Questions for opponents of outsourcing

Hi. I'm trying to understand the anti-outsourcing/offshoring position a little better (clear up some misconceptions I may have from reading the financial press and whatever), so I was wondering if those who consider themselves in that group could answer these questions. My questions naturally betray my bias, but I don't think they're skewed as to impede discussion.

1) For those who argue for restrictions against outsourcing, should restrictions also be made against automation? Automation seems to have changed the economy a lot in areas like:

• Manufacturing - with automated control systems in factories, less factory hands are needed
  
• Web-services - reducing the number of transactions that occur with a live person (e.g. banking)
  
• Automating code generation, circuit design, structure and machine design, industrial process design etc. Some of the things researchers are turning automation toward seem to me to be way above "code monkey" level. Many of these don't even rely on particularly abstract and untested artificial intelligence techniques.
  

I anticipate an argument that these developments create jobs as well. But isn't it to be expected, from the restricted point of view of what labour input is needed to sustain current production, that fewer jobs would be created? I would argue myself that more jobs would be created, but that is because I believe the cost-savings and improvements in standard-of-living feed expansion; could these same benefits not also come from outsourcing?

Also, would these listed developments shift earning power to well-educated white-collar workers, and thus be seen as elitist? I personally disagree, as I feel they encourage people to become better educated and seek higher-level opportunities, but then I would also apply that argument to outsourcing, arguing that roles are needed in coordination of outsourcing and seeking new outsourcing opportunities (e.g. Phillipines or Bangladesh over India) to make the market more competitive and bring lower costs and better value. Niches would also be created for quality control and oversight, rubber-stamping where professional credentials are required, etc.

2) Could open-source software development also be seen as a threat? Should it then be restricted? Companies can design their systems around open-source software in ways that allow them to avoid open-source license requirements. The result would seem to me to be free substitution for the work of programmers (even Chinese and Indians don't work for free). The creators of open-source software don't receive direct material benefit from it, though they can profit from things like technical support, and are they not depriving job-seekers of their livelihoods?

There's an article in the Economist (stop barking already, Lou Dobbs, or I'll beat you with this stick ) that speculates that the open-source model could be applied to medical research, benefiting consumers at the expense of pharmaceutical companies. Wouldn't this be stealing jobs from workers in that industry?

3) If outsourcing is seen as the import of services, what of the import of goods? This has displaced workers in agriculture, manufacturing, cottage-industries, etc. Should this trend be undone?

If so, would this not cause the standard of living to decrease, as costs would go up, and at the same time reduce revenue from abroad as American companies lost competitiveness?

If not, why are certain workers being favoured? Is it a value statement of where our society should be? I've heard the protest that I crudely paraphrase as "We went from manufacturing to services, if we lose services, what are we supposed to move to?" But if instead of seeking greater competitiveness and innovation, we put up walls, are we not risking repeating the performance of other isolationist economies in the past? If we put up many artificial barriers in global trade, won't the competiveness of American companies suffer? Consider Boeing vs. Airbus. If Airbus's prices fall compared to Boeing's because of economic changes in the U.S., won't that hurt Boeing, its workers, and the US? Or perhaps this phenomenom on a larger level would result in a huge devaluation of the American currency. Then OPEC might switch to the Euro, and American buying power in the energy markets would drop, right? No?

4) Trade theory - Hasn't protectionism been proven to hurt market economies before? Or maybe that's a broad sweeping statement. Maybe if the US only restricted trade with nations like China and India where the cost-of-living difference is huge, where workers rights and the environment are not respected, etc.

But wouldn't this lead to exactly the same problems? Imagine that this were carried out. This would be American trade policy. Not EU policy, not Japanese policy, not the policy of major American trade partners. Wouldn't these trade partners continue to trade goods and services with the offending nations? Wouldn't they then enjoy huge cost advantages vis-a-vis the US -- consumer goods (thus cost-of-living, thus cost of labour), machines and capital goods (thus cost of production)... Wouldn't this create a huge gap between the productivity and cost-effectiveness of America and its partners? Wouldn't American companies lose market share? Wouldn't jobs still be exported, but just to the trading partners at a hugely accelerated pace because of the deterioration of American competitiveness?

Perhaps trade negotiations could result in major trade partners to replicate our policies... Does the U.S. really have enough political clout to do this? Does it have the trust of other nations? Is it not perceived by other First World trading partners as having a hypocritical trade policy (e.g. the softwood lumber dispute with Canada), and wouldn't that interfere with its ability to make this deal?

Perhaps other major trading partners would perceive a threat to their own standard of living and consumer base due to outsourcing. Doesn't game theory suggest that these countries will still keep their markets open to stay competitive? Hasn't outsourcing affected the U.S. more than other First World nations, and wouldn't that be an argument against this idea?

5) Corporate profits -- I perceive that some argue that corporations use outsourcing to reduce costs but keep their prices steady, to fatten their profits. Doesn't market theory suggest that doing this would put them at risk from competitors and new players? Agreed, barriers to entry and partial monopolies partly interfere. But if companies could charge whatever they want regardless of the costs, what stops them from raising prices at an accelerated pace? Isn't it logical to expect them, the greedy bloodsuckers that they are , to raise prices as high as they can with the only constraint being to prevent market conditions that would allow a new-entrant in (this assumes that there is complicit price-fixing among competitors, otherwise the competitors would go at the price-hiking company's throat for better market share). Isn't that a better focus of concern -- limited government interference to make markets more competitive rather than less? Hasn't it been shown in history that government 'remedies' that distort the competitive market don't work?

6) Quality of services -- I hear opponents of outsourcing complain that the outsourced workers' replacements (e.g. in call centres) can't even do the job. Isn't that an empty argument? If consumers don't want that quality enough to pay for it, isn't reallocation of resources wise? If consumers do want that quality, and if it hurts a company's product that much, won't that company be punished as mentinoned in point 5?

Very well written post. I'm impressed. You got one of my Way Above Top Secret votes :-).

That post really made me thing because I am very opposed to outsourcing whether it be domestic or international. I'll try and cover the questions you ask. Well I'm tired so I will most likely ramble on. LOL.

I am opposed to outsourcing because in my opinion it takes away your ability to control the product you make/deliver. I want the ability to choose who works for me. I want the ability to monitor the quality of work they perform. I worked for company before that outsourced a bunch of items. It was frankly embarassing to have to make committments to call people back because I had to call another company to find out about our product. No one knew anything because no one in the company really made anything. They just changed the lable and shipped it. The only thing this kind of outsourcing manages to do is lower quality and raise prices.

International outsourcing is a shame. To take a job from a hard working American and give it to someone in another country because you want to save a buck is pathetic. Because you aren't going to pass the savings along to the consumer. Have a little backbone and be loyal to the people that work for you. Don't stab them and your country in the back because you want your stock to go up a few points. If you are going to be so gutless and ship American jobs overseas you should pay HEAVY taxes on what is brought back in. This levels the economic playing field. Its a way of making it apples and apples.

I am a big fan of the open source movement. The reason is because of companies like Microsoft which use illegal deals to supress competition and fix prices. They produce a bad quality product and force the consumer to overspend for this product. If I buy a new pc I have to buy windows whether I want it or not. The opensource movement is great. It gives people choices. And free choices at that. Frankly Microsoft and companies like them brought it upon themselves. Shop around for server software. Look at what Oracle charges. I thought rape was illegal in this country. My hats off to the makers of MySQL. Outstanding free product. There are open source content management systems. Go with them instead of paying hundreds if not thousands of dollars for a similar commercial one. So many of these companies have chosen to manipulate the market and laws in order to supress competition. If they go under because of the opensource movement I won't lose a bit of sleep.

Protecting our country from trade abuse is critical. Hitting importers with heavy taxes and fines is how you protect our economy from the abuses that are currently taking place. Here is why. (these numbers are just examples and not based on actual data) Lets say a worker in the US makes $10 an hour. His rent costs him $700 a month. A worker in China makes $2 an hour but the rent is only $120 a month. They still pay the same percentage (roughtly) of their pay toward rent but when you transfer the money from our economy to theirs it takes less to meet that pay level. You can pay them $2 an hour and they live normally because their prices are based on 1/5th of ours. Everything here costing 5 times as much. Paying $2 an hour isn't hurting them one bit. And it makes the company an extra $8 an hour. But what about that worker that was making $10 an hour. Now what? Job is gone. Of course that worker in China that makes $2 an hour cant afford to buy anything we make here because what we produce costs 5 times as much. So its a double loss for the country. Got a worker not making a paycheck and the people who are getting paid can't afford to import our products. The only way to end this problem is to slap taxes on the import so high that companies will no longer have anything to gain by shipping the jobs away. Hopefully by this point the idiot bean counters will realize that is best to just keep the jobs here, which will improve the economy which means more people able to buy the product they make.


Oh well thats all the energy I have for tonight :-)

Phew. Outstanding posts, both of you. I think you've covered most of the main arguments on both sides of the fence, so I thought I'd just chip in with my observations.

Lucky, lucky you.



In an ideal world, of course, there would be no such thing as "outsourcing". The global marketplace would enable any company to find any service or product at the best value anywhere, and the benefits of that investment would be spread evenly around the globe. Unfortunately - for all you capitalists out there - technology, politics and small-minded nationalism prevent this from being the case.

International outsourcing, as it exists in our current financial and political framework, hurts the (generally western) country which loses the investment, exploits the (generally eastern) country which receives the new investment, and is only good news for the short term profits of the company. I say that the target country is exploited because that's essentially the bottom line - if a job is worth $10 an hour to a worker in the continental US, it should be worth $10 an hour anywhere on Earth. I realise this may seem a overly naive viewpoint, but ultimately, economic disparity does no-one any favours. It is for this reason that, I believe, companies who outsource large amounts of work also endanger their long-term growth, because they are investing in an economy and a society other than the ones in which they are rooted. A dollar sent overseas is a dollar less for the US economy, in this example, and a dollar less in the US economy means a dollar less potential profit for the company.

Do I think outsourcing should be prevented? Well, despite everythng I have said, I believe that outsourcing is an extension of human nature. What needs to be changed is the petty nationalism and willfull exploitation which have been the hallmarks of the practice so far.

I'm not an economist - as you probably realise by now - and I'm currently well outside my usual sphere of interest, but the thread caught my attention. I just hope I've added something of value to the debate!

Indy: thanks for the vote

I think your description of the lack of coordination of outsourcing is valid for many companies. IMO, this reflects an immaturity in the process which will (have to) be remedied by better control of activities and information. This kind of management opportunity would be a new position for someone displaced by the outsourcing, and represents a step up on the corporate food chain.

I think the argument about outlawing outsourcing or heavily taxing it leads into my arguments 3, 4, and 5 from the original post.

Regarding open-source, I also think it's a great model. You have pointed out that it punishes corporations which seek barriers to entry rather than innovation (Microsoft being a classic example), and I acknowledge this. But my original question was whether or not it also punishes First World workers -- taking away their livelihoods by accomplishing their work for free. I disagree, but I don't understand how opponents of outsourcing would disagree without contradicting themselves.

Your point about the American worker and the Chinese worker was about the loss of one job and simultaneously the loss of one consumer. If I believed that this were the entire description of what was happening, I could see it as a negative thing as do you. But even then, wouldn't my point 4 suggest that the solution is more complicated than simply slapping taxes on the company? And wouldn't my points 1, 2, and 3 suggest that doing so would be hypocritical?

Hi StrangeLands

Originally posted by StrangeLands
hurts the (generally western) country which loses the investment,

See, I feel that investment would stay level or increase for the company, because it remains in control of process and is seeking greater cost-effectiveness. I believe that is how investors think, whether or not we do, and they are the ones doing the investing.

I say that the target country is exploited because that's essentially the bottom line - if a job is worth $10 an hour to a worker in the continental US, it should be worth $10 an hour anywhere on Earth

I agree that economic disparity does no-one any favours, as you said, but realistically economic disparity exists. Costs of living are lower for foreign workers, and so getting a fraction of $10 an hour can be a great opportunity for them. So I don't see this as an argument that the foreign worker is exploited. I mean, money is a relative thing. $10 in the US is not $10 in another country.

And the thing is, as is shown in several Indian cities (and mentioned by American consulting companies), as outsourcing progresses salaries rise and the cost-effectiveness of it diminishes. For those who fear an endless supply of a billion Chinese and a billion Indians, I must remind you that very few of them can compete for any First World service-based jobs. Ah, you say, but that is no consolation to us, as we are losing a worker and a consumer. But I would argue (as I have) that cost-effectiveness increases the First World standard of living and fuels expansion. Last monthly report, the US created 248,000 jobs despite all of this evil outsourcing. Some complain that these aren't the same jobs that left. I agree, and I expect from history that it will take a nonzero amount of time for full adjustment to the new economic landscape. What that means is that I see new opportunities as mentioned in my earlier posts, that have to be filled by First World workers but aren't close to being filled yet. And for the argument that Indians and Chinese (and whoever else) don't buy American goods, I would argue that they do, but far less than Americans do. Why? Because (1) there are fewer people in these countries who can afford them, and (2) cost competitiveness puts America at a disadvantage. But outsourcing reverses the trend of (1), and also (2) since the costs of American products will come down. And for those who argue that they haven't, I believe my point (5) of the first post is a counter-argument.

also endanger their long-term growth, because they are investing in an economy and a society other than the ones in which they are rooted.

If this is the case, then shouldn't we nullify the effects of the last 50 years of global investment, which from what I see pushed the American economy toward dynamism and competitiveness?

To me the open source movement is a computer based charity program. To outlaw the opensource movement would be to outlaw charities. Why can't I give my services away? Its no different than me offering to mow my neighbors law. By me doing it for free it means a lawn maintenance company can't bill him for the work. Look at this website. The owner of this site gives away free access. I give away free access to my website. By giving away free access we harm or potentially harm anyone that would want to charge for access. If I am financially stable enough to work for free then why can't I work for free? What companies have been put out of business by the open source movement? Do I care if the board of directors for Oracle only make $5 mil this year instead of $6 mil? Of cousre not. I look at it this way. They wouldn't be making those kinds of profits if they weren't ripping the consumers. Look what they charge for their DB server. Look at that M$ charges for Sequel Server. I have no sympathy for them of the open source movement destorys their business.

Originally posted by Indy
Look at this website. The owner of this site gives away free access. I give away free access to my website.

Well, see, I think you're just extending my argument. You made additional examples of instances where people do work for less than market value and undercut those seeking to make a living. So if outsourcing should be banned because it replaces North American workers, why shouldn't open-source, and as you just pointed out, why shouldn't free web services?

Do I care if the board of directors for Oracle only make $5 mil this year instead of $6 mil? Of cousre not.

Well that's my attitude too, but that actually is not related to my argument. I remind you that my question was this: if open-source creates value for free -- value that corporations can use -- then will they not choose to use it rather than paying workers to create that value? And is open-source therefore not denying workers of their livelihoods by the same argument that some claim outsourcing is? You see, this point has little if anything to do with the balance sheets of Microsoft and Oracle.

I'm going to keep this short although I will agree that the very well written post by Heir does deserve an in-depth answer.

In my opinion outsourcing is bad for american jobs, bad for the american economy and companies who practice it should be boycotted at all costs. I think any company that moves off shore should have it's products taxed when they try to sell them in the US and that tax should be the difference of what it would of costed to produce it in the US. Than we should put a freaken price cap on it so the product can't be more expensive than what they charge for it in any other given country. They can't have their cake and eat it to at the cost of the american economy and american jobs, we should show them the same loyalty that they show us.

quote: Originally posted by J0HNSmith

In my opinion outsourcing is bad for american jobs

my hat off to the both of you outstanding post !! but you need to look at things from a man who has his name on his shirt......how would you like to be the one to have to go home and tell your kids that daddy's job has been taken away and moved far away

[edit on 12-6-2004 by deadcatsrule]

from how i see it, open source is not for economic reasons or profit, but out sourcing is for such reasons, you cant compare the two, you dont need training, a degree or anything to create open source software, most-if not all programmers do it on the side and have jobs doing something else, if microsoft or whoever cant create a good product with thousands of employees but 50 people creating a similar product on the side can then oh well, why force people to charge money if they dont want to? open source is just an extension of free society, economics should be left out of open source like it is, internet, software, etc should not be controlled by corporations, the very nature of such things is free information, sharing information and open-ness, not profit or any of that.

Heir... what about soup kitches? They hurt the business of grocery stores and fast food joints. People get stuff for free.

There is a difference between the open source movement and outsourcing. It would be a problem if Oracle used an open source program and relabled it and sold it as theirs for a profit. You aren't taking a paid job and giving it to someone who will do it for free. If an open source application is hurting a business I blame the business for not advancing their product enough to keep it competitive. The open source movement has basically forced businesses to justify what they charge for a product versus simply slapping a $5000 or $10000 fee on a $100 product. Remember it isn't about the fair market value of my labor because my labor isn't being sold. People will buy software from a company instead of using open source simply because of the company name and the HOPE that perhaps they might get support. Plus if you use an open source app and it fails who do you sue? Also the open source market gets alot of people who normally would NOT have been in the market to buy software. Lets face it. If it were not for mysql I probably never would have touched a db app. In my case Oracle lost no money because I was never a potential customer.

Thanks for the kind words, and thanks for replying to my post. I am thinking about all of your arguments.

I just want to make a couple of points on open-source:

• I think that open source has to be seen as an economic phenomenom, because it is a means of producing value, and its output can be used as input for producing further value through corporations.
  
• The focus of the other side of this discussion seems to be on companies that compete with open-source. That's a legitimate area of concern, because regardless of whether we qualify such companies good or bad, we are aware that they employ American workers, and that if their profits go down layoffs can follow. But I again point out that I am concerned about a totally different economic activity that is very much a reality -- there are companies that leverage open-source software by using it as a component in their business model.
  
• I do not understand the argument that open-source would exist regardless of other economic activity, and it should thus not be part of the discussion. Open-source would not exist if we legislated against it, just as outsourcing would not.
  
• When companies use open-source as inputs to their production, they are in many cases using it for free. From the same arguments that are made against outsourcing, is this not displacing American workers? If this is too theoretical, I'm sure you can do a search for companies that leverage open-source. I would provide examples such as RedHat and SuSE which offer technical support for Linux, an open-source operating system, rather than paying workers to create their own operating systems, and Axis, which uses Linux in the embedded controls of its digital hardware rather than paying workers to make a proprietary operating system or licensing another company's operating system. There are many more though.
  

I am very concerned about outsourcing and very opinionated about it but you guys have coverd the bases so well I am left without words. WOW

I should qualify my open source comment. Open source in moderation is good. Want to see what too much of a free thing can do to commerce? Look at the adult industry. The adult industry on the web is very unstable due to the number of free content providers. Well thats not the whole story. This industry is plagued by fraud as well.

Originally posted by HeirToBokassa
Thanks for the kind words, and thanks for replying to my post. I am thinking about all of your arguments.

I just want to make a couple of points on open-source:

• I think that open source has to be seen as an economic phenomenom, because it is a means of producing value, and its output can be used as input for producing further value through corporations.
  
• The focus of the other side of this discussion seems to be on companies that compete with open-source. That's a legitimate area of concern, because regardless of whether we qualify such companies good or bad, we are aware that they employ American workers, and that if their profits go down layoffs can follow. But I again point out that I am concerned about a totally different economic activity that is very much a reality -- there are companies that leverage open-source software by using it as a component in their business model.
  
• I do not understand the argument that open-source would exist regardless of other economic activity, and it should thus not be part of the discussion. Open-source would not exist if we legislated against it, just as outsourcing would not.
  
• When companies use open-source as inputs to their production, they are in many cases using it for free. From the same arguments that are made against outsourcing, is this not displacing American workers? If this is too theoretical, I'm sure you can do a search for companies that leverage open-source. I would provide examples such as RedHat and SuSE which offer technical support for Linux, an open-source operating system, rather than paying workers to create their own operating systems, and Axis, which uses Linux in the embedded controls of its digital hardware rather than paying workers to make a proprietary operating system or licensing another company's operating system. There are many more though.
  

on point 1, 2 and 4 i agree, using opensource in such a way is wrong and it should be regulated so it cant be used to profit in that manner, it should only benefit web designers or people who create such things from scratch, open source shouldnt be levereged by a company who can create x product on their own.

point 3, open source depends on free information, economics play no part in it, anyone from iran, peru, brazil to tiny tropical islands create open source things all the time, nothing will not be an obsticle except being homeless, very poor or being in an isolated a nation.

thought provoking post, well composed.

In regards to the focus of the effects of outsourcing towards North America, I am wondering on the flip side of other countries aspect of outsourcing.

1. Is there other countries that signed the NAFTA outsourcing a majority of their businesses to USA? ( I think it is NAFTA [North American Free Trade Act] is the main root of the outsourcing opportunities, though feel free to correct me, if i am referencing the wrong free trade act)

2. Is there other countries experiencing similiar effects of businesses within their coutry outsourcing to other countries, creating a hot topic among their labor force?

3. Or is this outsourcing only effecting North America, and no other country is using NA's labor force over their own?

Just some questions that came to my mind as I read this.

Firepoker

Hi firepoker,

1. The UK is also moving towards more outsourcing. Lots of call centres are going abroad, and of course some types of IT services. The situation is probably less threatening though since we're a smaller country, labour mobility is less of a problem, so the effects of certain services going abroad is less significant. What part the NAFTA plays in this though, I really couldn't say.

2. A lot of the jobs in the UK that are being outsourced abroad are the low skilled temp type jobs that only appeared recently. While obviously being an issue if you're one of those laid off, there are generally other jobs/options available. If course in manufacturing, it's a different matter, since losing these kinds of jobs is more damaging in the long term. Where the line between foreign competition and outsourcing lies here, I don't know.

3. Outsourcing itself I think is an inevitable and natural move in a free market. Companies are free to buy services at the lowest price. It's happening all over the world, as lower skilled jobs move to the developing nations, and well as lots of IT based jobs where location isn't important.

The solution as I see it, rather than legislation, is to adapt to the new conditions. In a nutshell, this means those businesses (or individuals) who are losing out to out-sourcing need to either.

a) find a way to offer the service for less
b) offer a better service than the outsourced one
c) develop or move into a different fields of business that can't be challenged by outsourcing (for now)

Just dealing with the first mentioned argument of automation which is routinely brought up by outsourcing fans...(let me rephrase)..There's no such thing an a SANE outsourcing fan, they are simply pro-business. Call it a necessary evil if you must.

But I've heard examples of this comparison to outsourcing from outdated US Automotive manufacturing which had to automate to survive the Japanese revolution to the layoff of 50,000 plus ELEVATOR OPERATORS when Otis first introduced the automated elevator.

Great, there's some logic to that. Some good logic actually. But it doesn't change the fact it SUCKS when you spent half your life installing Mustang windows by hand or running an elevator, not because you were lazy or dumb but it was once an honorable contribution to society. People were recruited to do these things. Made promises. And in the case of the baby boomers, ALOT were told why bother with college...you can make a nice life for your family servicing insurance customers (or whatever) in now extinct service jobs.

And no amount of logic, or well thought out explanations of what's good for Wall Street will ever change the opinion of the unemployable 50 year old textile mill worker or super specialized programmer now working at Wal-Mart or anyone else that's just been kicked in the teeth for doing absolutely nothing wrong that...

OUTSOURCING SUCKS!

And the thought that whole generations of southerners and midwesterners that made their livings in mills and plants manufacturing the very essense of this nation are being compared to the "silly" practice of elevator operators in political debates is disgusting to me. (Not citing anyone here; it was Fox News) Furthermore, that we're working so hard to justify this new aparthied of labor where we send the "crap" jobs to foreigners with the excuse that we'll make "better" jobs for Americans is disturbing.

So spruce it up all you like, but the practice of outsourcing remains emotionally and intrinsically abusive to it's victims and it's apologists I frankly find insulting. As I originally said, call it a necessary evil if you must...but a "good thing" Mr. President? HOW DARE YOU.

[edit on 21-6-2004 by RANT]

Taxing the hell out of companies will never happen to many politicians are pro-business and palms are being greased by Big Business.
I agree outsourcing sucks, but it is a trend that will keep happening. Welocme to the Global Economy.

Corp America does not care what happens to the employees they layoff or lives that get destoryed because they can't make ends meet or find a new job right-way. The excuse you here is "Nothing personal, it's only business". And majority of the people who buy products from companies that do outsource don't care either there is it's not happening mentallity is this country - It's everyman for himself.

As for Opensource software -- if software vendors would put a reliable product out, this would not be such a big issue....

Expect to work till the day you die....

I thought it would be good to place a link to this thread here...

How Corporations Came to Rule the World
by Richard Heinberg