0, what is the break-even point for shipping the job off to Indonesia where the productivity factor may be 0.2 but wages are around $5 a day? And how many additional inspections must the product go through in order to maintain the same quality standard?

Those are all factors a company has to consider, along with labor laws, environmental laws, cost of transportation, housing, real estate, the whole gamut of social and cultural issues which act as a barrier to probably 95% of all foreign operations.

So, no, I disagree that American labor will not be used.

Just as I disagree that American products will not be used, when they are superior.

[LowCountryJoe]

I have seen so much of this stuff I am tired of it...

But I am standing up to you and what you've written because I think that we have a right to debate and disagree, with any economic theory - Eeeeyaaaaaa!

[A. Pole]

Again, not a penny of what American software producers lose or the increase in the economic pie goes to the Chinese and Indians. It goes to the buyers of software services.

Does it really?

[logician2u]

Yes.

[A. Pole]

A dollar is exactly equal to four quarters or ten dimes, and where it's spent is unrelated to its intrinsic value.

Where labor is employed is totally [un]related to how much worth (value added) is assigned to the product.

Really, what a strange universe of unrelated monads. Free marketeers must be schizoid.

[StolarStorm]

In the short term economists with this view are completly correct. Long term however is disasterous for the USA standard of living. Eventually, outsourcing will lead to a much smaller middle class and thusly a much smaller client base for the firms that have saved money on these cheaper alternatives. Short term gain for companies, long term lose of market base.

Regardless, those who "have theirs" will be all right, but younger folks with inheritience will be stay poor. Thus the stratification of American society begins....