A recent reply I wrote to a friend of mine brought this question up in my mind. Whenever outsourcing is brought up, all that is ever discussed is how an American looses his job. What about the jobs that Indians, Chinese, or South Americans are gaining? What is it with this “Us vs. Them” mentality? People worry and fret over the possible lowering of the standard of living of the displaced worker. I find it odd than no one ever talks about the number of opportunities available to the American worker. I feel certain that what the Indian gains is far more than the American looses in the short term, and that they both come out ahead in the long term. Despite all of the outsourcing, our unemployment figure stands at 5% and our GDP keeps rising. How is this possible?
The GDP part is simple. First off, we are paying less for the same goods and services, leaving money left over for other things. This is equivalent to getting a raise and is the definition of a rising GDP. The second is that we have, if not the most, among the most productive workers in the world. The combination of high levels of skill and high levels of technology make for an unbeatable combo. But surely the reduction in wages offsets the gains from cheaper goods, right? Not a chance. The extra money that is gained from outsourcing is the source for creating new jobs. That money is spent, much of it in the domestic economy. The more motivated and entrepreneurial minded people out there will make themselves rich by taking risks and being rewarded (and some will fail and be ruined) while the rest of the people will get jobs paying them what their labor is worth.
Aha! This is why outsourcing is bad, the new job doesn’t pay as much! Once again, people get paid what their labor is worth. If their wages go down, it is because their skills are no longer valued as highly. This may sound harsh, but there isn’t any better alternative. A popular idea is to pay people more than their labor is worth. The value is not determined by previous wages or union laws, it is determined by what people are willing to take to do that job. For many lower skilled assembly jobs, that wage is set in China or India through competitive wage pricing (i.e. the wage is better than their alternatives). More and more IT work is also being done over there as well due to the ease of shifting the work. If the American workers in these newly devalued jobs lobby congress to pay them what they used to get paid, guess who gets to take up the slack? We do, either through direct payments of the good (made possible by government eliminating competition such as imports), tax subsidies (like much of agriculture), or a large number of extra unemployment benefits (like in states that have mandatory union hiring laws) all the while depriving someone in a desperately poor country that would do just about anything for a job. Where’s the justice in that? We get to support someone or some business above and beyond what they are worth just so we can keep a poor country poor? Like I asked before, why are Americans worth more than Indians? Why do they deserve to be supported and not someone that is willing to work for every dollar they earn? Clearly the most equitable thing to do is to let people earn their money. This presents people with a powerful incentive to keep their skills desirable and allows for the most efficient and therefore least expensive means of making goods. As a side benefit, we can help poor countries climb their way into prosperity. It’s a win win situation in the medium to long term, and it is the ONLY way to insure continued innovation and growth for both countries. So what moral grounds can someone argue against outsourcing? No really, I’m very curious…