Saturday, February 07, 2004


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By William Fisher

“Exporting Jobs” through outsourcing has become a hot story in the US media – and among presidential hopefuls on the campaign trail. But outsourcing has been a practice of rich-nation companies for decades. And it has been encouraged by successive administrations in Washington -- both Democrat and Republican – as a way to create jobs and stimulate economic development in poor countries.

So why are we treating outsourcing as something new?

First, the US economy is in bad shape, and failing to create jobs. So exporting any job is likely to attract attention and criticism.

Second, the nature of outsourcing has changed. Back in the Reagan years, US companies were encouraged to open plants or find subcontractors in developing countries. Investment Promotion was a major goal of US aid agencies – remember Reagan’s Caribbean Basin Initiative? The US Government flooded the ‘third world’ with consultants to help poorer countries attract US investment by providing them with factories and industrial parks, conducting campaigns to woo likely sectors of US industry, developing laws and regulations offering investors long tax holidays and other incentives, and streamlining the investment approval process. However, back then, it was blue-collar jobs that were being exported: mostly low-paying assembly-line type jobs. US companies that moved part of their production abroad got high marks and tax breaks from Washington – cold comfort to the thousands of textile and other workers who lost their jobs in the process. Today, outsourcing means the shipment of higher-paying white-collar high-tech jobs to countries with well-educated but much lower-paid workers.

Third, the nature of world trade has changed. The motivation of companies that turned to outsourcing was never about job creation in the developing world. It was about cutting costs and increasing profits -- and it still is. Two decades ago, these companies faced devastating competition from producers in countries like Japan, Taiwan, and South Korea. These countries had enormous reservoirs of low-cost, trainable labor, quite capable of sewing a garment, making a toy, or assembling a small motor. Today, these and many other developing countries have developed sizable cadres of highly educated business managers and employees capable of performing far more skilled operations, including designing and manufacturing computer software and other high-tech products. The earlier assembly-line skills have moved to even poorer countries, and continue to attract business from US employers who require these kinds of lower-level skills. Moreover, parts of the world once valued only for their cheap labor have become markets for the products of US and other producers. Like outsourcing, this is nothing new; US companies have been setting up operations in promising markets since before World War II. Today, the Internet and other technologies have made the process is faster and accessible to many more companies. Today we call it ‘globalization’, but it’s been around a long time.

Fourth, the recent spate of US corporate scandals has riveted public and media attention on the relentless ‘bottom line’ orientation of American management. The pay packages of many US CEOs are tied directly to company profitability and stock exchange share price. We are – and should be – outraged by
Enron-type criminal fraud and deception. But why should we be surprised that companies are constantly seeking to lower costs and increase profits? That used to be lauded as ‘efficiency’; today, it is dismissed as ‘greed’. If we see every US company as Enron, we are in danger of throwing the baby out with the bathwater.

Fifth, in today’s anti-corporate environment, critics almost invariably ignore a key element in the equation: stockholders. Stockholders determine share price, Board members, demand ever-greater returns on their investments, and create the environment that encourages CEOs to seek ever-larger remuneration packages. Surely this group bears some responsibility for exporting jobs.

The fact is that only a small fraction of the jobs lost over the past few years were ‘exported’ or ‘outsourced’. Most were lost to competition from other countries, to increases in our own productivity, and to layoffs during a recession. Most of them will never return. But we can’t become competitive again by protecting the steel industry or even making outsourcing illegal. Our strategy has to be to do what the American private sector has always done best: creating new industries that will provide new kinds of jobs. This cannot be a fast-track process, and people without jobs will continue to hurt for some time. But opportunities to build new industries are many, particularly in the life sciences. Taking advantage of them requires ideas, innovation, new skills, vision, capital – and the confidence to invest. Today, it is only confidence we lack. Yet these opportunities will be lost to others unless we are prepared to overcome our post-dot-com risk aversion.