Monday, February 2, 2004
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Differentiating between outsourcing and offshoring
He also criticizes those on the right who complain about "offshoring" which is outsourcing done overseas:
Simmins is conflating libertarians and conservatives on this issue. The former are free market advocates and the latter are economic nationalists. Economic nationalists value social stability and relative gains more than maximizing either static or dynamic economic efficiency. With this set of preferences, it's not surprising to see this group of pundits ract bash offshoring.posted by Dan on 02.02.04 at 10:58 AM
Well, the 'American's "deserve" high-paying jobs' meme is Kerry @ Co's 'meme'. Maybe he can enforce it in the world court...
If, that is, he is the candidate. Oldman - did you see your boy on MTP Sunday morn? Very impressive.posted by: Tommy G on 02.02.04 at 10:58 AM [permalink]
Let's also not forget the differences between outsourcing and hiring. Employers have a lot of uncontroversial reasons for hiring outside contracters: reducing management overhead, eliminating the need to develop specific skills in-house, finite project time-frames. But there are just as many dubious reasons: artificially lowering payroll tax expenses, avoiding paying standard benefits, maintaining headcount flexibility.
There are a lot of advantages to working as an independent contractor. For the average freelancer or outsourced worker, most of them disappear when the employer is one of the big boys. In many cases, the "independent" contractor finds him-or-herself working alongside staff employees for years. Same workload, same hours, same commute. Without health care, with self-employment taxes, without job security. In short: a pretty raw deal, and possibly illegal (see Vizcaino v. Microsoft).
Offshoring may or may not be economically sound (enlightened self-interest, anyone). It's doubtlessly more damaging to the job market than common outsourcing. That's not to say, however, that the latter is always perfectly innocent. Too often, it's a way for large corporations to undermine legal obligations and their own stated employment policy committments.posted by: pickabone on 02.02.04 at 10:58 AM [permalink]
I have more about this on my site this morning as well.posted by: John Bruce on 02.02.04 at 10:58 AM [permalink]
“The discussion is about outsourcing jobs overseas. I see many conservatives and libertarians abandoning their principles here to oppose the transfer of any jobs overseas.”
Many people who earned a college degree wrongly assumed that their jobs would never be jeopardized. This was only suppose to happen to the unwashed masses who barely finished high school. Sadly, somebody forgot to tell them that the world doesn’t owe anyone a thing. They also must compete in the workplace. This is the only way to guarantee a vitally growing economy. The job protectionists, regardless of their political affiliation, must be opposed.posted by: David Thomson on 02.02.04 at 10:58 AM [permalink]
Simmins is conflating libertarians and conservatives on this issue. The former are free market advocates and the latter are economic nationalists. Economic nationalists value social stability and relative gains more than maximizing either static or dynamic economic efficiency.
To be fair here, most of us conservatives are resolute free traders; the people who bash outsourcing are mostly Buchananite quacks and unrepresentative of most of the Right.posted by: Crank on 02.02.04 at 10:58 AM [permalink]
Is a perfectly qualified American doing the job? Did the job go to someone overseas; whether on a temporary or permanent basis?
You can stop chasing your tail on "outsourcing" or "offshoring." An American is out of a perfectly good job. Where are the other countries calling on our labor force?
Will a wages race to the bottom benefit this economy, mid- to long-term? Or is it more likely to cause massive and destructive upheavals in the $40k-$200k/year income brackets?
I'm in favor of free trade, but this version that we have now needs to take the worker into account. And the family of the worker.
Is a Republican nothing more than a Democrat before he loses his job? Is a Libertarian a Democrat after he can't find work to sustain his current way of living?posted by: Sebastian on 02.02.04 at 10:58 AM [permalink]
Thanks for the link, Dan. I agree with Crank about conservatives. There is a variety of conservative, however, that supports interference by the government as long as it's in favor of the United States. Nationalists or nativists. Or, as a sci-fi writer once said: Rotarian socialists, supporting free enterprise by government subsidy.
Outsourcing reveals the actual value that an employer places on a given job. If the value of that job is less than the rate that they are forced to pay in the United States by government edict, there are two choices, fold or go overseas. If that valuation is in error, the market will reveal the mistake.
"Wages racing to the bottom" Why isn't the question: "Why are wages so high?" Garbage men in San Francisco make $70,000 a year. Huh? Look at job after job that requires labor but little knowledge and you will see pricing disparities. Following the prompts on a screen at a help desk is such a job. Making dunning calls for a finance company. Doing basic programming, even. If eleven year olds can do it, it's not worth $80 an hour.posted by: Chuck on 02.02.04 at 10:58 AM [permalink]
"Too often, it's a way for large corporations to undermine legal obligations and their own stated employment policy committments."
And what justification is there for "legal obligations" to give health insurance from the company store in lieu of cash, to pay someone's social security taxes in lieu of cash, or to grant "job security"?
"Same workload, same hours, same commute. Without health care, with self-employment taxes, without job security. In short: a pretty raw deal, and possibly illegal (see Vizcaino v. Microsoft)."
Whether it's a raw deal or not depends on how much cash that contractor is getting. Getting cash instead of benefits is not necessarily a raw deal, and certainly doesn't appear to be from the point of view of the contractor, who keeps showing up year after year. If it's illegal, that's a problem with the law, not with contracting.
"Will a wages race to the bottom benefit this economy, mid- to long-term? "
It will unless the regulators close off every available avenue for technological advancement. Otherwise, we've got thousands of years worth of advancement to keep us busy.
"Or is it more likely to cause massive and destructive upheavals in the $40k-$200k/year income brackets?"
It will if we keep on using primitive, labor intensive methods to build houses, and regulations designed to strictly limited their supply.posted by: Ken on 02.02.04 at 10:58 AM [permalink]
What if you're that garbageman? Should you take a paycut to pick up people's crap? Would you want to give that money up?
Generally are you willing to voluntarily take a pay cut "for the team?" What would your wife say? Your mortgage company?
Some of the work you talk about may not be the most intellectually engaging work, but someone has to do it. That's no reason for them not to hold out for the most they can be paid. True?
Bagboys in Chicago make less than bagboys in the 'burbs. Why? because teens (usually thought of as bagboys) don't want to do such "demeaning" work. So grocery stores offer more, and adults from Chicago come and do it. Does the store hold wages low and have no bagboys, or do they offer an attractive wage to attract and retain employees?
Why should wages be high? Don't you tell your kids, "study hard and make a lot of money?" Didn't your parents tell you that? If your kid didn't do so well in school, wouldn't you still tell him or her to take the best job you can (or can at the time), work hard and make as much as you can?
Or would you say, take the best job you can and don't worry about making as much as you can, because wages are too high anyway?
If wages drop (for example)17% across the $40k-$200k spectrum, what's going to happen to this economy? What will that do to consumer confidence? The housing market? Automobile sector? Corporate earnings?posted by: Sebastian on 02.02.04 at 10:58 AM [permalink]
Frankly in this economic climate, I'd hate to disagree with Dan, Glenn, and Chuck. At my blog site I discuss some of the interlinks between offshoring, outsourcing, and wage trends. While some firms have always learned to outsource functions, it's clear that downward wage pressure is being exerted by overseas competition from areas as diverse as accounting, programming, creative work, etc. as well as traditional manufacturing and high value added service jobs.
Trying to say that one isn't related to another of what is happening is sadly mistaken. It also flies in the face of macro-economic data.
No one owes anyone else a living, but if people who invest allot of time, money, and delay their careers in order to invest in higher education and professional careers don't see a return on their personal investment then they'll just stop trying and get into another line of work.
In addition, it's questionable whether the current trade regime is either fair or free trade. I promote an egalitarianism of opportunity not an equality of outcomes. In the philosophy of political economy however, it's safe to say that we should count on each country looking out to its best advantage. We have to look out for our best interests rather than expecting the system or markets to be "automatically" either fair or beneficial to us. The very definition of market competition is that there are winners and losers, and if we want to be among the winners can take nothing for granted.
Besides if a system that is not implemented that is percieved as fair and allows Americans to suceed, it simply will not be politically viable. To think otherwise is simply naive.posted by: Oldman on 02.02.04 at 10:58 AM [permalink]
Sebastian, you are ignoring that new, high pay jobs are created all the time. The notion that ALL jobs will suffer a wage decline is false. Jobs that are valued less than what they cost will be outsourced, either to firms like mine, or overseas. That will either make the employer more profitable or not, proving or disproving the value of outsourcing.
I won't begrudge anyone a wage that they make. I will point out that wages may not be tied to the actual value of the job performed. And that subjects them, at some point, to a market based adjustment. Even in San Francisco.
Every argument against outsourcing relies on the notion that the government should "do" something. And there are only a few options here, that involve more tax dollars or more regulation or both. How much am I willing to pay in taxes to ensure that the collection phone callers for GE Capital are Americans and not Indians?
Remember, in prices and in wages, it's the government that is the number one reason that they are higher not lower. Don't ask the government to add to that burden.posted by: Chuck on 02.02.04 at 10:58 AM [permalink]
Very valid point about the distinction. Regarding outsourcing (regardless of the location in which the work is done), there are issues beyond pure cost. Peter Drucker has argued that a job is better off being outsourced if it provides a better career path in the outsourced world than in the internal world. (For example, a software project manager in a pet food company stands little chance of ever becoming CEO--whereas in a software & services firm, he might. Thus, the job will likely attract better talent when outsourced).
On the other hand, for certain functions (specifically customer service) outsourcing may break important feedback chains in the enterprise.posted by: David Foster on 02.02.04 at 10:58 AM [permalink]
Unless you've stopped believing in the ability of market competition to lower costs I'm not sure how you can justify your statement. If they can do anything that we can do, they can bid on the same jobs, and they can do it (for whatever reason) cheaper I'm not sure how you can argue that there wouldn't be across the board downward wage pressure.posted by: Oldman on 02.02.04 at 10:58 AM [permalink]
I've got friends who live in the economy I read about in the newspaper (so to speak), and I've got friends in the hard-knock economy that gets offshored and outsourced. Over the past 5 years I've seen more friends from the "newspaper" economy have to make the similar decisions as my friends in the "hard-knock" economy.
High paying jobs are created all the time. However they largely replace ones that have been lost. There's not a backlog of open middle managment slots; but there is a backlog of people qualified to take them.
Outsourcing a job at least means another American can work, even if its usually at a lower rate. But offshoring it means the job is lost. If it comes back, perhaps it will pay the same rate, perhaps not.
Economists and free-marketers have nothing more on this that "too bad, it's the market." But I cannnot accept that as nothing more than an excuse. There are ways to make trade fair and free. There are ways to address problems of medium and long-term unemployment. There are ways to push more people into the "newspaper" economy I spoke of earlier. These solutions don't have to be all government, they can be market based, or cooperative.
But the free-marketers and economists are either too lazy or too busy congratulating themselves on how well things are working according to "the model" to think of how. Meanwhile people struggle more than they need to.
posted by: Sebastian on 02.02.04 at 10:58 AM [permalink]
“To be fair here, most of us conservatives are resolute free traders; the people who bash outsourcing are mostly Buchananite quacks and unrepresentative of most of the Right.”
Somebody must have forgotten to tell President George W. Bush that “most of us conservatives are resolute free traders.” It is outrageous that this Republican administration has often opted to go along with the job protectionists. President Bush is, at best, the lesser of evils. The Democrats are far worse on this issue.posted by: David Thomson on 02.02.04 at 10:58 AM [permalink]
"We have to look out for our best interests rather than expecting the system or markets to be "automatically" either fair or beneficial to us."
How do we do this? If we go to the government for the solution, we GIVE UP MORE OF OUR FREEDOM. TANSTAFUL.
The real question is: How can the individual protect him/her self from this loss? I see two things that need to be done by the individual.
1)upgrade your working skills (education). or learn new working skills.
2)Learn how to save money and make your savings make money. (education)
The biotech area seems to be the next new "working skills" area. For us. For our children Space may be the "working skills area. For both groups of people there is and will be a shortage of health care workers and work skills.
The answer is you have to learn how to help yourself. Asking the government to take care of you causes more problems than it's worth. The government never has had the goal to fix (long term) ANY PROBLEM! To really fix a problem would take away some of their power. Their real goal is to get more power.posted by: Jim Coomes on 02.02.04 at 10:58 AM [permalink]
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