Outsourcing, Offshoring
These topics demand so much attention that both "Business Week" and "The Economist" have just devoted special issues to the subject. Even "Automation World" will be devoting its January 2005 issue to globalization including these issues.
"Business Week" columnist Laura D'Andrea Tyson, deal of London Business School, devotes her column pubished in the December 6 issue to an analysis of offshoring. She makes a valiant attempt to expose the logic of the benefits arguments. In the process what she says exposes one of the problems of analysis of these major economic situations. That problem is the paucity of reliable facts. The world's economy is so large, in fact the economy of just the United States is so large, that determining the real facts of economic activity are nigh on to impossible.
However, the logic of offshoring is interesting. Analysts like McKinsey argue the following:
Sending jobs overseas can greatly reduce costs
The reduced costs allow companies to both increase profits and decrease prices
Decreased prices boost demand
Increased profits enable investment in new products and technologies
The increased investment will lead to new jobs
[Caveat: since the new jobs will require new skills, the economy requires a flexible job market, that is one in which workers can move easliy from job to job.]
The McKinsey Global Institute estimates that for every dollar U.S. companies spend on offshoring to India, the American economy gains $1.14 while India gets $.33. Thus, a "win-win." However, the study assumes that 69% of the displaced workers will find a job paying 96% of their former wages within a year. According to Tyson, recent studies from 2002-2003 suggest that this is optimistic. Even if true, about one-third of workers will not find new employment. If re-employment is less, then the benefit of greater demand would not be realized (since they will not have the money to purchase even at a lower price). Only shareholders of companies would benefit in that case. And I would suggest that that would be a short-term benefit. If sales decline, then profits cannot continue to increase.
Tyson suggests that governments get creative (hmmm, sounds like an oxymoron to me) and find ways to assist displaced workers' re-entry into the market. She favors "wage insurance" programs.
Seems to me that the short-term gain of a company made at the expense of workers (don't forget, that term includes managers, professionals as well as blue collar workers) hurts a society. We will need some programs to assure a populace ever improving in technical skills and creative management (another oxymoron?) that makes appropriate investments in innovation.
2:56:30 PM 
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