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 How America Was Lost.

Like What You’ve Read? Support CounterPunch
September 03, 2015
Sal Rodriguez
How California Prison Hunger Strikes Sparked Solitary Confinement Reforms
Lawrence Ware
Leave Michael Vick Alone: the Racism and Misogyny of Football Fans
Dave Lindorff
Is Obama the Worst President Ever?
Vijay Prashad
The Return of Social Democracy?
Ellen Brown
Quantitative Easing for People: Jeremy Corbyn’s Radical Proposal
Paul Craig Roberts
The Rise of the Inhumanes: Barron, Bybee, Yoo and Bradford
Binoy Kampmark
Inside Emailgate: Hillary’s Latest Problem
Lynn Holland
For the Love of Water: El Salvador’s Mining Ban
Geoff Dutton
Time for Some Anger Management
Jack Rasmus
The New Colonialism: Greece and Ukraine
Norman Pollack
American Jews and the Iran Accord: The Politics of Fear
John Grant
Sorting Through the Bullshit in America
David Macaray
The Unbearable Lightness of Treaties
Chad Nelson
Lessig Uses a Scalpel Where a Machete is Needed
September 02, 2015
Paul Street
Strange Words From St. Bernard and the Sandernistas
Jose Martinez
Houston, We Have a Problem: False Equivalencies on Police Violence
Henry Giroux
Global Capitalism and the Culture of Mad Violence
Ajamu Baraka
Making Black Lives Matter in Riohacha, Colombia
William Edstrom
Wall Street and the Military are Draining Americans High and Dry
David Altheide
The Media Syndrome Between a Glock and a GoPro
Yves Engler
Canada vs. Africa
Ron Jacobs
The League of Empire
Andrew Smolski
Democracy and Privatization in Neoliberal Mexico
Stephen Lendman
Gaza: a Socioeconomic Dead Zone
Norman Pollack
Obama, Flim-Flam Artist: Alaska Offshore Drilling
Binoy Kampmark
Australian Border Force Gore
Ruth Fowler
Ask Not: Lost in the Crowd with Amanda Palmer
Kim Nicolini
Remembering Wes Craven’s The Hills Have Eyes
September 01, 2015
Mike Whitney
Return to Crisis: Things Keep Getting Worse
Michael Schwalbe
The Moral Hazards of Capitalism
Eric Mann
Inside the Civil Rights Movement: a Conversation With Julian Bond
Pam Martens
How Wall Street Parasites Have Devoured Their Hosts, Your Retirement Plan and the U.S. Economy
Jonathan Latham
Growing Doubt: a Scientist’s Experience of GMOs
Fran Shor
Occupy Wall Street and the Sanders Campaign: a Case of Historical Amnesia?
Joe Paff
The Big Trees: Cockburn, Marx and Shostakovich
Randy Blazak
University Administrators Allow Fraternities to Turn Colleges Into Rape Factories
Robert Hunziker
The IPCC Caught in a Pressure Cooker
George Wuerthner
Myths of the Anthropocene Boosters: Truthout’s Misguided Attack on Wilderness and National Park Ideals
Robert Koehler
Sending Your Children Off to Safe Spaces in College
Jesse Jackson
Season of the Insurgents: From Trump to Sanders
August 31, 2015
Michael Hudson
Whitewashing the IMF’s Destructive Role in Greece
Conn Hallinan
Europe’s New Barbarians
Lawrence Ware
George Bush (Still) Doesn’t Care About Black People
Joseph Natoli
Plutocracy, Gentrification and Racial Violence
Franklin Spinney
One Presidential Debate You Won’t Hear: Why It is Time to Adopt a Sensible Grand Strategy