Monday, September 10, 2012

Outsourcing...Can there be a marriage of views?

By Doug Goepfert, guest

[A well-researched and well-thought out piece reflecting contrasting view on the virtue and vice of outsourcing in America. kes] 

Shafts of sunlight poured through the glass ceiling of the hotel conservatory.  Hanging plants filtered the rays as they illuminated white tablecloths and wicker chairs below.  Golden glass chandeliers added to the dazzling beauty of the wedding reception.  Roslyn and Gary were finally married and around the family table the two happy moms and dads sat gazing at the gathering of people celebrating the union of their two families.  The band belted out an earnest rendition of “New York, New York”. 

“Great couple,” remarked the groom’s father, Arthur Kilbain.  He and his wife Sue were seated across from Nick and Elise Johnson, parents of the bride.  Both couples enjoyed a splendid panorama of the dance floor, the band across the room and the wedding party seated behind the head table to their right.

Arthur was impeccably dressed in a black tuxedo with a white shirt and yellow tie.  His brilliant white hair contrasted with tanned skin and dark eyebrows.  He was a tall, fit man with a seemingly molded-on “Hi, How-Are-Ya!” smile.  Arthur had worked his way up to CEO of the Tomlinson Corporation through a series of increasingly more responsible jobs in Fortune 500 companies. 

“Yah, great pair,” smiled Nick Johnson.  Nick rose to applaud Gary’s dance with his new bride.  A great big tank of a man, Nick’s once flourishing red haired pate was shaved clean.  He sported a grey goatee.  His rough skinned face reflected years of labor at the General Motors plant in Lordstown, Ohio.  He had the feisty demeanor of one who had forged his way up from the assembly line to shop steward to a full time union management position with the Northern Ohio Chapter of the United Auto Workers.

“You know, Nick,” continued Arthur, “The world Gary and Roslyn are living in is quite different from the one you and I faced.”  “Sure is,” replied Nick. “Gone to the dogs, if you ask me. The economy is permanently tanked.  Legislators can’t agree on anything, and jobs are being shipped overseas with the full support of the government.  It’s unbelievable.  How do you grow jobs if the government promotes sending them overseas!  The rich just get richer and the middle class suffers.” 

Failing miserably in an attempt to maintain decorum appropriate for the occasion, Arthur blurted out, “Well, you have to admit, the American worker has to some degree cooked its own goose by demanding high wages and not keeping up with training to be competitive with world workers.”  He winced as Sue’s foot found his shin.

Nick’s face turned a deep red and his eyes started blinking uncontrollably, opening wide like a pair of camera lenses trying to collect any light possible from a scene of darkness and desolation.  Elise, caught in the middle of a sip of Moet, tried unsuccessfully to muffle a choke.  A stay-at-home mom, she was the stuff that kept the family of seven together, an expert at resolving disputes and keeping everyone on an even keel.  A smiling, content woman with short blond hair worn in a simple bob, her eyes set her apart.  They were at once cheerful and skeptical, and one felt she could see through any false pretense one might conjure.  Roslyn was her oldest.

Nick took a long moment to compose himself.  “American workers are the best in the world.  How come the Japanese have done so well with automobile plants for their cars in America?  Besides, the gap in the cost of manufacturing labor between our country and others has decreased greatly over the years.  We should bring all that manufacturing back home.” 

“The thing is, Nick,” replied Arthur, “our companies need the increased productivity that outsourcing brings in order to make money so that the economy can grow.  This benefits the entire population.  Look, I’m responsible to provide current quarterly income growth for my stockholders.  They want it now, not later, so I have to do what’s going to make the most money in the short term.  Besides, many employers are not sure truly competitive manufacturing can happen in the US.  Workers here snub repetitive jobs and want too much time off.  Overseas in India and Malaysia, workers are more willing to accept changing work hours and take on tough jobs.  Employers can even find skilled mid-level engineers and suppliers there, along with low wage employees.”

“Well, I’ve read studies which say the effect of outsourcing jobs on overall productivity is questionable,” retorted Nick.    

“Hey guys, it isn’t just manufacturing that has been shifted overseas, white-collar outsourcing is hurting us as well,” Sue injected.  Sue ran her own programming company, writing financial and operations software for medium sized manufacturing firms.   Her shoulder length brown hair framed a rather intense face with dark eyes.  She wore a jet-black dress.  Gary was her only child.

“Not too long ago, I could hire overseas programmers for 10% of what I could here,” she began.  “Corporate clients would ask ‘Are you employing outsourced programmers?  Because we really don’t want to pay the rates of domestic programmers.  What was I supposed to do?  Today more and more countries are offering not only skilled programmers, but data-input and call center people as well and the difference in cost is still quite large.” 

“Outsourcing of white-collar jobs is good for US corporations but not for domestic white-collar workers,” she continued.  “In fact, many of us assumed that shipping dangerous repetitive manufacturing jobs overseas was actually good for our workers.  They could be retrained for more gratifying jobs like those in the technology world.  Now we see that those jobs are going elsewhere as well.”

Arthur was feeling considerably outgunned. “Just look at Apple, and Nike, and all the overseas manufacturing that they do,” he asked.  Can you argue that they haven’t added greatly to our economy?”  Besides, our tax code actually rewards us for moving operations overseas!”

“Just how does that work?”  Sue questioned, growing more flustered.

“Well, our code allows companies with multinational operations to report profits in foreign countries with little or no tax rates.  Countries like the Netherlands, Ireland, Cayman Islands, Luxembourg, Singapore, Bermuda and Switzerland have tax rates all under 4.5%.  The top marginal corporate federal rate in the US is 38%.  What’s more, multinationals can defer payment of taxes on profits in such countries.  That gives the company more funds to invest in research and assets so it can generate greater profit down the road.  You’ve got to hand it to these nations, they’re trying to attract more investment and they’re succeeding.”

Nick leaned forward, almost standing.  “We need more companies like Intel.  Intel does not outsource, employs mostly domestic production workers and is certainly successful!”

“We need to penalize manufacturers who ship jobs overseas, not reward them!” he exclaimed.  “And we need to place protective tariffs on all imports which would threaten domestic product sales at home.  We can send our sons and daughters off to war, but when it comes to economic warfare, we balk!  Here’s another thing, our government needs to support our businesses in a better manner.  Look at Germany.  The German government actually funds domestic businesses during economic downturns so they can keep employees on staff, with benefits!”

Arthur stiffened himself.  “Now, wait a minute Nick.  Many Germans are scraping along at subsistence level incomes under government-supported programs when they could be out looking for new and better work!  Protectionist trade theory just doesn’t make sense.  If we put tariffs on goods coming in to the US, other countries do the same and everyone suffers.  We still lead the world in attracting global investment.  ‘In-sourcing’, letting foreign companies invest here, is a boon to our economy!  In fact, the amount of foreign investment in the United States is twice our investment overseas.  Major foreign companies are building plants in the US.  That means more jobs for American workers.“

Exasperated, Sue interjected, “So now you’re arguing for out-sourcing and in-sourcing at the same time?  My head hurts.   Why we can’t get good numbers on this whole matter?  So we can see the real impact of outsourcing?”

“First, the Bureau of Labor Statistics hasn’t found a good way to report on outsourcing,” Nick stated.  “Second, companies themselves are reluctant to publish their own numbers out of fear of hostile responses from customers.  We’re really flying blind in this area!”

Elise Johnson had been studying the three antagonists, and, as was her habit, looked for a way to calm troubled waters.  After all, this was a wedding!  Her daughter’s wedding!  She thought about all the family turmoil she had navigated.  Billy, if you give Laura 3 play coins for your five knights, I’ll bet she’ll share the toys she wants with you.  Or, Nick, we’ve got to do the shopping for your mother after her fall.  Will you take the kids Saturday morning so I can go to the ShopRite?  Mustering her resolve, she declared, “We really can’t solve these problems at such a broad level.  At that level, you just get polarization of views and divisiveness.  We all know what we want:  Spur the economy, create jobs, cut the deficit, support critical infrastructure, provide basic education, maintain adequate defense.” 

“Leadership has got to approach both the budget and pieces of legislation on a case by case basis,” she continued.  “Get lawmakers from both parties together and hammer out the right solution for the greatest number of people at the time.  That way, everyone feels like they are part of the process of management of the country so they work in a positive manner to achieve results.  It’s called productivity, working together.  I mean, that’s the way we always did it at our house.”

Nick, Arthur and Sue all stared blankly at Elise.  In the background, above the din of the partygoers, the band began playing an old Johnny Nash song.  Buh Bah, ba ba buh buh…. Buh Bah, ba ba buh buh.  At a loss for something…anything, to add, Sue raised her eyebrows and shrugged her shoulders.  As if on queue, Arthur was up from his chair and rocking back and forth to the beat.  The two grinned at their new in-laws and started to sing.  Nick and Elise jumped up from their seats and joined in with the rest of the crowd.  I can see clearly now the rain is gone…I can see all obstacles in my way.”   “May I have this dance, Sue?” inquired Nick.  “How ‘bout it, Elise?” offered Art.  The four strutted arm in arm to the dance floor, parting the crowd of admiring guests. ...”Gone are the dark clouds that had me blind…it’s gonna be a bright, (bright), bright, (bright) sun-shiny day!”  And they danced on into the night.


Fisher Center for Real Estate and Urban Economics – U of CA – Berkeley – Fall 2003
The New Wave of Outsourcing
The Heritage Foundation – Bringing the Jobs Back Home; how the left created the outsourcing crisis and how we can fix it.  Todd Bucholtz.  2004 2005-03-09-Bringing-the-Jobs-Home-How-the-Left-Created-the-Outsourcing-Crisis-and-How-We-Can-Fix-It.rm
The Heritage Foundation -Time to Safeguard Ourselves from Rising Protectionism  -
The Heritage Foundation – Let’s be honest about Outsourcing -
The Heritage Foundation – When Trade is Free US Gains in Investment and Jobs -
The Globalist – White Collar Outsourcing: Myth vs. Reality -
BLS – The effect of Outsourcing and Offshoring on BLS productivity measures -
NPR – American Dream Betrayed by Bad Economic Policy -
The World is Flat – Thomas Freidman -
Center for American Progress - Outsourcing Statistics in Perspective
Outsourcing – Stains on the White Collar  -  James Kirkegaard -  Institute for International Economics. 2004
Center for American Progress - 5 Facts about overseas outsourcing
Center for American Progress – Conservatives undermining our Economic Recovery -
Outsourcing Jobs leaves the American White Collar Worker Behind -
Working for America Institute – Outsourcing America; Ron Hira -

Dr. Lewis C. Sage (AB Kenyon, PhD U. Maryland) likes intersections. Since 1991, he has taught Law and Economics, Mathematical Economics, and the Economics of Healthcare. A former Fulbright Fellow (Bulgaria 1995-6), he teaches an interdisciplinary Honors seminar, Enduring Questions, and is studying strategy in the NFL draft with faculty and students in Sport Management and Psychology. E-mail:

Kay Strong, Ph.D., Southern Illinois University, M.T., University of Houston, M.A., Ohio University; Associate Professor at Baldwin-Wallace College; Areas of expertise: international economics, contemporary social-economic issues, complexity and futures-based perspectives in economics. E-mail:

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This blog lives under the auspices of the Department of Economics whose mission has been to hold high the lantern beaming an "economic way of thinking" onto the world. Selfishness, rationality and equilibrium have been central to the teaching of an economic way of thinking rooted in the Renaissance. And, in this regard, the department has faithfully stayed the course. The intent of this blog, thinking out loud..., however, is to entertain exchanges which may challenge the centrality of economics as we teach it.