In today’s society, one of the number one problems facing both politicians and economists alike is, undoubtedly, the economy. For such a complex, multi-faceted problem, it seems everyone: republican and democrats alike offer possible solutions with a common goal of revitalizing the economy. The economy is amazingly complex, made up of many different components which seem to be the basis of many arguments between economists and politicians. One major area of dispute is the debate centered on outsourcing, sparking the interest of the producer and consumer, the politician and the voter alike. Many economic and ethical questions are centered on this hot topic all asking how much does the economy need to maximize productivity without there being too much? All of these questions have different answers from different people. This paper will attempt to define outsourcing and give some of the major perspectives and statistics surrounding the issue. As the principle researcher, I will offer my educated opinion at the end of the paper.

Outsourcing could be briefly and simply defined as companies using resources oversees to do jobs that they could hire Americans to do. The main advantage to outsourcing is, obviously, the cheaper cost of sending work to other countries. The problems lies in the thousands of people left out of work back in America. One must ask himself, then, is it right to send jobs overseas when there is a desperate need for work in America? In addition to this ethical question, economists have recently posed a deeper question, hypothesizing that, in some instances, over the long run, it is not profitable at all to send jobs overseas. Other economists have stated that because the short-term affect is positive, it is worthwhile sending jobs overseas because the resulting damage to the United States economy is minimal. 

One could not possibly understand the concept of outsourcing without fir studying the history of the concept. Upon investigation, one would find that outsourcing has an extended history, one much greater than anyone could imagine. Bob Davis, a reporter for the Wall Street Journal said this concerning the history of outsourcing: “What could be a more modern dilemma? High-Speed data links allow employers to ship white-collar jobs from rich countries to India, China, and other nations where workers earn far less. Yet losing jobs to low-wage foreign competition is as old as the industrial revolution”. In his article, Davis first give a very brief summary of the problem as it exists today, then he begins to probe the history of outsourcing. Davis goes on to write: “In the 1830’s, the British textile industry became so efficient that Indian cloth makers couldn’t compete.” The reader begins to understand at this point that paying people to do the same job that others could do at a considerably lower wage is a time-tested problem. Davis writes of the business owner’s solution: “The work was outsourced to England, with disastrous consequences for Indian workers”(The Wall Street Journal). It’s important to note the time difference between Davis’ example and today’s modern-society. Outsourcing, while it hasn’t had disastrous consequences, has remained with the same basic principal: find ways of producing products at lower costs.   

 Eileen Smith Ewing, a partner at Kirkpatrick & Lockhart LLP said, on the renewed interest in the economy over the past few months “I think the last few quarters have been like when you go to the beach in the Spring after a long, cold winter, and you’re just getting your courage to put your toe in the water”(Boston Business Journal). Ms. Ewing is correct in that there is a renewed interest in the economy, particularly in recent days with the approaching presidential election. To use the quote from Ms. Ewing, the subject of the economy is not something that people are dabbing their toes in; they are jumping in full force. With the obvious downturn in the economy over the past four years and the upcoming presidential election, the economy has become a hot-topic of supreme interest in both candidates for the presidential race: John Kerry and President Bush. The Economist magazine offered a similar opinion in their article from February 14^th entitled “Economics focus: the Reserve Army- The unemployment rate is only the beginning of the problem”. The article states: “The issue of unemployment [directly tied to outsourcing] has loomed especially large in America in recent months. This is partly because of the presidential election in November, and much will hinge on whether George W. Bush can convince voters that an apparently booming economy is producing jobs”. The article first recognizes the importance of the economy in the upcoming election. Next, it goes on to summarize the unemployment problem: “A glance at the unemployment rate would seem to give him [Bush] the answer he wants. The unemployment rate had fallen from a post-recession peak of 6.3% in June to 5.6% last month [January], though that it still higher than the 5.0% that many economists consider to be the ‘natural rate’ of unemployment-one that results merely from the normal or ‘frictional’ pattern of job gains and losses at any one time”(The Economists). This article has focused greatly on the unemployment rate as a problem in itself facing both candidates for election/re-election in November. What the article fails to do, however, and what the following article focuses on it outsourcing and how it plays a role in the upcoming election.

One of the most interesting aspects of this outsourcing dilemma is how different the candidate’s views are of the problem facing them. Senator John Kerry sees outsourcing as a horrific economic hindrance that does hurts the economy at home every day. The current president, however, says outsourcing is a very important aspect of our economy, one that cannot be ignored. Even more confusing than these two men’s opinions of the problem is the fact that they both have highly regarded economic advisers backing them up. The Boston Globe, in an article from Wednesday, March 31, 2004 wrote the following about President Bush and the Chief of the Treasury of the United States John Snow: “Treasury Secretary John W. Snow in the latest sign that the Bush administration intended to directly defend free trade despite the loss of American jobs overseas, argued in an interview published yesterday that outsourcing ultimately helps the US economy”. Right away, from the start, the reader learns that the Bush administration thinks highly of outsourcing as a way to rejuvenate the economy. The article continues: “Snow told the Cincinnati Enquirer that outsourcing is ‘a part of trade…and there can’t be any doubt about that fact that trade makes the economy stronger.’” In addition to the Chief of the Treasury, the article sites comments made by two of President Bush’s top economic advisers, Mankiw and Friedman: “The comment [made by John W. Snow] echoed those made recently by two of President Bush’s top economic advisers, N. Gregory Mankiw, chairman of the Council of Economic Advisers, and Stephen Friedman, director of the National Economic Council, who also suggested that shifting some jobs overseas would benefit the United States”. The Presidents position o outsourcing is made clear in this article; he believes it to be a benefit to the US economy. In fact, the article goes on to quote the Bush administration: “Outsourcing involves free trade which, in the long run, means greater choice for consumers, lower prices, and greater prosperity.” (The Boston Globe)

One of the most highly regarded men involved with current economic issues today is Alan Greenspan, chairman of the Federal Reserve. He has been quoted as saying that outsourcing provides the type of competition that leads to the type of innovations that drive the economy of the United States forward and ultimately create more jobs than those which are lost (Boston Globe).

While there seem to be many positive advantages for outsourcing, the article in the Boston Globe provides negative ones as well. Again, they seem to be mostly political. The article states: The issue of job loss is especially powerful in the industrial regions of Ohio, Michigan, and Pennsylvania, which are shaping up as crucial states in the 2004 Presidential race. Ohio, for example, has lost about 200,002 manufacturing jobs since 2000. There good economic arguments, but stupid political arguments said Norman Ornstein, a political analyst at the American Enterprise Institute, a Washington D.C. think tank. “They’re fine if you’re prepping for econ 101, but not a Presidential campaign.” The article goes on to talk about the destructive results left by outsourcing in certain industrial areas of the United States: “The manufacturing sector, in particular, has been steadily losing jobs, shedding nearly 3 million over the past three years. And in the background are the frequent announcements about jobs being moved to China”. With such negative short-term results, one can be sure John Kerry has included his opinion of outsourcing. The article goes on to say: “Democrats viewing the Bush administration as particularly vulnerable on the economy have targeted the administration for its trade policies. Last week, Senator John F. Kerry unveiled a tax proposal he said would reward companies that kept jobs in the United States, and yesterday, through a spokes woman, the Massachusetts Senator ripped Snow’s outsourcing comments as part of the ‘Bush’s secret plan to send more American jobs overseas”. (Boston Globe). No matter what side of the outsourcing debate you fall one, you have to recognize the strong importance of the topic and the value it plays in modern-day politics. In the end, the article concludes: “Economists, meanwhile, say the impact of outsourcing has been overstated, and attribute the jobless recovery primarily to technology-driven productivity gains. A study released yesterday by the Information Technology Association of America said outsourcing accounted for less than 3 percent of the job losses in software and tech services since the dot com bubble burst in 2000. The study estimated that global outsourcing would save US technology companies some $21 Billion a year by 2008; as those savings ripple through the economy, productivity and wages would rise, creating more than 317,000 jobs in 2008”. (The Boston Globe)

The Economist Magazine stated that in addition to normal outsourcing problem, another problem, even more ethically un-sound (according to John Kerry) has arisen called multinational companies. The magazine stated: “Multinational Companies, if you believe the claims of anti-globalizes from Seattle to Cancun, are the ugly face of capitalism. Not only are they as despoilers of the environment and masters of sweatshops, but they are fickle too. They have no commitment either to the countries in which they are based or to those in which they invest. They move jobs from one country to another purely on the basis of cold calculation, seeking lavish subsidies to persuade them to invest or to stay: John  Kerry, America Presidential Candidate, has labeled companies that switch production overseas “Benedict Arnold” firms, after a traitor in Americas Revolutionary War”. (The Economist) It is obvious by this article that both the writers and the politician Kerry look unfavorably companies that move from country to country in search of higher profit margins. This is yet another example of one facet of outsourcing.

Another big aspect of outsourcing is the computer industry as this is the industry most affected by the concept. Michael Schroder, reporter for the Wall Street Journal wrote: “An industry sponsored study [about outsourcing] claims that twice the number of U.S. jobs are created than displaced, producing wage increases in various sectors”. Obviously, as this article points out there are many pros and cons when discussing outsourcing.

So, after visiting all of these views and opinions, I had to ask myself is outsourcing a good thing? I reached the same conclusion as George B. Donnelly the editor of the Boston Business Journal: “I find it hard to blame a capitalist for getting the best possible product at the best possible price. That goes for a consumer, too.” (Boston Business Journal). In short, my opinion is that we are a country of freedom. If someone wants to maximize profits by seeking work elsewhere, why not let them? Furthermore, the editorial goes on to write: “A recent government report notes that foreign companies outsource more jobs to the United States than we export abroad- it actually diminishes our trade deficit”. If this is true, that means that, while the idea of outsourcing isn’t pleasing to Americans, the practice of it is beneficial to the American Economy.

In the end, one would find that outsourcing is only beneficial to the producer in the short term and only harmful to the average American looking for a job in the short term. In the long run, there is no real cost or benefit to outsourcing, so it becomes a topic that everyone like to argue about, but means very little. Yes, the political value of outsourcing highly outweighs the economic value.

WORKS CITED

Boston Business Journal: Volume 24, Number 8. March 26-April 11 2004

The Boston Globe: Treasury chief calls outsourcing a plus for U.S. March 31, 2004

The Economist: Footloose Firms-Are global companies too mobile for workers good? (no date available)

The Economist: The reserve army - The unemployment rate is only the beginning of the problem. February 14^th 2004

Ewing, Eileen Smith: Partner at Kirkpatrick and Lockhart LLP

The Wall Street Journal: Finding Lessons of Outsourcing in Historical Tales: the wealth of nations. March 29^th 2004

The Wall Street Journal: Outsourcing May Create U.S. Jobs. March 30, 2004