The Outsourcing Backlash

Glenn Reynolds has an some interesting observations on a backlash against outsourcing as a cost-saving measure. I have always believed that the downsides of outsourcing far outweigh the savings in labor costs, and it appears that there’s no evidence to back up this claim.

Outsourcing makes the assumption that labor costs are the dominant factor in overall costs. However, with American workers, you get what you pay for. Cutting costs in labor doesn’t cut overall costs – you end up paying more for QA on the other end than you save.

The first priority for increasing employment is to get the economy growing, which is why protectionism is the wrong solution for saving American jobs. Economic growth is directly tied to openness of trade, and protectionism will only cost more American workers their jobs. Increasing employment can only be done in a strong economy, and the best way to strengthen the economy is to reduce barriers to investment, encourage economic activity, and create a positive economic climate.

15 thoughts on “The Outsourcing Backlash

  1. Don’t let the facts get in the way of your continued reverence for ruinous trade policy. Republicans, including yourself, get a perverse sense of accomplishment when working-class Democrats lose their jobs and their families suffer….so the response to free trade’s economic carnage thus far has been pure jubilation by conservatives eager to destroy the livelihoods of people who disagree with them. Only now, with the early stages of white-collar jobs being outsourced to the Third World, does it even become a topic worthy of their discussion.

    Suddenly, loyal Republican soccer moms and dads, who previously supported free trade because they thought it would only hurt “the working-class slob across the tracks who sits on his hands all day and deserves to get a pay cut anyway,” are finding out that they actually more in common with that guy across the tracks than they do with the GOP’s corporate constituency who they’ve pledged their unflinching allegiance to every other November. Then again, many of the Dems haven’t exactly been worker-friendly in the past few years as well, so some of the blood of the latest outsourcing epidemic is dripping from their hands as well.

    Honestly, the current outsourcing of white collar jobs is the best thing that’s ever happened since it has the potential of forcing corporate-pandering politicians to rethink the consequences of free trade before it’s too late. The days are getting numbered that people like you can spout the same erroneous drivel about global trade and have an even marginally receptive audience. Now that there’s a suburban face to trade-related job losses, politicians and free-market ideologues will have to respond to the devastation publicly, as opposed to their current mode of privately jumping up and down with joy at the news of blue-collar layoffs and working-class suffering.

  2. If free trade is so harmful, then there would be direct correlation between free trade policies and job loss. Except the exact opposite is true. There is a direct correlation between free trade policies and job growth.

    During the period after NAFTA (and those of us who were around then remember the populist outcry over that one!) the US had one of the lowest rates of unemployment ever. Economic growth was at such great levels that the Fed was worried about "irrational exuberance". Every single sector of the American economy grew.

    You continue to spout the same old tired rhetoric, without one single fact to support your case. I know thinking on your own may be too much for you, but you really should give it a try sometime.

    Protectionism hurts American workers by limiting opportunities for growth. It condemns the Third World to poverty and denies them entry in the world’s largest market. It’s bad policy, and no amount of regurgitation of intellectually shallow talking points and ridiculous ad hominem attacks will change that.

  3. Republicans, including yourself, get a perverse sense of accomplishment when working-class Democrats lose their jobs and their families suffer….i>

    LOL! Interesting “observation”. Do Republicans get a perverse sense of accomplishment when working-class Republicans lose their jobs? Or are these perverse feelings reserved for Democrats only?

  4. Jay, allow me yet another attempt to put this in terms even you might be able to understand. NAFTA and GATT’s passage occurred during a period of tremendous economic growth that diminished the need for employers to take advantage of the sugar-coated options that the trade agreements offered them. When companies are making money hand over fist because of an abnormally strong economy, they’re less likely to pursue cost-cutting options and/or see a need to reduce labor costs. But when the bubble burst, the hemorrhaging of American manufacturing jobs picked up where it left off during the previous recession, and the outsourcing of white-collar jobs to the third world also entered the equation.

    Like you, I also used to believe that we’d still see a net job gain as a result of free trade, even though we’d be losing vital manufacturing capacity and thus making other job gains largely irrelevant to the overall strength of our economy. Now that it’s become obvious that even technology jobs will be sacrificed to the Third World, I suspect the “giant sucking sound” Ross Perot talked about to be a distinct reality for the long-term American job market and fear that we’re in the process of producing alot more Flint, Michigans if we continue to tell the rising ranks of the unemployed to suck it up and trust market forces (oh, that’s right, conservatives don’t use slogans like that).

    In a previous explanation to you of this same principle, I cited a downward flight of stairs pattern. Job losses will be draconian in periods of recession, but will level off or slightly increase in affluent times, only to plunge again with the next recession. With as many tasty options as multi-national corporations have in the global economy, it will make less and less sense for them to conduct any more of their operations than they have to in a place where the cost of doing business is the highest. You guys had better come up with a better explanation than the standard line of anti-protectionism/marketplace infallibility for when you have to explain to your Republican neighbors in the suburbs why they should continue to blindly follow your ideology after they lose their jobs to cheap labor from India.

    Monkey, a clear majority of working-class Americans, particularly manufacturing workers, are Democrats, so their financial distress will never be perceived as remotely important to the current majority party. The small number of working-class Republicans will be dismissed as collateral damage, as the GOP realizes that any blue-collar worker foolish enough to vote for them after the relentless 20-plus years of financial genocide waged by Republicans against working people will be loyal GOP disciples no matter how much abuse is doled out on their behalf.

  5. Monkey, a clear majority of working-class Americans, particularly manufacturing workers, are Democrats…

    I am sure you’ll cite your source for us. What is it?

    relentless 20-plus years of financial genocide

    LOL! Good one. I like “financial lynching” better, though. How about financial holocaust?

  6. Your argument is the same that Perot made before the passage of NAFTA – that jobs would go to Mexico and the effect would be to "deindustrialized" the US.

    Except that didn’t happen. Between 1993 and 2001 US manufacturing output increased by one third according the the Federal Reserve Board.

    Even with the economic downturn of 2001 through the present both net job growth and economic outcome grew in the post-NAFTA period. Even then, manufacturing output increased between 2001 and 2002.

    Every economic indicator shows that there is a direct correlation between free trade and job growth. In fact, the US Commerce Department found that there is a correlation with .85 statistical significance between free trade policies and job growth. That’s about as sure a think as you’re likely to get.

    There is no "downward flight of stairs" model for manufacturing growth and free trade. The arguments against free trade are based on scaremongering that does not match the data, and instituting protectionism only hurts the US economy. If protectionism were the answer, then North Korea would be an economic powerhouse. Looking at the most successful countries in terms of per-capita GDP and overall standard of living further cements the concept that free trade is directly linked to economic health.

  7. Jay, using one of the best economies in American history as the basis for predicting long-term economic trends is an excellent way to be proven wrong. Just ask the Congressional Budget Office.

  8. You’re still getting caught by your own argument. You argue that free trade causes a loss of jobs. NAFTA dramatically lowered barriers to trade throughout North America, and the 1990’s were a period of massive lowering of barriers to trade.

    If trade was so destructive to American jobs, you would not have seen such massive growth in the US economy in that period. In order for your argument to be true, the US economy, especially manufacturing (which is most effected by trade policies) would have taken a massive hit.

    Yet that was not the case, the US economy grew generally and the manufacturing grew specifically in that period. You would not see that level of growth if trade was creating a "financial genocide". It is clear that your case does not match the facts.

  9. Jay, it appears that no matter how many times I repeat myself, you’re never gonna be able to comprehend what happened in the 1990’s, but I will make one final desperate attempt to educate the uneducatable. The economy was already on an upward swing in 1994 when NAFTA and GATT were passed. Most companies were making money and didn’t have a legitimate reason to relocate. In essence, the agreements were a pre-emptive tool for businesses to use the next time they needed to reduce labor costs.

    If you were a manufacturer with a plant in Dubuque paying $11 an hour to your American labor force in 1996, would you be inclined to take advantage of NAFTA and GATT or would you be content with your current successful path? Fast forward to 2001 when your operating in the red at your Dubuque plant and your competitors in the business have already moved to Mexico or China. Do you think you’d be more likely to take advantage of NAFTA and GATT then? It’s a classic downward flight of stairs pattern we’re setting ourselves up for no matter how many times you tell us the prospects for manufacturing employment
    in America have never been rosier.

    I can’t sufficiently opine on NAFTA and GATT’s role in assisting the steaming economic engine of the mid-to-late 90’s. Perhaps some of their provisions did enhance the U.S. economy, but whatever short-term benefits were felt now appear certain to be squelched by the long-term consequences in job defections.

  10. Monkey, whenever possible I buy American made products. It’s not so easy these days, however, particularly with apparel and footwear. With that said, I don’t necessarily have a grievance with imports, particularly if the imported product is coming from a homegrown foreign company like Sony or Volkswagen. My beef comes from the Nikes and the Calvin Kleins who discovered success by tapping into the American business climate and consumer culture, but then decide they want it both ways and continuing to pander to the American consumer culture while taking advantage of the business climate of a foreign economy. Such a scenario should be illegal.

  11. I think that the outsourcing problem could easily be fixed by putting a tax on outsourcing. Ideally the tax would cover the cost difference between employing someone in the US and someone from an outsourcing country. That way we wouldn’t close the door to poorer countries, but we would also protect our own people.

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