Tuesday, December 06, 2005

In Defense of Offshoring

The loss of American white-collar jobs to India, China and other locales through the practice of outsourcing has become one of the hot-button issues in politics today. But perhaps just as controversial, if not more so, than the application of outsourcing is offshoring, defined by reporter and author Thomas Friedman as “when a company takes one of its factories that is operating in Canton, Ohio and moves the whole factory offshore to Canton, China (where) it produces the same product in the very same way, only with cheaper labor, lower taxes, subsidized energy, and lower health care costs." Offshoring has gained a great deal of negative attention in recent media coverage, as the press laments the loss of American blue-collar positions, disappearance of tax revenue from production, and alleged human rights violations in these foreign factories. However, it appears at times as though both sides of the story of offshoring are not being told by America’s mainstream media and many politicians.

Some local representatives have been eager to act on the resentment of offshoring labor shown by their constituents. California lawmakers recently introduced a bill that would have prohibited agencies in their state from offshoring labor unless the contractor could prove that all of the work would be done inside the United States by American workers. Although the proposed regulation was eventually vetoed by Governor Arnold Schwarzenegger, it only seems as if protectionist sentiments in this country are becoming more and more prevalent. Infoworld reports that “bills related to offshoring or outsourcing, some of which would severely limit or outright stop those practices, were introduced this year in nearly all 50 states as well as in the U.S. Congress, and there is no indication that legislative trend will stop."

Despite the good intentions of elected officials across the country, the fact remains that companies which choose to offshore production are effectively employing the law of comparative advantage, and choosing real goals such as efficiency and price over intangible variables like their perception by potential consumers. Unfortunately for companies that do choose to outsource, this image is often altered by those that seek to keep American jobs inside our borders at any cost. Offshoring labor can actually create positions here in the United States, as shown by Murray Weidenbaum, who chronicled the results of Delta Air Lines’ experiment. He writes that “in 2003, Delta outsourced 1,000 jobs to India, but the $25 million in savings allowed the company to add 1,200 reservation and sales positions in the United States." Of course, positive stories about offshoring such as this, which saw our country gain 1,200 higher-paying positions at the expense of 1,000 blue-collar placements, are largely hidden as the “offshoring is bad” contingent of the media tends to dominate discussion.

Perhaps most of all, protectionist politicians and jingoistic journalists are guilty of claiming that in regards to offshoring, the sky is falling, when that really is not the case. After all, America still is the world’s largest manufacturer, and per Friedman, we still produce 75% of what we consume. All of our jobs are not moving across the Pacific. In fact, some high-paying jobs are moving in the opposite direction, as foreign car companies have found it advantageous to set up production facilities right here in the United States. Honda now has a plant in Ohio, Nissan currently manufactures vehicles in Mississippi, and Toyota operates production lines in California, just to name a few. In addition, technological firms across the world often move operations to the United States to take advantage of our culture of innovation and highly educated population. Offshoring does go both ways.

People need to realize this simple actuality in the new global economy – due to globalization, offshoring is here to stay, despite legislation, rallies or other movements against it. But it does not have to be a threat. The offshoring of global positions presents thousands of new opportunities just waiting to be leveraged. It frees up workers in America to manage, rather than work with their hands, and to deal with information instead of raw materials. And while it is an enormous transformation, it can inevitably work out for the best, for both employers and employees.