N. Gregory Mankiw, chairman of the President’s Council of Economic Advisors, gives us the modern take on offshoring in the 2004 Economic Report of the President (Read) in which it states that outsourcing gains "that take place over the Internet or telephone lines are no different than the gains from trade in physical goods transported by ship or plane… When a good or service is produced at lower cost in another country, it makes sense to import it rather than to produce it domestically." The idea is that if we utilize the “global supply chain” (the favorite phrase of an associate working on his MBA) we can shift low-level work overseas where it can be done cheaper, freeing up Americans to do higher-level work or shift to new demands in the economy. In many ways the theory sounds good (but then again most do while still on paper). Labor intensive, redundant, lower-skill jobs are done by someone else while we, being freed from mundane tasks, move up the intellectual / innovative / entrepreneurial chain. These statements sound good… as long as you don’t allow people to ask too many questions, and questions do need to be asked. While I am not an expert on international trade or macroeconomics (why these topics are just touched upon in my own MBA classes), I do think that people who really believe chasing the lowest price always in the best interest of the country should answer, openly and honestly, at least the following questions:
- If we are to shift a huge number of workers, to what are they supposed to shift? The answer used to be information technology, but guess which sector is currently being hit the hardest with offshoring! It’s one thing to say there is something out there, it’s another thing to say what it is.
- Okay, suppose we think it is biotechnology or nanotechnology or even yet some facet of IT. How long does it take to retrain from any other field into one of these? We have many different ways to get into IT (you can’t swing a dead cat without hitting a college or institute that doesn’t offer some type of training in some sector of IT but remember that you have to try to find one that is not moving offshore soon). Biotechnology is a bit more specialized and not many colleges have actual biotechnology programs (biology and chemistry are close, but there are some skills beyond traditional bio and chem. programs that are need for a biotech career). Nanotechnology is still in its infancy but too will require special skills that are not commonly available in your typical college offering. So if you are lucky, perhaps a year of training (an IT-to-IT shift will support this timeframe), but suppose it is a field rather far off from your current specialization (say call center support for insurance to biotechnology), then what?
- Alright, let’s take even the relatively short one year timeframe as our model. How do you live for a year without pay? Most companies no longer provide realistic severance packages or real support once you have been turned out. If you have savings or some equity in a home you may be okay, but you will significantly deplete your resources. And suppose you have a family to support, how will you do this as well as afford to attend college or a training program? Let’s face it, in most circumstances unemployment doesn’t cover rent much less what it takes to at least survive a year or more. Now, you should be planning for retirement, putting money away for the time when you will no longer work, but having that time happen when you are 40 rather than 70 provides quite a shock.
- Okay, so I get retrained. I had 10 years of experience in position X, so where do I start in position Y? Let’s say I was a Java programmer that was let go after eight years of experience. Seeing the reports and keeping track of what happens on sites such as Offshoring I decide that I need to go into nursing (not a bad move actually). I don’t being my new career as a nurse with eight years experience, so I start at the bottom of the pay scale! I go from $80K per year to about $45K. Think of the effects both at the personal level as well as the macroeconomic level (less income means less income tax paid to the government, less disposable income to drive the private economic engine, etc).
I could go on, but you get the gist. Now I am all for the free market, but I disagree with Milton Friedman’s statement "there is one and only one social responsibility of business–to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud." (Sometime I will write on my disagreement, one free market man to another). What upsets me most in this is that politicians (I can’t even use the term political leaders anymore, they don’t deserve to be called that) have bought into the theory without thinking of the consequences. These actions involve people, not just theories to be debated or statistics moved around on a spreadsheet. Democrats like to speak this way, but they are mired in their own bog of protectionism (both economic and social). The brand of Republicanism I was brought of with understood this, but it seems our current crop has confused being pro-big business with being pro-free market. I’ve got news for you: it isn’t, and you should know better.
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