Tuesday, July 18, 2006

Exposing the Myth of the Problem with Outsourcing

If I had been in the labor force fifty years ago, I couldn’t do the job that I do now — mainly because my job didn’t exist fifty years ago. Heck, it didn’t exist ten years ago. I work in a very high-tech industry. Most of the people that I work with have jobs that didn’t exist even five years ago.

And it’s true the other way around, too. Fifty years ago, my mother was a telephone operator. That was back in the days when every small town had a lady named Sarah that would ask “Number, please?” when you picked up the phone. No need to dial; no need to remember esoteric codes or numbers. You just had to say, “Hey, Sarah, could you ring my wife at the office for me?” Sarah would know who you were, who your wife was, and what office she worked at.

My mom’s name isn’t Sarah, but you get the point.

Nobody cried when modern telephone technology replaced Sarah and my mother. And I won’t cry five years from now when my current job becomes obsolete. Because, just like my mom did, I’ll find another — a better — job.

And that’s the way economic progress works. Why is it that so many union bosses are just now getting it?

When a job is shipped overseas, it’s almost always for a good reason. Company owners don’t move a job overseas just because they think it sounds exotic. They do it because — for whatever reason — the lower price overcomes the slower delivery time, the increased transportation costs, and the increased logistics. That’s right. The price is so much lower that it’s actually worth the extra trouble.

You can make an argument that manufacturing workers over there are that much underpaid. Or that manufacturing workers over here are that much overpaid. It really doesn’t matter. The differential in the labor cost justified the change.

Who benefits? Here’s the little secret that not one union member wants you to hear. Everybody!  Yep, everybody benefits every time a job is moved offshore.

The manufacturing company benefits because the cost is lower. And that almost always means that the price to the consumer will be lower — slowing inflation and giving consumers more money in their pockets and more places to spend that money. Even if the manufacturing division of the company loses workers, the logistics division benefits because managers will be needed to track the production and deliver of the product in this country. The shipping industry benefits because they get to ship the product. And, of course, the foreign company benefits because they get the increased business.

Even the displaced worker benefits because he now gets an opportunity to get out of his buggy-whip manufacturing job and into one that is more suited for today’s service-oriented economy. The education system benefits because they get to train the new worker.

And the economy in general benefits because that worker will probably no longer be a member of a labor union — and lower union membership is good for the entire country.

I’ve been preaching these basic concepts of economics for years. It’s finally sinking in. A new study done by two Princeton economic professors was recently presented to a meeting of the Federal Reserve. The paper claims that outsourcing generally boosts wages in America — exactly they opposite of what the traditional labor-dominated liberal egg-heads would want you to believe.

Maybe somebody finally realized that the outsourcing movement has been going on for more than a decade and what do we have to show for it? Inflation under control and virtually full employment — even with an influx of millions of illegal workers in the country.

This is in an economy where your Dodge truck may be made Mexico and your Toyota Camry may be made in Kentucky. The global economy took over while the unions were rearranging the deck chairs on the Titanic.

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