Outsourcing: Race to the bottom?


We all know that free trade forces our capitalists to outsource and exploit the poorest countries in the world. It leads to a "race to the bottom" in wages, work safety, and environmental standards. Of course, as John Stossel put it, "What we all know isn't necessarily so." Let's leave the neo-Marxist rhetoric behind and look at the facts: Americans invest twice as much capital in Canada than in all of South America. Our foreign direct invest in a tiny rock called Hong Kong exceeds that in all of mainland China. We outsource three times as much capital to Australia than India. We invest in Luxemburg, one of the global leaders in labor and environmental standards, seven times more than in all of Africa with its huge "reserve army" of desperately poor workers and corrupt governments who couldn't care less for the fate of the mountain gorilla or the black rhinoceros.

Yes, free trade and outsourcing provide financial capital that helps the growth of the Third World. More importantly, it assists in the dissemination of knowledge and skills, transfers cleaner technologies than the available domestic ones, and creates more job opportunities for the indigenous populations. It expands their middle class, increasing the demand for better environmental and working conditions. But guess what? The world's largest recipient of foreign direct investment are not the countries where capitalists can pay low wages and dump their toxic waste into the rivers. It's us, the United States of America.

In 2010 we attracted a total of $194 billion with 84 percent of it coming from eight of the wealthiest nations in the world: Canada, Great Britain, Japan, France, Germany, Luxembourg, the Netherlands, and Switzerland. The stock of foreign direct investment in America exceeds $2 trillion, opening hundreds of thousands of jobs (such as one out of every three jobs in our manufacturing sector) and generating a significant part of our wealth. Just as American businesses abroad pay wages that are significantly higher than the prevailing market rates in those countries, foreign companies based here typically pay higher salaries than our corporations-an average annual compensation of $68,000 per employee.

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Are you mystified by the fact that most of the world's foreign investment flows among the wealthiest nations? The answer is simple. Those who run their own business know that, while regulations and labor costs play an important role in their decisions to invest, making profits depends on a smoothly functioning legal system that protects private property rights, a well-educated and disciplined workforce, and good supporting infrastructure. Free trade encourages all of that.

Do you really care for the poor? I mean poor as in the starving orphans in the sub-Saharan region, not the overweight welfare recipients in Carbondale, Ill., who are having a hard time paying their cable and cell phone bills. If so, join the so-called "race to the bottom"-take your savings out of the bank and open up a sweatshop in Niger.

Alex Tokarev
Alex Tokarev

Alex is the chair of the Department of Business at Morthland College in West Frankfort, Ill., and teaches at Northwood University in Midland, Mich. The native of communist Bulgaria fanatically supports the Bulgarian soccer team, Levski.


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