THE BOOK--Playing The Percentages In Baseball

Monday, January 30, 2012

If outsourcing is bad then so are industrial robots and the like.

Non-sports post.

Almost everyone thinks that outsourcing of jobs to other countries where the labor (and sometimes materials) is cheaper is a bad thing. I listen to left-winger Thom Hartman all the time on the radio. He is a really smart and knowledgable guy and he constantly rails against outsourcing as do most commentators and political activists from the right and the left (and middle).

However, is this one of these things that everyone just assumes is bad because the pundits and talking heads say so and it sounds logical - after all, it puts hundreds of thousands people out of work and just allows large, money-grabbing corporations to make more money?

I don’t know the answer, but it seems to me to require a lot of complex thought and analysis and I lean toward thinking that outsourcing is a good thing for a country. Then again, I am far from fluent in economics and the like. Many of you are way smarter than I am in that field.

The basic wealth and prosperity of a nation is based on two things: One, natural resources that other countries need (as well as your own). If your country sits on a pile of oil, no one had to work. You simply sell that oil to other countries to buy whatever you want. I am looking at this on a simplistic level of course. Obviously some totalitarian governments can (and do) keep most of the profit for themselves, live like Kings and give out just enough to survive to the rest of the people.  But you know what I mean.

Two, developing technology and gaining knowledge that enables your country to produce things really cheaply and run things efficiently as well as sell that technology and knowledge to other countries to get things that you want (like the natural resources). If your country can somehow produce food, medicine, cars, etc., at very little cost, then everyone can live a great life and no one has to work real hard.

Anyway, one way to produce things more cheaply is to pay people that don’t live in your country $1 an hour to help you make something rather than $10 an hour you would pay people in your own country. Now, the disadvantage to that is that those people who are out of a job have to find something else to do to be productive.  However, one of the benefits, besides being able to produce things more cheaply, is that some of those people who are out of a job can get educated and do something more productive than answering a phone or operating a sewing machine. The more people you have in a society who do non-menial things, the more prosperous your society. In fact, ideally, a society would be most prosperous if no one in that society did any menial jobs - if all of them were outsourced to people in other countries or you developed technologies that replaced all menial labor. Of course outsourcing everything would be exploitative. But that is another issue.

So it seems to me that outsourcing always outweighs the temporary job loss of the people who are being replaced. In fact, even if some percentage of those people remain completely unemployed forever (and the rest of the country supports them), there is still a net gain.  After all, if one million people lose their $10 an hour jobs and are replaced by one million people in other countries making $1 an hour, a country saves 9 million dollars an hour right off the bat. With that savings, you can actually pay 90% of the people who lost their jobs $10 an hour to do nothing, and you break even!

Anyway, the piece de resistance counter-argument to the notion that outsourcing is bad is this: If outsourcing is bad, then any technology that replaces workers, which is pretty much ANY technology, like computers, industrial robots, machines, etc., have to be bad also!  Sure, that kind of technology creates some more jobs and also increases the overall level of technology in the society, but they are essentially the same thing. Whether I use robots and machines to manufacture my widgets or outsource my workers, it amounts to the same thing.

Finally, the argument that, “Well, the corporations will keep all the profits from outsourcing anyway,” is not an argument, although you hear it all the time. That is nonsense. Yes, the companies will make more money. But the consumers will also be able to buy things for a lot less money. Why can we buy computers, DVD players, watches, phones, TV’s, clothing, etc.  so cheaply?  Only because they are made in China and Taiwan (and Haiti, Mexico, etc.). If it were true that companies reap all or most of the profits from outsourcing and that the consumer (i.e., the whole society) does not benefit much, then it would also have to be true that any technological advance that enables a company to produce things more cheaply and efficiently also is not good because only the company will benefit. Of course, when a company benefits, so do their investors, their employees and everyone else from whom the owners of the company buy things from.

What say you guys?