20 Defenses of Offshoring

20 Defenses of Offshoring and Why They Are Wrong
By Ian Fletcher
Progressive Engineer, 2004
http://www.progressiveengineer.com/editorial/offshoring.htm
Editor's note: In our October 2004 issue, we ran an editorial on the
offshoring of American engineering jobs. This is a response we received to
it.
Defenders of offshoring keep repeating bad arguments: keep this article
handy and you can catalog them by number. Sometimes, they don't even
give rational arguments, just slick puffery about the wonderfulness of
capitalism, technology, and trade, often combined with insinuations about
offshoring's opponents. They are masters of question-ducking, subjectchanging, and deliberately misframing the opposing position. But their
arguments usually boil down to one of the following:
1. "Offshoring is inevitable"
If it is inevitable, why do its proponents feel the need to defend it? Because
its no more inevitable than Medicare. If the government banned or taxed it,
it would end or decline. If the government stopped covertly subsidizing it
through the tax code, it wouldn't grow as fast.
2. "We have free trade in goods, so we should have it in services"
Free trade in goods is itself a debatable position, not a home truth. Cuttingedge economics, like the work of William Baumol, has been chipping away at
the free-trade consensus for years. And the purpose of public policy isn't
logical consistency but the public good. We should evaluate whether free
trade in the services that are being offshored is good for us, not just do it
because we do something similar with trade in goods.
3. "Offshoring is a minor phenomenon"
Not for long; it's just getting started. Yes, it has only cost America 5 percent
of our tech jobs today, but offshoring is estimated by its proponents to be
growing at around 25 percent or so a year. A University of CaliforniaBerkeley study estimates it will take 14 million or more jobs by 2015.
4. "Offshoring only costs us undesirable low-end jobs"
This is an elitist argument for the millions of Americans who would rather
work at a call center or in the bottom rungs of the computer industry than
go unemployed or work at Wal-Mart. And it just isn't true: jobs paying $80100,000 a year are now getting offshored -- the very cream of the job
market for ordinary Americans.
5. "America will always keep the best jobs"

This is just arrogance on our part. Is the rest of the world stupid enough to
stay at the bottom of the economic food chain forever? Yeah, and Japan will
only ever make plastic knickknacks. The kind of ultra-high-end technology
jobs where America really is better than anyone else do exist, but they are a
relatively small part of our labor force. We can't all be PhDs from MIT.
6. "Better education will protect American workers against
offshoring"
Although better education is always good for people's economic chances, it
just isn't enough anymore when even college-educated Americans are
competing against college-educated foreigners who earn 1/10 to 1/4 what
they do. And for the half of all Americans who won't go to college, it's even
worse.
7. "Higher productivity will protect American workers against wage
differentials"
This was true in 1950, when the vast infrastructure required to make
General Motors work could not be replicated in the Third World at a feasible
cost. But nowadays, thanks to the Internet and other innovations, a
computer company in India or Russia can use the exact same hardware and
software as an American company, train its workers from the same manuals,
and get the same productivity. The only difference is in wages; any
productivity advantage Americans enjoy is eroding fast.
8. "Wages in other nations will catch up to ours, so they won't be a
threat"
This will take, even on optimistic assumptions, at least a generation, given
that wages in competing nations are rising a few percentage points a year
and the gap between them and ourselves is so large. Do we want to sacrifice
American workers for 40 years?
9. "Offshoring will help bring down the cost of goods and lower
inflation"
But inflation is low already, and the Fed is worrying about deflation. There
are few jobs that some foreigner somewhere won't do cheaper than an
American, so it is true that in the short run, considering only the item in
question, having that item produced by a foreigner is usually cheaper. But in
the long run, this results in unemploying or driving down the wages of
Americans, meaning that the cost of goods relative to American salaries
don't go down.
10. "American companies need offshoring to stay competitive"
Not if we don't allow competitors using cheap labor to produce for the
American market. If America stakes its competitiveness on cheap labor, this
can have only one result. The race to the bottom is not a race we want to
win.
11. "People who oppose offshoring are losers / Luddites /
Naderites / Buchananites"
False: look around you at an anti-offshoring meeting and you'll see ordinary
Americans who are concerned about their futures. And irrelevant: even if
some political extremists oppose offshoring, that doesn't make it bad public
policy, as policies must be judged on their merits, not their lunatic fringe.
And name-calling isn't debate.
12. "The free market will eventually solve this problem"
Sure, but there's no guarantee it will solve it in our favor. Free markets
promote efficiency, but they don't guarantee the standard of living of any
one nation. The global market doesn't intrinsically care about America any
more than about Timbuktu. Yes, American wages can eventually decline to
the point where we reach equilibrium with foreign nations, but this would
happen at the price of a steep decline in our standard of living.
13. "A decline in the dollar will eventually solve this problem"
At what cost? If the dollar falls by half or more, this will radically increase
the cost of imports, reducing our standard of living and sending a massive
inflationary shock like the oil shock through our economy. And can the dollar
really fall far enough to make $17-an-hour American workers competitive
with $1-an-hour workers abroad?
14. "The money that goes abroad in offshoring gets recycled back to
the U.S."
This is just a way of saying it's OK to buy services from foreigners because
they will turn around and buy from us. Trouble is, that's empirically false, as
there's a half-trillion-dollar deficit between U.S. exports and U.S. imports
right now. Foreigners don't have to recycle their dollars into buying jobcreating exports from us; they can sell us debt or buy up American assets
instead. We are selling off the country to pay foreigners to do our work for
us.
15. "Fighting offshoring is class warfare"
America has to defend its character as a fundamentally middle-class society
or we will lose it -- nothing Marxist about it. And economic interests on the
other side of this question don't seem to show any squeamishness about
defending their interests.
16. "Fighting offshoring is anti-capitalist"
The health of American capitalism as a whole is not identical with the desires
of its multinational corporations. America is historically the most capitalist
country in the world because American workers have felt confident of their
economic futures. Take this away and they won't vote that way anymore.
And has anyone noticed that some offshoring proponents actually support an
expansion of the welfare state to buy off its victims?
17. "Fighting offshoring is un-American"
Reread your American history. We have had various forms of protectionism
for most of our history, going back to Alexander Hamilton and only really
ending in the Cold War, when we opened our markets to the world to buy
them off communism.
18. "Fighting offshoring is anti-technology"
On the contrary, fighting offshoring helps conserve America's technological
base. How can we be a major technology power without technology workers?
Or if our technology infrastructure is moved overseas? How can we get kids
to major in technology disciplines in college if they see all the jobs going
abroad?
19. "There are no military or security implications"
Offshoring puts critical parts of our technology infrastructure in the hands of
hostile nations like China. Even offshoring to nations currently friendly to
America is no guarantee of their future foreign policy. Offshoring builds up
the technological know-how of hostile states while it depletes our own
technology base. Hard distinctions between militarily-significant and
-insignificant technologies are impossible to maintain.
20. "There are no labor or environmental implications"
Nations to which work is getting outsourced use lower environmental and
labor standards as part of their cost-competitive strategy. Worse, this tends
to punish American companies that try to do the right thing.
What must be done? In the short run, an emergency ban on offshoring.
Next, America must rethink its entire trade policy and place regulation of
offshoring within a coherent overall approach. What can you do? Join the
American Engineering Association or a similar group reflecting your own
interests today. We're lobbying on this issue. Even better, get together with
some like-minded acquaintances and form a local chapter of one of these
groups.
Ian Fletcher is Vice President for Government Relations of the American

Engineering Association.
Another important thing that liberal pushers of diversity forget is that a high level of trust is
necessary for the kind of economic development typical of advanced modern industrial societies.
This is because high trust significantly reduces the transaction costs between principals and
agents. For example, high trust minimizes the amount of time spent investigating the
trustworthiness of a potential broker or employee. Time spent in this kind of investigation means
wages foregone because attention is taken away from productivity, whereas the less time spent in
such investigation means higher productivity. Low trust societies are typically underdeveloped
because of an inability to both establish and maintain effective formal and informal methods of
contract enforcement (such as credit bureaus, ostracism etc.). The presence or absence of ethnic
and social heterogeneity determines whether a society is low or high trust. Societies that are
ethnically and socially homogeneous are high trust because people are driven by genetic and
social factors to protect members of ones extended family. The introduction of low trust, tribal
people into western societies would only destroy those societies and lead them on the path of
economic underdevelopment.

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20 Defenses of Offshoring and Why They Are Wrong

5. "America will always keep the best jobs"

Ian Fletcher is Vice President for Government Relations of the American

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