Friedman On Outsourcing

Thomas Friedman has an excellent piece on the realities of outsourcing to India in The New York Times. He notes that outsourcing doesn’t lose American jobs in the aggregate – it helps American industry:

I’ve been in India for only a few days and I am already thinking about reincarnation. In my next life, I want to be a demagogue.

Yes, I want to be able to huff and puff about complex issues — like outsourcing of jobs to India — without any reference to reality. Unfortunately, in this life, I’m stuck in the body of a reporter/columnist. So when I came to the 24/7 Customer call center in Bangalore to observe hundreds of Indian young people doing service jobs via long distance — answering the phones for U.S. firms, providing technical support for U.S. computer giants or selling credit cards for global banks — I was prepared to denounce the whole thing. “How can it be good for America to have all these Indians doing our white-collar jobs?” I asked 24/7’s founder, S. Nagarajan.

Well, he answered patiently, “look around this office.” All the computers are from Compaq. The basic software is from Microsoft. The phones are from Lucent. The air-conditioning is by Carrier, and even the bottled water is by Coke, because when it comes to drinking water in India, people want a trusted brand. On top of all this, says Mr. Nagarajan, 90 percent of the shares in 24/7 are owned by U.S. investors. This explains why, although the U.S. has lost some service jobs to India, total exports from U.S. companies to India have grown from $2.5 billion in 1990 to $4.1 billion in 2002. What goes around comes around, and also benefits Americans.

Friedman also finds an Indian epic animated movie – that is being outsourced to America for writing and voice work. Why India needs to throw up all kind of protectionist barriers so Bollywood writers and voice actors don’t suffer! There’s a crisis of Indian jobs heading to America!

The whole idea that protectionism works, and is even remotely wise, is a throwback to an earlier day. The Democrats are wrong to abandon their Clinton-era trade policies that were one of the few things that the Clinton Administration did well, and the Bush Administration should never have instituted their asinine steel tariffs.

Global trade benefits all, despite the misinformed cries of the anti-globalization crowd. A world without vigorous trade would be a terrible world indeed – not only for the US, but for everyone else. Every trade barrier that exists, from Bush’s steel tariffs to Europe’s devasting Common Agricultural Policy, harms the ability for people to make rational and beneficial decisions about where goods and services should go.

If trade caused a net loss of jobs, Japan in the 1980’s should have had massive unemployment, the 1990’s boom in the US should never have happened, and the whole dominant theory behind the EU would be wrong. Clearly none of those three are true – trade creates new opportunities, opens new markets for goods, and helps economies stay competitive and vibrant.

It’s unfortunately that John Edwards and John Kerry can’t see what Friedman did.

5 thoughts on “Friedman On Outsourcing

  1. “Global trade benefits all, despite the misinformed cries of the anti-globalization crowd.”

    Incorrect. Free trade benefits MOST, but those that it hurts it hurts hard. But the benefits usually outweigh the costs, and I know exactly what you mean when you talk about the anti-globalization crowd.

    Also incorrect to cite as an example, though, is Japan. Their economy sucks right now as a direct result of the 1980s. In fact, there’s been pretty much a continuous misery there for a decade (this is what I learned visiting there in 2000). Unemployment is high, and job satisfaction isn’t. They had a bubble, and it burst. Hopefully, though, our burst won’t last nearly as long or be nearly as detrimental.

  2. However, their bubble had little to do with trade and much to do with their keiretsu system in which their economy was controlled by only a few massively vertically-integrated companies. Their economy wasn’t nearly as diverse as ours – so while our eighth-biggest corporation can go belly up as Enron did, if we were like Japan we wouldn’t have recovered.

    Even so, South Korea is another example of trade lifting a country out of poverty, and there are countless more…

  3. There’s a point I have already pointed out here, but that you seem to miss, still. Maybe some recent developments will help you understand: raising tariffs on steel and subsidising farmers has nothing in common. Steel is an industrial product that can be produced in any country (with little differences). This is also true for food. One thing differs though: you don’t eat steel.

    Globalisation and liberalisation can be good things if they are real. More competition is good for everyone, especially end-consumers. Thus, putting tariffs on steel hurts competition mechanisms.

    Look at the situation in South Eastern Asia today (and West-Southern USA also). A disease is spreading. Imagine that the EU hadn’t subsidised its farmers before. All chicken would be produced abroad, because costs are lower. Today it wouldn’t be possible to eat any chicken in the EU!! Food is not a product as others. You cannot rely only on foreign food, otherwise, if something happens abroad (and you can obviously not control it), you’re dead.

  4. For meat products it’s always going to be more expensive to ship in meat from another country. The only times you generally import meat is in cases where you don’t have room to produce it yourself (Japan), or it’s a specialty item that can only be produced in one area (like Alaskan King Crab).

    It’s the same reason why steel competition isn’t that big a deal – you can’t produce something cheap enough to make up the cost of hauling it across the globe. Sure, a Thai chicken farm can raise chickens for $1/bird and an American (or French) farm can do it for $3, but when it costs more than $2/bird for shipping it’s not saving anything to buy from foreign sources.

    The biggest threat to domestic farm production is from countries with lower prices that are right next to you – and the EU already has a common agricultural market that has largely eliminated agricultural tariffs between EU members.

    Furthermore, even if we accept your logic, barriers and tariffs on fruits and grains are still unnecessary, and fruits and grains are more important to developing nations than meat products.

  5. Well, a few things… first, despite whatever rhetorical turns Kerry may have made of late, his record IS that of a Clinton-era free trader. Edwards is anti-free trade, which has turned me off to him (given that free trade is one of the issues most important to me in the coming election).

    Second, with the Japanese system, I wouldn’t say that there economy completely sucks, especially given that theirs is still the second largest in the world (third by purchasing power parity, China now surpasses them in that respect). Pretty impressive for an island nation of 125 million people. There probably headed for another period of economic growth as well, if Koizumi can push through needed reforms and loosen up the economy a bit. They’re still fantastically innovative (a look at their latest electronics, autos, and robotics proves that), and they will probably emerge as one of the significant powers of the 21st century, especially if they re-millitarize. Even with their dwindling population, the key today isn’t numbers- it’s technology and efficiency.

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