Sunday, June 10, 2007

Outsourcing: Boon or the death of America?

Henry Ford knew that for the Model T to be a success his workers had to be able to afford it. He attacked the problem from two angles. First, mass production reduced the cost of the product. Second, he passed along some of the profits in the form of above average wages so his workers could afford their own Model Ts. What if Henry Ford outsourced Model T production? Would millions have been sold in the U.S.? Would there have been anyone in the U.S. who could pay for them? Maybe. After all, Model Ts would have been even cheaper if assembled in China. This brings me to my quandary.

A local business owner recently told me he is thinking of outsourcing some engineering for his business. He can hire Indian engineers for peanuts compared to what he would pay a U.S. engineer. He would fly the Indian engineers here for training and then fly them back to India to do the work. That's one less decent job for a well educated American locally. One less home sold, one less new car, one less family shopping at Publix, one less client for me.... It gave me a sinking feeling in the pit of my stomach.

I doubt I'll pay any less for the company's products after they outsource the engineering to India. The owner of the business is already quite wealthy so the savings probably will make no difference in his lifestyle. Locally at least he keeps a low profile relative to what I am certain is wealth and income that puts him in the top 5% to 1% of all Americans.

Coincidentally, I am reading John Stossel's book "Myths, Lies, and Downright Stupidity" and one of the topics he addresses is outsourcing. He argues that outsourcing is good for the American economy. It brings consumers cheaper goods, which is a good thing. Consumer dollars go farther and inflation is held in check. He also argues that the displaced factory workers often secure better jobs after the initial shock. After all, manufacturing jobs aren't really all that wonderful. We romanticize factories and farms. The factories are put to other productive uses as art museums (e.g., Mass MoCA in North Adams, Massuchusetts) or as colleges (the example in the book). Meanwhile, the standard of living in the desperately poor third world is improved increasing demand for what we do produce (music and movies?).

But what about the phenomenon of white collar jobs being outsourced. Those are good clean jobs, and isn't engineering one of those "creative" jobs that outsourcing frees us to do? I can outsource the transcription of dictation to India thanks to QuikSek. Hospitals are already outsourcing the review of medical scans and the creation of 3D renderings to India. There is even talk of large law firms outsourcing their research, drafting, and writing to Indian lawyers thus reducing the need for highly paid associates. I tend to be an optimist and I believe in the great resilience and productivity of Americans. We've survived massive losses of factory jobs in the '70s and '80s. We survived Japanese investment. (Remember when the Japanese were going to own the U.S. lock, stock, and barrel?) I'd like to believe that outsourcing will be a net boon to the U.S., but I can't help but wonder whether this is true. Will we survive this and prosper or is outsourcing the final nail in the coffin? Where is the incentive to become an engineer, radiologist, or lawyer in America when you have to compete with an Indian who will do the same work for less than what you need for a lower middle class lifestyle?

Maybe all the concern over outsourcing is just the usual alarmist negativity or, maybe, we're creating a third world nation right here. Could the end result be a nation of "haves" who own the businesses and the output from the outsourced jobs (i.e., they sell us the goods and services produced elsewhere), and of "have nots" who scramble to work at WalMart so they can buy the goods and services produced abroad from the "haves"? Have we lost sight of the lessons of Henry Ford? Only time will tell. The jury is still out for me.

Post Script: By the way, that local business owner who is thinking of outsourcing his engineering is embroiled in a local political fight over increased fees. The fight is portrayed as a battle between the "working man and woman" and the well heeled privileged politicians who already "got theirs" and don't care about pricing everyone else out of a house and a job. How ironic that he would consider undercutting a hard working engineer by outsourcing his or her job to India. The political fight focuses on the ripple effect that will be created if the local housing market is killed by high fees. What about the ripple effect of moving a job that pays well from here to India? Who will buy the house that the business owner's products are incorporated into?

1 comment:

  1. For outsourcing chat, email or back-office support

    If you are considering offshoring your processes, or would just like to know more about the various BPO / KPO services that can be outsourced to us in India, kindly contact

    us and our customer service representatives will get back to you soon.

    For outsourcing chat, email or back-office support, visit the website: