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Tuesday, December 30, 2003

Trade and Outsourcing 

Judging by holiday conversation with the family, and various print media articles, there is now a growing unease over the outsourcing not only of nearly all manufacturing jobs, but now an increasing number of service jobs. Some, in what is surely an example of poor coinage, are taking to calling the phenomenon Wal-Martization. The key is a willingness to decrease costs across the entire supply chain, including seeking lower labor costs in developing economies.

Never have we had so much reason to rue the British empire, I suspect, as Indian programers and customer service call centers steal rightful American work.

Although I'm less concerned about this, it is not because I secretly burn for laissez-faire. Rather, I believe that there is a price to international development in the short- to medium-term. We should be open and strategic about this cost, how it ought to be borne, where the benefits will arise, and how they ought to be ultimately distributed.

I have two thoughts.

First, organizing labor in developing countries is an important task. At the Seattle WTO developing countries banded together to reject core labor standards proposed by the US and others, claiming that this was protectionism in disguise. I'm not sure, but this may have been shortsighted on the part of developing countries in the sense that it will be that much harder for these nations to regulate big business on their own in the face of the explicit threat that increasing the cost of production in their own country will lead the business to move the production elsewhere. They would rather have low-paying jobs than nothing, naturally. But at the same time, these countries are not seeing very much more of the profits than the meager wages paid out. Shareholders are the ones who are profiting. Development will only happen if countries (and ideally the workers themselves) are able to retain a greater share of the profits. Organizing labor in the global world is not just a struggle against management, it's a redistributive struggle against shareholders (like me) who have fattened up on the benefits of globalization. It may be true that organizing or labor standards will lead to further shifts in production; but if middle-class mobility can be salvaged from working class industrial jobs, there is the chance to level the field without participating in a race to the bottom.

The second thought is that this outsourcing is maybe not so terrible. There are good reasons to feel happy that the poorer places on earth may be able to do more to feed, clothe, provide employment, and educate their citizens. Further, I would argue, we have no right in this or any country to a lifestyle beyond a certain standard of living (at least, that's what our social safety net including welfare, unemployment compensation, social security, health care, etc. would argue). We have been conditioned, perhaps, to believe that each generation must do better than the previous, but in theory there are plenty of people who could do a fair bit worse and still not be suffering, no? The theory is not entirely persuasive, I realize, because at least some of those people are not the ones who stand to lose anything if more jobs leave the US, because their standard of living may be more secure. But the theory is still instructive in a kind of fundamental way.

The pragmatic argument is that any loss of jobs or transfer of income through outsourcing in the short-term is an investment in development that will eventually lead to the creation of middle-classes and social mobility in other countries. The expectation would be that as emerging markets grow, so does their ability to provide employment. US businesses have long dreamed of China's opening in order to access 1 billion more potential customers, but without money, with what will the Chinese buy all of our great stuff? Increasing standards of living likely will mean that everyone, globally, will benefit from the rise in commerce as more people queu up to buy goods and services, but it will also lead to greater social expectations in developing countries around the type of employment and the kinds of opportunities open to individuals of those societies. Trans-national migration patterns will change as well.

The point is that this income transfer is happening. We can treat it as money lost, but in that case it will likely be lost even if we revert to protectionism which would shrink our economy without protecting the folks who need the protection. Or we can treat it like an investment, and strategically plan to develop value in order to augment the return. We have an interest in avoiding the race to the bottom because it's morally bankrupt, but also because sweatshops and the like are not a terribly efficient way to create value (middle classes in developing countries are a better bet than hoping American demand and cheap labor can keep Gap shares going up 8%, or whatever it does). It's kind of like drilling for oil in the ANWR to alleviate dependence on foreign oil.
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