Yesterday morning’s CNBC Squawk Box Poll asked very simply whether there should be government regulation of offshore outsourcing. To the great surprise of host Mark Haines, 53% of respondents favored such regulation, 47% against. That it should be statistically even among a viewer base that is largely business people brought the guest host to rhetorically ask what the percentages must be like for the Average Joe. Indeed, the subject has already come up in the political arena.
As I see it, there are several issues to be addressed when discussing overseas outsourcing: the impact on American businesses, the impact on foreign nations, the impact on American workers, and the impact on American consumers. Please note that “impact” can be positive or negative. Sometimes one point can be both.
So how does this impact American business? They believe it saves them money. Indeed, it’s the only way to remain competitive, they say. After all, wages are much lower in places like India and China than the United States. Depending on the area, offices and factories might well be cheaper too. But some might argue that the lower costs are offset by productivity losses: working around cross-cultural issues; language barriers; security issues; differing regulations and local politics; differing time zones. Ah, but although differing time zones may make it difficult to get ahold of responsible parties and resolve problems, it may be an advantage if your business demands 24/7 service. For example, if you have a call center.
What about foreign nations? Well, the incoming wages — low by American standards but often still generous by local standards — often boost the local economy. Just like here in the states, people earning paychecks have money to spend. It is a difficult siren song to resist. But the same factories and offices which bring money to ordinary people may also bring pollution, opportunists, unexpected migration, and crime. Furthermore, the same American corporations that bring jobs to the region bring American ways of doing things, eroding traditional customs and social structures, if not outright demanding that things be done the Corporate Way.
You may find it curious that I have broken out the concerns of American workers and American consumers. Although these may well be the same group of people, overseas outsourcing effects average Americans in two distinct ways, depending on whether they are a customer or an employee of the company in question. Let’s look at the employees first.
Employees stand to lose jobs. There, I have said what everyone knows to be true. When there are not constraints of time or space, an American employee has to be at least twice as productive as a low-wage foreign employee to be cost effective. And this is where the “invisible hand” theory of market economics breaks down: American workers are only semi-mobile; they can pick up and move across the state or maybe even across the country, but with few exceptions they can’t just move overseas to follow their outsourced jobs. The tired old rhetoric of “training for the jobs of the future” no longer works. Not only are there roadblocks along this path, not only is it nearly impossible to tell what will really be a necessary profession in 5 or 10 years (remember when web design was the next big thing?), but what is to say those jobs won’t be long since filled by the time workers can possibly be trained? Perhaps by foreign workers? Thankfully, some things can’t be done overseas. Other things simply shouldn’t be.
And thus, we come to the American consumer. Theoretically, we should reap the benefits of reduced cost by paying reduced prices. Just think how much a pair of Nikes would cost if they had to be made by workers making American wages. Oh wait, some of those cost savings actually go towards hefty executive salaries and beating Wall Street profit estimates. Of course it’s a good thing if some of those cost savings are passed on to the consumer, particularly if they are one of the people who has been impacted by jobs moving overseas in the first place.
There is one more important consumer concern regarding overseas outsourcing, one that has grown larger in the post-9/11 world. In short, one of the easiest things to send overseas is data: computer code, information that needs to be processed. Some of this information is sensitive, and sadly the same kinds of protection we would expect this data to have in the United States should not be assumed to exist overseas. Not only proprietary corporate data is at stake, but also personal information, such as financial and medical records. This should concern you. Data which you consider private may potentially be in the hands of people who are under no legal obligation to keep it private. Should it be released or used in a fraudulent manner, law enforcement in the United States has no jurisdiction. The “419” scammers will no longer need any information from you to drain your bank account. This is a national security problem in the making: the terrorist of the future may have the benefit of using your Social Security Number, knowing your medical history, having access to your financial information, even knowing where you went to college and that you dropped PolySci.
Calls to “regulate” overseas outsourcing are often met with the the obvious reply, “How?” Tax penalties for American corporations who engage in the practice? Prohibiting government contracts with such corporations? There are frankly limited legislative remedies for this problem. However, the one thing we should all be able to agree on is that the practice of sending personal data for processing overseas must stop immediately: anything that might normally have a Social Security Number attached to it; anything the average American would expect to be kept confidential; anything subject to privacy laws and policies. This would certainly include financial data, medical records, and educational records.
In conclusion, I bring you two views of Ralph Nader. One, several years old, by New York Times economics columnist Paul Krugman. My favorite passage: “Mr. Nader did not begin as an extremist. On the contrary: in the 1960’s, when he made his reputation, the striking thing about Mr. Nader was his relative moderation. Fashionable radicals were preaching revolution; he was demanding safer cars.” This particular article is reproduced in his book, The Great Unraveling, which is a good read but slow. No matter how interesting an economist is, you can only read so many pages at a time. The other item is a very interesting analysis of Nader’s 2004 Presidential campaign by Elisa Camahort.