outsourcing work Off-shore: Short and long term consequence

One individual who is very concerned about the potential consequences of outsourcing is researcher and writer, Dr. Paul Craig Roberts. His justification: "Trade implies reciprocity. It is a two-way street. There is no reciprocity in outsourcing, only the export of domestic jobs...if there are no given endowments because business know-how, capital and technology are globally mobile, the advantage lies with countries with untapped pools of educated and skilled low-wage labor. The advantage increases with the absence of...IRS, EPA, OSHA, EEOC and other regulatory bureaucracies..." (Roberts, March 7, 2003).

Dr. Roberts not only believes this trend is misunderstood, but that the timing of it also is potentially threatening. "Throughout history, peoples have been overcome by trends and forces that they were unable to recognize. Could the United States be losing its economy to forces economists mistake for benevolent free trade?...Eventually, as China and India become fully-employed first world economies, wages will bid up and labor will be paid according to its productivity. By then the U.S. might be a third world country." (Roberts, August, 7, 2003). Should our government officials and other policy makers be looking at this issue more aggressively right now?

There are many other skeptics of the current wave of outsourcing, myself included. In the old manufacturing-based economy, a firm's assets were primarily tangible--e.g., plant and equipment, machines, assembly lines, etc. In the new information-based economy, however, the bulk of a firm's assets are often intangible - the creativity, knowledge, brain power, motivation of its employees, etc. being at the center. "...In an information-based economy, it is this human capital and knowledge that creates worth for the firm." (Raynor, 2002).

Firms that embrace this philosophy--workers being vital assets--may have an important advantage. It is their concepts, strategies, ideas, and information exchange that set their companies apart from their competitors. It is the workers and their knowledge that differentiates one firm from another, giving it an identity, value, and an advantage in the market place. How can this worth--these knowledge assets--be transferred overseas, without a significant adverse impact on the firm and our economy at the macro level? After all, in a knowledge based economy, knowledge IS the value.

Supporters of new economy outsourcing point to other areas to show why they believe critics are being overly cautious. But these areas have other possible explanations as well. Consider the following:

1. Recent positive news about the economy. Certainly, output may be increasing, but that does not mean a proportional increase in domestic job growth, especially quality, good-paying jobs. Corporations sending high-tech jobs overseas contribute to the jobless recovery. To the extent that there are new jobs being created, they too may be vulnerable for future outsourcing.

2. Demographic shifts. It is true that the baby-boomer generation is retiring in larger numbers, suggesting to many that there will be a new surge in demand for U.S. workers needed to replace them. But why is there the automatic assumption that it will be domestic workers who will be the long-term replacements? Why won't a worker from India or the Phillippines, making a fraction of the salary, be the permanent replacement? Technology and communication advances should only improve, and provide additional incentives for outsourcing to accelerate.

3. Advocates say that new and even better jobs will be created if we out-source the current ones. This is difficult to accept, even with robust economic growth. In the old economy when manufacturing jobs were lost to foreign producers, our workers were able to re-train and find new positions. Sometimes they sought professional jobs in the white-collar sector after completing degrees, continuing education programs, etc. This worked well through the expanding economy of the 1990s, and partially explains why NAFTA became less controversial. But what jobs will professional workers re-train to after the new wave of high-tech outsourcing? If an engineer, a CPA, or an architect at the top of his/her respective corporate ladder loses a job, what does he/she do next? The "giant sucking sound" that Ross Perot talked about sounds louder than ever.

The relentless competition that global outsourcing thrusts workers and firms into is being taken to levels never seen before. At the core of many traditional economic assumptions is that competition is good and extracts waste from the system. This assumption may have had considerable value in the old economy, but does it carry the same weight in a knowledge-based economy? Dr. Alfie Kohn believes there is a difference. "He argues that competition is essentially detrimental... and even productivity would all be improved if we were to break out of the pattern of relentless competition." (Catlin, September 20, 2003).

Unrestrained outsourcing may be especially detrimental in an information-based economy, where cooperative relationships and exchange of ideas between workers are needed for long-term success. "Competition is most destructive when we are trying to promote creativity or sophisticated thinking and problem-solving," Kohn adds......" (LeClaire, August 3, 2003). The short-term profit gains achieved from workers competing against each other, wherever they may be on the globe, may be counter-productive to the firm over an extended period of time.

Is timing (long-term view vs. short-term view) really one of the core outsourcing issues? Perhaps firms are trading off long-term interests, just to survive or for immediate returns, in favor of short-term gains. There is certainly evidence to suggest that the global market is that competitive. IBM recently announced they were going to out-source thousands of jobs overseas, despite being concerned about a backlash. "This challenge really hits us squarely between the eyes," said Tom Lynch, the company's incoming employee relation director. "We don't want to sit back and say 'don't do it' because it's going to be a real problem. Our competitors are doing it and we have to do it." (Beckman, 2003).

How many companies are engaged in this practice, just to meet short-term objectives? These firms may eventually find that other alternatives would have been wiser for protecting their knowledge assets, workers, instead of searching the globe for the next low-wage earner. They may come to realize that their real strategic advantage comes from maximizing knowledge and leveraging ideas over the long-haul, instead of minimizing employee costs now for short-term gain.

At the macro level, our economic and national security are at risk if Dr. Roberts is right that outsourcing work is being misconstrued as free trade. At the micro level, firms that are pressured into high-tech outsourcing, as IBM apparently was, may face long-term consequences. Either way, more research is urgently needed to better understand the impact of this high-stakes structural shift in our economy. Eventually, more public-sector control may be needed not only to protect domestic workers, but also to protect domestic corporations from themselves.

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