Rationalamerican: Outsourcing Jobs

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Outsourcing Jobs

Last edited April, 2004, Last reviewed September 2007

The political and cultural hysteria surrounding the idea of foreign countries "stealing" American jobs runs counter to the chances for our long-term economic growth and provides a foothold for an irrational, xenophobic American mind-set. Whether the jobs in question are in manufacturing, or software programming, or some other field, the emotional response of the unthinking or the uninitiated is the same: "those foreign crooks took our good jobs from our American boys and girls, forcing them onto the streets." Such emotions are usually followed by calls for political types to protect American interests from the alien meanies in the form of trade barriers, taxes and duties, and other protectionist measures. The problem with this hysteria is really two-fold. First, speaking strictly in economic terms, the emotional arguments are simply incorrect. Second, on a cultural level, the hysteria is fomenting flawed attitudes in younger generations that will come back to haunt our political experiment if left unchecked. Let's examine each of the two problems.

In economic terms, divorced from our emotions about losing our own job or the loss of a job of a friend or family member, there is nothing negative about American companies hiring less expensive foreign workers to do the work previously handled by Americans. On the contrary, such an event indicates that the benefits of free trade are being exercised. An organization that hires less expensive foreign labor is able to create products and services with lower costs and therefore is able to be more competitive in their market. That competition results in lower prices for consumers and an increasing standard of living. Americans benefit from low wage foreign workers in many forms, such as inexpensive televisions, personal computers, and cars, or the luxury of 24-hour call-center support for our credit cards and for the products that we buy. Quite simply, if we want the continued benefits of capitalism and free trade, we cannot ask organizations to seek higher cost American labor and forgo the more efficient means of production.

To delve into this line of thought more deeply, it must be understood that there are costs and benefits to everything in economics. When a close friend loses a job to a firm in India, the cost may be apparent to you. The benefits may not be so apparent, but they are real. The American organization involved is now a more efficient producer and will be able to offer less expensive products or to invest in new product development. Those products may or may not be valuable to you or to your unemployed friend, but because our economy is interconnected, the increased efficiency will eventually affect the products and services that are important to you. There are other hidden benefits too. The money paid to foreign workers often finds its way back to our shores because those workers purchase American products from American companies. Foreign workers, too, seek American wonder drugs for their continued health or a two-hour escape in a Hollywood movie. Foreign interests even send our money back to us in the form of stock purchases, investments in American government securities, and other forms of investment in our economy. In fact, it isn't out of the question that a foreign firm or country would outsource labor to the United States for the same reason an American firm goes offshore. Highly efficient American farmers, for example, have plenty of opportunity to sell abroad when not hindered by trade barriers.

Costs and benefits are not always easy to discern, and that is the main argument against government intervention into free trade. In a free marketplace the invisible hand points to the most efficient means of production with an automatic and unstoppable resolve. Such a marketplace guarantees that our individual lives and our society progress to the maximum extent possible. If you doubt such a principle, compare the average life span, the average hours spent working, or the quality of life of a citizen in any mostly capitalist society to a citizen in any mostly statist society. Centralized government bureaucrats cannot possibly determine all the costs and benefits in an economy from their limited viewpoint, which is why statist societies cannot compete with free societies in which the cooperative decisions of all citizens determine the future. Free markets do not mean that individuals can move in to a house on Easy Street, though. You can still lose your job, you can still meet with misfortune, and you can still live a miserable existence in a free market. However, free markets are the best way that humans have so far devised to capitalize on our nature. Everyone in a free market, whether they are miserable or not, benefits from the most efficient production possible. When governments intrude into a free market they create inefficiencies that show up as a cost to someone somewhere. As noted before, it is easy to see the benefit of keeping your own job or your friend keeping her job as a result of a political decision to impose a trade barrier against a foreign producer. The costs of such a move, including higher priced goods, reduced profits available for future investment, and retaliatory trade barriers imposed by other countries are not so apparent because they are spread over the entire economy.

Leaving the economics aside for a moment, what of our American cultural concerns over the outsourcing of jobs? This is the heart of the hysteria, really, because it is our expectations and our attitudes that keep the national blood boiling. There was a time when the average Joe could expect to be employed in the same type of work and even the same organization for his whole life. There are periods of American history where two or three generations within a family could safely keep this expectation. In the twentieth century, some of those generations became quite highly paid, as well. Due sometimes to high demand for certain skill sets, or to post-war rebuilding, or due sometimes to monopolist labor unions able by government fiat to demand above market wages, American workers came to expect that they were entitled to a "good job at good wages". At some point it became more than just a matter of the ability to easily find work. Instead, it was the expectation that work should be available that would pay enough to live out the American dream. Just like Dad did.

The trouble is, capitalism is not static. Change is inevitable, even after several generations of lucky workers who benefited from unique historical circumstances or who imposed an additional cost on society by relying on ill-advised labor laws to insure above-market wages for themselves. In fact, as our American experiment matures, we are finding that change is accelerating beyond what was ever imagined before. In the information technology age, businesses cannot hide long from investors or the wrath of the market. Businesses cannot overcharge consumers for goods that consumers can skip along the internet to find cheaper. Businesses cannot escape the meaning of the information contained in their databases of consumer purchases, of wholesale costs, and of employee benefits. The path to efficiency is shorter than ever. The penalty for inefficiency is quicker than ever. Businesses today cannot tolerate anywhere near the inefficiencies that were common to businesses of a few generations ago. Such inefficiencies include wages that are higher than what could be paid elsewhere.

Unfortunately, the expectation that a secure, high paying job will always be available and the attitude that our government should make certain that this expectation becomes a birthright have made for some unhappy and ill-informed American workers. This culture of entitlement is contributing to the hysteria over outsourced jobs, and when this culture is stirred up with the xenophobic "us or them" mentality, we have a volatile mix indeed. Instead of pointlessly searching for a means to sustain a way of life that was at best a temporary phenomenon, we should be focused on teaching the next generations how to cope with constant change. A son or daughter who expects a charmed life with high paid career spent in one organization is likely to be disappointed. A son or daughter who expects to spend a lifetime learning new skills and exploring new horizons in order to thrive is likely to be happier and make the appropriate choices to become financially secure. Our offspring should expect to change jobs and to change careers. They should expect to go through periods of unemployment and to plan for such contingencies. The potential trade-off is an economy unburdened by hidden costs and free to expand at the maximum sustainable rate. An economy unhindered by trade barriers, government sanctioned unions, special reporting requirements, and other hysteria-induced nonsense is an economy more nimble, more responsive and more likely to be able to provide wealth for its participants. In other words, if we are able to get over the idea that mean people are stealing our jobs, we may discover that we have been ignoring tremendous opportunities that were available all along.

Even those now in the American workforce should learn to embrace change. An American programmer put out of work by an organization who now outsources to India might take pause before condemning the circumstances. Remember that American ingenuity and individuality has been a source of pride and an engine of growth since our founding. We have become an economic powerhouse in the world not on the strength of simple, mundane labor but on the creative inventions and new processes developed by forward-thinking people. If basic manufacturing chores are outsourced to Asia, bear in mind that Americans are designing the new machinery, appliances, tooling, and other items being built there. It is the higher-order thinking that we retain while losing the ordinary grunt work to cheaper foreign workers. Similarly, it is the commonplace programming we lose to Indian programmers. The design of new software, however, requires Americans who have more depth and more inventiveness. For those who are simply not capable of such higher order thinking, a new career in some service industry may well become a reality. Is it such a terrible result to have Americans enjoying a standard of living so high as to be able to support the growth of service industries? For those who previously might have worked on a factory line, is it such a step backwards to work in food services, in the tourism industry, or in some small business serving individual needs? Is it better to try to resurrect the fantasy that we can all enjoy the undemanding and sometimes over-paid work of previous generations or is it better to look ahead at the possibilities before us?

We must put to rest the culture of job entitlement and also the faulty economic thinking behind this culture. There is no magic a politician can perform to create a perpetual motion machine of jobs. There are always economic costs to other citizens when we attempt to create such a thing for a group of individuals. Instead of focusing on what has been, we must learn to see new possibilities and we must teach our children to do the same. The future of our experiment depends on it.

To cite this article:

Painter, John. Outsourcing Jobs. (April 2004). Retrieved month x, 2xxx, from

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