The Folly of Attacking Outsourcing

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The Folly of Attacking Outsourcing


The middle class, I’m sure you’ve heard, is under threat by cheap foreign labor. We must be having an election soon. President Obama’s assault on Mitt Romney for sending jobs overseas draws from a playbook used repeatedly by politicians of the right and left over the last two decades.

In 1992, Ross Perot ran for president on the strength of the “giant sucking sound” of jobs going to Mexico. Four years later, Pat Buchanan tried to gain the Republican nomination by promising to repeal the North American Free Trade Agreement and withdraw from the World Trade Organization. In 2004, John Kerry accused George W. Bush of providing tax breaks to outsourcers.

What’s most revealing about the political assault on outsourcing is that while the critique of foreign commerce has moved decisively from the fringes into the political mainstream, our political leaders have yet to turn their rhetorical skepticism into policy.

Americans’ fear of foreign trade has grown sharply in the last 20 years, in tandem with a rising tide of globalization that has exposed American workers to overwhelming competition from laborers in developing countries.

In 1994, the year Nafta went into effect, trade amounted to 22 percent of the nation’s gross domestic product. By the eve of the financial crisis in 2008, it amounted to 31 percent. Over this period, the share of Americans who believed trade was a threat to the economy rose to 52 percent from 38 percent. Still, though our political leaders may feel workers’ pain, they have stopped short of following voters’ preferred prescriptions.

Last year, the White House pushed through free trade agreements with South Korea, Colombia and Panama despite the fact that only 38 percent of Americans supported the deals and 41 percent opposed them. Most Americans fear China’s rise as an exporting powerhouse. Many think Congress should slap tariffs on Chinese imports to compensate for its manipulation of the exchange rate. But the Obama administration, like the Bush administration before it, has repeatedly refused to do so.

A disconnect between campaign rhetoric and policy is hardly surprising. The most committed critics of the nation’s trade policies will argue that President Obama, like his predecessors, has been co-opted by pro-trade corporate interests. But the political contradictions wrought by globalization ring of more than politics as usual. More likely, our political leaders haven’t figured out what to do about this relentless economic force that is reshaping the American economy and society.

This is boxing the political class into a somewhat sterile debate. Political leaders promising that globalization can be slowed, stopped or even reversed by raising barriers against imports or penalizing companies that send jobs overseas are offering false comfort. They are also distracting voters from a necessary debate about how to make the relentless tide work for the American middle class even as it brings impoverished nations like India and China into the modern economy.

The political debate about globalization tends to get stuck between a couple of propositions: on the one hand, globalization tends to reduce prices of goods and services and bolster economic growth, helping companies become more efficient. On the other, it hurts the workers who are brought into direct competition with cheaper labor overseas. Yet the debate often ignores an essential fact: regardless of who wins and who loses from the process, it is pretty much irreversible.

Businesses are too far along in the process of globalizing their supply chains, building international production lines that draw ideas, components and resources from wherever they are best, most abundant or cheapest in the world. In 2006, intracompany trade accounted for nearly 33 percent of the nation’s imports and more than 27 percent of its exports. Raising a wall against a given import would short-circuit production lines around the world, including in the United States.

What’s more, most growth over the next decade will happen in big developing countries beyond the nation’s borders. Using barriers and penalties to bar imports and discourage outsourcing — which would surely draw retaliation from other countries — would unhitch the nation from the world’s main economic engines.

But the fact that globalization is here to stay doesn’t mean that nothing can be done for workers, who have come to fear the process of global integration as a zero-sum game, which ends with their jobs moving somewhere where labor is cheaper. Some of the prescriptions are straightforward. Ambivalence toward globalization is not unique to the United States. But Americans tend to be more fearful of the impact of trade than, say, Europeans.

One reason is that American workers are particularly ill equipped to cope with the dislocations caused by foreign competition. An American worker who loses her job to trade or technology will find herself in a much worse spot than if she was, say, German or French. For starters, she will lose her health insurance. And her unemployment benefits will be considerably less generous.

The United States also does a poor job of educating workers to take advantage of globalization’s opportunities. We were once the most educated nation in the world — the first to provide universal high school education and the first to provide widespread access to college. But college graduation rates have stagnated and are now at the same rate they were a generation ago, while a host of other countries have barreled ahead. The lag leaves American workers particularly exposed to foreign competition for lower-skilled jobs — which has been weighing down their wages for more than a decade.

Coping with globalization isn’t going to get easier, as companies in developing countries continue to rise up the technological ladder to produce more advanced goods in direct competition with workers in the United States.

Multinational companies’ freedom to move their money across borders, to wherever the return is highest, raises new issues. Corporations can relocate to escape taxes and regulation, setting up shop where the rules are easiest. Investment in machines and high-technology plants abroad erodes the productivity edge that American workers hold over workers in China or Brazil.

The challenges call for a more sophisticated debate about trade. American policy makers might consider global taxation treaties, to reduce the scope for tax competition. They could engage foreign countries in a debate on global standards — overcoming mistrust of American protectionism to develop rules protecting workers from abuse by footloose corporations seeking the cheapest labor. And they could think about the kind of safety net needed to protect workers from the dislocations that the relentless onslaught of globalization is sure to bring.

The Obama administration has made some progress along these lines. The Obama health care law is the single most important contribution to the nation’s social safety net since the administration of Lyndon B. Johnson, ensuring that workers who lose their jobs in the future do not also lose their health insurance. But President Obama has yet to move beyond blunt criticism of outsourcing to sketch out a strategy to embrace the inevitable march of globalization.

He could still criticize Mitt Romney. But the most useful critique of Mr. Romney’s stance is not that he favors outsourcing but that the rest of his economic platform — which proposes cuts in government spending on education, unemployment insurance and other social programs to pay for tax cuts for high-income Americans — would undercut the nation’s ability to cope in the globalized economy he appears to champion.

Hewing to the standard anti-outsourcing playbook may gain a few votes in November. But American workers need more. They need a set of policies that gives them a stake in the fruits of the more prosperous global economy that globalization can bring.


Twitter: @portereduardo


In the wake of last week's factory collapse in Dhaka, a dangerous argument has been making the rounds of the blogosphere. The argument, voiced by outlets as diverse as Slate and the Spectator, is that the economic benefits of the sweatshop economy override concerns about the rights of factory workers.

Sweatshops, the argument runs, don't pay much (about $40 a month in Bangladesh), but they pay a good deal more than subsistence agriculture, the primary alternative available to poor workers in developing countries. The appeal of a higher wage, steadier hours and, for women, independence draws workers from rural areas to urban slums in search of factory work. Globalization, and with it the outsourcing of manufacturing labor from rich countries to poor ones, has lifted millions out of extreme poverty (defined as living on less than $1 a day). Shutting down sweatshops completely would only erase those gains.

This is true up to a point. But it does not follow that the model cannot be improved.

The pro-sweatshop argument, of course, is favored by the anti-regulation right, but it finds itself mirrored on the left, which also attempts to impose a false choice between accepting sweatshops as they are and having no factories at all. Anti-sweatshop activists often fold their critique of sweatshops into a broader critique of globalization. Pushing not only for raised safety standards but also for wages that match those in the developed world is a tactic that will have the effect of shutting down developing world manufacturing altogether. Businesses need to save some money on labor in order to justify the additional cost of manufacturing abroad.

Indeed, many anti-sweatshop campaigners would be quite happy to see these factories closed down, globalization reversed, and manufacturing jobs returned to the west. That makes it hard to take them seriously when they claim to have the best interests of Bangladeshis at heart.

Instead, campaigners need to separate the issue of western industrial decline (and what to do about stagnant post-industrial economies), from the wages and working conditions of developing world factory workers. They need to advocate for a better and more humane globalization, not against globalization altogether.


This advocacy will have to include making a distinction between wages, which do not have to be the same everywhere, and workers' rights, which should. The cost of living in Bangladesh is far lower than the cost of living in the United States or Europe; campaigners should be pushing for Bangladeshi workers to make a living wage relative to the local cost of food and shelter. According to Bangladeshi labor organizations, that would be at least $60 per month.

Yet, if the cost of living varies from place to place, the cost and value of a life should be the same everywhere. That's why every worker deserves a workplace that is clean and safe, and the right to organize to protect themselves against abuses. When Slate's Matt Yglesias argues that workers' deaths in Bangladesh are, in effect, justified by the country's poverty (his euphemism for this is that Bangladeshi workers are willing to accept "different choices [than American workers] on the risk–reward spectrum"), he is conflating the cost of a life with the cost of living, confusing a person's human worth with their socio-economic status. That is wrong.

The arguments advanced by both pro- and anti-sweatshop commentators take for granted that the status quo is good for business. Cheap labor is undoubtedly a boon for companies, but shoddy standards are not. Buildings that collapse or catch on fire, unclean workplaces where workers routinely fall ill … these mean halted production and lost revenue. They also mean bad press and falling share prices, which is why western firms generally provide themselves with plausible deniability of links to these sweatshops when disaster strikes.

The problem for many multinationals has been that keeping managers on site in every country is prohibitively expensive. Instead, they've opted for complex supply chains where key decisions fall to independent contractors who aren't accountable to shareholders. Modern data technologies can close this gap: startups like SourceMap can help businesses manage their supply chains more directly. That kind of transparency will be good for companies and workers alike.

Perhaps the most insidious aspect of the sweatshop debate, however, is in the way commentators blithely offer up a description of the status quo as a defense of it. Bangladeshi workers did choose these jobs, and they chose them on the rational basis that these jobs pay more than the available alternatives. Therefore, pro-sweatshop commentators, like the Spectator's Alex Massie, argue that sweatshops must be a good thing. But how free a choice is it when the alternative – subsistence agriculture – pays far less than $1 a day, a wage the UN considers the threshold for extreme poverty?

If a choice is "free" only in the most formal sense, then why would we assume it is a good one?

That is the trouble with modern economic discourse and its chief protagonist, homo economicus. It's not simply that pundits are loath to address the subjective questions that surround decision-making. It's that positive thinking – the focus on how decisions are made rather than whether those decisions are good ones – is being substituted for normative analysis.

If all humans are assumed to be equally free and rational in their choices, if we are all homo economicus, then all the choices we make must be good ones. Instead of tackling moral questions, we are attaching moral value to the way things are, and in so doing, we are losing the ability to imagine a better world.

• Editor's note: this article was amended to remove a word repetition in the quotation from Matthew Yglesias, at 9.45am ET on 30 April 2013

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