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The Great Outsourcing Hoax

In Wednesday's Washington Post, Robert J. Samuelson revisits the bogeyman of "outsourcing" or "offshoring" that was supposed to destroy our lives and economy.

Remember the great "offshoring" debate? It was all the rage a few years ago. Modern communications allowed white-collar work to be zapped around the world. We faced a terrifying future of hordes of well-educated and poorly paid Indians and Chinese stealing the jobs of middle-class engineers, accountants and software programmers in the United States and other wealthy nations. Merciless multinational companies would find the cheapest labor and to heck with all the lives ruined in the process.


What happened? Well, not much.

Every so often, it's worth revisiting old controversies to see whether the reality matches the rhetoric. In a recent paper, Jacob Funk Kirkegaard of the Peterson Institute for International Economics did just that for offshoring (a.k.a., overseas "outsourcing"). He reviewed many studies. His conclusion: "The heated public and political debate . . . has been vastly overblown."

For the United States, Kirkegaard examined a survey on "mass layoffs" from the Bureau of Labor Statistics to see how many stemmed from offshoring. The answer: 4 percent. That included both manufacturing and service jobs.

In 2004 and 2005, the BLS counted almost 1 million workers fired in layoffs of 50 or more. That isn't a huge number in a labor force of about 150 million. Moreover, most causes were domestic. The largest reason (accounting for about 25 percent) was "contract completion" -- a public works job done, a movie finished. Other big categories included "downsizing" (16 percent) and the combination of bankruptcy and "financial difficulty" (10 percent). Only about 12 percent of layoffs stemmed from "movement of work" -- a category that would include offshoring. But two-thirds of those moves were domestic.

Remember that much like the hype about global warming this was a fait accompli since there was no debate about the scope of the problem - everyone could see that "the science" was settled. American jobs being shipped overseas had all the makings of the next great pandemonium; right up there with the Japanese buying all of America's commercial real estate in the 1980's and the imminent collapse of the U.S. computer industry in the 1990's due to overseas manufacturing. Of course you remember those right? Outsourcing as an economic bogeyman will soon go the way of those - as hysterical historic footnotes.

Ironically the very day Samuelson's piece ran John Edwards was in the news using the outsourcing bogeyman to woo union voters.

Edwards told the crowd that as president he would ban permanent hiring of replacement workers, end tax breaks that encourage foreign outsourcing and tighten labor standards in trade agreements.

Edwards, the candidate of trial lawyers and labor unions, will solve a problem that hardly exists in either of his two Americas. That hedge fund experience really is serving him well...


Comments (30)

We went to turn on the air ... (Below threshold)

We went to turn on the air conditioning for the first time this year the other day (if I can refrain from cranking it until after May 1st, I have won), and . . . pfffft! Nothing. The air was blowing, but not cold. Since I had only outsourced the repair of the leaking freon last year, I immediately called my AC guy - who, I admit, lives in a nearby town of ne'er-do-wells - and he came out right away.

My compressor was dead, but rather than replace it and wait for more of the old unit to fail, I outsourced this guy to install a new heat pump and core.

Does John Edwards have his wife give him his $400 haircut-and-cucumber-facial, or does he "outsource" the work?

As Mencken noticed, "No one ever went broke by underestimating the intelligence of the American public."

John Edwards, the president... (Below threshold)
marc:

John Edwards, the presidential candidate that entered the race a decade too late.

But it matters little, he still would have been an empty suit ambulance chaser then.

This stuff doesn't happen o... (Below threshold)
jpm100:

This stuff doesn't happen overnight. Business hoped it could, but doesn't mean it won't. China didn't absorb a huge chunk of the world's manufacturing overnight, but if 25 years ago if I told someone how much they would control today, they wouldn't believe me.

I find it almost an uniquely American thing to believe if something doesn't happen on a massive scale overnight, it isn't happening.

All I know, is that in my profession H1-B's and outsourcing have done a good job of locking my wage to barely match inflation for the past 7-8 years, and I'm doing good.

I was amused in 'o4 to watc... (Below threshold)
kim:

I was amused in 'o4 to watch Kerry stand by with his shit eating grin while Edwards bewailed the loss of Carolina textile mill jobs overseas; the same jobs Massachusetts had lost to Carolina half a century ago, and for the same reasons.

Here's a clue; double management spoiling the broth in the kitchen.
===========================

As a rule of thumb, the les... (Below threshold)
Rickbert:

As a rule of thumb, the less I hear of a subject before an election year, the more I hear about it during and election year, and then the less I hear about it after the election, the less I trust the reporting done on the subject.

Either the Mainstream Media puffed up a minor issue to help the Democrats during the 04 elections, or they're being terribly irresponsible in failing to follow up on it now. Either way, this betrays an astonishing lack of journalistic integrity.

It doesn't seem to matter where you stand on the subject, this seems an inescapable conclusion. It doesn't mean the issue isn't important, or even that the democrats didn't have a better position on the issue. However, if you think that's the case, why the dropoff in media attention since?

Some of the Stalinists on t... (Below threshold)
kim:

Some of the Stalinists on the left have figured out how to use the power of the media to manipulate. What they haven't figured out what to do is deal with the real world which doesn't fit the lies the left and the MSM have been increasingly pushing on the credulous.
====================================

Mencken might not have said... (Below threshold)
kim:

Mencken might not have said that had Al Franken been on the air back then.
====================================

Kinda screwy really, why wo... (Below threshold)
kim:

Kinda screwy really, why would they want to avoid attribution? Are they afraid to be shown to be touting their candidate? Why was it so necessary that the source of that information not be disclosed?

Maybe it was reverse psychology, and you didn't fall for it.
===========================

Given what has been release... (Below threshold)
nogo postal:

Given what has been released today on the Immigration Compromise..It is very possible that the President's Plan to increase security and offer amnesty with a fine and reoccurring visas will, in the long run, be remembered.

I am involved in an Asian o... (Below threshold)
Mark L:

I am involved in an Asian outsourcing deal. I live in Texas. An English-language magazine in Hong Kong needs articles. They outsource to me.

I also have a publisher in the UK that outsources to me -- one in the Phillipines, too.

Sweet. Outsourcing? Bring it on.

I am involved in an Asian o... (Below threshold)
Mark L:

I am involved in an Asian outsourcing deal. I live in Texas. An English-language magazine in Hong Kong needs articles. They outsource to me.

I also have a publisher in the UK that outsources to me -- one in the Phillipines, too.

Sweet. Outsourcing? Bring it on.

Outsourcing actually has sh... (Below threshold)
George:

Outsourcing actually has short term benefits which we are now enjoying. The long term results can be devastating.

In my area, we are watching the Hershey Chocolate plant shut down as the processing is being moved to Mexico. There is a whole town here that would disagree with you perception that the outsourcing problem is a hoax.

Hey Jim Addison, what is yo... (Below threshold)
George:

Hey Jim Addison, what is your job? How are you going to pay to get your air conditioning fixed when your job is outsourced to a third world worker who earns a dollar a day? Maybe you should start getting used to not having air conditioning.


Or maybe go into the HVAC b... (Below threshold)
kim:

Or maybe go into the HVAC business. Local service is difficult to outsource.

My 8:54 post should have been on the attribution thread. I'm pleased no one noted that it didn't make any sense.
================================

A lot of companies have bec... (Below threshold)

A lot of companies have become disillusioned with the H1B visa program. Fewer are hiring them because it's simply not been cost effective. My husband works for a subsidiary of a gigantic corporation which simply won't hire them anymore. The quality of work was not what they'd hoped and simple verbal communication has been at issue.

They'd had these people stereo-typed because they believed the hype about how Americans are lazy and they're all harder workers and all smarter than we are. And it simply isn't true. Just as many of them had proven to be just as apt to be lazy and just as apt to not know enough about their job.

I can't speak for how other companies have operated, but in this case, it just didn't work.

My 8:54 post should have... (Below threshold)
Matt:

My 8:54 post should have been on the attribution thread. I'm pleased no one noted that it didn't make any sense.

We noticed, we were just being kind. Don't get used to it...

Naw, you're just used to it... (Below threshold)
kim:

Naw, you're just used to it. Gotcha.
======================

Just as an interesting note... (Below threshold)
John Irving:

Just as an interesting note, a friend of mine recently went to South Korea on a business trip, and he witnessed protests while he was there.

They were protesting the loss of South Korean jobs to Americans.

Don't like outsourcing? Wa... (Below threshold)
toddk:

Don't like outsourcing? Want to keep companies from doing it?

Ok, but let's be consistent about it. :)

We get rid of every Honda, Toyota, Mercedes, BMW, Mitsubishi, Subaru, Hyundai and Kia auto plants in this country.

And that's just the car industry alone.

For the Unite... (Below threshold)
Lee:

For the United States, Kirkegaard examined a survey on "mass layoffs" from the Bureau of Labor Statistics to see how many stemmed from offshoring. The answer: 4 percent. That included both manufacturing and service jobs.

In 2004 and 2005, the BLS counted almost 1 million workers fired in layoffs of 50 or more. That isn't a huge number in a labor force of about 150 million. Moreover, most causes were domestic. The largest reason (accounting for about 25 percent) was "contract completion" -- a public works job done, a movie finished. Other big categories included "downsizing" (16 percent) and the combination of bankruptcy and "financial difficulty" (10 percent). Only about 12 percent of layoffs stemmed from "movement of work" -- a category that would include offshoring. But two-thirds of those moves were domestic.

Offshoring has negative connotations, as is illustrated by the base premise of this post that it's wrongly considered "a bad thing"...

and a voluntary survey where companies are given the opportunity to admit that they've done "a bad thing"-- namely laid people off because they've offshored the work to India or where ever, is, by design, flawed and unable to measure the true impact.

It's rather like asking divorced men if they are now divorced because they abused their wife. I bet the survey won't reflect the truth.

Of greater concern to me is the types of jobs that are being offshored. It my uderstanding that it isn't the burger-flipping jobs that are being exported, its manufacturing and high-tech knoweldge workers (software, etc).

Working in the tech sector,... (Below threshold)
SCSIwuzzy:

Working in the tech sector, I'll second what Oyster has said.
The quality drop that has resulted in outsourcing (different definitions of what meeting a requirement is, language gap making requirements unclear and so on) for most companies has taken the shine off offshoring. The same has applied to H1B workers. I don't know how many times I've heard an excuse for poor performance that began with "In my country...". This is not to say that every H1B was a poor hiring choice, far from it. But they can suck just like everyone else, and the myth that American's are lazy is just that. The lazy ones end up flipping burgers. The rest of us are out there working, making a good living, and hoping to see the AMT repealed or raised before we hit the threshhold! ;)

So far the only growth sectors I see for offshoring are call centers and the like. And the companies are paying for it in public relations.

I live in Michigan and I kn... (Below threshold)
Xennady:

I live in Michigan and I know of a swarm of closed factories within a few miles of my house.Pardon me but I find the idea that only four percent of layoffs are due to outsourcing preposterous.If a small machine shop goes bankrupt because of imported Chinese widgets, just how isn't this due to "offshoring"? Somebody stopped buying "inshored" American parts.It looks to me that the definition of offshoring chosen by this Kirkegaard guy was designed to be as narrow as possible to make number of jobs lost to be as low as possible.I don't buy it.

...the imminent collapse of... (Below threshold)
John S:

...the imminent collapse of the U.S. computer industry in the 1990's due to overseas manufacturing...

Sorry, that one happened. Try to buy a PC made in this country. Dell, the sole remaining importer of PC components, is teetering on bankruptcy.

Kevin obviously hasn't donated 3 six figure jobs to India in the course of his career. Those high tech positions now pay $15 hour, when you can find them.

Well, I guess I have a bit ... (Below threshold)
Xennady:

Well, I guess I have a bit more to say.Why the hell are there tax breaks encouraging foreign outsourcing? WTF? This reminds me of the day I decided to stop subscribing to the Wall Street Journal.I read an editorial by someone-from the Heritage Foundation, I believe- who argued that the US government had no moral right to favor American steelworkers over South Korean steelworkers.This made me wonder why this guy thought the US government had a moral right to collect tax money from me while not collecting it from South Koreans-since he apparently thought it should represent us equally.This was about 1999 when dozens of US steel companies were sliding into bankruptcy-and I worked for one of them.It seems to me this attitude pervades free traders today-that the US government shouldn't favor American companies-and thus workers-over foreign firms.Fine-just collect the same amount of tax money from me as you do them, and relieve me from following all the expensive OSHA and enviromental regulations foreign firms overseas don't face-and I'll go along with the free trade plan fine.Until then, count me out.

Yeah, more from me.John Irv... (Below threshold)
Xennady:

Yeah, more from me.John Irving:Per a story in the International Herald Tribune, South Korea has an average 52% duty on US farm products-40% on beef, and 8% on US vehicles.The US has a trade deficit with SK of 13 billion dollars.I'll bet what those folks were protesting was the POTENTIAL lost jobs to the US of the lowering of these and other tariffs from the proposed trade deal.If you have information that shows otherwise, I'd love to see it.Otherwise, I just don't believe you.I'm very curious to see what jobs SK has lost to the US as of right now.I suspect there are none, or at least damn few.On their end, they exported 800000 vehicles to the US last year.How many South Koreans did that employ? And how many Americans would be employed making those vehicles, if we had the same trade policy as South Korea? Pardon me for ditching the free trade dogma, but I'll pick option number #2.

How are you going to pay... (Below threshold)
_Mike_:

How are you going to pay to get your air conditioning fixed when your job is outsourced to a third world worker who earns a dollar a day? Maybe you should start getting used to not having air conditioning.

Or, radical idea, you could attempt to improve your marketable skill set rather than insisting the world adapt to suit your current skill set.

Let me spell out my point.<... (Below threshold)
jpm100:

Let me spell out my point.

25 years ago China couldn't support the level of industrialization they have today. If they had tried, everything would have been substandard, if it had even made it out the door.

They developed their country to handle it.

India and other countries can't support the outsourcing to the level desired today. However, now that the initial party is over, they'll get more serious about it. They'll sift through looking for more competent employees. Their Universities will adapt to fund the demand.

Mike:In other words, if you... (Below threshold)
Xennady:

Mike:In other words, if you're an American who loses their job to China, screw you-you shoulda been a lawyer.Yeah.Pardon me, but that attitude always makes me think you folks are like a coroner that can't tell the difference between someone who was murdered and someone who died of old age.All they see is a dead body-no need to call the police! In your case, you can't tell the difference between jobs that went away because buggy whips are no longer in high demand and those that disappeared, for example, because the murderous dictatorship that rules China manipulates its currency.My position is that the US government should stop such behavior by China and remember who pays their salary and which country they represent.No, I don't expect that to happen.

Kevin over at the Evolving ... (Below threshold)
Ken:

Kevin over at the Evolving Excellence blog moderated a panel discussion at Kellogg the other week on Onshoring and China. Let's see if I can find it...

Onshoring:
http://www.evolvingexcellence.com/blog/2007/05/a_tide_against_.html

Perils of China:
http://www.evolvingexcellence.com/blog/2007/05/littered_with_t.html

But foreign companies are moving here, even in big steel:
http://www.evolvingexcellence.com/blog/2007/05/nucor_look_over.html

Ken

I think outsourcing is a re... (Below threshold)

I think outsourcing is a resultant of globalization. When the multi national companies like coke/Mercedes/ Audi / Suzuki / GE entered local market and uprooted the local manufacturers, the software and companies are making merry with the work contracts they earn from abroad. There always has to be give and take policy.




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