Outsourcing is Good
Find a Conversation
Outsourcing is Good
| Sat, 01-31-2004 - 11:22am |
Some critics argue that "outsourcing" of service sector employment to foreign countries will lead to a serious decline in U.S. white-collar jobs. In reality, outsourcing will reshape but not undermine U.S. service sector employment, making companies more efficient. It will also benefit consumers and export businesses...

Pages
Please note the "law of comparative advantage" is a theory. Theories are derived given certain conditions. During 200 years times have changed--perhaps it's time to reconsider the theory. The auto appeared before the buggy was eliminated--technology replaced what preceded it--what is driving the current disappearence of jobs? Certainly not any high-paying opportunities I can think of.
Theory vs. Reality
By BOB HERBERT
Welcome to the 21st century. The landscape has changed. We're in a new hypercompetitive worldwide economy, driven by breathtaking advances in technology. Men and women are being added to the global work force by the hundreds of millions.
In this dynamic, potentially very treacherous labor market, few people are looking out for the interests of the American worker. The very concept of the traditional high-paid American job, with its generous health and pension benefits and paid vacations, is at risk.
Senator Charles Schumer of New York sees the economic changes as a paradigm shift. In an era of high-bandwith communications and the free flow of capital, most goods and services can be produced or performed anywhere in the world. And with highly educated workers in countries like China and India ready and able to perform sophisticated tasks at a fraction of the pay earned by Americans, there are fewer and fewer reasons for those American jobs not to take flight.
In light of these changes, said Senator Schumer, we should at least be asking some tough questions about the real-world effects of free trade as we've known it.
Referring to David Ricardo, the 19th-century British economist whose theory of comparative advantage became the basis of free trade, Mr. Schumer said: "Ricardo set up a model that served very, very well for a very long time. But now there are new facts on the ground."
The biggest and most ominous new fact for American workers is the dreadful employment environment of the current economic expansion. In terms of job creation, it's the worst expansion on record. The job growth since the recession officially ended in November 2001 has been primarily in low-paying sectors. These are not the upwardly mobile jobs long associated with entry into the American middle class.
And they are not the kinds of jobs that free-trade advocates were promising in the 1990's, when they were hustling American factory workers, assuring them that the transfer of their jobs to low-wage countries overseas was a good thing. Globalization will be wonderful, the advocates said. There will be more jobs. Better jobs. Higher-paying jobs.
The multinational corporations, which have had by far the biggest say in the development of America's trade policies, are thriving in the new environment. Workers are the big losers, and the losses are only beginning. We now know that offshoring or outsourcing — whatever the term of the moment is for dumping American workers in favor of cheaper workers elsewhere — was never going to be limited to factory jobs.
Outsourcing is not the only reason for the employment squeeze in the U.S. But it's a significant reason. And while it's getting a lot of attention lately, it's not getting the kind of close scrutiny such a powerful economic force deserves.
One of the great achievements of the United States has been the high standard of living of the average American worker. This was the result of many long years of struggle to obtain higher wages, shorter work weeks, health and pension benefits, paid vacations, safe working conditions, a measure of job security and so on.
It is not an advance to move to a situation in which all of that can vanish with the flick of a computerized switch. High-quality employment is the cornerstone of the economic well-being of America's vast middle class.
Among the questions we should be asking about the real-world effects of unrestrained trade is what happens to the U.S. economy after we've shipped so many jobs from so many sectors overseas that American families no longer have the disposable income to buy all the products and services they need to buy to keep the consumer economy going.
That's not supposed to happen. In theory. But American workers are filled with anxiety because they understand that disaster can result when theory comes face to face with reality. One of the things that sank with the Titanic was the theory that it was unsinkable.
http://www.nytimes.com/2004/02/23/opinion/23HERB.html?hp
The short term is where the negatives appear but in the grand scheme, they are meaningless.
Take for example the last time increaded productivity & outsourcing led to a much more painful recession in the late 80s.
Workers found new, often better paying careers, and we are all the beneficiaries of that techological change because it put a computer on nearly everyone's desk. Just imagine where our economy would be today, if we were still functioning without that kind of computer access.
We are going through growing pains again. A lot of displaced workers have to figure out how they are going to earn a living, but once they are reabsorbed into the workforce in a new capacity, the economy will once again take off like a shot and grow to new levels.
The transition that's underway right now is even greater than that one not only because of more, better, faster computing, but because of the internet, advances in communications, & robotics which have finally come into their own. There are factories in Japan today that are completely automated and operate around the clock. They only need a couple of humans to come by a few times a month for maintenance. As we create more and more factories like that, there will be plenty of knashing of teeth as factory workers, managers, & supervisors all figure out what they are going to do with the rest of their lives, but the cost of manufacturing will decrease even more than it has and benefit us all--especially the poor here and abroad.
Renee
By THOMAS L. FRIEDMAN
http://www.nytimes.com/2004/02/26/opinion/26FRIE.html?ex=1393131600&en=b1aeb4ca84ea7d67&ei=5007&partner=USERLAND
Published: February 26, 2004
I've been in India for only a few days and I am already thinking about reincarnation. In my next life, I want to be a demagogue.
Yes, I want to be able to huff and puff about complex issues — like outsourcing of jobs to India — without any reference to reality. Unfortunately, in this life, I'm stuck in the body of a reporter/columnist. So when I came to the 24/7 Customer call center in Bangalore to observe hundreds of Indian young people doing service jobs via long distance — answering the phones for U.S. firms, providing technical support for U.S. computer giants or selling credit cards for global banks — I was prepared to denounce the whole thing. "How can it be good for America to have all these Indians doing our white-collar jobs?" I asked 24/7's founder, S. Nagarajan.
Well, he answered patiently, "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, says Mr. Nagarajan, 90 percent of the shares in 24/7 are owned by U.S. investors. This explains why, although the U.S. has lost some service jobs to India, total exports from U.S. companies to India have grown from $2.5 billion in 1990 to $4.1 billion in 2002. What goes around comes around, and also benefits Americans.
Consider one of the newest products to be outsourced to India: animation. Yes, a lot of your Saturday morning cartoons are drawn by Indian animators like JadooWorks, founded three years ago here in Bangalore. India, though, did not take these basic animation jobs from Americans. For 20 years they had been outsourced by U.S. movie companies, first to Japan and then to the Philippines, Korea, Hong Kong and Taiwan. The sophisticated, and more lucrative, preproduction, finishing and marketing of the animated films, though, always remained in America. Indian animation companies took the business away from the other Asians by proving to be more adept at both the hand-drawing of characters and the digital painting of each frame by computer — at a lower price.
Indian artists had two advantages, explained Ashish Kulkarni, C.O.O. of JadooWorks. "They spoke English, so they could take instruction from the American directors easily, and they were comfortable doing coloring digitally." India has an abundance of traditional artists, who were able to make the transition easily to computerized digital painting. Most of these artists are the children of Hindu temple sculptors and painters.
Explained Mr. Kulkarni: "We train them to transform their traditional skills to animation in a digital format." But to keep up their traditional Indian painting skills, JadooWorks has a room set aside — because the two skills reinforce each other. In short, thanks to globalization, a whole new generation of Indian traditional artists can keep up their craft rather than drive taxis to earn a living.
But here's where the story really gets interesting. JadooWorks has decided to produce its own animated epic about the childhood of Krishna. To write the script, though, it wanted the best storyteller it could find and outsourced the project to an Emmy Award-winning U.S. animation writer, Jeffrey Scott — for an Indian epic!
"We are also doing all the voices with American actors in Los Angeles," says Mr. Kulkarni. And the music is being written in London. JadooWorks also creates computer games for the global market but outsources all the design concepts to U.S. and British game designers. All the computers and animation software at JadooWorks have also been imported from America (H.P. and I.B.M.) or Canada, and half the staff walk around in American-branded clothing.
"It's unfair that you want all your products marketed globally," argues Mr. Kulkarni, "but you don't want any jobs to go."
He's right. Which is why we must design the right public policies to keep America competitive in an increasingly networked world, where every company — Indian or American — will seek to assemble the best skills from around the globe. And we must cushion those Americans hurt by the outsourcing of their jobs. But let's not be stupid and just start throwing up protectionist walls, in reaction to what seems to be happening on the surface. Because beneath the surface, what's going around is also coming around. Even an Indian cartoon company isn't just taking American jobs, it's also making them.
Renee
http://techcentralstation.com/022604E.html
Will we all become massage therapists? That was the question asked by some in response to a column I wrote a while back, entitled Kent Brockman on Unemployment, that looked at automation, offshore outsourcing, and other trends in the American employment market.
And, according to this essay by Virginia Postrel in The New York Times Magazine, the answer seems to be that people already are. Virginia's essay looks at the problem as, in part, one of lagging perceptions:
Many of the jobs that disappeared in the recent recession have indeed vanished forever, according to a recent study by the Federal Reserve Bank of New York. Those workers will not be recalled as the economy improves. New jobs will have to be genuinely new, created in new or expanding enterprises. But where will they come from? In a quickly evolving economy, in which increased productivity constantly makes some jobs redundant, we notice the job losses. It is much harder to spot where new jobs are emerging. Our mental categories tend to be behind the times. When we think of jobs, we see factories, secretarial pools, police officers, lawyers. We forget all about jobs we see every day.
Among those new jobs that aren't counted are, yes, a dramatically increasing number of massage therapists, who show up in industry figures but not in the records of the Bureau of Labor Statistics.
Virginia is undoubtedly correct that there are a lot more massage therapists than there used to be. I started getting professional massage nearly 20 years ago, when I was just out of law school, in response to computer-related neck and back problems. (I was on the leading edge of those, thank you very much.) Massage therapy was not unknown, but it was hard to find and was still confused in many people's minds with prostitution-oriented "massage parlors" of a wholly different nature.
Now massage therapists are everywhere, and they seem fully employed. (Just try to book an appointment at the last minute.) What's more, these are -- in the Michael Dukakis phrase that Democrats seem to be exhuming -- "good jobs at good wages." Massage therapists working in spas make upwards of thirty-five dollars an hour (often considerably upwards of that) and work in safe, pleasant conditions. Just compare a spa to the workplace of a steelworker or coal miner, where the conditions are much less salubrious and the wages generally somewhat lower, though these jobs are the traditional exemplars of high-paying employment available to people without advanced educational credentials. Shiatsu beats steelmaking any day.
But so what? Isn't our national virility at risk, if we shift from being a nation of miners and steelworkers to becoming a nation of massage therapists?
Maybe so. And for those who want to bolster our national virility I have no suggestions as to what might constitute the workplace equivalent of Viagra. I'll grant that a steel mill is a more manly place to work than a day spa, and that steelworkers are generally more manly than massage therapists. But on the national level, there's still plenty of steel. It's just being made with fewer workers.
The other argument, of course, is that massage therapy (and related services) is somehow superficial -- that it's not real work. That's a traditional view of service industries, going back to Adam Smith. Manufacturing produces something tangible. The results of services work are much less obvious.
Virginia, in fact, seems to accept this critique:
By missing so many new sources of productivity, the undercounts distort our already distorted view of economic value -- the view that treats traditional manufacturing and management jobs as more legitimate, even more real, than craft professions or personal-service businesses. But the truth is, value can come as much from intangible pleasures as it can from tangible goods.
That's true, of course. But services can produce more than just "intangible pleasures." In fact, even massage therapy can, and I'm an example.
When I was practicing law in Washington back in the 1980s, I developed all the usual computer problems: Numbness and shooting pains in my wrists and hands, backache, neckache, headache, etc. My health plan then was the George Washington University HMO. That meant I got great care at a fancy teaching hospital, which did me no good at all. I was examined by neurologists, immunologists, occupational medicine specialists, and orthopedists. I had nerve conduction studies and electromyelograms. I was given powerful NSAIDs that upset my stomach but provided little relief. I was tested for lupus, myasthenia gravis, and Lou Gehrig's disease.
Then I went to a massage therapist, who dug her thumb into my back just inside a shoulderblade and asked "does this trigger your symptoms?" It did. She prescribed some stretches and exercises, and I got much better.
A pill that gave me an equivalent amount of relief would be considered a "product," and the worker who made it a "manufacturing job." But the pill would have side effects, and it would come out of a factory that consumed resources and energy, and produced pollution and waste, in a way that a massage therapist doesn't.
So the massage therapist is, in a sense, a replacement for that manufacturing job. What's more, the reason that there are more massage therapists, in part, is that more people can afford them. And the reason that more people can afford them is that increasing productivity makes manufactured stuff -- computers, clothing, food, etc. -- cheaper. So when companies shift to automation or outsourcing to lower their costs, it in fact does help to produce new jobs at home.
To pick another example, the manufacture of cheap plastic dolls -- whether Barbies, Bratz, or, God forbid, Liam Flavas -- counts as, well, manufacturing. And my daughter used to spend most of her allowance money on that sort of thing. But more recently she's been spending her money at Club Libby Lu, where she gets "starlet makeovers" and the like. These cost about as much as a doll but, to my delight, don't add to the clutter of trash at my house that has grown to proportions sufficient to inspire a column of its own. Isn't the American economy actually better off when cheap plastic dolls made in China are replaced by services performed at home? Heck, I think it's better off than it would be if my daughter's money were going toward cheap plastic dolls made in America -- there's no environmental damage (er, except for the dreaded glitter-powder, which is impossible to eradicate) and no addition to my trashpile. And makeovers are harder to move offshore. . . .
I'm hardly one to pooh-pooh the issues of outsourcing, unemployment, and economic transformation -- I've been writing about it for a while, and Virginia herself has actually accused me of fanning the flames of protectionism in some of my columns on this topic here -- but there's a case to be made for the economic transition to services (which in reality, of course, goes way beyond the massage therapy and makeover angles) that isn't being made. I'm glad to see that people are at least looking at it, though, and I hope that experts like Virginia will pay more attention to this subject in the future. Because if America's response to the very real strains introduced by economic change isn't to be a protectionist one, we need a lot of smart people looking at, and writing about, these issues.
Renee
<
<
<
<>
http://edition.cnn.com/TRANSCRIPTS/0402/26/ldt.00.html
Democrats, in their attempts to scare the American people about outsourcing jobs, have never pointed out "that the U.S. economy has always experienced BOTH job outsourcing and job 'insourcing'.
***..."between 1983 and 2003 outsourced jobs have increased to 10 million from 6 1/2 million (U.S. Bureau of Labor Statistics) Jobs insourcing...as a result of strong foreign-direct investment in the U.S., has grown to 6 1/2 million from 2 1/2 million in the same time period."
***..."another essential point undisclosed by the Democrats: During this entire twenty-year period, 38 million NEW jobs were created at home. That achievement is unmatched anywhere in the industrialized world. Hence, despite the pandering rants of the Democratic presidential candidates, there is no evidence that the free-flow of capital, labor, goods, or services has in any way impeded domestic job creation."
*** Democrats want to heavily tax the "rich" (over $200,000)..."if these policies came to pass, they would rob the economy of the vital incentives necessary to expand the supply of capital that is crucial to inventing new products, forming new businesses, and creating new jobs."
*** In the last 10 years,..." including NAFTA, the emergence of China, and the high-tech revolution- 18 million new jobs were created, even with the 2000-02 economic downturn."
Hardly facts to sneeze at. The Democrats are playing games with the people who have lost jobs because of the recession and trying to blame Bush for their loses. Conveniently leaving out facts that oppose your message... A sin of ommission!
~W IN04~
Free trade is not a dichotomy: totally free or protectionist. Here's a most reasonable look at globalization.
The Trade Tightrope
By PAUL KRUGMAN
ou can't blame the Democrats for making the most of the Bush administration's message malfunction on trade and jobs. When the president's top economist suggests, even hypothetically, considering hamburger-flipping a form of manufacturing, it's a golden opportunity to accuse the White House of being out of touch with the concerns of working Americans. ("Will special sauce now be counted as a durable good?" Representative John Dingell asks.) And the accusation sticks, because it's true.
But the Democratic presidential candidates have to walk a tightrope. To exploit the administration's vulnerability, they must offer relief to threatened workers. But they also have to avoid falling into destructive protectionism.
Let me spare you the usual economist's sermon on the virtues of free trade, except to say this: although old fallacies about international trade have been making a comeback lately (yes, Senator Charles Schumer, that means you), it is as true as ever that the U.S. economy would be poorer and less productive if we turned our back on world markets. Furthermore, if the United States were to turn protectionist, other countries would follow. The result would be a less hopeful, more dangerous world.
Yet it's bad economics to pretend that free trade is good for everyone, all the time. "Trade often produces losers as well as winners," declares the best-selling textbook in international economics (by Maurice Obstfeld and yours truly). The accelerated pace of globalization means more losers as well as more winners; workers' fears that they will lose their jobs to Chinese factories and Indian call centers aren't irrational.
Addressing those fears isn't protectionist. On the contrary, it's an essential part of any realistic political strategy in support of world trade. That's why the Nelson Report, a strongly free-trade newsletter on international affairs, recently had kind words for John Kerry. It suggested that he is basically a free trader who understands that "without some kind of political safety valve, Congress may yet be stampeded into protectionism, which benefits no one."
Mr. Kerry's Wednesday speech on trade seemed consistent with that interpretation. He decried the loss of jobs to imports, but was careful not to promise too much. You might say that he proposed speed bumps, rather than outright barriers to outsourcing: rules requiring notice to employees and government agencies before jobs are shifted overseas, steps to close tax loopholes that encourage offshore operations, more aggressive enforcement of existing trade agreements, and a review of those agreements with an eye toward seeking tougher labor and environmental standards.
I don't see anything there that threatens to unravel the world trading system. If anything, the question is whether it provides enough of a "political safety valve."
The answer, I think, is yes — but only if those modest measures on the trade front are combined with much bigger changes in domestic policy.
First and foremost, we need more jobs. U.S. employment is at least four million short of where it should be. Imports and outsourcing didn't cause that shortfall, but if the job gap doesn't start closing soon, protectionist pressures will become irresistible.
Beyond that, we need to do much more to help workers who lose their jobs. It didn't help the cause of free trade when Republican leaders in Congress recently allowed extended unemployment benefits to expire, even though employment is lower and long-term unemployment higher than when those benefits were introduced.
And in the longer run, we need universal health insurance. Social justice aside, it would be a lot easier to make the case for free trade and free markets in general if, like every other major advanced country, we had a system in which workers kept their health coverage even when they happened to lose their jobs.
The point is that free trade is politically viable only if it's backed by effective job creation measures and a strong domestic social safety net. And that suggests that free traders should be more worried by the prospect that the policies of the current administration will continue than by the possibility of a Democratic replacement.
Put it this way: there's a reason why the two U.S. presidents who did the most to promote growth in world trade were Franklin Roosevelt and Harry Truman, while the two most protectionist presidents of the last 70 years have been Ronald Reagan and, yes, George W. Bush.
http://www.nytimes.com/2004/02/27/opinion/27KRUG.html?hp
Please tell me what you think my message is?
<>
What do you think this means?
<>
I disagree with this. We have lost over 3 million jobs since Bush has been in office. I agree that EVENTUALLY we will get more jobs from globalization, IMHO we can't just tell those who have lost jobs, and those who will lose jobs because of this, that at some undetermined date economic theory will prove correct. As I noted in one post, new methods (jobs) made previous methods (jobs) obsolete; this is not the case today. Cheaper labor elsewhere has made the jobs obsolete.
<>
This economic theory, sometimes called voodoo economics has never been prooved. When the rich get more money from tax reductions; they may reinvest but this does not directly benefit the US public. In a global economy all you can say is they invest to create more money. No longer are these funds invested in the domestic market that creates jobs in the US.
<<18 million new jobs were created>>
Where? How many of these "high tech" jobs have since gone overseas?
You can't expect the conservatives to have compassion for the jobless, who they encourage to move to big cities. I can only surmise that they don't live in big cities. And they think it is good that the wealthy become more wealthy. You can never be too wealthy! This a philosophy is close to social Darwinism, except it is survival of the powerful.
Pages