Two cheers for outsourcing


Outsourcing is a commercial practice that began in antiquity. Entrepreneurs have always sought ways to minimize costs. Though higher profits were their goal, they provided, unintentionally, consumer benefits such as broader choices and lower prices. The increased profits resulted from improved efficiency, using inputs of lower value and transforming them into outputs of higher value, thus making societies wealthier.

It is a little-known fact that the American pioneers ventured to the western territories in wagons with covers that were manufactured by British workers with raw materials imported from India. There were setbacks caused by government interventions (from the father of American mercantilism, Alexander Hamilton, through Herbert Hoover's protectionism in the early 1930s, to the idea of George W. Bush to slap our European Union partners with higher steel tariffs), but technological advances lowered the cost of transportation, and globalized trade allowed millions of ordinary people to enjoy an increasing variety of goodies made in foreign lands.

With the arrival of the computer age, people witnessed a new phenomenon: local consumption of services produced abroad and delivered through the internet. That is when the word "outsourcing" entered our everyday language, charged with negative connotations thanks to an economically ignorant media. When I had trouble with my laptop last year, I called a toll-free number and a person in Bangalore fixed the problem for me in no time and it cost me nothing. While such outsourcing may have forced some American information technology employees to seek alternative occupations, it is preposterous to claim that the practice "destroys our middle class." There is no empirical evidence that a boom in outsourcing in the last few decades has caused a net loss of jobs in the United States. On the contrary, in the years before the last recession hit, unemployment was low while the number of people in our labor force was at an all-time high.

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Your thinking on the issue of outsourcing may have been twisted by the pseudo-nationalistic pathos of the mainstream media or by TV tirades of guys like Lou Dobbs, who recently reemerged on the Fox News Channel after retiring from CNN. But did you know that America is "losing" millions of jobs on average each month when we are not in recession? Yes, it is part of the normal turnover in the labor market while the economy keeps growing and adding jobs and wealth. Can you guess how many of those jobs are lost due to outsourcing? Less than 1 percent. It puts things into perspective, doesn't it?

It is also worth noting that the world as a whole is losing manufacturing jobs as a normal consequence of what we call "economic progress." During some years China loses those jobs at a faster rate that the United States. At the same time, while we run a trade deficit in manufactured goods, we have one of the largest net surpluses in business services in the world.

Does outsourcing bring all benefits at no cost? Of course not. Should we try to help the tiny minority of displaced workers who temporarily lose more than what they gain from free trade? Absolutely. We just have to find the best ways to do it, and centrally planned "blueprints" are unlikely to be among them.

The benefits of outsourcing are also undeniable: Lower prices mean higher living standards, growing all participating economies and opening new opportunities for poor people around the globe to move up into the middle class. It would be criminally irresponsible to try to reverse natural market processes that bring obvious inestimable benefits to the consumer, i.e., all of us.

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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