Friday, March 05, 2004
Guest Post -- A contrarian view on outsourcing
Most of you will know by now that I am an advocate of free-trade. Most of my posts on outsourcing have been written from an Indian perspective (the beneficiaries of outsourcing). So, it's only fair that I also post a slightly contrarian view, written by an American techie. Over to Walker Duhon.
Outsourcing is the wake up call America needs
All of the sudden attention to outsourcing in America may seem a bit puzzling to outside observers. It has seemingly come out of nowhere to become one of the most important issues in the upcoming election. It is tempting for some to dismiss the uproar as a reaction to the temporary economic downturn; outsourcing, aided by a tinge of xenophobia, then merely serves as a convenient and tangible scapegoat for the current malaise in job growth. And of course it is all too easy in times like these for politicians like Senators Charles Schumer and John Edwards to exploit the pain of those temporarily displaced to gain notoriety or carve a political niche. But, in the end, after all is said and done, the American economy is a dynamic one; new jobs will crop up, and the American consumer will settle down to appreciate the cheaper software products just as they love the cheap goods they find at Wal-Mart. Such is the conventional wisdom, argued confidently by leading economists, and puppeted unquestioningly by mainstream media outlets. But is it true? Almost certainly not.
Outsourcing is beginning to look like the wake up call that Americans need. The segments of the population who most prospered under postindustrialization are now under threat -- well educated, white-collar professionals. Once thought to be invulnerable to the convulsions of relentless globalization, these folks are essential to the political coalition that made free trade and postindustrialization a consensus of both parties. These are people who write letters to the editor, give to political campaigns, and disproportionately show up at the polls. With their defection, the free trade coalition will have lost its base, and the tone of media coverage and politics can't help but change.
The true significance of outsourcing is that it could prove to be the death knell of the postindustrial fantasy. In the 80's and 90's, America allowed its once strong manufacturing base to shrivel and placed its hopes on finance and information services to deliver prosperity. The deal was that Mexico, Japan, China, Korea, etc. would provide the goods, and the US would make a living exporting intellectual property, financial services, and Hollywood movies. Now, after two decades, the results are in -- a current account deficit that amounted to ~$550,000,000,000 in 2003, and shows every sign of growing larger. At an almost unprecedented 5-6% of GDP, the trade deficit is the elephant in the room that almost nobody is talking about (the last time a nation's trade deficit approached this level was 1920's Italy, right before Mussolini took power). The American economy is currently on life support, completely dependent on Chinese and Japanese capital to fund its consumption and power its "growth"; the recent spate of expensive military adventurism doesn't help either. Our trade relationships are unsustainable and there is no easy fix, but unless big changes are made the U.S. will enter a debt spiral.
The economy that we've made for ourselves is flawed in its fundamentals, and outsourcing is exposing the flaws once and for all. A viable economy cannot just be powered by consumption of cheap goods from abroad; there must be strong domestic production as well. The bet was placed that production of intellectual property was the future, and it didn't work.
By Walker Duhon
Outsourcing is the wake up call America needs
All of the sudden attention to outsourcing in America may seem a bit puzzling to outside observers. It has seemingly come out of nowhere to become one of the most important issues in the upcoming election. It is tempting for some to dismiss the uproar as a reaction to the temporary economic downturn; outsourcing, aided by a tinge of xenophobia, then merely serves as a convenient and tangible scapegoat for the current malaise in job growth. And of course it is all too easy in times like these for politicians like Senators Charles Schumer and John Edwards to exploit the pain of those temporarily displaced to gain notoriety or carve a political niche. But, in the end, after all is said and done, the American economy is a dynamic one; new jobs will crop up, and the American consumer will settle down to appreciate the cheaper software products just as they love the cheap goods they find at Wal-Mart. Such is the conventional wisdom, argued confidently by leading economists, and puppeted unquestioningly by mainstream media outlets. But is it true? Almost certainly not.
Outsourcing is beginning to look like the wake up call that Americans need. The segments of the population who most prospered under postindustrialization are now under threat -- well educated, white-collar professionals. Once thought to be invulnerable to the convulsions of relentless globalization, these folks are essential to the political coalition that made free trade and postindustrialization a consensus of both parties. These are people who write letters to the editor, give to political campaigns, and disproportionately show up at the polls. With their defection, the free trade coalition will have lost its base, and the tone of media coverage and politics can't help but change.
The true significance of outsourcing is that it could prove to be the death knell of the postindustrial fantasy. In the 80's and 90's, America allowed its once strong manufacturing base to shrivel and placed its hopes on finance and information services to deliver prosperity. The deal was that Mexico, Japan, China, Korea, etc. would provide the goods, and the US would make a living exporting intellectual property, financial services, and Hollywood movies. Now, after two decades, the results are in -- a current account deficit that amounted to ~$550,000,000,000 in 2003, and shows every sign of growing larger. At an almost unprecedented 5-6% of GDP, the trade deficit is the elephant in the room that almost nobody is talking about (the last time a nation's trade deficit approached this level was 1920's Italy, right before Mussolini took power). The American economy is currently on life support, completely dependent on Chinese and Japanese capital to fund its consumption and power its "growth"; the recent spate of expensive military adventurism doesn't help either. Our trade relationships are unsustainable and there is no easy fix, but unless big changes are made the U.S. will enter a debt spiral.
The economy that we've made for ourselves is flawed in its fundamentals, and outsourcing is exposing the flaws once and for all. A viable economy cannot just be powered by consumption of cheap goods from abroad; there must be strong domestic production as well. The bet was placed that production of intellectual property was the future, and it didn't work.
By Walker Duhon
