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Outsourcing.

Economy Outsourcing 2004

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#1 schoolpsycho

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Posted 21 April 2004 - 10:11 PM

Hi, all.

Outsourcing is one of the hot issues now. And since it was brought up in another topic, I felt those who had views on it deserved a thread. So, if you'd like, air your thoughts, gripes, pros, cons, and solutions here.

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#2 Godeskian

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Posted 22 April 2004 - 05:38 AM

The problem is that what isn't a living wage in the western world, is a living wage in other parts.

Setting aside non business concepts like patriotism, and loyalty to ones workforce for a moment, if you can pay half as much to people, and still provide them with a decent standard of living, then why should a business man not do it.

And the phone jobs go to India (as an example) where a wage that a great many people would consider an absolute pittance would allow a person to have a roof over his head, and feed his family, because costs are so much lower.

which of course, leaves two immediate choices, both of them rather unappetizing for me.

1. reduce all prices in the western world, at which point you can lower wages while maintaining purchasing power.

yeah, never going to happen

2. Raise prices in the countries to which things are being outsourced, and i believe it's not unreasonable to think that that will take care of itself

i think for businesses it makes sense to go with whatever benefits your bottom line most. After all, these are places of commerce, not altruistic institutions. They do not exist to provide a person with work, they exist to provide a serivce, or a good at the cheapest possible price, while maintaining maximum profit.

: shrug : that's my take on outsourcing.

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#3 Guldorak

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Posted 22 April 2004 - 07:13 AM

I have been thinking about this for a while since this is one of the factors that impacts the work I do.
I have come to some conclusions which this Globe and Mail article partly summarizes. So to save myself some typing here's the

Globe and Mail

Well ignore the canadian bit, I was mostly interested in the shift of economic theory.

Edited by Guldorak, 22 April 2004 - 07:14 AM.


#4 Guldorak

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Posted 22 April 2004 - 07:58 AM

From Business Week issue of March 22, 2004

This goes into slightly more detail than the article I linked above.

Quote

SPECIAL REPORT -- WHERE ARE THE JOBS?
By Paul Craig Roberts


Guest Commentary: The Harsh Truth About Outsourcing 
It's not a mutually beneficial trade practice -- it's outright labor arbitrage


Economists are blind to the loss of American industries and occupations because they believe these results reflect the beneficial workings of free trade. Whatever is being lost, they think, is being replaced by something as good or better. This thinking is rooted in the doctrine of comparative advantage put forth by economist David Ricardo in 1817.

It states that, even if a country is a high-cost producer of most things, it can still enjoy an advantage, since it will produce some goods at lower relative cost than its trading partners.

Today's economists can't identify what the new industries and occupations might be that will replace those that are lost, but they're certain that those jobs and sectors are out there somewhere. What does not occur to them is that the same incentive that causes the loss of one tradable good or service -- cheap, skilled foreign labor -- applies to all tradable goods and services. There is no reason that the "replacement" industry or job, if it exists, won't follow its predecessor offshore.

For comparative advantage to work, a country's labor, capital, and technology must not move offshore. This international immobility is necessary to prevent a business from seeking an absolute advantage by going abroad. The internal cost ratios that determine comparative advantage reflect the quantity and quality of the country's technology and capital. If these factors move abroad to where cheap labor makes them more productive, absolute advantage takes over from comparative advantage.

This is what is wrong with today's debate about outsourcing and offshore production. It's not really about trade but about labor arbitrage. Companies producing for U.S. markets are substituting cheap labor for expensive U.S. labor. The U.S. loses jobs and also the capital and technology that move offshore to employ the cheaper foreign labor. Economists argue that this loss of capital does not result in unemployment but rather a reduction in wages. The remaining capital is spread more thinly among workers, while the foreign workers whose country gains the money become more productive and are better paid.

Economists call this wrenching adjustment "short-run friction." But when the loss of jobs leaves people with less income but the same mortgages and debts, upward mobility collapses. Income distribution becomes more polarized, the tax base is lost, and the ability to maintain infrastructure, entitlements, and public commitments is reduced. Nor is this adjustment just short-run. The huge excess supplies of labor in India and China mean that American wages will fall a lot faster than Asian wages will rise for a long time.

Until recently, First World countries retained their capital, labor, and technology. Foreign investment occurred, but it worked differently from outsourcing. Foreign investment was confined mainly to the First World. Its purpose was to avoid shipping costs, tariffs, and quotas, and thus sell more cheaply in the foreign market. The purpose of foreign investment was not offshore production with cheap foreign labor for the home market.

When Ricardo developed the doctrine of comparative advantage, climate and geography were important variables in the economy. The assumption that factors of production were immobile internationally was realistic. Since there were inherent differences in climate and geography, the assumption that different countries would have different relative costs of producing tradable goods was also realistic.

Today, acquired knowledge is the basis for most tradable goods and services, making the Ricardian assumptions unrealistic. Indeed, it is not clear where there is a basis for comparative advantage when production rests on acquired knowledge. Modern production functions operate the same way regardless of their locations. There is no necessary reason for the relative costs of producing manufactured goods to vary from one country to another. Yet without different internal cost ratios, there is no basis for comparative advantage.

Outsourcing is driven by absolute advantage. Asia has an absolute advantage because of its vast excess supply of skilled and educated labor. With First World capital, technology, and business knowhow, this labor can be just as productive as First World labor, but workers can be hired for much less money. Thus, the capitalist incentive to seek the lowest cost and most profit will seek to substitute cheap labor for expensive labor. India and China are gaining, and the First World is losing.

Paul Craig Roberts is a former Assistant Treasury Secretary in the Reagan Administration and a former BusinessWeek columnist.


#5 Lord of the Sword

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Posted 22 April 2004 - 01:11 PM

Cyberhippie, on Apr 22 2004, 05:36 AM, said:

i think for businesses it makes sense to go with whatever benefits your bottom line most. After all, these are places of commerce, not altruistic institutions. They do not exist to provide a person with work, they exist to provide a serivce, or a good at the cheapest possible price, while maintaining maximum profit.

: shrug : that's my take on outsourcing.
Yes and no. While it's true that businesses are *in* business to make money...there is another thing to consider...one which businesses who do outsource haven't considered....and that it their consumers.

If a business decides to outsource overseas and costs several hunderd people their jobs...then those people are not going to be able to afford this businesses products. Further, friends of those just fired are unlikely to spend their money on this businesses products.

I know if a product says: "Made in Taiwan" or something similar...unless it's a product I abosuletly require right then and there I don't buy it...

Unfortunately not enough people do this, IMO. If they did then I don't think we'd have businesses outsourcing as much. Because they'd realize that if you piss off your customers, your customers will go elsewhere.
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#6 Godeskian

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Posted 23 April 2004 - 01:03 AM

Patriotism is a poor second to the bottom line for most businesses.  You may not buy things 'made in taiwan' but i have a feeling given the business coming out of Taiwan these days that you are in the substantial majority

For that matter, most things i enjoy, i refuse to buy british because the country has pissed me off.

what's more, the middle classes and the poor classes, tend to buy whatever is cheapest, not whatever has 'made in 'insert homeland' stamped on it

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#7 Corwin

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Posted 23 April 2004 - 08:10 AM

Here in the US, I'd be surprised if we didn't gain more money and net number of jobs from in-sourcing than we supposedly lose from outsourcing.  Look at all the Non-US companies that do business and manufacturing here and all the jobs that they give to American workers.

Corwin

Edited by Corwin, 23 April 2004 - 08:12 AM.

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#8 Cauda

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Posted 23 April 2004 - 08:16 AM

Cyberhippie, on Apr 23 2004, 06:01 AM, said:

i refuse to buy british because the country has pissed me off.
If I said what I really think about that, I'd get a ban or something.
So I won't.
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#9 Godeskian

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Posted 23 April 2004 - 08:21 AM

Cauda, on Apr 23 2004, 02:14 PM, said:

Cyberhippie, on Apr 23 2004, 06:01 AM, said:

i refuse to buy british because the country has pissed me off.
If I said what I really think about that, I'd get a ban or something.
So I won't.
I regret that, but if you want to tell me anyway, my PM door is always open.

I regret quite a few of the things i've gone through since i moved over to England, and had i known 4 years ago what i'd go through, i might well have never moved.

I'm sorry Cauda, but England has not treated me well, and i see no reason to be patriotic to this country.

Edited by Cyberhippie, 23 April 2004 - 08:22 AM.

Defy Gravity!


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#10 schoolpsycho

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Posted 23 April 2004 - 09:23 AM

Hi, all.

Cyberhippie says:

what's more, the middle classes and the poor classes, tend to buy whatever is cheapest, not whatever has 'made in 'insert homeland' stamped on it

True. Very true. I have medications now that I have to pay full price for, one of them $100 a bottle. If there was another medication that was cheaper, or a generic version of the same that was, I'd dump what I'm taking now. To spend over $1000 a year for something you could get much cheaper? I wouldn't do it unless I had to.

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#11 StarDust

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Posted 23 April 2004 - 10:05 AM

I don't think you can make generalized statements.  I never go to Wal-Mart, for example.  I despise them and am surprised they are still in business given the number of illegal and unethical things they've been involved in the last couple of decades.

I do buy only Toyotas.  That is for two reasons, I refuse to buy a vehicle that constantly needs to be in the shop and I buy vehicles strongly based on the MPG that I can get.  I commute 120 miles a day. But even before that I was raised to be concerned about the ecology and the ever ongoing energy crisis, and our countries dependency on oil.  I could actually get a cheaper car if I bought American. It would just be in the shop all the time.

As far as outsourcing, we are estimated to be loosing millions of jobs. I sincerely doubt we are bringing in millions.  I do think we'll be fine in the end, primarily because many of those companies will go out of business if it continues, unfortunately taking out other business with them.

If you ship 3.3 million programming jobs to India, what do you think is going to happen? Those are 3.3 million people who don't have jobs.  Say 1/3 gets equivalent jobs elsewhere, 1/3 get minimum wage jobs, and 1/3 get nothing.

These are white collar, middle class jobs.  The people who buy stuff. Now they can't buy stuff.  While clothes get cheaper, I don't see the basics getting cheaper. Housing doesn't get cheaper, food doesn't get cheaper (it's gone up about 20% this year), electricity doesn't get cheaper, and gas doesn't get cheaper.  Income down, necessities up. Less people can afford to buy the non-necessary products that company X supplies. Unfortunately they also can no longer afford other products affecting other companies like the sub-shop down the street or the local video store, or Best Buy stuff.  There is nothing in any of those places that is necessary, it's all descretionary spending. The current outsourcing isn't making anything cheaper, it's increasing company profit. Most of the situations I'm aware of it's all about profit. But you can't get money out of an economy for very long if you don't put money into it.

#12 Shoshana

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Posted 23 April 2004 - 10:10 AM

Corwin, on Apr 23 2004, 07:08 AM, said:

Here in the US, I'd be surprised if we didn't gain more money and net number of jobs from in-sourcing than we supposedly lose from outsourcing.  Look at all the Non-US companies that do business and manufacturing here and all the jobs that they give to American workers.

Corwin
mmm.. I'd like to see that. Unfortunately, because of outsourcing tens of thousands of jobs were lost in the area where I live. So that means when Target's or Lowe's opens a new store there are 3000+ applications for 400 part time jobs. And the applicants are former programmers, tech support, sales and factory workers. All across the board. Going from $20 to $35+ /hour to $8 to $10 is horrible. Houses and cars are being lost, property taxes are skyrocketing.

It's hard finding a job because everyone is so overqualified - I've got a college degree and years of computer experience and I'm losing positions to workers with just GEDs. (Not that there's anything wrong with a GED!)

Oh well ... off to another interview!

'shana

edited to add - Wal-Mart is in business because there are a whole lot of people who can't afford to pay higher prices for some of the same things they can get at WalMart. WSe're lucky that there's an HEB, Super Wal-Mart and and Super Target cheek by jowl here - it keeps prices low at all three.

And meds? We go to Sam's cause they're cheapest. Without insurance, it's been horribly expensive for us $300/mo just for my asthma meds. And there are no generics. And when I try rationing them, I get sick and we can't afford another hospital visit...

Edited by Shoshana, 23 April 2004 - 10:16 AM.


#13 Shalamar

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Posted 23 April 2004 - 10:22 AM

CH, what is also making a lot of people up set over out sourcesing is that very often municipalities gave those companies tax breeaks and other incentives to move to their cities/towns etc in the first place, loseing tax revenue etc to bring their residents the hope of jobs.

To have those jobs for two or three years and then the company closeing the location because they've moved operations to India is like a slap in the face, and a loss of income for their residents that they tried to help.

And very often the customers of those outsourceing companies are getting poorer service and goods.  Customers have the right to quality goods and services.  It may help the companies bottom line for a time, but if their customer service is poor, those customers are not going to come back to them.  If the good are poor when they break, wear out in an untimely manner, or just need replaceing - do you think the customer is going to come back to them?  Customer retention is a big part that I think these companies have forgotten about.
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#14 Shalamar

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Posted 23 April 2004 - 10:25 AM

'Shana, tell me about the cost of meds. I know exactly how they eat up available funds, and yeah the hospital bills are far larger.

It's a terrible trade off at times, ballancinng the cost of monthly medications with the possibility of a hospital visit, but covering the monthly mandatory expenses - rent, electric, etc.
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#15 emsparks

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Posted 23 April 2004 - 11:04 AM

I am really tired of hearing about what obligations a business does or does not have to the citizenry of this country.

The preamble of The Constitution of the United States says:

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

You canít promote the general welfare by sending all the jobs overseas, look at the numbers. The United States canít be expected to provide jobs for the world, while it can be expected to protect the jobs of its citizenry. You know the love or leave it argument kinda works here.

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The population of India as at 0:00 hours on 1st March 2001 stood at 1,027,015,247 persons.

The Population of China: 1,286,975,468 (July 2003 est.)

The population of the U.S. on April 1, 2000 was 281,421,906

Edited by emsparks, 23 April 2004 - 11:07 AM.

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#16 Uncle Sid

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Posted 23 April 2004 - 11:50 AM

For everyone's personal experiences, I don't necessarily think that the big picture is being viewed here.  There *are* sectors and sections of the economy where people are unemployed in greater numbers than before.  Where I come from has a significantly depressed job market, and I was lucky I got out of there because I might be unemployed now.  

On the other hand, where I live now, I was never really under any threat of being unemployed for any substantial amount of time.  In fact, there continued to be job growth in the area even in technical jobs.  

So, if I was to look at my old hometown and extraoplate that to the rest of America, I'd be depressed.  If I looked at my current home, I'd wonder what everyone's problem is.  

What I'd like to see are global statistics on the balance of outsourcing and insourcing and see how that works out.  Needless to say, outsourcing will cause misery for people whose jobs have moved and they don't have skills for the remaining local jobs.  However, keep in mind that there's not really much we can do about outsourcing.  We can raise tariffs and tax people to death, but the fact is that eventually that will just make the rest of the world go it's own way.  Yes, they will have to deal with a short term problem, but for the most part, the rest of the world has a lot more people and resources than the US does.  If they move forward without us, when they do surpass us, the US is going to crash... hard.  

No, what we need to do is not try and save jobs that cannot be saved, we need to turn to those people and get them into jobs or training that lets us leverage what skills they do have in other jobs.

We also have to stop resisting businesses when all they are doing is what businesses do...make money.  On the other hand, businesses are manned, and even managed by people.  Those people can be reasoned with, but *not* if you try and force unilateral solutions on them via a political program screamed for by the mob.  What we need from politicians are people who don't cosy up to the companies, but at the same time, don't push them to full scale resistance.  The Constitution of the US cannot guaruntee prosperity and it can't make a business profitable.  

So yes, short term solutions may well work, in the short term, but they are just stealing from Peter to pay Paul.  The bill eventually comes due, with interest.
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#17 Beldame

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Posted 23 April 2004 - 12:20 PM

Quote emsparks:
The United States canít be expected to provide jobs for the world, while it can be expected to protect the jobs of its citizenry.

Big firms are already providing jobs all over the world.

America is Kraft's home country but they operate in 150 countries. In the UK they own Terry's chocolates in York and have just announced that the factory will close and production move to Sweden and Poland.  Over 300 jobs and part of York's history will be lost (Terry's have been making chocolate here since the eighteenth century) . Labour costs may be cheaper in Poland but they then have to pay to transport the product back to it's main market in the UK. It still works out cheaper though because supply costs are less on the continent and they can sell the site here for development.

It's not that simple any more. Big firms are global today, and own brands and manufacturing sites all over the world. If they have a responsibility to their communities they are just as responsible for workers in Poland, India or Taiwan as they are America. And in the end, their only real responsibility is to their owners/shareholders and they are bound to do all they can to maximise profits. (which is why I am against getting private businesses involved in public services, but that's another argument)
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#18 Corwin

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Posted 23 April 2004 - 06:15 PM

Shoshana, on Apr 23 2004, 09:08 AM, said:

It's hard finding a job because everyone is so overqualified - I've got a college degree and years of computer experience and I'm losing positions to workers with just GEDs. (Not that there's anything wrong with a GED!)
Oh yeah!   I've got over 12 years experience in IT, both hardware and software support, system and network administration, network engineering and support.   I can't find an IT job for anything right now....

and I've put out tons of resumes....  only to have the positions filled by someone with a high school degree and no experience, or someone who has 1 or more degrees and no experience...

very frustrating, but I keep trying....

Corwin
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#19 Shoshana

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Posted 23 April 2004 - 10:51 PM

{{{Shal}}}

Corwin ... good luck!

You know the economy's bad when at the end of an interview they say... thank you for applying. We have several hundred applications to sort through. We'll call you...

And it's for a job at Wal-Mart!

'shana

#20 D.Rabbit

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Posted 30 April 2004 - 12:29 AM

D. Rabbit hops in, waves howdy to her pal SchoolPsycho and a few names she recognizes as well as those she does not.

Interesting thread you have here Daddy.

In the light of what I have been up to else where tonight I'll add a few of my thoughts.

Now Uncle Sid has his narrow view with many good ideas on re-education of those who have lost their jobs to outsourcing,  but he missed the mark.

I'm going to do a little strutting and preening and mention that the world bank finally caught up with my idea that educating the 3rd world in an effort to stimulate the world economy 10 years after I figured out the reason our economy is headed down the tubes. We can produce all we want but the market is glutted, with not enough customers for the merchandise. Educate the 1.5 million children that do not receive an education and they are going to want to buy buy buy.


This brings me to the topic of the bottom line, and a question for you all.
If there is a minimum wage, why is there no maximum wage?

This is a dog eat dog world and as a civilization we are not healthy with this phrase as our anthem. If the bottom line is restricted to a reasonable amount that includes expenses, R&D and bonuses for the manufacture of jobs, then the excess could be poured into social/medical programs and higher education globally.

Now don't ya all jump down my socialistic throat.  :eek4: It can work well in a democratic society. A Mixing of a little left in with the right is the way to go. Both sides on their own are flawed,  finding the perfect blend will take trial and error but it is a viable solution.

A little back ground of where I'm coming from. I run a flea market in the back woods, it takes gas to get to me. I'm use to a reasonable amount of coin coming in, my prices undercut Walmart by 75%, yet at this junction in time I am being forced to jettison all of my inexpensive items in favor of my higher end articles. The reason, the gap between the rich and poor has widened to the point that the poor can not afford the gas to shop even at my establishment. I have signs saying "Free Stuff" and they still can't make it up. I've been here for 17 years it's not as if I'm a secret.

The rich will always have the money to buy.
Why should they? Are they better than the rest of us? No, they and their ancestors are/where better educated for the most part.

I'm going to work on an equation here, let me know what you think.

Education + opportunity = $

In the long outsourcing will allow the people in the 3rd worlds where companies chose to move to, to afford education for their young. They are providing opportunity for people to give what we all want for our children, a better future.

If we look at the planet as a global market, and not a market place where we have the big dogs hoarding all the potential wealth on one or two continents then we can see that outsourcing though it will cause temporary financial hardship to the hairs on the big dogs back, that eventually all of the hairs on the biggest dog of all, Earth, will be well tended and shine.

Cultivate a maximum wage program, and the release of the patent for cold fusion,  and this spinning rock will be humming in harmony.

Backing down from a debate on cold fusion in this thread, shall I say, clean, inexpensive renewable energy.
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