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The Reality Behind Job Outsourcing


As unemployment remains high and once-stable jobs mysteriously vanish, Americans are becoming desperate for answers: How are workers supposed to deal with unprecedented economic insecurity, where are these jobs going, and who is to blame?

Interest groups and politicians have decried outsourcing as the American worker’s nemesis, fueling public anxiety about the dangers of globalization and a new protectionist mindset that reacts against the free trade doctrine of the corporate America. Kerry, backed by the AFL-CIO, has blamed Bush for the loss of jobs to cheap overseas labor markets. New statistics revealing the export of 3.3 million white-collar jobs by 2015 are stoking fears that the global economy is slowly draining the incomes of the middle class.

In response, the usual establishment cogs—Bush’s advisers and various corporate spokespeople—tout outsourcing as a positive new status quo for corporations. There are also academics and economists who dismiss the doomsayers, arguing that outsourcing is at best a productive economic trend—keeping prices low and industries efficient—and at worst, a natural phenomenon over-hyped by party politics.

The reality, as always, is more complex than either side will admit, and oversimplifying the issue threatens to do more harm than outsourcing itself.

There’s a stark logic to outsourcing: jobs will go wherever they cost employers less. Geographic movement tends to follow the bottom line. Just as yuppies move to Brooklyn when they can no longer afford converted East Village tenements, so companies like IBM are spurred by the Pavlovian capitalist impulse to set up shop in Mumbai for cost-efficient computer work.

Political scientist Daniel Drezner wrote in Foreign Affairs that Americans should avoid “outsourcing hysteria” because the offshoring statistics reflect “gross, not net losses.” This basically means that as long as the number of new jobs created compensates for the number of jobs lost to foreign subcontractors, American workers should be okay. Drezner notes, “about 22 million new jobs are expected to be added between now and 2010.”

But outsourcing hysterics—most of whom are not economists or corporate strategists and therefore at much greater risk of actually experiencing outsourcing first-hand—might find it difficult to mellow out after checking the arithmetic of outsourcing advocates. Since Bush took office, the economy has seen a net loss of 1.6 million private sector jobs. An exponential reversal of this trend in six years through private sector growth seems a miraculous feat of economic contortion. Analysts cite the law of comparative advantage, which dictates that if we have elementary school drop-outs in Thailand stitch our sneakers, we Americans can then engage in business more befitting a developed nation: upgrading our technology and services industries, establishing new sectors and providing new employment opportunities for displaced domestic workers.

Sounds like a plan. Except we’re not following it. Our so-called recovery phase passed its second birthday without much fanfare; jobs that theoretically should be available are simply not there. Stephen Roach, an analyst at Morgan Stanley (a company not known for its anti-globalization stance) told the Times, “Something new is going on. America is short of jobs like never before.” Simply put, this ain’t your Momma’s unemployment cycle.

Nonetheless, outsourcing is more a symptom than a disease, and attacking it alone is like uprooting your garden to get rid of hay fever.

Outsourcing is the predictable scapegoat for the 2.7 million manufacturing jobs lost during Bush’s term. Manufacturing has been globalization’s biggest casualty as factories move overseas to capitalize on abundant low-wage labor. Factory workers, who have seen the number of jobs in their sector dwindle by 11 percent in the past decade and unemployment jump 36 percent since 2000, are understandably shaken.

But the zero-sum theory of protectionism shortsightedly equates each American job lost to one gained overseas. In fact, the main culprit is not the Dickensian industrial parks of Guangdong but the Brave New World of automated factories. Though the going-rate for a Sri Lankan garment worker is only about 2 percent that of her American counterpart, a robot will happily log more hours than even the most desperate factory drone. Since the 1970s, the general trend—not just in the US but in all industrialized nations—has been the replacement of workers with cutting-edge production technology. One US company recently got press when it increased productivity five-fold by upgrading their automation systems to operate around the clock with only two staffers.

The demand for skilled workers to operate such systems has eclipsed the demand for unskilled wage workers. In the 1980s, job opportunities in manufacturing began shifting dramatically from low- to high-skill labor. This has led to jobless millions choking on the dust of booming productivity, and transformed the composition of a given industry’s workforce. American workers are being ousted not by foreign ones, but rather by the same tide of modernization causing massive unemployment even in “insourcing” countries. In China, sleek new industries are similarly rendering state factory workers obsolete. The current pattern of white-collar jobs being lost to the information revolution is an outgrowth of a long-standing, worldwide trend.

But if outsourcing isn’t the enemy, is it our friend? Bush’s Council of Economic Advisers have proclaimed, “Free trade is win-win. … Free trade encourages countries to specialize in what they do best.” Apparently, what poor countries do best is funnel peasants into mega-factories to produce Walmart Tupperware, while America specializes in increasing simultaneously the nation’s overall wealth and the number of poor people at home and abroad. If these are the benchmarks of what the CEA deems “economic well-being around the world”—well, everybody’s a winner.

The “win-win” school is also guilty of using zero-sum reasoning to prove that newly created domestic jobs will “replace” eliminated ones. Job loss trends hardly correlate to the “robust” growth analysts envision. The economy is restructuring to create new opportunities, but wealth is also shifting into fewer hands. A study of worker displacement from 2001 to 2003 by the Bureau of Labor Statistics found that about 60 percent of displaced workers had found new jobs, but over half were earning less, one third taking a pay cut of at least 20 percent. Moreover, underemployment has grown alongside unemployment as more Americans turn to part-time work to get by.

Expectations for the high-skill labor market seem similarly detached from reality. The BLS recently reported that unemployment over the past year remained constant at all educational levels, except for high school graduates, whose unemployment increased. And yet professional sectors requiring a college diploma are expected to lead the anticipated wave of job growth. Even if they do, former auto plant workers are not likely to find reemployment as high school teachers or software engineers—two of the most promising sectors, according to the BLS. Bush’s 2005 budget seeks to cut job training and supportive services for the unemployed, which, along with severe under-funding of public schools, ensures that low skills will remain low.

Outsourcing’s cheerleaders think multinational corporations will reinvest profits domestically and therefore expand employment. But while outsourcing companies feed off a slew of incentive and assistance programs, “reinvestment” often expands profits more than it expands job opportunities. The number of domestic jobs at US multinationals grew at only half the pace of offshore jobs between 1982 and 2001, according to the Institute for Policy Studies. With white-collar outsourcing gaining momentum, this divide between domestic and offshore growth will only intensify. And the prospects for displaced low-skill workers getting rehired for skilled positions, by the same bosses who downsized them, look dim.

Outsourcing reflects the cold protocol of the corporation: maximize output, minimize input. But protectionism is not a responsible solution to a “race to the bottom” affecting all of humanity; it smacks of Reagan-era xenophobia and undermines opportunities within the context of globalization to improve living and working conditions for workers everywhere.

Policymakers and activists cannot react to outsourcing without tackling broader issues implicated by it. Lower labor costs in the developing world stem from appalling working conditions, which international institutions fail to address. Income loss due to globalization and recession reveals the need for tax reform that favors working families over CEOs. Schools should prepare students to rise to the challenge of a volatile international economy. The federal Trade Adjustment Assistance program should encompass a broader range of workers and communities left behind by “recovery.” While America’s workers seek to assign blame, fingers should point not to factories in Asia but to a government that squanders resources on the military and economic domination of weaker nations, to boost an economy that actually undermines domestic living standards.

Without systemic reforms, shipping jobs overseas is not a winning formula for anyone except big business. Yet by making workers of all backgrounds realize they face a common struggle, it might be a catalyst for a true structural adjustment: one that reverses the hording of power by the engines of capitalism and restores dignity to labor on every shore.

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