Offshoring: It’s Not Too Late to Change

here’s a great deal of information, innuendo, and rumor circulating concerning offshore outsourcing, more widely known as offshoring: the practice of moving jobs from a host country to a different country. Offshoring is a controversial topic because it affects people’s emotions powerfully on several different levels simultaneously; offshoring affects our sense of fair play, our sense of national identity, and our hopes for prosperity and the future.

But whether offshoring at the macro level is a net negative, net positive, or something in between is a popular subject for debate. Many prominent economists and business leaders have expended much ink trying to assure U.S. workers that offshoring is no different than other large labor trends of the past two centuries; from farm to factory, from manual labor to automation, and from factory to service industries. In fact, offshoring, many say, is a beneficial process that improves the quality of domestic jobs and salaries. I’ve listened closely to these arguments, hoping for some reassurance; sadly, my assessment of the offshoring trend remains grim.

Capitalism, Self-Reliance, and Fair Play

We cheer third-world countries’ steps toward bettering their workers’ lives. We welcome their competition, because we believe that competition will stimulate American innovation as well. But we aren’t competing on a level playing field as long as the wages, working conditions, and environmental protection laws in the foreign countries aren’t at least roughly equivalent to those in the United States.
Americans have a deep-rooted faith in the power of capitalism. We believe that, within reason, businesses have the right to obtain services at the best prices. The difference between production costs and sales revenue pays the salary of every worker in America; therefore it’s only right that businesses seek to lower production costs while charging market value for goods and services.

We also believe deeply in self-reliance; that the world should and does reward those who lift themselves up by their bootstraps, adjust to and conquer hardships, face new problems, and invent solutions. Those are the American myths, the American hopes, the American dreams, and in many cases, the American reality. We’ve all heard the stories of Thomas Edison, Henry Ford, and many other famous Americans who rose from poverty and obscurity to wealth and power through inventiveness, self-reliance, and business acumen. Capitalism is a powerful force that motivates individuals and businesses to work hard, provide superior products and services, and strive for excellence.

Americans also have a deeply rooted sense of fair play. Americans believe that production shouldn’t be paid for with human misery, thus we set minimum standards for hourly pay. We recognize that there’s a human cost of forcing people to work excessive hours, thus we set guidelines for weekly work hours and enforce overtime pay scales. We recognize that the education of children is more important than the fruits of their labor, thus we restrict the hours that children can be made to work.

We recognize that nature is important, and that everyone pays a penalty when factories pollute the ground, air, and water, thus we have environmental protection laws to prevent the worst forms of pollution. We recognize that the great bulk of workers have little power to negotiate pay raises from the companies that hire their labor, thus we have collective bargaining, which leverages the value of many workers’ labor to provide parity with the economic power of corporations.

Business, Labor, and Government
But civilized people and countries have long recognized that the unchecked pursuit of profit (raw capitalism) is not in humanity’s best interests. Accordingly, governments have a long history of instituting laws and restrictions to regulate commerce and labor. Some of these laws are intended to prevent corporations from seeking solely to maximize profits on the basis that their citizens’ welfare is more important than corporate profit. Among these are:

  • Minimum wage laws
  • The forty-hour work week
  • Overtime pay
  • Retirement pay
  • Child labor laws
  • Environmental protection laws
  • Unionization laws

Every law on that list was created over the outraged screams of corporate leaders, and many were bought with blood when hired thugs and National Guard troops beat and killed workers who refused to comply with corporate wishes. It’s also worth noting that these laws didn’t arise out of the ether; they were created because the management of companies, when given unchecked ability to choose how to treat workers and the environment on their own, often chose poorly. They chose to pay sweatshop wages; to hire children; to force workers to work 12- and 14-hour days, six or even seven days per week; to work under dangerous conditions, even when correcting such conditions involved only trivial expense; to pollute public water and land resources and then refuse to pay environmental cleanup costs.

As you can see from this discussion, business, labor, and government are the three cornerstones in managing the balance between capitalism, individual workers’ rights, and the protection and progress of the country as a whole. Businesses need labor. Labor needs businesses. Labor needs government to temper capitalism’s excesses. Business needs government to open new avenues for trade and protect against unfair foreign competition.

The balance between these three titans shifts continually as market and political conditions change. One group gains power at the expense of the other two. Offshoring shifts the balance toward business, and it’s up to workers and the government to restore some semblance of parity.

Appeals to Fair Play
Offshoring proponents appeal to Americans’ sense of fair play and belief in capitalism to reinforce their arguments. For example, nearly everyone can sympathize with the appealing stories of Indian workers who’ve been rescued from a life of poverty by benevolent U.S. corporations offering good jobs at (relatively) high wages, with decent working conditions and benefits. We cheer third-world countries’ steps toward bettering their workers’ lives. We welcome their competition, because we believe that competition will stimulate American innovation as well.

But we aren’t competing on a level playing field as long as the wages, working conditions, and environmental protection laws in the foreign countries aren’t at least roughly equivalent to those in the United States. In fact, there are glaring differences between what Americans view as fair wages and reasonable environmental protection and the views of foreign workers and countries. This difference underlies the reason that job redistribution has created such heated discussion and why offshoring has become a primary issue in Congress and in the current presidential campaign.

Editor’s Note: DevX is pleased to consider rebuttals and related commentaries in response to any published opinion. Publication is considered on a case-by-case basis. Please email the editor at [email protected] for more information.

It is tempting to believe that corporations can have a conscience, but they don’t. For corporations, the pursuit of profit trumps civic responsibility. The proof resides directly in the need for labor and trade laws. Corporations consistently choose wrongly in these areas precisely because they follow the laws of profit so slavishly. Overall, corporate behavior is the sum of many small choices; there are few individual corporate despots, criminals, or polluters that society can vilify. The millions of corporate workers each act in their and their families’ best interests. Each employee may be aware that his or her wages come at the cost of (for example) environmental pollution, but they need the income?they have to rationalize that their small actions contribute nearly inconsequentially to the problem as a whole. Corporate managers may be more aware of the size of the problems, but taking actions that reduce profits threatens their jobs. Similarly, CEOs answer to boards populated with individuals who in turn answer to stockholders, who are?us.

Because each responsible worker, manager, board member, or stockholder has a profit or wage stake, we cannot trust corporations to take into account the larger issues of public good. Instead, we empower government to oversee these larger issues.

Domestic outsourcing gives corporations the power to save money by shifting jobs to make production more efficient. But because U.S. wage and environmental laws apply to all states, domestic workers compete with each other on a relatively level playing field. In contrast, offshoring gives corporations the power to threaten workers and countries by shifting jobs to whatever country offers the least restrictive environmental laws and offers to work for the lowest wages. In other words, offshoring lets corporations blackmail workers and countries with the threat of shifting jobs in response to attempts to improve or enforce environmental protection or workplace safety, increase minimum wages, improve benefits, or organize workers.

In short, any domestic efforts to improve work or environmental conditions will fail when offshoring is an option. There will always be a country where the workers are desperate enough to work under poor conditions and where the need for low-paid or even downright dangerous employment outweighs considerations such as fair pay, worker safety, and environmental protection.

Wage Competition
Software developers aren’t afraid to match their talents against other developers?foreign or domestic?when the base pay for those other developers is similar to their own. But there’s no way for U.S. developers to compete fairly against the cost of labor in countries such as India and China, where the prevailing wages are far below the wages for equivalent jobs in the U.S., or for U.S. manufacturing workers to compete against countries that have both lower wages and weaker labor and environmental protection laws.

Governments that shield domestic companies’ products from foreign competition should, in fairness, make the same efforts to protect domestic labor.

Some people argue that the current high wage differential for developers is temporary, and that because salaries in foreign countries such as India are increasing quickly, the salary gap will diminish, reducing the advantage companies currently gain by offshoring. But that argument assumes that foreign programmers’ salaries will continue to rise at their current rates. Indian salaries are rising fast now only because they started at such abysmal levels; they’re not likely to rise nearly as fast in the future. Further, the U.S. is not alone in being threatened by lower-cost labor elsewhere. Indian programmers’ jobs are already being threatened by even lower-wage Chinese workers, which will prevent Indian salaries from rising as fast as they might with no other competition. The argument also assumes that moving all this work offshore will have no effect on domestic salaries, yet with domestic programmers competing for a shrinking pool of domestic jobs, salaries here have been stagnant or falling.

Job Protection Is Not Political Interference
As the number and frequency of calls for government intervention rise, offshoring proponents characterize any governmental efforts to stem the tide of lost jobs as political interference in free markets and argue that such “political interference” will cause massive domestic job losses as companies lose their competitive edge over foreign companies. I couldn’t disagree more. Governmental controls on trade are absolutely necessary. Is it political interference when the U.S. government (U.S. workers, in other words) gives agricultural corporations up to $32 billion dollars per year in agricultural price supports at taxpayer expense? Is it political interference when the government sets import quotas or surcharges on Asian steel to help U.S. steel manufacturing interests? Is it political interference when tax laws are written so that some 60 percent of all U.S. corporations?including some of the world’s largest and most profitable?can legally pay no income taxes? It’s only fair that the corporations that benefit from the subsidies of U.S. taxpayers be constrained to give those citizens employment preference.

When foreign countries use their low-wage labor to make and sell products in the United States more cheaply than domestic corporations can, corporate leaders cry “dumping,” and rush to the government for help in the form of import tariffs. But when foreign countries offer the labor itself more cheaply than workers in the United States can, corporations rush to the trough, jostling to be the first to tout the lower prices that consumers may receive and the benefits that domestic workers (relieved of the burden of their current jobs) will find in the new “higher-level” jobs that are supposed to take their places.

What can stop the frenzy? Only one thing: better governmental controls. Governments that shield domestic companies’ products from foreign competition should, in fairness, make the same efforts to protect domestic labor. But offshoring proponents would have you believe that “political interference” for worker protection is somehow worse than that same “political interference” to institute trade tariffs, or price supports, or corporate tax breaks.

Loss of Innovation
Finally, offshoring proponents argue that offshoring is a natural process. They try to characterize offshored jobs as “lower-level,” admitting that there’s some pain involved, but that worker retraining, education, and American innovation will replace these lost jobs with new “higher-level” jobs.

Unfortunately, offering nebulous platitudes about “better jobs” and “new challenges” doesn’t help laid-off workers. The fact is that offshoring makes it far more difficult for younger workers to prepare for the jobs that remain: Most managers are promoted from within, and promotions generally hinge on experience, which you can’t get here if the entry-level jobs are overseas. Thus, management jobs will inevitably move to follow the workers, eliminating many of the higher-level job opportunities that offshoring proponents extol.

These aren’t low-level jobs, they’re the highly-skilled professional-level jobs. If these jobs can be offshored, what higher-level jobs should we retrain workers for? No one knows.

To say that future, more secure, better-paying jobs depend on innovation is correct, but ask yourself: Where does innovation come from? Throughout history, innovation stems from ideas promulgated primarily by people who are actually involved in the work.

The “innovation” argument has the additional insult of laying blame back on workers: “If you had only come up with more creative ideas, you’d still have a job.” That’s a tempting falsehood. U.S. workers did come up with better ideas?ideas such as Internet- and Web-based communication, which made nearly instantaneous data communication affordable; free open source software, which gives low-wage countries affordable entry into modern software development; and software as a service, which makes the location of a service unimportant. In fact, collectively, these innovations enabled the trend that’s taking our jobs.

It’s not only lower-level jobs that are at stake; chemists, engineers, architects, programmers, medical, legal, and investment researchers and analysts, accountants, and technical writers are among the job skills feeling the effects of offshoring. These aren’t low-level jobs, they’re the highly-skilled professional-level jobs. If these jobs can be offshored, what higher-level jobs should we retrain workers for? No one knows. We all recognize that the there are “safe” jobs?ones that can’t be performed at a distance and are thus impossible to offshore. But we also recognize that such jobs are the exception, not the rule; with the increasing sophistication of global communications, most white-collar jobs today can be performed remotely.

We’re losing the very jobs that diligent people work toward, study for, and aspire to. And we may be losing them permanently. Offshored jobs will not return until the financial penalty for moving work overseas is higher than the wage differential?or until the value of such jobs in America falls to parity with that in other countries, which is not a pleasant prospect.

It’s Not Too Late to Change
One can’t put it too plainly: Moving jobs to overseas locations in unregulated fashion impacts the country in profound and far-ranging ways; not only immediately, measured in the human misery that accompanies job loss, but far more importantly in the loss of innovation and consequently of future production and earnings.

Immediate job losses are justifiable and bearable if that job movement results in greater good for the country. But when such job losses translate into long-term sustained economic and environmental damages, they are not justifiable. Most white collar workers in this country sat idly by during the last few decades as corporations decimated blue-collar employment and unconscionably weakened our country’s ability to produce even the most basic building blocks of a modern civilized nation?clothing, furniture, steel, and electronics. Now offshoring promises to do the same to knowledge workers and white-collar industries, limiting America’s ability to compete globally.

We’re offshoring our children’s future. But it’s not too late to change.

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