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Outsourcing
has become the topic “du jour” from
Washington, D.C., to Martinsville, Va.
Media reports suggest that U.S. corporations
are jettisoning domestic employees and hiring
foreign employees to reduce costs and increase
profits. It
would seem that mammon has won again at the expense
of the little guy. In
response, Congress has restricted the award of
federal contracts to firms that outsource work to
foreign countries--a bipartisan effort!
State legislators in Kansas and Missouri are
rushing to emulate their colleagues in Congress.
What’s going on?
In
the past, the debate over job losses due to trade
focused on manufacturing jobs.
This issue still comes up even though
scientific evidence (as opposed to anecdotal
evidence) suggests that most manufacturing job
losses have come about as a result of changes in
technology. Jobs
have moved overseas because U.S. workers in those
jobs are less productive than their foreign
counterparts relative to the wages they desire.
In other words, if corporations were not
allowed to send those jobs overseas they would
simply use relatively cheap capital rather than hire
expensive American workers.
At any rate, many Americans in the ’80s and
’90s had gotten used to the reality that there
were fewer manufacturing jobs available and that
they needed to upgrade their skill sets and enter
the high-tech arena to be guaranteed jobs in the
future.
However,
the current debate over outsourcing focuses on
so-called “hi-tech” jobs.
Apparently, hordes of U.S. techies have lost
their jobs to their foreign counterparts.
Should their jobs be protected?
We
must realize that what is high tech today is not
high tech tomorrow. People
trained as high tech workers in the ’80s will find
little use for their skills in the 21st
century for two reasons.
First, the technology on which they were
trained has been overtaken by more sophisticated
technologies. Second,
their technological skills have become standardized,
effectively becoming low skilled, and therefore
easily replicable. Enter
India with its armies of educated, English-speaking
workers who can produce the same results for less.
If
this were the endgame then indeed we would have
cause to be worried. But
it is not. Innovation
has proceeded apace in America.
Other fields have developed that supply
today’s high tech jobs.
This is the “creative destruction”
process of capitalism.
The trick for the American worker is to know
how this process works and then to take advantage of
the endless opportunities inherent in the process.
Protecting
current jobs will only stultify the innovation
process by taking away the incentive to innovate.
Why would anyone want to innovate if they do
not have the ability to move resources from old
technologies to newer more profitable technologies?
Protectionism leads to economic stagnation.
Proponents
of protectionism seem to think of the economy as a
zero sum game. If
“they” are gaining jobs, then “we” must be
losing them. That
is not how trade works.
U.S.
corporations become more profitable by outsourcing--otherwise
they would not be doing it!.
As the U.S. economy expands, it provides more
opportunities for Americans.
Indeed, we are seeing the U.S. economy expand
in an unprecedented way.
However, the job numbers are unclear. As of
2004, employer surveys showed 2.4 million job
losses. But
household polls indicated a gain of 208,000 jobs.
This makes sense in a scenario where large
firms increasingly outsource jobs to smaller American
businesses.
On
the other hand, “they” gain as well by getting
access to better paying jobs.
These job gains increase the wealth of
foreign countries allowing them to consume more
goods and services--both domestic and American.
Thus, over time everyone has access to better
paying jobs in larger economies.
There
is no denying the short-term dislocations.
But let’s get the issues straight.
Outsourcing results in fewer jobs of a
particular type in the U.S. because Americans
are unwilling to do the work at a wage that
foreigners are willing to accept.
But protecting American jobs at a
non-competitive wage rate only directs resources and
jobs away from the competitive sectors leading to a
stagnating economy where everyone is poorer.
If the state machinery is to be invoked at
all, it must be to protect Americans--not job
descriptions! Protecting
some jobs at the expense of Americans and their
future is just wrong.
Congress
and state legislatures are intervening against
outsourcing by not awarding government contracts to
firms that outsource.
In other words, they are voting in favor of
more expensive government--a cost that ultimately
must be paid by the taxpayer.
Moreover, particularly for states,
expenditures on things such as roads, security, and
education must be reduced to pay for more expensive
contracts with firms that do not outsource.
We
need to remember that trade enhances our prosperity
as Americans. A
politician’s desire to gain a few votes by sowing
fear and discord is a dangerous game.
It may boomerang in the short run if other
nations decide to stop outsourcing their jobs to our
shores! In the
long run it will reduce economic growth and it will
make all of us poorer.
Protecting job descriptions makes us, and our
children, less prosperous.
--
May 23, 2005
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