Comments on this article?
Outsourcing is just good economics for America
advertisement
Robert Franciosi
Feb. 22, 2004 12:00 AM
Here is a way you can create high-paying jobs here in the United States:
When you eat in a restaurant, leave the waiter a 200 percent tip. The new high price of dining out might cause you to enjoy it less frequently; and if everyone else follows your example, the net effect on the restaurant industry will be mixed. There will be fewer waiters, but those who do have jobs will be handsomely rewarded.
This line of reasoning is similar to that offered by those on the left and the right who are raising an outcry about outsourcing. Their zeal in trying, as they see it, to preserve high-paying American jobs will end up hurting the competitiveness of American companies, slow productivity growth, and in the end hurt our standard of living.
Controversy over outsourcing has ebbed and flowed over the past two decades. Slow job growth and a presidential campaign have recently caused heat over outsourcing to climb. Also fueling the fire is the relatively new development of American companies obtaining services overseas.
American businesses have long bought manufactured goods from overseas. However, now they are taking advantage of vast improvements in telecommunications technology and an increasingly educated foreign workforce to locate certain service functions in other countries.
Companies are looking to workers overseas to staff call centers, write computer code, and review X-rays for patients. Canned telephone calls from the Kerry campaign to Wisconsin primary voters came from a call center in Ontario, Canada.
Given the storm and stress caused by this new trend, it is worth putting it in some perspective. In 2001, the estimated market size of offshore services was less than $25 billion, or less than 1 percent of all the goods and services produced by the United States that year.
One analyst estimates that the number of jobs located offshore will grow to 3.3 million by 2015 - equivalent to a loss of 200,000 jobs per year. As a study by the McKinsey Global Institute points out, even during the boom year of 1999, when the tech bubble was at its frothiest, 1.15 million Americans lost their jobs through layoffs.
There is also a constraint on the number of service jobs that can be sent overseas. It may not matter how well a seamstress sewing Nike shoes together can speak English, but answering the questions of American customers requires excellent language skills.
The top four destination countries for outsourced services are Ireland, India, Canada and Israel. Outsourcing of services can expand only as more foreign workers learn to speak English.
Outsourcing of services is just another form of trade, and trade benefits all countries involved. The outsourcing of services increases the competitiveness of American companies, the productivity of American workers and the number of high-paying jobs in the United States. Studies show the outsourcing of manufactured goods had this effect, and there is every reason to expect that the outsourcing of services will as well.
In the near future, the baby boomers will start power walking to their mailbox to look for a Social Security check. At the same time, the ratio of workers to retirees in the United States will start to decline. We can choose to support both future retirees and our standard of living through greater worker productivity - producing more output per dollar in cost.
We can do this through innovation and taking advantage of the highly skilled, low-cost workforces of other countries through outsourcing. The alternative is to bring the foreign workers here through immigration.
Also, dollars have value only to people who want to buy American goods and services. Dollars spent overseas and the rising standard of living of foreign workers will increase demand for American goods.
The McKinsey Institute estimates that every $1 spent offshore by an American company creates $1.45 in value to the global economy. Of this, $1.12 accrues to the U.S. economy.
This is not to deny the hardship that a job lost to trade causes certain American workers. Many of these displaced workers can find work only at significantly less pay than their previous position. Researchers at the Brookings Institution suggest that these workers be protected with a plan that insures them against a loss of income.
The McKinsey study estimates that such a plan can be financed with only a nominal fraction of the gains to U.S. companies and consumers from outsourcing.
The zero-sum doomsayers and believers in Buchananomics have been predicting American economic defeat at the hands of foreign business for over a decade. Yet Ross Perot's giant sucking sound was barely a slurp.
If we had listened to the economic Jeremiahs at the beginning of the 1990s, we would have been busy trying to maintain a lead in the production of VCRs or blue jeans instead of exploiting the benefits of the Internet and information technology.
The outcry over outsourcing needs to be met with confidence in the resilience of the American economy and the skill and innovativeness of its workers.
Robert Franciosi is a Phoenix Ph.D. economist and writer on public policy.
azcentral.com |
