Posted on 06/20/2007 7:08:08 AM PDT by mtnwmn
Outsourcing Myths By INVESTOR'S BUSINESS DAILY | Posted Tuesday, June 19, 2007 4:20 PM PT
Journalism: America's companies are shutting down factories and offices, and shipping jobs wholesale overseas. That's how the media have portrayed it. In reality, outsourcing has created more, better-paying jobs here.
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Beyond The Bias: Sixth In A Series More on this series
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The media love victims. So when industries began moving jobs once done here to low-cost labor havens like India and China, pundits and reporters portrayed it as a devastating blow to America's traditional working class.
Tales of "Benedict Arnold" CEOs, as presidential candidate John Kerry called them, peppered the media. A populist groundswell — fed by news accounts of huge executive pay packages, scandals and soaring profits — found ample space in the nation's newspapers and on the airwaves. From Lou Dobbs to BusinessWeek, questions continue to be raised about U.S. companies sending jobs overseas.
Chances are, if you've been fed a steady diet of this, you think outsourcing is a disaster. Well, you've been seriously misinformed. Outsourcing is in fact a big contributor both to recent productivity growth and to rising incomes for average workers in the U.S.
(Excerpt) Read more at ibdeditorials.com ...
I particularly like the unemployment statistics. Construction is how the fed controls the economy yet new home building is in the tank. What happened to the unemployment statistcs? Self employed contractors and illegal immigrants are not included. This number alone has to be over a million.
The HB-1 visa program is just another scam to exploit. Prof. Borjas has done some good work on falling wages.
A snip from his blog:
Almost everybody knows that in the past 40 years, the real wages and job prospects for low-skilled men, especially low-skilled minority workers, have fallen. And there is evidence –– although no consensus –– that a rising tide of immigration is partly to blame. Now, a new NBER study suggests that immigration has more far-reaching consequences than merely depressing wages and lowering employment rates of low-skilled African-American males: its effects also appear to push some would-be workers into crime and, later, into prison.....The authors are careful to point out that even without increased immigration, most of the fall in employment and increase in jailed black men would have happened anyway. Nevertheless, the racially disproportionate effects of immigration on employment are striking.
http://borjas.typepad.com/the_borjas_blog/2007/05/blacks_and_immi.html
False. The imports increased faster still. There are a rather large number of explanations which confound your simplistic conclusion. The simplest explanation is that those US exporters are merely incorporating their foreign-made components and re-exporting the final product...netting the "systems integration" business.
It is still a losing proposition. As the persistent two-to-one trade imbalance portends.
Plus, you fail to realize that there is nothing permanent about the continued increase in exports. It is reasonable to surmise that is instead merely an ephemeral kind of "last gasp." To wit:
This is usually a "one-trick pony" once the foreign components suppliers get sufficiently experienced to do their own final product assembly. The Korean car manufacturers are a perfect case in point. And now China, with its $10 billion in car parts shipped to General Motors in the U.S. alone...is on the verge of exporting cars to the U.S. Their ultimate intention is manifestly to eradicate our domestic car manufacturing capability...and how many times do we see Chinese expatriates lamenting that "their people" don't have cars...sigh.
Meanwhile, at the aerospace end of manufacturing, Boeing is outsourcing like crazy to try to stave off the mostly-subsidized Airbus "competition". The 787 will be primarily built around the world. It was a decision of desperation as much as inspiration. To date, it is clearly making headway. But that portends the very same "one trick pony" situation. Japan will have an immense advantage to do its own systems integration when it makes the wings...and essentially has a monopoly thereto.
More important than jobs alone...is our national independence. As Alexander Hamilton and George Washington taught us...or at least the better students...we need our independence at the cost of our treasure, blood and lives if need be.
You also have to consider domestic 'outsourcing'. I happened to have spent the last 37 years at a US company that always shows under an SIC codes as part of the manufacturing sector.
There is no doubt that technology changes over those decades has changed the business, and there is also no doubt that automation has decreased the number of direct manufacturing workers in that particular business.
But a factor that is often overlooked is domestic outsourcing. For instance, 30 years ago, one individual plant that I am familiar with had probably a dozen or more employees working in the reproduction department with old style multilith printing presses and various binding operations for project documentation and training manuals. They had another dozen typesetters who worked on old IBM selectrics or Viewgraph machines for preparing the text. They had a couple of commercial artists and technical illustrators and a full time photographer to produce the graphics or slide presentations and other assorted communications. All of those people counted as "manufacturing employees" because that is what the company's SIC code said. I don't think it's necessary to elaborate what the advent of the PC and Microsoft Office did with those jobs but basically, they were outsourced to Silicone Vally. But when those jobs went away, the IT department began growing, and the IT jobs were better paying.
Add to those changes, a move to out source plant services. Cleaning staff, security guards, cafeteria workers, and in the case of this particular site, even payroll and benefits management -- were outsourced to speciality companies. They are now working as contractors for that company, but through a supplier and no longer on that company's payroll, and yes, the place has lost probably 20-30% of the company employees that it had 30 years ago. But in the end, it is providing employment to the same number of people but many of them now show up on government statistics as "Service Employees" instead of "Manufacturing Employees."
You have to be careful with the statistics. They can be very misleading. That particular business has more than tripled it's sales and revenue even accounting for inflation over those decades, has a payroll that is far higher in real dollars than it was 30 years ago, yet has far fewer "direct" employees who show up in the Government statistics as "manufacturing sector".
Yes, true. Its not that that exports are rising but imports are rising faster. So what? Neither of them is any indication to economic downturn. In fact quite the contrary, both of them are indications that the economy is doing better. Not only are the exports increasing but there is greater domestic consumer demand for foreign goods. As long as there is no drop in production levels (and there is none yet, domestic production is only increasing) I don't see any danger to US economy. More buying and more selling is sign of healthy economic activity, doesn't matter which one out paces the other. Whats not healthy is drop in export levels (or worse drop in production levels) in spite of trade surplus. It means you are selling less but you are buying even less. You are saving some dollar no doubt buy you aren’t earning any.
Another big myth of international economic is that “trade deficit is bad”. Its only true for the short run.
If you are buying more from outside then what you are able to sell them back and you are doing so with dollars, in the short run you may not get your dollars back. The country buying form you will have a large US dollar reserve. What do you think they do with all the US dollars in their reserve? They will either buy something from the US or give it to some other country in return for some other goods (who in turn will use it to buy something from the US). Like trade surplus, trade deficit also evens-out in the long run.
“Plus, you fail to realize that there is nothing permanent about the continued increase in exports. “
There is nothing permanent about anything.
“This is usually a “one-trick pony” once the foreign components suppliers get sufficiently experienced to do their own final product assembly. The Korean car manufacturers are a perfect case in point.”
Foreign cars themsselves dont have “all Japanese”, “all German” or “all Korean” components in them. Many of their own productions are yet outsourced to third countries. Thats how it works in a globalised world. No country produces the complete item.
Plus you dont consider the effects of reverse outsourcing when Japanese, Korean or Indian companies open up plants in the US. In a globalised world its companies and not countries (political entities) that possess, control or share techological know-how. Any country that has the human and capital resource and had developed adequate infrustructure can dulicate such capability and
As for the Chinese, I would consider their case differently. They represent a significant security threat mostly because their government plan to use their industrial and economic capability for hegemonic designs.
No single country will have complete monopoly over any industry and globalization will ensure that. There will be more interdependence among countries. Companies like Boeing cannot continue the way they have done until now. Countries like Brazil, Russia and even India are building aerospace capabilities similar to Boeing or Airbus. These companies have to make some trade off or face extinction. You cannot just close your doors, shut your eyes and believe that you are protected from competition. US is no longer the largest civil aviation market in the world. There are larger markets in Asia, particularly emerging economies like India and China will witness far greater amount of civil aviation in next decade. In next 5 years India alone will be spending $30-35 billion on buying passengers jets. Boeing has got the largest piece of that pie. In return for access to the largest emerging civil aviation market, India has the bargaining leverage to demand that Boeing joint co-production in India. Its a win-win for both India and US. US gets to manufacture most of it while India gets to produce some to keep the costs low.
As for the “one trick pony” situation...... no trick lasts forever. That applies to all countries and especially companies. You have to find new tricks all the time. The Japanese themselves are having trouble keeping the industries from going to other countries in Asia. China will have trouble keeping intact their manufacturing industry edge after other lower cost countries in Asia builds their manufacturing base.
“More important than jobs alone...is our national independence. As Alexander Hamilton and George Washington taught us...or at least the better students...we need our independence at the cost of our treasure, blood and lives if need be.”
The best way to preserve independence is to allow open competition. Thats the American way and that way alone will ensure success.
Actually it is, when the labor force that was formerly involved in skilled machining or similarly intense knowledge...and essential for teaching the next generation to learn the skills...is disbanded in the U.S. and forced while still needing employment to take up the housing trades...which ultimately failed them.
You keep forgetting LESSON # 1 for Liberty. INDEPENDENCE.
You are destroying it without any historical awareness whatsoever.
As long as there is no drop in production levels (and there is none yet, domestic production is only increasing) I don't see any danger to US economy.
False when calculated on a per capita basis. And in absolute terms...we need to keep our eye on the potential military enemies of liberty...who have already formed their "Shanghai Pact." A very real axis of evil that the traders pretend is just talk.
China has vaulted past the U.S. and Japan, and now makes FOUR TIMES more steel than the U.S.A. And China now has manifest designs on deploying...with our best technology...THREE TIMES as many civilian nuclear reactors as we have. I guarantee you that they will be civilian in name only. Such reactors have always provided valuable material for the military.
The Defense Science Board has explicitly warned the President that the growing dependency on Chinese-manufactured electronics is setting us up for a Trojan-Horse situation. They are capable...and more than interested-in exploiting our vulnerability that the traders have thoughtlessly created.
In sum, the trader-centric view, which is clearly what you preach...is extraordinarily short-sighted. The unconcern for the consequence of building up irrepairably a devastatingly deeply hostile nation's industrial prowess is incredible simply incredible. Adam Smith would reject the modern contortions of his own theory. He would never have approved of Thomas Friedman's earlier views, or the current Thomas PM Barnett's false prophecies that "China will never attack the U.S. and lose its trade partner". Totally nuts. The people who actually run China have told us differently, to-wit:
Deng Xiaoping: "[Stake-holders?] Tell your President that we don't have such a relationship."
So what have got with the modern Bush/RAT trade-views? Short-sightedness dressed up as a philosophy.
Who woulda' thunk it.
What do you think they do with all the US dollars in their reserve?
To a great extent...they sit on them. They are not doing as you claim, i.e., They will either buy something from the US or give it to some other country in return for some other goods (who in turn will use it to buy something from the US).
Their systemmatic effort at accumulating the 1.3 trillion slush fund of unrepatriated, unexchanged dollars disproves this theses conclusively. And it will soon be over $2 trillion. They consciously refuse to buy those American products that we have a comparative advantage in technologically...and that would keep our industrial base active and robust. They believe in "Win-Lose" trading. And they are pushing for all the things which accomplish that. Their whole purpose is war, and they intend to use the accumulated surplus to turn the tables, to continue to pirate the technology that we retain, and undermine and destroy our own production and capability thereto.
If they buy out our companies...since they don't want our products...it is to further both missions. Relocate the technology and production to China...and shut down the U.S. Witness what happened to Magnequench. It was the very model of all they propose to do in every other technological field. The UNOCAL deal would have gone down the same way. UNOCAL had scads of deep-sea drilling technology and equipment, and also rare-earth lanthanide production machinery and technique (all worth many billions more than the stated value of the company...to the PLA), that China would have picked up on the cheap, and relocated to China. And then shut down the U.S. operations.
Like trade surplus, trade deficit also evens-out in the long run.
In the long run, we'll be dead before your things "even-out." There is empirical evidence besides our current experience...that classically shows that...and refutes your position. It was formerly called Great Britain. Its manufacturing and engineering prowess was the world's greatest going into the end of the 19th Century. But they let it slip via "Free trade" unilaterally out of the country. Not so great anymore. They are an also-ran.
That's what your scam will do to us.
Hence, a true American...rejects such give-away trade views. George Washington rejected it. His mentor, Alexander Hamiliton, a profound commercialist, founded the alternative, seeing more deeply than Adam Smith did how essential independence was.
The American System is truly the way to go.
Context-free headline
That's what you have done.
You refuse to acknowledge, and face the reality, that Airbus is not "competition" but a French-scheme, a governmentally financed attack on a core U.S. industrial advantage. EADS literally stole the technology for its subsidiary Airbus, with its U.S. espionage...and then the French government got huge never-pay-back "loans" for the Airbus production, and leveraged their governmental scheme by enlisting German and British collusion in it with co-production bribes.
China will have trouble keeping intact their manufacturing industry edge after other lower cost countries in Asia builds their manufacturing base.
There are no such things as lower-costs than China. China's costs are politically-dictated. And they have 1.5 billion slaves to enact those edicts.
The best way to preserve independence is to allow open competition. Thats the American way and that way alone will ensure success.
False. The American Way...is the American System which built us into the Superpower...that the traders are pissing away as fast as they can.
China's wages are dictating a conclusion in opposition to that. And it also belies the fact that the US was formerly pretty much independent...and clearly better off for it. Globalism is not a panacea...except for the Chinese who simply mutter "Sucka!" under their breaths as the US devolves economically.
China's wages represent an irresistable black-hole that keeps sucking in all the manufacturing it can take as soon as it can be absorbed...and all under the rubric "globalism".
Firstly there is no indication that such a thing is
actually happening. US is still by far the most preferred destination for all they skilled intelligentsia of the world. They are coming here because there is far better opportunity here then anywhere else. What you are doing is simply parroting the media propaganda and all the lies and doomsday scenario about US losing skilled labour jobs and the work force is shifting to making hamburgers and fries. What’s actually happening is US is losing some skilled labour job and generating new ones. The tech companies are creating more jobs then they ever did.
“You keep forgetting LESSON # 1 for Liberty. INDEPENDENCE.”
As a matter of fact I AM talking about “INDEPENDENCE”. The independence to allow open and free competition. the independence for the market economy to operate freely without any regulation from outside. Protecting your “skilled labour” job exclusively for you as if you are entitled to a “skilled labour” job as matter of right, has nothing to do with “Liberty”.
“False when calculated on a per capita basis.”
Are you saying production levels have dropped per capita basis? Your source?
“And in absolute terms...we need to keep our eye on the potential military enemies of liberty...who have already formed their “Shanghai Pact.” A very real axis of evil that the traders pretend is just talk.”
Are you arguing against outsourcing in general or outsourcing to China? I treat the two issues separately. If you are arguing against outsourcing to China then we dont have an argument. In case of China their trade policy is defined not by market economy but by a government intent on building up their military for war. I agree with you on that one.
Except for that, my argument about trade deficit was from a pure economic stand point that applied to most countries. In case of China political concerns should definitely take precedence over economic gains. Trade deficit in pure economic terms is hardly a threat. Every trade had some imbalances and there is never any trade that fair to all. And yet trade is necessary because its the only way to keep the economy afloat. America wont remain a super power without it. When countries uses their economic gains as a result of trade to finance and prepare for a future conflict, that is a threat no doubt but not from an economic stand point but a political one. In China’s case is particularly concerning because their so called economic goals are not determined by market forces but by their communist government.
Hence I wish to know if you are against the whole idea of outsourcing itself or concern has more to do with China. Its important to distinguish between the two.
” It was formerly called Great Britain. Its manufacturing and engineering prowess was the world’s greatest going into the end of the 19th Century. But they let it slip via “Free trade” unilaterally out of the country. Not so great anymore. They are an also-ran. “
While I agree that long term can be very long, but the example you drew upon is a very poor one. Trade under the British empire was mercantilist version of trade that aimed at exploiting the colonies to bring home more “species” or bullion.
The British government commanded all the raw material from its colony, closed down all local production under its colonies, to boost the industrial production in England. The colonies became nothing more then harvesting grounds for raw material that would be shipped in bulk half the world away to Britian and would be brought back and sold to the very same colonies at exorbitant prices. The result was that the colonies were impoverished to the level of starvation. The colonies produced cotton but her people had nothing to wear. The colonies produced indigo, tea, spices and sugar while her people had nothing to eat. A country like India became the poorest country on the planet within just a century. England’s economy became rich but British Empire was the poorest empire in history. British Empire had to break up because its colonies became too poor to justify Britain spending enormous amount of money to hold its empire together in face of growing political unrest. Their end was written on the wall, not because of “free trade” but because of “un-free trade”.
“Hence, a true American...rejects such give-away trade views. George Washington rejected it. His mentor, Alexander Hamiliton, a profound commercialist, founded the alternative, seeing more deeply than Adam Smith did how essential independence was. “
Exactly what are you arguing? Trade or politics? What exactly are you arguing? No trade at all for America? Or only a one way trade favouring America?
Independence is a political concept, trade is economic. I dont see any trade off between the two. In fact without economic independence there is no true independence. And for a country to have true economic independence her market economy must be allowed to operate freely on a global stage without any governmental regulation or selective protection.
What you seem to be arguing in favour off is anything but “American system” rather a Euro-socialist system.
No I am not scared of competition. I am prepared for them, let them come in whatever form. I don't need to cut and run to my nanny “state” and ask for protection against competition. What I meant was government protection isn't REALLY going to protect you from competition.
“You refuse to acknowledge, and face the reality, that Airbus is not “competition” but a French-scheme, a governmentally financed attack on a core U.S. industrial advantage”
Every competition is actually a scheme, depending on from which side you are looking at it. If the French has a scheme I am sure even Boeing has one. And I am sure Boeing has similar schemes against its other competitors in collusion with other governments. Even US companies are know for bending rules or sometime even foul play. I dont need to take a partisan attitude towards any company. I have no stake in their battle. Let them compete for all I care.
“There are no such things as lower-costs than China.”
As a matter of fact there is. Indo-China, Malaysia, Indonesia, South asia, have far lower labour cost then China. Only reason why China is preferred is because of their industrial infrastructure, their speedy bureaucratic system (less red tape) when it comes to foreign investment, and their Most Favoured Nation status accorded by the US, is what makes them attractive. While Chinese government is more efficient, other countries are building their infrastructure to make themselves attractive. China still attracts more because of their sheer size. China uses their bargaining leverage to have companies move part of their production units to China in return for access to the worlds largest consumer market. India will have similar strength soon.
BTW I don't subscribe to your conspiracy theories that foreign governments are colluding against the US.
“The American Way...is the American System which built us into the Superpower....”
And what system is that?
China’s only asset that allows it to dictate such a conclusion is its vast population thats part of the labour force. Thats also an asset shared my many other countries in Asia which combined would have a population size much larger then China itself. I have traveled across 3 continents especially allover Asia and know from personal experience that wage rates in many countries are far lower then China. China has other advantages in its favour that keeps those industries there.
Some of China’s advantages can be replicated if those countries do the right thing.
Either way you look at it, those industries are not coming back home to US cuz American wage rates and dollar (currency) value together still puts US out of competition “globalism” or not. And government protection for those industries would make it even more costlier. Thats the reality. The least the US can do is outsource elsewhere or buy goods from elsewhere other then China. If not China the somewhere else. Labour resource is in abundant supply in Asia.
Apparently the Defense Sciences Board disagrees with you. Perhaps they too are believing "lies." To wit:
Future Strategic Strike Skills
High Performance Microchip Supply
And as for the rest of your anti-historical rants against British mercantilism, I think most historians here will recognize your views as such.
And your ahistorical bent is evident in that you don't even appear to recognize the very specific meaning of the "American System"!
And the sky is green. Get real.
The cost of importing can be made prohibitive. Your "cost-universe" is particularly a function of Chinese Communist guns and batons aimed at their own hostages. Their populace. And their wages are the world beaters. Your so-called three continent experience is not particularly believable. As the wages in all the Pacific tigers easily are higher than China's. India for example is not as cheap as China.
Sure there are other cost factors besides wages. China also SUBSIDIZES its exports. And subsidizes inducements for the outsourcers to prefer them. But once again, none of that is free trade. That is governmental manipulation from the get-go.
Either way you look at it, those industries are not coming back home to US
So long as sell-outs run things, you're right. I aim to change that.
I am not saying it “lies”. It could be true but not to my knowledge. Could you directly quote the part form the text for the point that you are trying to make?
“And as for the rest of your anti-historical rants against British mercantilism, I think most historians here will recognize your views as such.”
I don't really care who (historian or otherwise) thinks what about my views. There are lots of self acclaimed “historian” out there with a wide diversity of views. I dont need to refer or subscribe to someon else's expertise on the subject of British mercantilism.
This article spells out typical wage differentials:
Next, we used my firm's proprietary model to estimate CM production costs in the countries of interest. While the model considers many variables, wages usually account for most of the cost difference in manufacturing. Typical wages for hand labor, for instance, range from a low of 77 cents per hour in China to $1.16 in Malaysia, $1.80 in Mexico and $13.52 in the United States (see chart #1). Wage differences are some-what less pronounced for higher-skilled positions. Process engineers, for instance, earn about $16,000 yearly in China, $21,000 in Malaysia, $32,000 in Mexico, and $54,000 in the United States.
Chart #1
COMPARATIVE WAGES |
|||||
POSITION |
USA (Typical) |
MEXICO |
SINGAPORE |
MALAYSIA |
CHINA |
$/hr. Handwork Labor |
$13.52 |
$1.81 |
$3.45 |
$1.16 |
$.77 |
Machine Operator |
$17.15 |
$2.96 |
$4.42 |
$1.46 |
$.97 |
$/yr. Process Engineer |
$53,560 |
$32,136 |
$29,458 |
$21,424 |
$16,068 |
Buyer |
$47,214 |
$28,329 |
$25,968 |
$18,886 |
$14,164 |
Operations Manager |
$95,983 |
$57,590 |
$55,410 |
$38,393 |
$28,795 |
|
*Typical wages paid by contract manufacturers, OEM rates are somewhat higher. |
|||||
Wage differences usually account for most of the manufacturing product-cost differences among countries.
Why don't you read it for yourself? You need to get real. You won't believe it if I say it. Read it yourself.
Be prepared to have your house of cards collapse.
You talk about it like you have actually witnessed it happen first hand. If not, then your commentary is not very different from the techniques of communist propaganda.
“Your so-called three continent experience is not particularly believable.”
Or rather palatable?
“As the wages in all the Pacific tigers easily are higher than China’s. India for example is not as cheap as China.”
I know for fact India has far less wages rate then China. India is one country that has a trade surplus against China and is the reason why India doesn't have any flooding of Chinese goods despite opening up of border trade near Sikkim.
Malaysia, Indonesia, Vietnam, Cambodia, Thailand, Philippines, Bangladesh offer competitive cost of labour, some much less then China. China’s sheer size and their economy of scale helps it reduce costs further even when the labour rates in other countries are far lower. My point is some of those advantages can be replicated if thing are done rightly.
“China also SUBSIDIZES its exports. “
I already made the point regarding China being a security threat and i will not repeat myself.
“So long as sell-outs run things, you’re right. I aim to change that.”
How exactly? Lets hear it!
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