The Outsourcing Debate

Outsourcing, the movement of jobs by American companies to other countries, has replaced cultural imperialism, tariffs, and free trade as the next big debate on globalization.

Because the issues connected to outsourcing touch so many people in deeply personal ways, it is difficult to find politicians willing to talk straight on the subject. But this issue as much as any requires a discussion that is honest and forthright.

From a historical perspective, it is odd that the currently contentious shift of jobs should be thought newsworthy. The movement of jobs overseas is a hardly a new trend. Manufacturing jobs have been fleeing this country for decades. The shift of employment out of manufacturing in the United States, however, has led neither to rampant unemployment nor a declining standard of living.

(It is important to note that the decline in manufacturing jobs is not simply due to a “transfer” of jobs to other countries. It is, more profoundly and irreversibly, due to automation and resultant productivity increases. In short, we can make more goods with less labor. Manufacturing jobs are in global decline. The number of jobs in manufacturing has decreased in recent years not only in the United States, but also in places such as China and Brazil.)


Such shifting of jobs always causes short-term and localized hardship. As ever, there is a necessary role for intermediary institutions including families, churches, and non-profit groups, to help workers through lean times and to facilitate transitions to new employers or even new careers. In addition, with the availability of small-business loans through both private and government sources, it is not rare for a job loss to be an impetus to entrepreneurship, as a former employee starts a company to fill an economic niche previously unnoticed.

The novel dimension to the current debate is that traditional manufacturing jobs are not the only ones disappearing in the contemporary craze to outsource. Now, white collar jobs in services and high-tech are also being transferred to places outside the United States.

This new dimension changes nothing about the fundamental economic implications, however. If an Indian trained in computer programming is willing to perform the tasks that an American similarly trained was doing, and do them in return for less compensation, then it makes sense for the Indian to do the job. This development represents an increase in efficiency and, hence, in productivity. The process does not destroy jobs, on net; it increases them, by allocating resources more efficiently. Certain jobs are lost, but others, often higher paying, are created. This result is sometimes evident even within individual companies. IBM, for instance, will transfer 3,000 jobs overseas this year—but it will also add 4,500 in the United States.

The continued shift of jobs toward developing nations may look like a “rush to the bottom” — a spiraling downward of wages as companies seek ever-cheaper labor markets. In fact, it is a rush to the top, as millions of people in developing nations gain employment that raises significantly their standard of living. Indian high-tech workers, for instance, who have garnered a lot of the attention (and scorn) in recent debates about outsourcing, already command salaries many times higher than their country’s average. Their wages will continue to rise as more companies move in and skilled labor becomes scarcer.

Many people of faith have decried the movement of jobs overseas for the damage that it does to people and communities whose companies have left. These sentiments obscure the underlying argument: A foreign worker, equal in skills to his or her American counterpart, should not be able to compete against the American. Of course, this argument is never so baldly stated because, if it were to be so articulated, its character becomes evident. Such an argument is an affront to justice.

In Centesimus Annus, Pope John Paul II urged that developing nations be brought into the “circle of exchange,” to participation in the lucrative trade of world markets. It is the surest way, he argued, for nations to progress economically and to alleviate the burden of poverty. Nations such as Mexico and India have done just that, with the results that the pope predicted. What’s more, Mexicans and Indians and others in the developing world are offering world-class manufacturing, engineering and information technology skills. Now some want to punish them, to outlaw the outsourcing that is simply mutually beneficial exchange by another name.

Americans, including those temporarily hurt by outsourcing, need to keep their own economic situation in perspective. New Republic writer Gregg Easterbrook in his recent book, The Progress Paradox, calculates that even poor Americans have a better material living standard than 99.4 percent of the estimated 80 billion people who have ever lived.

N. Gregory Mankiw, chairman of the president’s Council of Economic Advisors, argued rightly that outsourcing is “just a new way of doing international trade.” It is on balance, he concluded, beneficial to the American economy. The response from political leaders in both parties was to censure Mankiw and insist that they were champions of American job retention. Legislatures at state and federal levels are considering proposals to limit outsourcing. But jobs are not created by the good intentions of legislators; they are created by companies free to be competitive in a world economy. If politicians wish to do something productive on this score, they might alleviate competitive pressures on American companies by attacking the country’s corporate tax rate, currently fourth-highest among industrialized nations.

The impulse to protect American workers is praiseworthy. But such an impulse, if it leads to policies that ignore economic principles and the demands of justice, ends by doing harm, even to those intended to benefit. That is a familiar story in the history of American economic policy. When will we learn its moral?

Kevin Schmiesing, Ph.D., is a research fellow for Center for Economic Personalism at the Acton Institute. He is the author of American Catholic Intellectuals, 1895-1955 (Edwin Mellen Press, 2002) and is a frequent writer on Catholic social thought and economics.

(This article is a product of the Acton Institute —, 161 Ottawa NW, Suite 301, Grand Rapids, MI 49503 — and is reprinted with permission.)

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