Economicst: The great hollowing-out myth

[GRClarkesq]

Outsourcing to other countries has become a hot political issue in America. Contrary to what John Edwards, John Kerry and George Bush seem to think, it actually sustains American jobs.

http://economist.com/agenda/displayStory.cfm?story_id=2454530

[kalian]

1. This article is so full of bs it isn't even funny....

:eyes:

Ex 1:
Although America's economy has, overall, lost jobs since the start of the decade, the vast majority of these job losses are cyclical in nature, not structural. Now that the economy is recovering after the recession of 2001, so will the job picture, perhaps dramatically, over the next year.

....

ex 2:
Even though service-sector outsourcing is still modest, the growing globalisation of information-technology (IT) services should indeed have a big effect on service-sector productivity. During the 1990s, American factories became much more efficient by using IT; now shops, banks, hospitals and so on may learn the same lesson. This will have a beneficial effect that stretches beyond the IT firms. Even though some IT tasks will be done abroad, many more jobs will be created in America, and higher-paying ones to boot.

...

Its so convenient to speculate that these jobs are "structural" and
"cyclical" but its also interesting to point out that these "new jobs"
were part of the "new economy" that came crashing down.
IT in this country will die off if they continue to off-shore jobs,
especially programming jobs.
The author fails to mention how or where these "new jobs" will be
"created"...and worse still...he claims that they will be
"higher-paying ones to boot"... :eyes: I'd like to know what he's
smoking.
First the manufacturing jobs were shipped overseas...
Now the "knowledge" jobs are being sent abroad...

What comes after KNOWLEDGE...? :shrug:

[brokensymmetry]

2. The Economist?

They're not pro-globalization, now, are they?B-)

[nankerphelge]

3. Ugh!

The Econo-cyst. You might as well be reading the National Review or American Spectator. I bet the Limbaugh Letter comes to the same conclusion as well.

[papau]

4. software engineer pay to double by 2015!

Interesting - double from the 3 yrs experience level of 65000 in 2001/2002 - or from the 45000 level of 03/04?

The Globalization mantra ignores all the studies on the "sticky" result of jobs staying where unfair trade has produced infrastructure for those jobs.

David Ricardo spoke truth two centuries ago when he pointed out the law of comparative advantage - but he never considered the non-free market that rapes countries and peoples and tax law that gives rewards if the rich make the workers race to the bottom to stay employed via off shoring jobs.

With Unions - or strong regulation and law - it all works and we get wealthy. AS Bush has shown, kill the regulation that is in IRC code section 482 - the bogey man that Clinton used to keep the boat moving forward - and you have corporate tax paid dropping 2/3rds via the simple means of going overseas.

Bush's legal/regulatory struction is FORCING jobs overseas

[mgc1961]

5. Theory.

No amount of theorizing is going to change the fact that people and institutions don't react to changes in ways that can be calculated with unwavering mathematical equations.

No by line. I wonder why?

[idlisambar]

7. But, but, don't you see..

The graph clearly indicates that jobs will come from somewhere. Just shutup and let corporate globalization work its magic.

:eyes:

[idlisambar]

6. Interestingly, the author actually admits that ...

hollowing-out is taking place, but then just argues that we shouldn't care.

The best-known report, by Forrester Research, a consultancy, guesses that 3.3m American service-industry jobs will have gone overseas by 2015—barely noticeable when you think about the 7m-8m lost every quarter through job-churning. And the bulk of these exports will not be the high-flying jobs of IT consultants, but the mind-numbing functions of code-writing.

So the author is basically ceding the production of software offshore and taking comfort in the fact that we will always need people here to show businesses how to use the software the Indians produce. What is this if not a hollowing out of our IT sector?

[kalian]

8. Orwellian doublespeak...

plain and simple...

[priller]

18. You know, some of us actually like writing code

While some parts are certainly tedious, it's hardly mind-numbing. In fact, it takes a very sharp and active mind to do it.

[idlisambar]

19. True

This is not really understood by many folks outside the profession. It depends on what kind of project you are working on, but at best it is like writing a symphony. There is also a certain satisfaction in producing something tangibly useful.

[StClone]

9. Spin and Lies

If any and all jobs can be outsourced with the only limit being transportation costs many somebodies are going to get hurt.

[cryofan]

10. Of course we know that The Economist is a mouthpiece for ....

...the corporate/investor faction. And do they have a vested interest in promoting the viewpoint put forth in this article? Yes!

And do they have the money and motivation to fund "cooked" studies that they can use to justify their viewpoint? Yes!

And are there are deterrents to such propagandizing? No!

So, I guess we know what this article is worth....

[TheWhitneyBrown]

11. What jobs will these be, so I can train for one?

I had read that article earlier this week, and seen many other make this argument that after we ship all our manufacturing jobs overseas, and then all our service jobs overseas, we will create a whole lot more jobs, but no one ever mentions what these jobs will be.

Occasionally I see biotech mentioned, but I think they could do that cheaper in India as well. Plus more people to test the biotech products on over there.

If you leave out Boeing and the airplane industry, the top 20 American exports are soybeans, corn, wheat, hides, ore, logs, etc. Just the raw products of this blessedly fertile land we are now shipping overseas in return for a bunch of shiny doodads and gizmos.
Our export profile resembles an agricultural colony, and we are importing the workers for that as well, just like the 18th century sugar planters imported their labor.

The pressure to reduce our environmental standards is going to be enormous as our trade deficit continues to rise. Preserving our environment will soon be portrayed as a luxury we no longer afford if we wish to remain competitive.

The Chinese are purchasing our deficit, financing our consumption of their goods, much like we did with 'foreign aid' to other countries in times past.
Instead of paying our taxes we spend the money on foreign goods, and in order to pay them back, eventually we are going to have to sell everything we own, including the ore, the timber and fossil fuels in our national parks.

As the dollar falls, the pressure will rise, and when people are hungry, they do what they have to do, even if it destroys the land. We are going to become Brazil.

Is this an inaccurate scenario? I'd like to know.

[dawg]

12. Cutting grass for rich people will be one of those jobs.

Working at Walmart .... ummm....... domestic servant .....er ..... janitorial services .............

Oh, now I remember, the military is hiring!

[brokensymmetry]

13. Welcome to DU, TheWhitneyBrown!

:hi:

I agree with your analysis. If only some of our leaders had your insight!

[The_Casual_Observer]

22. The Newsweek article a couple of months ago

Laid it out. The jobs were hotel chamber maids, fast food cooks, janitorial & custodian, health care for the elderly, automobile mechanic, IT tech for corporate in house repair work. Appetizing huh?
Notice that they are safe with these, they cannot possibly be outsourced to India.


That's why they don't usually let you know what they have in mind for you and your children.

You scenario is absolutely on target.

[Jim__]

14. Working at Walmart

One of the replies cited:

Working at Walmart .... ummm....... domestic servant .....er ..... janitorial services .............

which is somewhat ironic as the Economist article actually cites Walmart jobs as evidence of its claims:

Of course some firms wither—Reynolds Tobacco's workforce shrank by nine-tenths between 1980 and 2002—but others grow: Wal-Mart's by 4,700%. ...

Yes, and what was the base pay of the Reynold's jobs lost compared to the 4700% increase in Walmart jobs? And, when we are all Walmart workers, who will be able to afford to shop even at Walmart?

But, look at an example of Ricardo's Law of Comparative advantage ( Example ) and replace the Cost per unit in Man Hours by Cost per Unit in Dollars. Then, how much wheat or wine would be produced in England? And, replace Portugal with "Third World" so that you have a virtually infinite supply of labor. No Wine or Wheat would be produced in England. Ah, but then the English consumer benefits because he gets to buy cheap wine and cheap wheat, right? Well, not if the English worker is now unemployed - and eventually he would be because this comparative advantage exists for all products - this is one reason why the EU is currently out-producing the US in manufactured goods.

[megatherium]

15. Is outsourcing a corporate fad?

In the late 80s and early 90s, corporations went on a down-sizing frenzy; then when the economy finally recovered, found themselves woefully short-handed to take advantage of increased demand. This was followed by the frantic internet bubble.

Now I think corporations are responding to vigorous sales-pitches of companies that manage or provide outsourced labor, out of concern that they will not be competitive. But I'm not sure the corporations will benefit in the long run. There will be business disasters resulting from outsourcing, and the fad will collapse.

The danger to companies from outsourcing include: They are training overseas competition to their core businesses, and they are jeopardizing their security by trusting outsiders with corporate data. There's also political backlash to worry about, and some of the outsourced labor providers puff up their own capabilities but prove inedequate. The savings in labor costs can rapidly evaporate if problems develop in software development.

[idlisambar]

21. Don't count on it

For one, outsourcing in its current form will likely continue and expand. Not every job can be easily outsourced, but improvements in technology, infrastructure, and cultural familiarity are lowering the bar and will continue to do so.

Second, outsourcing in the form of contract work is only part of the picture. The other paradigm that is occurring is that multinationals are expanding into India, China, etc. and basically setting up shop. These branches are just part of the corporate family, and likely work on independent products or services. This may be the greater threat in IT because it avoids most of the problems associated with software contract work.

Third, you're right that outsourcing and related activities does train foreign competition, but this is a long range danger that individual companies cannot really respond to even if they are inclined. Unfortunately, lack of long-term vision and industry wide organization is a trait of our system.

Your point about political backlash is the real factor. The question is will there be one and how significant. Fear of backlash or its eventual realization might make outsourcing a "fad" after all, but that really depends on how active its opposition is. Based on the current rules and level of awareness the economics are too compelling for corporations not to go for it.

[Lydia Leftcoast]

16. The Economist

I subscribed for a couple of years, because even though it's right wing, it's British right wing and has no patience with the fundies and their busybody attempts to control people's lives or create a "Bible-based" society.

Nobody else provides such extensive coverage of world political events in one place. I have found the magazine to be an incredible resource for background reading when I have to do translations on international politics or economics. For example, given the names of Thai and Indonesian companies and political figures written in phonetic Japanese, I can search the Economist to find the official English spellings of the names.

However, the editors are total fanatics on corporate free trade, even as their essential intelligence forces them to admit that it doesn't really work the way it's supposed to. Shortly before I stopped subscribing (it's expensive, and I had had a financial setback), they ran a special article on "free" trade and its glories. Yet at the end of each section, they had to admit that these benefits would accrue only if this happened and that happened and the other thing happened and still other things happened. In other words, they admitted that "free" trade in its present form does not bring about its stated goal of better living standards for the world.

[porkrind]

17. Simplistic sophomoric article

Enough with the amateur economists. Get some real education and experience, then get back to us.

This is an article a college student with one class in economics would write. Sure, "comparative advantage" is a valid model for abstract economic study, but the real world is much more complex.

Cookbook economic solutions taken from a textbook are rarely good enough, because they are based on simplifying assumptions that may be wrong when applied to a real problem. Economic theory is great, but we need an advanced, complex, well built and thought out model. Models are only as good as their fit to reality. If the model doesn't fit the data, obviously something is wrong.

I'm no isolationist, but I want trade that benefits America. I define "America" as flesh-and-blood citizens, not amoral artificial legal constructs (corporations).

We need some strong, knowledgeable, wise leadership, not simplistic mantras. We don't need disingenuous ideologues with hidden agendas.
:argh:

[idlisambar]

20. Sadly, these simple ideas...

...and many more like them are the governing principles for our world. The standard for an economic model is not its realism, but how well it serves a political end.