November 2004 Issue
Outsourcing: Creating jobs for Americans
Claudio LoCascio '08In their attempts to distort President Bush's stance on the economy, the Kerry campaign has painted outsourcing as an evil befalling the American economy...
In a press conference, Kerry referred to companies that outsource labor to foreign countries as “Benedict Arnold” corporations—somehow selling short their homeland for a profit. In effect, Kerry is trying to create an association between outsourcing and corporate scandals, such as the Enron collapse. By doing so, in hopes of portraying President Bush as a puppet of industry, siding with big business at the expense of the common worker. As you will see, the facts of the matter—indeed the entire concept of outsourcing—differs drastically from Kerry’s perception.
It is easiest to begin this discussion of outsourcing by evaluating another similarly misunderstood economic issue. Despite its connotation, so-called sweatshop labor is another form of labor exported to foreign countries. The only difference between the terms “sweatshop labor” and “outsourcing” is that the former involves lower-wage, manufacturing jobs while the latter refers to higher-paying, technology jobs. In both cases, liberals fail to realize that these jobs employ thousands of workers abroad who would otherwise be unemployed and most likely much worse off. Liberals also fail to realize that in advocating an isolationist position of high-paying union jobs, they are abandoning their quest of providing aide to the developing world for want of an “America First, America Only” economic policy.
So how then do these same people oppose outsourcing? Is not outsourcing merely sweatshop labor with better pay and better conditions? Suddenly, concern for the workers melts away as people begin to fear that their own jobs might be sent overseas by supposedly unpatriotic, dastardly CEOs. Not only does this fear expose the hypocrisy of the liberal mindset regarding economic issues, it reveals the deep fear liberals such as John Kerry have struck into the hearts of workers across the country. Your jobs are being sent overseas; you are the direct victims of a corrupt economic policy. This is the message Kerry is sending by playing on the fears of workers, and unfortunately it seems to be catching on.
The misconceptions about outsourcing are many and varied, but they all come from the same fear of American job loss. To examine these claims more closely, let us focus on the information-technology (IT) sector. The most prevalent and commonly cited argument against outsourcing is that good, high-paying tech jobs are going overseas. There are two problems with this argument. The first problem is the notion that a large number of jobs are being outsourced. While the exact numbers are hard to define, even the loose estimation of the Forrester Research report of November 2002 (often referenced in opposition to outsourcing), claims that through 2015 an average of 220,000 jobs will be exported out of the U.S. each year. In an industry that employs nearly 6 million people and an economy that has a whopping 137 million jobs, the jobs lost to outsourcing represent merely small drops in a rather large pool. Gregory Mankiw, head of the Council of Economic Advisers, states that job losses due to outsourcing represent merely 2% of total job losses.
The second part of the aforementioned argument claims that the exported jobs are the best jobs in their sector. In reality, the jobs actually going overseas are at the bottom of the IT barrel, jobs such as basic programming, data entry and customer service. Of the 220,000 jobs being lost per year, about half are of the call-center variety and only one out of six are white-collar. While the total number of jobs in the IT sector did shrink from 6.25 to 5.95 million between 1999 and 2002, this loss was mostly due to the bursting of the dot-com bubble and a general downturn in the economy. In 1999, the number of jobs requiring work experience and associate’s degree stood at 3.43 million. By 2002, this number increased by 2.3% to 3.51 million. Despite the general decrease in the number of jobs, the better jobs actually increased. Our best jobs aren’t going anywhere.
The next misperception follows from the first. It is often mistaken that because these jobs flow out of the country, outsourcing hurts our economy. In effect, Kerry has created a misconception, based on a misconception. The fact of the matter is that cheaper labor leads to cheaper prices for goods and services. Profits spur company growth, increasing America’s higher paying jobs. The decrease in prices affects other industries as well, benefiting the entire economy. According to a study by the McKinsey Global Institute in 2003, outsourcing reduces the cost of IT services by nearly 60 percent. Considering the degree to which the economy relies upon technology, increasing IT costs would have a terrible effect throughout each sector. Looking at all these considerations, the McKinsey study suggests that every dollar spent on outsourcing generates $1.12 to $1.14 of additional economic activity in America.
In addition to the data supporting outsourcing is a point people often overlook: the costs of not outsourcing are greater than the low level jobs we export. Indeed, the decision to stop or reduce outsourcing will have effects that may not be immediately apparent, as outsourcing is not entirely one-sided. There are many countries that outsource their labor to the United States. In the IT sector in 2002 the U.S. imported $3.9 billion of labor from foreign countries, while exporting $14.8 billion. Thus, for every dollar we outsource, almost three are being “insourced” to us; that is, American workers hired by foreign companies. If the U.S. government were to initiate a measure hindering outsourcing, it would undoubtedly reduce employment because of the dampening effect on foreign companies hiring American labor. The end result would hurt our economy even more.
Also, the consequences of ending outsourcing would not be purely economic. In an era when an increasing percentage of the world is won over to blind hatred of America, we need all of the respect we can get. Is there any better way to spread American ideals than to let other countries enjoy the fruits of our way of life? John Kerry boasts of his superior foreign policy, and yet does not consider the consequences of his policies. If we stop outsourcing to the areas it has spread and remove jobs from impoverished nations we will create further reservoirs of hate against America for our uncaring, isolationist policies. In the end, Americans would end up economically weaker much more isolated.
No matter where they turn, opponents of outsourcing cannot help but run into evidence that proves them wrong. Therefore, rather than cite economic experts or valid statistics, they use language designed to create fear in workers, and associate outsourcing with unrelated corrupt economic behavior. Upon reviewing the facts and reasoning the consequences, the arguments against outsourcing are clearly lacking. In fact, outsourcing is one of the many instances in which economic reasoning, when properly applied, results in mutual benefit between parties. The U.S. economy and foreign relations improve at the cost of helping the economies of other nations. We should not stop outsourcing, but rather allow it to expand freely.