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Interview with Edmund Ross on Outsourcing
Joseph Perce writes:
Outsourcing is a recent phenomenon that is both controversial and, according to some, essential to allow businesses to flourish and compete in the global economy. Business owners argue that outsourcing is simply capitalism in action.
The average computer professional in the United States, having been displaced by workers from such countries as India who are able to work at a substantially lower rate, beg to differ.
Is outsourcing ultimately beneficial to the US economy? And at what cost?
E. Ross: I believe outsourcing and globalism in general are beneficial to the US economy but actually damaging to the citizens living within that economy. This may sound like a contradiction but I'll try to explain.
The global economy provides for greater profits and expansion rates for global companies. They get significantly lower labor costs which allows them to keep prices lower so in theory everyone should win. Costs are lower, sales are higher, profits go up, more taxes are received by the government…everyone should win, right? If you read reports from the Heritage Foundation (a conservative "think tank"), this is exactly the view they are promoting: "Outsourcing is about efficiency. As costs decline, every consumer benefits, including those who lose their jobs to outsourcing."
I actually find this viewpoint rather amateurish, especially coming from experienced economists. It is propaganda with not a lot of factual evidence behind it. It reminds me of the old saying from the 1950s: "What is good for GM is good for America." Their evidence is based on two statistical relationships: (1) Trade and GNP. It is historically true that as trade increases so does GNP. (2) Stock valuations for companies that expand internationally are higher than those who fail to take advantage of the international marketplace.
Unfortunately, the GNP and Dow Jones do not provide a complete picture of an economy. It is equivalent to measuring the size of a pie. The bigger the pie, the more it can feed? However; fewer people are taking bigger bites out of the pie so the great majority of the population is not seeing any benefit for economic expansion. Inequality in an economy increases as globalism increases if no other forces (government) step in to prevent it. This is exactly what we see in the United States. Since 1980 the GNP of the United States has gone up tremendously. On the other hand, real wages (wages and salaries adjusted for inflation) have remained stagnant and have even declined for those with less than a college education. An average citizen is no better off today than he was 25 years ago so who's benefiting from that huge increase of the pie?
What we see with globalization is a weakening labor structure at both source points. In the developed countries labor gets more competition. As I mentioned in an earlier article, just the threat of outsourcing is enough to slow down pay scale increases. Increased competition for jobs means companies can offer less compensation because they have a more desperate labor force. This is why real wages are stagnant even though the economy is growing.
One might then expect that workers in the emerging market countries would see a benefit. After all, the labor value that is leaving the developed countries is going there, right? Workers in these factories do see an increase in their prospects but that increase is capped by the global economy. As soon as workers in China start to cost too much, the factories are merely transferred to a country where wages are even lower. We're starting to see this happen now and it's a pattern we've seen over and over. There is never a shortage of poor, starving people willing to work for the scraps others wouldn't even bend over to pick up. I know this terminology is out of favor now but the facts rings true: capital is mobile. It can go where the profits are. This is rarely the case for labor.
As I mentioned in an earlier article; for the United States, globalism is producing a workforce of Wal*Mart employees, paid just enough so they can only afford to shop at Wal*Mart. But thank God corporate profits are going up.
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