Outsourcing Myths -- Debunked! The stats say simply, clearly, that this whole issue is overblown.

National Review Online ^ | October 13, 2004 | Bruce Bartlett

[xsysmgr]

The outsourcing of U.S. jobs to foreign countries has been a major theme of the Kerry-Edwards campaign. During his debate with Vice President Cheney, John Edwards repeated the standard Democratic line: “The administration says over and over that the outsourcing of millions of American jobs is good. We’re against it.” A search of John Kerry’s campaign website turned up 176 separate statements on the evils of outsourcing.

What you won’t find on the Kerry website are any references to serious studies of outsourcing. The reason is that they all find the issue to be seriously overblown: Outsourcing is responsible for a trivial amount of job loss at most, and is generally a positive for the U.S. economy. Serious studies of outsourcing include ones by former Democratic administration officials.

In July, economist Martin N. Baily, chairman of the Council of Economic Advisers under President Clinton, looked at who benefits from outsourcing. He found that for every $1 spent by a U.S. corporation on outsourcing to India, only 33 cents stayed in India. The other 67 cents came back to the U.S. in the form of cost savings, new exports, and repatriated profits. However, productivity gains add another 45 to 47 cents of value to the U.S. economy. Thus, on balance, the U.S. economy gains $1.12 to $1.14 for every $1 invested in outsourcing.

In August, economist Charles Schultze, chairman of the CEA under President Carter, looked at the number of jobs lost to outsourcing. He found that between the end of 2000 and the end of 2003, at most 215,000 service-sector jobs were lost. This is a minuscule amount in a working population of close to 150 million. Moreover, Schultze says, the productivity gains produced by outsourcing raised real incomes and living standards in the U.S. He concluded that outsourcing cannot be blamed for the “jobless recovery.”

Also in August, the nonpartisan Public Policy Institute of California looked at the costs and benefits of restricting outsourcing. It found that the cost of restricting outsourcing would greatly exceed any gains. Policies targeted toward those affected by outsourcing are far preferable to a ban on outsourcing. For this reason, California Gov. Arnold Schwarzenegger recently vetoed several bills that would have restricted outsourcing in that state.

In September, International Monetary Fund economists Mary Amiti and Shang-Jin Wei did the most thorough study of outsourcing to date for the prestigious National Bureau of Economic Research. These are their findings:

U.S. imports of computing services — the most controversial area of outsourcing — came to just four-tenths of 1 percent of the gross domestic product in 2003.

In 2002, the U.S. was the world’s largest exporter of computer services, which added almost $60 billion to our exports. By contrast, India’s total exports in this area came to less than $20 billion and China’s were just over $10 billion.

China and India, the two countries most blamed for outsourcing, actually outsource more than we do — six-tenths of 1 percent of GDP for the former and 2.4 percent of GDP for the latter.

Contrary to popular belief, the U.S. is a large recipient of outsourcing from other countries — i.e., insourcing. In 2002, the U.S. ran a healthy trade surplus in this area — receiving $22 billion more in outsourcing from other countries than it paid in outsourcing to other countries.

The number of jobs gained from outsourcing approximately equals the number of jobs lost.

The Federal Reserve Bank of Kansas City did the most recent study of outsourcing. It concluded that outsourcing has no permanent employment effects, although there can be temporary displacements.

Finally, press reports indicate that the outsourcing boom may have already peaked. A Sept. 22 report in the Wall Street Journal said that Chinese workers are now demanding better pay and more time off, which has sharply raised the number of labor disputes. This is quickly eroding the cost advantage of outsourcing to China.

An Oct. 7 report in the Financial Times said that General Electric, which pioneered outsourcing to India, has decided to sell its international outsourcing business. It found that the savings from outsourcing were mostly one-time gains that tended to dissipate over time. One reason is high employee turnover. Call centers operated by GE in India lost 40 to 50 percent of their workers every year.

Perhaps for these reasons, in his debate with President Bush on Oct. 8, John Kerry backed away from some of the more extreme statements he and John Edwards have previously made about outsourcing. Said Kerry, “You can’t stop all outsourcing. … You can’t.” He added that anyone who says he will stop outsourcing “would be pandering.”

Kerry is right. I hope Edwards and other Democrats were listening.

— Bruce Bartlett is senior fellow for the National Center for Policy Analysis. Write to him here.

[Choose Ye This Day]

Start here. It's mostly pdf files, so it's not easy to search:

http://www.unctad.org/Templates/Page.asp?intItemID=3198&lang=1

[roses of sharon]

I knew when Lou Dobbs suddenly decided to dwell on this and other "desperate" situation in this country, as if Bush came into office and ordered his staff to immediately start destroying citizens lives.

Of course not a peep of criticism from Lou during the Clinton years, about any bubble, Enron accounting, outsourcing, trade,.....

He has been intellectually dishonest when reporting for the last 3 years, (remember his "countdown to Enron indictments") that started within a month of the news. All the while KNOWING these legal issues are difficult, and that these CEO's have enormous legal teams, to delay.

The populist Lou, will change back to being serious during a Kerry/UN/Soros ticket.

[Willie Green]

If Toyota opens up a manufacturing plant in Tennessee, and hires 400 workers, that's insourcing.
But that's NOT Foreign Direct Investment,

You are wrong.
It IS Foreign Direct Investment.

FDI includes corporate activities such as businesses building plants or subsidiaries in foreign countries, and buying controlling stakes or shares in foreign companies. It doesn't include short term capital flows, such as the portfolio investments of "emerging market" mutual funds.
source

[1rudeboy]

C & K? Isn't it an Australian firm? If it is, then according to Willie whatever jobs it is sending to China didn't exist in the first place.

[Choose Ye This Day]

According to your neo-leftist source.

The Democratic Leadership Council, and its affiliated think tank the Progressive Policy Institute, have been catalysts for modernizing politics and government.

[AFPhys]

"Thus, on balance, the U.S. economy gains $1.12 to $1.14 for every $1 invested in outsourcing."

THE BOTTOM LINE.

None of the rest really matters. This type of trade benefits everybody, no matter what the gloomanddoomsayers have said, and have been saying for at least thirty years now.

They were probably saying the same thing when Columbus sailed, too.

[Willie Green]

According to your neo-leftist source.

It's not MY fault that Bartlett and Karl Rove abandoned the intellectual high-ground to the left-wing.
Heck, those globoweenies are so ambitious, they'll say anything to try to confuse the American people, no matter how stupid it makes themselves look.

[the gillman@blacklagoon.com]

Newton, Ma

[LowCountryJoe]

Give me their e-mail addresses and I will...come to think of it, why would they have Internet service? Cell phone numbers then.

[John O]

While they have their own data to show that jobs aren't being lost to outsourcing, they just have to look at the 40k a month job growth over the past 4 years (100k below what's needed to keep up with workforce growth) to see what's not being done, and that's job growth.

This flies in the face of the fact that more Americans are working now than ever before.

The 'job report' numbers don't include the self employed or a large number of small businesses. And this is where the major job growth is at.

If jobs weren't being created the unemployment claims number would be skyrocketing, But it's either falling or staying lower than it's been for 12 years now. (It's lower than at anypoint in Clinton's term)

The econmy is in great shape and getting better all the time. Of course there are companies that fail even in the best of times. That's what we have Willie Green for, to make sure these get posted

[John O]

exactly as I suspected.

[LowCountryJoe]

Matt, I can't believe that you're an insurance broker and you don't happen to realize where the reserve assets of those insurance companies that you match your clients up with come from.

Bruce Bartlett is not idiot, by the way.

[LowCountryJoe]

I know what you mean. Think of the tens of millions of computer users who get hosed by paying less for their software.

[LowCountryJoe]

Ya know what Willie, it helped reduce the ever so scary trade deficit. Isn't that what you want?

[LowCountryJoe]

Whatever job you hold in life I hope it gets outsourced. Uncompassionate people need to be taught a lesson in civility once in a while.

Speaking for myself, the lesson of civility is completely lost on me. Those people should just eat cake or something. There, is that compassionate enough.

[1rudeboy]

Again, Willie, building a plant in the U.S. with capital from overseas is "foreign direct investment." The wages that foreign subsidiary pays is not, as you attempted to suggest.

[LowCountryJoe]

Would you like for our American government to put capital controls in place so that no one is allowed to purchase goods or assets outside of the united States. I guess that you feel that capital mobility and the freedom to exchange it how you wish (providing laws aren't broken) is somehow a bad thing. Am I wrong about your stance?

[LowCountryJoe]

If those mutual funds are purchasing newly issued company shares than the hell it doesn't.

[RightOnTheLeftCoast]

LOL-- yes, you are very wrong about my stance. I was poking at J. F'n Kerry, of course, with his comment that "we have got to get back to the days" when terrorism was just a nuisance... that it's like prostitution or organized crime, can't get rid of it, just manage it to a tolerable nuisance-like level, like when the WTC was just getting bombed in its garage, or the Cole was having holes blown into it, or Marines were dying in barracks. Just little annoyances like that.

Given Kerry/Edwards' throgging of the "outsourcing" issue, my jab at them should have been pretty darned obvious. Guess not.

[LowCountryJoe]

My bad then! I did get the humor of your post and I thought it was pretty funny...I just wasn't sure if you leaned the protectionist way or not. It wasn't readily obvious to me but at times I can be pretty thickheaded and knee-jerk my way into a response. Being on the Internet, not having to debate people directly; it's all pretty emboldening ya know.