Friday, January 30, 2004

Outsourcing is terrific?! 

Clay Risen's most recent piece in The New Republic describes the current handwringing over increasing number of service industry and high tech skill positions migrating to developing countries. Politicians have begun to debate and demagogue this issue. He argues that things are not likely to turn out as bad as is being made out. Several points:

1) The IT industry was clamoring for more H1 visas for high-skilled foreigners for most of the Tech boom. There were numerous reports about a shortage of Americans qualified to fill such positions, nor did companies presumably mind foreigners' willingness to work as entry-level programmers at somewhat discounted wages. At the same time, as is pointed out, it's not at all clear that the pace of outsourcing during those years was any slower than it is now. In both cases, it's amazing how fear changes everything. When you're worried the pie is shrinking, all perspective goes out the window.

2) At the end of the article a comparison is drawn between the likely effects of a protectionist U.S. and the restrictive employment zones and aging populace of developed European economies. Such policies may lead to higher unemployment and economic stagnation in the medium to long run.

1) and 2) make me think that interesting work could be done around the connection between immigration policies, trade policies and growth/unemployment.

3) Amazing, too, how much more sympathetic people are when a job is lost to a foreigner versus to a machine. The huge increases in productivity made possible by IT, mechanization and other technological upgrades have always cost jobs, but few claim that we should role back that process analogous to protectionist arguments for roling back outsourcing.

4) Obviously replacing lost wages in the short term and worker (re)training afterward is important, and Clay's inclusion of a policy proposal to require, as with unemployment compensation, that outsourcing companies contribute to some of these costs seems sensible.

5) Not noted in the article, but perhaps as important, is expanding the base of shareholders, or owners of assets, within our economy. Many of the dividends of outsourcing accrue to these parties, so finding ways to distribute those benefits to a wider investing class would seem valuable. Wealth building strategies, such as targeted increased incentives for personal saving and investment, or perhaps the use of employee stock options triggered by outsourcing's productivity gains, might enable greater numbers of individuals here to profit. I wonder if it's possible to "protect" our workers not by cravenly holding onto jobs in a way that makes businesses less competitive and less capable of achieving the very success we want for them, but by making more owners out of our workers in the first place. There asset would be a useful hedge against potential disrupted employment.
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