Globecreative

BLOOMBERG VIEW ON OUTSOURCING

OutsourcingMatthys Ras

Businesses have been outsourcing for decades, contracting out work to a third-party for financial savings, or for capacity/capability reasons. The term “outsourcing” became popular in the United States near the turn of the 21st century, but the concept has been around for decades, dating back to the early ages even before slavery. Even in modern times, the term is often viewed with negative connotations, but why do more and more successful businesses resort to contracting individuals or organisations outside of their area, country or continent?

Article below as seen on Bloomberg View[separator type=”space”]

The U.S. presidential campaign has gotten sidetracked on a debate over whether Mitt Romney or Barack Obama is the worst offender when it comes to offshoring U.S. jobs. Although the claims on both sides amount to little more than vote pandering, this is still a debate worth having. Among other things, it reveals that the critiques of outsourcing made by Obama and Romney are misguided.

Economists who study global labor trends say companies create jobs outside the U.S. not just because labor costs are much lower, but also to pursue sales opportunities in new markets. They want to be closer to the economies that are growing the fastest and to be able to hire locals who understand the cultural and consumer trends. Even as labor costs become more equal, companies would still hire abroad because that’s where the talent pool often is. Companies that don’t do this for some patriotic reason would be at a disadvantage to European and Asian competitors, which would probably cause market share to drop and eventually result in U.S. layoffs.

The benefits of moving jobs offshore have been numerous. Outsourcing means less expensive goods and services for U.S. consumers. Workers in China and India, meanwhile, are becoming more like Americans, increasing demand for U.S.-made goods. Outsourcing also allows more advanced industries to replace outdated ones. Eventually, some jobs will flow back to the U.S. because of the combination of rising wages overseas, a stronger Chinese currency, and the availability of low-cost natural gas. Such “inshoring” is already beginning.

This season’s electioneering leaves the impression that companies are bad if they outsource jobs, and if they’d only stop being bad, the jobs would come back. Yet many jobs have been lost to automation, not necessarily to offshoring. The presidential campaigns fail to recognize that employment in middle-skill and middle-wage occupations is declining rapidly. If the candidates wanted to be constructive, they would tell voters the hard truth—that most of the mid-level jobs are never coming back. They should talk about their plans to improve math and science education, and how to retrain workers to perform more high-skilled tasks. That’s the conversation both candidates are avoiding, but shouldn’t.

To read Stephen L. Carter on Lincoln and Jonathan Alter on voter suppression in Pennsylvania, go to: Bloomberg.com/view.