Always a controversial topic in economics class. Always a controversial topic in major elections. Most candidates and most “civilians” analyze outsourcing in a different way than do most economists. I suggest you read this article to see a clear explanation of outsourcing and how most of us and nearly all politicians get it wrong. Here’s a brief excerpt:

That’s one problem with the war of allegations. The other is that they reflect and promote an erroneous assumption: that outsourcing to other countries is something to be opposed at all costs. In fact, it’s a vital part of international trade, which in turn is an immense boon to human progress.

Many Americans fear that every job moved beyond our borders constitutes a grievous loss to our economic welfare. But if something can be made cheaper elsewhere, the relocation will allow us to buy that product at a lower cost, which is entirely desirable. We don’t improve our material well-being by depriving ourselves of the chance to get more goods for less money.

We don’t actually lose jobs when a company decides to take its manufacturing elsewhere. A recent study of the U.S. published by the Centre for Economic Performance at the London School of Economics and Political Science found, “Offshoring has no effect on native employment in the aggregate.” It destroys some jobs but creates just as many others.

Nor is it exactly optional. If clothing can be made far cheaper in China than in South Carolina, a company with plants in South Carolina can do one of two things. It can move its production to China to take advantage of the lower costs, or it can dig itself a grave and then climb in.

A company that successfully outsources saves jobs — since a company that goes bust employs no one. If Bain had barred corporations from shifting factories when it made sense to do so, it would have been guilty of economic malfeasance.

Outsourcing, contrary to myth, has not led to the collapse of American manufacturing. In fact, U.S. industrial production has risen by nearly 50 percent in the past 15 years. The reason manufacturing employment has declined is that workers have gotten more productive — meaning it takes less labor to make more goods.

But outsourcing is a two-way street. Nobody here seems to think the German government should stop Volkswagen from building cars in Tennessee. Some 700,000 Americans work for U.S. affiliates of Japanese companies, which apparently is cool with Japanese politicians.

Advertisements