blargblog

Fun Reading: The Outsourcing Bogeyman

I am only halfway through reading Daniel W. Drezner's apologia for outsourcing—or as John Kerry calls it, "sending American jobs overseas." So I have no verdict to render. But Drezner seems to be on the side of that BushAdmin flunkie who saw outsourcing as a new form of international trade—you know, "a good thing."

Drezner is not impressed by the "sky is falling" rhetoric we hear in an election year, and he has a point: it's good to be skeptical, especially when so-called "populists" (or those who'd wear the mantle for campaign purposes) start blaming foreigners for our economic ills. Besides, Drezner argues, they ain't nuthin' to worry about:

The predictions of job losses in the millions are driving the current outsourcing hysteria. But it is crucial to note that these predictions are of gross, not net, losses. During the 1990s, offshore outsourcing was not uncommon. (American Express, for one, set up back-office operations in India more than a decade ago.) But no one much cared because the number of jobs leaving U.S. shores was far lower than the number of jobs created in the U.S. economy.

Similarly, most current predictions are not as ominous as they first sound once the numbers are unpacked. Most jobs will remain unaffected altogether: close to 90 percent of jobs in the United States require geographic proximity. Such jobs include everything from retail and restaurants to marketing and personal care -- services that have to be produced and consumed locally, so outsourcing them overseas is not an option. There is also no evidence that jobs in the high-value-added sector are migrating overseas. One thing that has made offshore outsourcing possible is the standardization of such business tasks as data entry, accounting, and IT support. The parts of production that are more complex, interactive, or innovative -- including, but not limited to, marketing, research, and development -- are much more difficult to shift abroad. As an International Data Corporation analysis on trends in IT services concluded, "the activities that will migrate offshore are predominantly those that can be viewed as requiring low skill since process and repeatability are key underpinnings of the work. Innovation and deep business expertise will continue to be delivered predominantly onshore." Not coincidentally, these are also the tasks that generate high wages and large profits and drive the U.S. economy.

As for the jobs that can be sent offshore, even if the most dire-sounding forecasts come true, the impact on the economy will be negligible. The Forrester prediction of 3.3 million lost jobs, for example, is spread across 15 years. That would mean 220,000 jobs displaced per year by offshore outsourcing -- a number that sounds impressive until one considers that total employment in the United States is roughly 130 million, and that about 22 million new jobs are expected to be added between now and 2010. Annually, outsourcing would affect less than .2 percent of employed Americans.

Like I said, I'm only half-way through, although I took a peek at the last paragraph. Surprise—the globalization baby must be rescued from the bathwater! As if you never saw that one coming. But here's the bone already tickling my craw: Even if Drezner is correct to contend that outsourcing overseas poses no real threat to the quality or quantity of american employment—wal-martization, anyone?—how long will the rest of the world be satisfied with our sloppy seconds? Didn't they just spend the past century throwing out the colonialists and demanding independence? Welcome to round two.

Posted by kevinmoore at March 29, 2004 11:50 PM | TrackBack