Click amount to donate direct to CounterPunch
  • $25
  • $50
  • $100
  • $500
  • $other
  • use PayPal
Support Our Annual Fund Drive! We only ask one time of year, but when we do, we mean it. Without your support we can’t continue to bring you the very best material, day-in and day-out. CounterPunch is one of the last common spaces on the Internet. Help make sure it stays that way.
FacebookTwitterGoogle+RedditEmail

Outsourcing the American Economy

by PAUL CRAIG ROBERTS

 

Is offshore outsourcing good or harmful for America? To convince Americans of outsourcing’s benefits, corporate outsourcers sponsor misleading one-sided “studies.”

Only a small handful of people have looked objectively at the issue. These few and the large number of Americans whose careers have been destroyed by outsourcing have a different view of outsourcing’s impact. But so far there has been no debate, just a shouting down of skeptics as “protectionists.”

Now comes an important new book, Outsourcing America, published by the American Management Association. The authors, two brothers, Ron and Anil Hira, are experts on the subject. One is a professor at the Rochester Institute of Technology, and the other is professor at Simon Fraser University.

The authors note that despite the enormity of the stakes for all Americans, a state of denial exists among policymakers and outsourcing’s corporate champions about the adverse effects on the US. The Hira brothers succeed in their task of interjecting harsh reality where delusion has ruled.

In what might be an underestimate, a University of California study concludes that 14 million white-collar jobs are vulnerable to being outsourced offshore. These are not only call-center operators, customer service and back-office jobs, but also information technology, accounting, architecture, advanced engineering design, news reporting, stock analysis, and medical and legal services. The authors note that these are the jobs of the American Dream, the jobs of upward mobility that generate the bulk of the tax revenues that fund our education, health, infrastructure, and social security systems.

The loss of these jobs “is fool’s gold for companies.” Corporate America’s short-term mentality, stemming from bonuses tied to quarterly results, is causing US companies to lose not only their best employees-their human capital-but also the consumers who buy their products. Employees displaced by foreigners and left unemployed or in lower paid work have a reduced presence in the consumer market. They provide fewer retirement savings for new investment.

Nothink economists assume that new, better jobs are on the way for displaced Americans, but no economists can identify these jobs. The authors point out that “the track record for the re-employment of displaced US workers is abysmal: “The Department of Labor reports that more than one in three workers who are displaced remains unemployed, and many of those who are lucky enough to find jobs take major pay cuts. Many former manufacturing workers who were displaced a decade ago because of manufacturing that went offshore took training courses and found jobs in the information technology sector. They are now facing the unenviable situation of having their second career disappear overseas.”

American economists are so inattentive to outsourcing’s perils that they fail to realize that the same incentive that leads to the outsourcing of one tradable good or service holds for all tradable goods and services. In the 21st century the US economy has only been able to create jobs in nontradable domestic services-the hallmark of a third world labor force.

Prior to the advent of offshore outsourcing, US employees were shielded against low wage foreign labor. Americans worked with more capital and better technology, and their higher productivity protected their higher wages.

Outsourcing forces Americans to “compete head-to-head with foreign workers” by “undermining US workers’ primary competitive advantage over foreign workers: their physical presence in the US” and “by providing those overseas workers with the same technologies.”

The result is a lose-lose situation for American employees, American businesses, and the American government. Outsourcing has brought about record unemployment in engineering fields and a major drop in university enrollments in technical and scientific disciplines. Even many of the remaining jobs are being filled by lower paid foreigners brought in on H-1b and L-1 visas. American employees are discharged after being forced to train their foreign replacements.

US corporations justify their offshore operations as essential to gain a foothold in emerging Asian markets. The Hira brothers believe this is self-delusion. “There is no evidence that they will be able to outcompete local Chinese and Indian companies, who are very rapidly assimilating the technology and know-how from the local US plants. In fact, studies show that Indian IT companies have been consistently outcompeting their US counterparts, even in US markets. Thus, it is time for CEOs to start thinking about whether they are fine with their own jobs being outsourced as well.”

The authors note that the national security implications of outsourcing “have been largely ignored.”

Outsourcing is rapidly eroding America’s superpower status. Beginning in 2002 the US began running trade deficits in advanced technology products with Asia, Mexico and Ireland. As these countries are not leaders in advanced technology, the deficits obviously stem from US offshore manufacturing. In effect, the US is giving away its technology, which is rapidly being captured, while US firms reduce themselves to a brand name with a sales force.

In an appendix, the authors provide a devastating expose of the three “studies” that have been used to silence doubts about offshore outsourcing-the Global Insight study (March 2004) for the Information Technology Association of America, the Catherine Mann study (December 2003) for the Institute for International Economics, and the McKinsey Global Institute study (August 2003).

The ITAA is a lobbying group for outsourcing. The ITAA spun the results of the study by releasing only the executive summary to reporters who agreed not to seek outside opinion prior to writing their stories.

Mann’s study is “an unreasonably optimistic forecast based on faulty logic and a poor understanding of technology and strategy.”

The McKinsey report “should be viewed as a self-interested lobbying document that presents an unrealistically optimistic estimate of the impact of offshore outsourcing and an undeveloped and politically unviable solution to the problems they identify.”

Outsourcing America is a powerful work. Only fools will continue clinging to the premise that outsourcing is good for America.

PAUL CRAIG ROBERTS was Assistant Secretary of the Treasury in the Reagan administration. He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review. He is coauthor of The Tyranny of Good Intentions.He can be reached at: pcroberts@postmark.net

 

 

 

 

 

 

 

 

 

Paul Craig Roberts is a former Assistant Secretary of the US Treasury and Associate Editor of the Wall Street Journal. Roberts’ How the Economy Was Lost is now available from CounterPunch in electronic format. His latest book is The Neoconservative Threat to World Order.

More articles by:

2016 Fund Drive
Smart. Fierce. Uncompromised. Support CounterPunch Now!

  • cp-store
  • donate paypal

CounterPunch Magazine

minimag-edit

September 26, 2016
Diana Johnstone
The Hillary Clinton Presidency has Already Begun as Lame Ducks Promote Her War
Gary Leupp
Hillary Clinton’s Campaign Against Russia
Dave Lindorff
Parking While Black: When Police Shoot as First Resort
Robert Crawford
The Political Rhetoric of Perpetual War
Howard Lisnoff
The Case of One Homeless Person
Michael Howard
The New York Times Endorses Hillary, Scorns the World
Russell Mokhiber
Wells Fargo and the Library of Congress’ National Book Festival
Chad Nelson
The Crime of Going Vegan: the Latest Attack on Angela Davis
Colin Todhunter
A System of Food Production for Human Need, Not Corporate Greed
Brian Cloughley
The United States Wants to Put Russia in a Corner
Guillermo R. Gil
The Clevenger Effect: Exposing Racism in Pro Sports
David Swanson
Turn the Pentagon into a Hospital
Ralph Nader
Are You Ready for Democracy?
Chris Martenson
Hell to Pay
Frank X Murphy
Power & Struggle: the Detroit Literacy Case
Chris Knight
The Tom and Noam Show: a Review of Tom Wolfe’s “The Kingdom of Speech”
Weekend Edition
September 23, 2016
Friday - Sunday
Andrew Levine
The Meaning of the Trump Surge
Jeffrey St. Clair
Roaming Charges: More Pricks Than Kicks
Mike Whitney
Oh, Say Can You See the Carnage? Why Stand for a Country That Can Gun You Down in Cold Blood?
Chris Welzenbach
The Diminution of Chris Hayes
Vincent Emanuele
The Riots Will Continue
Rob Urie
A Scam Too Far
Pepe Escobar
Les Deplorables
Patrick Cockburn
Airstrikes, Obfuscation and Propaganda in Syria
Timothy Braatz
The Quarterback and the Propaganda
Sheldon Richman
Obama Rewards Israel’s Bad Behavior
Libby Lunstrum - Patrick Bond
Militarizing Game Parks and Marketing Wildlife are Unsustainable Strategies
Andy Thayer
More Cops Will Worsen, Not Help, Chicago’s Violence Problem
Louis Yako
Can Westerners Help Refugees from War-torn Countries?
David Rosen
Rudy Giuliani & Trump’s Possible Cabinet
Joyce Nelson
TISA and the Privatization of Public Services
Pete Dolack
Global Warming Will Accelerate as Oceans Reach Limits of Remediation
Franklin Lamb
34 Years After the Sabra-Shatila Massacre
Cesar Chelala
How One Man Held off Nuclear War
Norman Pollack
Sovereign Immunity, War Crimes, and Compensation to 9/11 Families
Lamont Lilly
Standing Rock Stakes Claim for Sovereignty: Eyewitness Report From North Dakota
Barbara G. Ellis
A Sandernista Priority: Push Bernie’s Planks!
Hiroyuki Hamada
How Do We Dream the Dream of Peace Together?
Russell Mokhiber
From Rags and Robes to Speedos and Thongs: Why Trump is Crushing Clinton in WV
Julian Vigo
Living La Vida Loca
Aidan O'Brien
Where is Europe’s Duterte? 
Abel Cohen
Russia’s Improbable Role in Everything
Ron Jacobs
A Change Has Gotta’ Come
Uri Avnery
Shimon Peres and the Saga of Sisyphus
Graham Peebles
Ethiopian’s Crying out for Freedom and Justice
FacebookTwitterGoogle+RedditEmail