Outsourcing: Strategy or suicide?
Readers seem united in their belief that outsourcing is not a good policy for the U. S. But no one seemed concerned that their jobs might be outsourced. Are they overconfident?
Outsourced to death
I just finished reading your editorial (“The dark side of free trade,” Nov. 4), and it is a superb summary of what truly ails our economy. Compare today’s U. S. economy to that in the late 1970s : taxes are much lower, interest rates are lower yet we have little growth, and any growth we do enjoy is concentrated entirely in the top 20% of wage earners. Median family incomes have been flat or in decline, in real terms, since the 1990s. Real growth depends on making things of value, either tangible or intellectual, that can be sold at profit. This drives the entire economy, with some economists saying that every manufacturing job indirectly supports seven service jobs. If this is true, then a declining manufacturing sector will create a small service economy.
So why do we outsource? It makes companies more profitable. While China absorbs our manufacturing base, the purchasing managers and company directors that accept this process will enjoy professional advancement and raises.
Western workers typically have the protection of minimum-wage laws, unemployment insurance, workers compensation, safety rules, regulations covering toxic materials and safety, pollution, retirement, and health insurance. It is hypocritical and irresponsible for western governments to engage in flat-out, unadjusted open trade with countries populated by workers without similar protections. This kind of conduct places all of us in a race to the bottom. It also puts an unfair burden on the managers of western manufacturers: If they don’t outsource, their firms can’t compete. But if they do outsource, they place their nation’s economy in peril.
It might help a little if the nation of origin was clearly labeled on the product. But unfortunately, the typically apathetic western consumer might care very little and the off-shore lobbyists would resist heavily. In essence, every product that enters the U. S. from China is “dumped” because the cost of manufacturing is artificially low due to the above-named factors. Perhaps well-crafted legislation that addresses such imbalances might help. Retraining of displaced workers won’t help if there are no job opportunities.
Your article reminded me of another I read recently. It seems WalMart is adjusting its business model to deal with shoppers on public assistance. On the evenings before their government assistance cards are refilled, these individuals can be found roaming the store and loading up on groceries and other goods. Then, at midnight, they move to the checkout line.
As the CEO commented about how they need to adjust to deal with this increase in customers at odd hours, I wondered if he also drew any connections between these unemployed shoppers and the shuttered local mill whose production has been sent overseas.
Personally, I think our last, best hope is to find ways to accelerate the improvement in living and labor conditions in other countries. It would be interesting to see local and international reaction if unions used dues and earnings to pursue unionization in developing countries.
I was pleased to read your last editorial rightfully pointing out the damage “off-shoring” has done to our national economy and wealth.
I certainly agree with the statement by Mr. Gomory that sending production abroad may generate profits but not national wealth, which is commonly created by domestic manufacturing. Apologists for outsourcing typically claim that there is no problem because the U. S. still has the highest rate of manufacturing of all countries (about 11% of GDP). This may be so, but they conveniently forget that this statistic is based on sales figures and includes production in overseas countries and machined parts imported from abroad. Aside from lack of national income, there are other serious effects: 1. It threatens our national security, 2. It balloons our current account deficit, which now stands at an accumulated total of about 6.5 trillion dollars. 3. It creates reduced domestic R&D. 4. And it reduces the tax basis while increasing the Federal deficit through lowering wages and adding to unemployment.
Hans D. Baumann
You claim there is “proof” for your position on outsourcing from left-leaning organizations such as the Brookings Institution and the Center for American Progress. This probably proves more about what you happen to read rather than anything factual. For a different point of view, you might read a book titled Mad About Trade by Daniel Griswold. For direct visual proof that your thesis is wrong, type the phrase “North Korea at night” into Google as a phrase. You will clearly see that the one country that is almost completely dark is the only one in its neighborhood that does not allow free trade.
You seem to think that South Korea allows “free trade.” The facts are that it has grown by exporting goods, not by free trade. During South Korea’s high growth rates in the 1960s through the 1980s, the country nurtured certain industries selected by its government through tariff protection, subsidies, and other forms of government support. The government owned the banks in South Korea so it could direct where capital was invested. The South Korean government also controlled foreign exchange. It allowed foreign investment in some areas while completely shutting it out of others.
Even today it would be hard to argue that South Korea embraces free trade in that its overall import tax rates average between 8 and 15%. The U. S. overall average import tax rate, by the way, is 1.6%.
Finally, consider what “free trade” has done for Latin America and Africa. In the 1960s and 1970s, per capita income in Latin America grew 3.1% yearly. Since that area embraced free-trade principles in the 1980s, it has grown at less than one-third the rate seen in days of stiff import tariffs. In Africa, per capita income grew about 2% a year in the 1960s and 1970s. Since the 1980s, when the International Monetary Fund and World Bank began advising African countries on free trade policies, the region has seen a fall in living standards. — Leland Teschler