Outsourcing is GOOD for America - WSJ
 

One of the hot topics in the upcoming elections in US is for sure "outsourcing".
Democrat or Republican, you'll hear a lot about it and many laws are being created in order to avoid corporations to do so and to "protect" US jobs.

Many are afraid of it because they think outsourcing is taking US jobs away. The article below will show you why outsourcing is good for America and why it's good for emerging countries as well, such India and Brazil.

I have more if you want.

Here's the link: http://www.aei.org/news19815

I know you don't like long stuff, but I'll post it anyway. I hope you read it.

"Outsourcing" Is Good for America
By Douglas A. Irwin
Posted: Thursday, January 29, 2004

ARTICLES
Wall Street Journal
Publication Date: January 28, 2004

"The United States will be a Third World country in 20 years." So intoned Paul Craig Roberts, a former Reagan administration Treasury official and supply-side economist, at a Brookings Institution briefing earlier this month. Mr. Roberts makes this prediction because of white-collar job losses due to the outsourcing of service sector employment to India and China. As a result, whole classes of high-wage service sector employees--from software programmers to radiologists--now find themselves in competition with highly skilled workers abroad who earn a fraction of their U.S. counterparts.

Mr. Roberts also teamed up with Sen. Charles Schumer, a Democrat, to suggest in the New York Times that "the case for free trade is undermined by changes in the global economy." The fears they expressed about the service sector were eerily reminiscent of the early '90s, when Ross Perot insisted that Nafta would hollow out America and produce a "great sucking sound" of jobs being siphoned off to low-wage Mexico. The conservative Mr. Roberts and the liberal Sen. Schumer are the most politically incongruous team of trade analysts since Patrick Buchanan and Ralph Nader opposed Nafta a decade ago. Fortunately, just like their predecessors, their analysis is wrong.

The unlikely bedfellows are right in that the world is changing. The service sector, which traditionally has been insulated from international competition, is now ripe for outsourcing on a global scale. According to McKinsey, about 90 percent of the value of services output is now produced within the providing firm, but they expect this share to drop to 60 percent in 10 years. High-tech firms such as IBM are now outsourcing software programming to India, and medical centers are relying on Indian doctors to process data, to say nothing of the loss of America's call centers.

What will the service sector look like as a result of these developments? Some clues come from manufacturing, which already has been vastly reshaped. Outsourcing has transformed manufacturing from vertically integrated production structures to highly fragmented ones. Fifty years ago, Detroit's River Rouge plant sucked in iron and coal at one end and spat out an automobile at the other. Now, auto firms source component parts from a vast array of domestic and foreign suppliers.

Has U.S. manufacturing been vaporized in the process? No--manufacturing production has risen about 40 percent over the past decade. Despite lower wages abroad, foreign firms have chosen to produce cars made by high-wage workers here, including Honda in Ohio, Mercedes-Benz in Alabama, BMW in South Carolina and Toyota in California. Of course, the share of the American workforce in manufacturing has fallen steadily over the postwar period due to vast increases in productivity, but this is a world-wide phenomenon. Between 1995 and 2002, China, Japan, Brazil and other countries lost more manufacturing jobs than did the U.S., according to an Alliance Capital Management study.

The service sector will be reshaped by international developments, too. But just as low-wage China has not taken all of our manufacturing capability, low-wage India is not going to take all of our service sector production. Service producers will become even more specialized and will have to seek new ways of improving their efficiency and productivity. (Productivity in the service sector has notoriously lagged behind that in manufacturing.) As long as the American workforce retains its high level of skills, and remains flexible as firms position themselves to improve their productivity, the high-value portion of the service sector will not evaporate.

Besides, while Messrs. Roberts and Schumer and others focus on the issue of displaced workers, they have completely ignored the efficiency benefits of service sector outsourcing.

--> First, consumers will be provided with the services they demand, at lower prices. As many businesses themselves purchase services, their lower costs will result in savings that can be passed on to consumers. If a capable radiologist in India can read x-ray pictures at a quarter of the cost of doing so domestically, important health-care services can be delivered at lower cost to everyone, putting a brake on exploding medical costs.

--> Second, U.S. exporters of goods and services will benefit from the extra income generated abroad. The outsourcing of services to India counts in the U.S. balance of payments as an import of services. If we are going to start importing large amounts of such services, these imports must be paid for by exports of something. The dollars being spent by firms to purchase these services will come back to the U.S. either in the form of demand for U.S. goods (our exports to India) or foreign investment in the U.S. As McKinsey has noted, "[service] providers in low-wage countries require U.S. computers, telecommunications equipment, other hardware and software. In addition, they also procure legal, financial, and marketing services from the U.S."
Indeed, the U.S. is a major exporter of services, accounting for nearly a fifth of the world's trade in services. Services amount to nearly 30 percent of the value of all U.S. exports. Last year, when the U.S. had about a $550 billion deficit in goods trade, we racked up nearly a $60 billion surplus in trade in services.

Of course, importing services can create difficulties for some firms and their workers who are undergoing the process of adjusting to a new way of doing business. Specialization becomes much more refined across different economic activities, and can change quickly with shifts in technology. Messrs. Roberts and Schumer claim that comparative advantage and the old rules of trade no longer apply in today's world of mobile factors of production. But it is technology--not the movement of labor--that is creating new opportunities for trade in services, and this does not undermine the case for free trade and open markets.

To their credit, Messrs. Roberts and Schumer do not advocate what they call "old fashioned protectionism." Indeed, it appears that policymakers have few direct options to halt this process of technological change. Unfortunately, however, several state governments are considering laws that limit contracting with businesses that outsource from developing countries. Labor unions, such as the Communications Workers of America, have been lobbying Congress to follow suit.

Yet penalizing firms that import foreign-produced services is not an attractive option. If such imports help high technology and other service firms become more efficient, then forbidding U.S. companies from doing that when their foreign rivals are free to do it will only handicap U.S. firms. As American firms themselves are facing difficult competitive challenges from foreign producers, this would be like forcing them to fight with one hand tied behind their back.

Rather than penalizing firms, outsourcing reinforces the importance of public policies that allow workers to manage their best in a period of rapid economic change. This includes such things as ensuring the portability of health and pension benefits in order to reduce the adverse impact of changing jobs, which must inevitably happen in an ever-changing economy.

When a hand-wringing friend worried that some misfortunes would ruin the country, Adam Smith famously replied, "There is a great deal of ruin in a nation." The U.S. economy will face many challenges in coming decades, but as long as we do not stifle our dynamic economy that is the envy of the world, we need not fear that--as Mr. Roberts predicts--the U.S. will become a Third World nation by 2023.

Douglas A. Irwin is an adjunct fellow at AEI and a professor of economics at Dartmouth.

I don't buy it. Outsourcing jobs takes away jobs from our economy. Do you know how many jobs this country would have if Dell wouldn't use India tech-firms to handle techsupport? And that's just one example. I know you support the outsourcing most likely since you are in Brazil yourself, but try moving to the US and finding a tech job. They are few and far between nowadays.

I personally would rather pay a higher cost and have a job then pay a lower cost and not have a job.

On another front, it's doubtful that the U.S. consumer or worker would ever benefit from the supposed reduced costs and prices. That sure as heck won't be the case in the medical field. All that money will go back into the pockets of the greedy corporate leaders.

I know it sounds scary at first for you. But if you think, the jobs being outsourced are the ones that are operational. The creative jobs won't be outsourced.

It's like when you're sleeping, accounters in India are making all sums and math equations so when you wake up, you can get it done and analyse the results and take the decisions.

Like when big corporations began building plants in Asia (don't tell me you don't know your Nike shoes came from China/Korea/etc) to make savings, I bet people had the same concerns as yours, today. Steve, do you buy the more expensive shoe just because it's American made? I don't think so. Same thing will happen with offshoring.

Although it seems a bit unclear now, American Economy will reinvent itself as it always did. The world's engine will keep pushing the rest. And the market will get better, sooner or later.

I don't know if Steve does, but Marcos, there are many in America who will buy only products made by American workers. It works that way with cars, for example. People in my own family have bashed me for buying a Honda because they say I should be supporting American workers. When I went to Oklahoma last summer for a camping trip, I saw very few foreign cars. Heh, I felt like an outcast zipping around in my little Honda. I have tried American small cars and foreign small cars and I prefer foreign ones because overall, they run better and don't cost me as much in repairs. I have had three or four small American cars, and they all sucked. As far as trucks, though, I would definitely buy American because they are the superior product as far as trucks go. Again, I've had both foreign and domestic :D.

I'm not talking about the past Marcos. I'm talking about now because I am directly affected by this. I'm in the tech industry and with companies outsourcing the jobs it's hard for me to find a job. Years ago when I started college the tech job pages of the employment section of my local newspaper was several pages. Now there's barely enough jobs listed to fill two columns (usually 8 columns per page or so I think).

And actually Marcos, my first car purchase (my only one so far) was American. Jeep all the way :D

Like I said before, I'd rather have a job and pay higher prices than have no job and pay lower prices.

while I'll prefer to purchase American-made cars (for the muscle), I have to say I don't mind paying "only" $20 for a shirt from Old Navy made in some other country, because it sure as hell beats paying so much more for labor.

A car is different! lol! you buy it according to your taste! If I could pick a car today I'd get a Hummer! :D hehehe

And years ago the market was better due dotcom bubble, so it's natural it had more job offerings. It seems it's warming up again, specially on the public sector (linux x microsoft) so you'll see more open spots soon.

Honestly, I know stuff that will happen soon and I tell you that you shouldn't worry. Although most people's dream is to work for big corps. (I'm one of them), your area (tech stuff) is really promissing in not as big companies that are business partners of major companies. See Rational and Trigo Technologies, for example. ;)

Besides, there are always room for innovation and competent people. I'm sure you're among them.

AMEN my brotha'!!! :D

Yes, but tech companies also were not outsourcing jobs either. After the dotcom failure happened, tech firms began to outsource jobs because it was cheaper for them. Like I said in my first post, take Dell for an example. How many people do you think they have working tech support in India? All those jobs could be in the USA if they didn't outsource. That's just one single company.

I know this since I am a partner with two others in my small business. I don't want to change the topic but really quickly: thank goodness for President Bush too or else my company would be paying twice the amount of taxes and I might not have a job. :)

Yeah, those jobs in India could be in Brazil as well... maybe both our countries need more flexible laws that allow employee-employer to negotiate their positions. and I agree with the tax cuts for SMB (Small/Medium Business). SMB market needs to be stimulated and grow. The thing that shouldn't happen is ordinary people pay for this gap created by tax cuts.

And that's why you shouldn't buy from Dell! If you bought an IBM puter, you'd get the exclusive ThinkVantage technology that allows your puter to fix itself and automatically back up lost files! ;D hehehehe

Dell still makes their computers in the US I belive? When I was a senior in college the CIO came to speak during our job fair week. I don't remember all that he said but I think they said they had plans to start producing puters outside of the US. Don't quote me on that though.

BTW, I actually might get an IBM computer next time I'm in the market for one.

I got a $30 an hour tech job straight out of high school andlost it due to outsourcing. So excuse me if i put myself before someone else.

Dell and Compaq/HP still make PC here in the US. Both are Texas based (well Compaq is) and thats a good thing in corporate way because they dont pay taxes. All they pay is federal taxes, not state taxes.

Marcos, don't cheer until your entire family is bankrupt because of unemployment due to outsourcing.

IBM, Dell, HP and also make puters here in Brazil. Actually, IBM and HP puters are made in the same factory, side by side, by a third company, called Solectron. But they don't produce to export back to US, they produce to the local market.

Steve, you do that! :)