Outsourcing Myths

IBDeditorials.com ^ | 6/19/07 | By INVESTOR'S BUSINESS DAILY

[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.

[Ditto]

Bump

[relictele]

Outsourcing truism: the lack of IDIOMATIC English-speaking outsourced help - programmers, tech support, etc. - is the biggest and most unsurmountable drawback to outsourcing.

Some of the most visible and biggest companies have had humiliating climbdowns from ambitious outsourcing plans due to the simple fact that their customers couldn’t understand the person on the other end of the phone.

The outsourcing firms themselves like to tout education & training but the sad fact is that most call center staff simply follow a written or computerized flowchart and have no real grasp of the technical issues. In other words, they can’t solve your problem but will spend hours avoiding that inconvenient fact.

[Hegemony Cricket]

Dang - we can’t even produce our own myths now? We have to outsource them, too?

[HaveHadEnough]

From the article:

One of the most obvious falsehoods about job outsourcing is that it raises unemployment. Huh? Since 2001, during which criticism of outsourcing has hit a crescendo, U.S. businesses and entrepreneurs have created 9.9 million new jobs. The current jobless rate of 4.5% is below the average in any of the last four decades.

With this logic, couldn't you substitute "job outsourcing" with "illegal immigration"?

[Titus Quinctius Cincinnatus]

The outsourcing firms themselves like to tout education & training but the sad fact is that most call center staff simply follow a written or computerized flowchart and have no real grasp of the technical issues. In other words, they can’t solve your problem but will spend hours avoiding that inconvenient fact.

They're just running you in circles that Americans won't run you in.

[BGHater]

Yummy, China outsourced food and poison toy products.

More than an economic approach, we should look out our outsourcing of our food products as a health concern that would triumph our economic concerns.

[gas0linealley]

From the article:”A study by two Princeton University economists last year found that productivity gains from outsourcing boosted the wages for the least-skilled workers by 1% a year from 1997 to 2004.”

And the Fed’s target for inflation is 2%. Thus, in those eight years the wages of the least skilled fell by EIGHT PERCENT.(if you believe that the Fed has actually achieved its goal)

You should have added a Dramamine Alert. The spin in that article is making me feel nauseous.

[Fudd]

That's funny. A recent Business Week article said that outsourcing was inflating productivity gains in the economy - especially the manufacturing sector. In a nutshell, the assumptions analysts use to calculate productivity gains are fundamentally flawed.

Sorry I don't have a link.

[gdani]

In reality, outsourcing has created more, better-paying jobs here.

Apples & oranges? I suspect these better-paying jobs are going to different folks than the workers in the manufacturing sector who are actually losing/lost theirs.

[Gengis Khan]

No.

In economic terms “illegal immigration” is surplus of a particular resource i.e low skill human resource which acts as a drain on the economy at least for the short run.

“Job outsourcing” is reallocation of resources to optimize for greater competitiveness, profitability and overall return on the investment.

[riverrunner]

The latest trend is Rural Outsourcing. That is, firms find that it takes big bucks to support a talented programmer in high cost of living and low quality of life urban areas such as San Francisco and New York.

So, enterprising companies are creating programing centers and jobs in low cost, high talent areas such as College Station, Texas. They are able to pay the programmers less, but because the cost of living is so low, the effective wages are higher. It is a win/win for everyone, except for the Blue State Autocrats.

[Moleman]

Apples & oranges? I suspect these better-paying jobs are going to different folks than the workers in the manufacturing sector who are actually losing/lost theirs.
Concur...

[jiggyboy]

Since 2001, during which criticism of outsourcing has hit a crescendo, U.S. businesses and entrepreneurs have created 9.9 million new jobs. The current jobless rate of 4.5% is below the average in any of the last four decades.

LOL comparing today's "unemployment statistics" to "any of the last four decades" is like directly comparing cars of the same era.

For example, when U4, "discouraged workers" (i.e. your unemployment ran out) is not counted as "unemployed", that by itself renders the "official" unemployment number (U3) meaningless.

Oh and don't forget that there's also U5 ("marginally attached workers" (doesn't sound like a good job to me) and U6 ("working part-time for economic reasons" -- i.e., the guy can't get a full-time job).

The ultimate obfuscation is "U6 + wants job now": "not in labor force, but Persons who currently want a job". They're not counted as unemployed, though -- an absolute triumph of government doublespeak.

These are all "improvements" made to the system in the past twenty years or so.

[ecomcon]

All this sound scary? Consider this: The U.S. from 1996 to the third quarter of 2006 lost on average 7.83 million jobs each quarter. But it gained on average 8.17 million new jobs.

Do these job growth numbers include offshore job creations?

[HaveHadEnough]

I understand. But in both cases, the difficulty of finding a job is increased, no? One through a decreased supply of jobs, and the other through an increased supply of labor.

[Ditto]

No. That’s US employment, but it would include “in sourcing” which is something the Media and Lou Dobbs never seem to mention.

[ClaireSolt]

If we had a more enlightened sunion movement, none of this would happen. They push companies to ruin, but then just moan and groan if they go overseas. Too bad they are so brainwashed to think of themselves as workers when they otherwise have the talent and expertise to take those companies and run them themselves.

[Gengis Khan]

“But in both cases, the difficulty of finding a job is increased, no?”

No.

You get to read all the time about companies outsourcing jobs abroad. Do you often get to read about young startup companies that just started growing and is hiring people? Apparently not. Thats thats not because such a thing is no longer happening but rather because they are happening all the time and so isn't news. When big names in the industry outsource jobs thats big news. Cuz thats doesn't happen all too often, at least not as often as companies hiring people in large numbers.

If outsourcing had been a one way traffic for jobs with the kind of effect media and politicians have been projecting it, US exports would not have increased from $1.2 trillion to $1.4 trillion from 2005 to 2006, 13% increase in just one single year. Surely someone in the US is doing a job, making all that stuff going out for exports. More then a trillion dollar worth of exports! Its not being made out of vacuum by nobody.

What is visible about the issue of outsourcing is the aspect of job loss, whats not so visible is the capital gains thats reinvested back in the economy. You cant see it but its happening all the time. And America’s comparative advantage is not in labour but in capital. Capital gains provided through outsourcing is rejuvenating the economy.

In contrast “illegal immigration” is bringing in more labour surplus of low skilled variety (precisely the kind US doesn't need). In short run more low skilled labour will cost US more then any gains it may provide. In long run however the children of the “illegal immigration” may acquire education and may join the specialised (skilled) labour force, the kind of resource we actually need.

[Paul Ross]

In reality, outsourcing has created more, better-paying jobs here.

What a farcical piece of drivel.

Totally blows off the economic fact of the manufacturing multiplier-effect. Which dwarfs the "service industry" multiplier. What is more consequential is that there are other, vastly more sinister effects which these kinds of propagandists as this one try to overlook, pretend are irrelevant or denigrate.

The fact is when ITT, ILLEGALLY shipped the U.S. defense-contract business of building the highly sensitive "Night Vision" technology out of the country, nominally to be built in Singapore...they were actually transferring the technology and production straight to China.

U.S. Attorney John Brownlee

"There was a lot of illegal activity going on here,'' said John Brownlee, the U.S. attorney in Roanoke. ``The true nature of the harm, you might not figure out until you're on the battlefield.''"

And ITT, knowing all this...they SHUT DOWN THE U.S. production of these key components they outsourced to the PRC.

As reported accurately in the Washington Post at the time...we no longer manufacture those components...and China "has it all".

And they did this all just three months into 2001...three months into this White House's "watch"...after obviously being given the green light to pack it in as a true U.S. manufacturer of our defense needs.

As a consequence of this MINDLESS "outsourcing"...

Assistant Attorney General Wainstein said, “The sensitive night vision systems produced by ITT Corporation are critical to U.S. war-fighting capability and are sought by our enemies and allies alike. ITT’s exportation of this sensitive technology to China and other nations jeopardized our national security and the safety of our military men and women on the battlefield.