More On My Obsession With Outsourcing

The Specter of Outsourcing (
Robert Samuelson, as usual, provides some perspective on his subject of choice: outsourcing. It isn’t the monster that many paint it to be. Paul Craig Roberts, Jude Wanniski and Pat Buchanan will be horrified to hear this, but it’s not that bad and just an extension of economic principles that previously only applied to manufacturing. It’s still a good thing in the long run.

We Americans are drifting into a global labor market — and don’t like it. The latest fear is that hordes of white-collar jobs, from low-paid filing clerks to well-paid software engineers, will vanish into a giant global sinkhole of well-educated and underpaid workers, mainly from India and China. Although we knew that manufacturing jobs could be lost abroad, we imagined that service jobs — most U.S. jobs — were safe from international competition. The fact that they aren’t could profoundly alter U.S. attitudes toward globalization, even though the danger is exaggerated and misunderstood.

Let’s disentangle fact from fiction. It’s true that many companies, facing relentless competition, will seize almost any approach to cut costs, including “outsourcing.” The logic that applies to manufacturing is now spreading to many services as a result of trends that Americans have generally favored: (a) the ability to “digitize” information instead of using paper; (b) cheap international communications; (c) rising educational levels abroad (India now has about 9 million college students, compared with 13 million in the United States); and (d) more big countries — China, India, Russia — joining the world economy.

Jobs that involve collecting or analyzing information seem vulnerable, because wages abroad are so low. Compare the United States and India. For software engineers, it’s $60 an hour vs. $6; for call-center workers, $10 an hour vs. $1.50; for insurance claim workers, $1,500 a month vs. $300; for accountants, $75,000 a year against $15,000. (These figures come from the Information Technology Association of America, or ITAA.) The easiest jobs to send abroad involve routine “back office” recordkeeping that’s fairly labor-intensive: insurance claims, personnel and billing records.

It’s Samuelson. Read the whole thing.

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