Outsourcing breeds more jobs

CNNMoney reports:

Demand for technology workers in the United States continues to grow
in spite of American companies shifting more technology work overseas,
according to a new study.

Sigh. Is there, like, some cosmic law that reporters have to be
poisonously ignorant about economics? Of course outsourcing
stimulates domestic demand. Increases in efficiency and better
exploitation of comparative advantage do that.

Maybe I’m just naive, but shouldn’t a reporter at a business
news channel
know better than to subscribe to the fixed-lump-of-labor
fallacy?

The study cites estimates that between two to three percent of IT jobs
will be lost annually to lower-wage developing countries through the
process known as offshoring. But it said the U.S. IT sector’s overall
growth should outpace that loss of jobs, expanding opportunities for
those trained in fields such as software architecture, product design,
project management and IT consulting.

Comparative advantage, kids. That’s what it’s all about. If
there’s any way in which the average programming skillsets in
the U.S. and India diverge, market pressure will sort jobs and push them
where they’re most efficiently performed.

“Despite all the publicity in the United States about jobs being lost
to India and China, the size of the IT employment market in the United
States today is higher than it was at the height of the dot.com boom,”
[...] lower wage scales in India and China are not pushing down pay
for U.S. IT workers. [...] IT workers have seen steady gains in
average annual wages for different fields in the sector of between
about two to five percent a year.

This is where libertarians like me get to gloat a bit, pump a fist
while shouting “laissez-faire!”, and point out that both left-wing
antiglobalization moonbats and right-wing isolationist/protectionist
wingnuts that they are full of horse puckey up to here. Welcome to free
trade, making everybody richer exactly the way we expect it to do when
governments don’t piss in the soup because they think they’ll like the
flavor better.

The study suggests that there are several factors in the continued
growth in demand for IT workers here. The report said part of it is
due to the use of offshoring by U.S. companies, including start-up
firms, to limit their costs and thus grow their businesses. That, in
turn, creates more opportunities here even as an increasing amount of
work is done overseas.

And there it is. Offsharing grows businesses so they can find or
create more domestic opportunities. That’s the invisible hand right
there, giving a rude finger to every single “managed trade” idiot and
regulatory busybody on the planet.

The study also said that companies from a variety of sectors in the
economy continue to discover greater efficiency and more competitive
operations through investment in IT. The study therefore argues there
will be continued growing demand for IT as underserved fields such as
health care, retail trade, construction, and certain services make
greater investment in technology.

This means that IT is being substituted for other, more expensive
inputs of production (a kind of ephemeralization). As long
as that keeps happening, demand (and IT wages) will continue to
rise.

35 thoughts on “Outsourcing breeds more jobs

  1. There’s outsourcing, and there’s outsourcing. Whether it creates net efficiency, or is a zero-sum game, depends on whether it’s being subsidized by neoliberal (i.e., faux “free market”) government policies. A great deal of production is moved overseas because it’s made artificially profitable by government subsidies to infrastructure over there, and because of anti-labor governments that keep the sweatshop workers in line.

  2. Kevin,

    What difference does it make *why* it’s cheaper? Those governments that piss in their own soup will see problems with their own economies, but as far as American companies go, it still makes sense. And do we really think anything is going to be more effective at making those other governments any more fair to their people than rising wealth, affluence and economic power? Don’t forget that we went through a stage with no labour protections for the workers, and we survived. It may even be a necessary stage. When workers become affluent enough to afford leisure time and choose it over working for more wages, then industry will have no choice but to indulge them because they won’t work for less.

    Anti-labour governments that keep sweatshop workers in line? Where is this happening? Are you talking about slave trading? I don’t see much in the way of governments making people work for particular companies… There are some problems with centralized governments such as China deciding what factory wages should be, but that’s nowhere near free market economics.

    The only time we should be concerned about labour practices is when *actual* slave labour is being used and contracts are not enforced equally. Then it would be time to apply tariffs to and/or boycott the products of that country.

  3. “Is there, like, some cosmic law that reporters have to be poisonously ignorant about economics?”

    Only the one that says that if they hadn’t been too lazy or preoccupied or brainwashed to pay attention in econ classes, they’d have been qualified for an _honest_ line of work when they got out of college, and thus wouldn’t have wound up as reporters. :)

  4. Furthermore, government “protection” of IT jobs for Americans will inevitably be incompetent, corrupt, expensive and, in the end, ineffective. With open competition, American IT workers, if they really are better at what they do than overseas workers, will be working at higher-level, more interesting and more productive tasks than if they were behind a government firewall.

  5. >subsidized by neoliberal (i.e., faux “free market”) government policies.

    So, what happens when the either the U.S. or the host government subsidizes outsourcing? More jobs and more wealth transfer from Americans to Third Worlders than would in a free market. Seems you lefties ought to be cool with that, seeing as Americans are so spoiled and greedy and evil and white and everything.

  6. If top reporters are so abysmally ignorant as to not know the difference between birdshot, buckshot, and bullets (and too lazy to google, or look at wikipedia), what would lead anyone to believe they know anything about a topic as complex as economics?

  7. I wonder if there is some kind of contradiction in believing that an apparent organization can arise as by an invisible hand in economic affairs but that that at the same time this is not so with opinion.

    It’s a constant refrain here that if there are silly opinions at large in the body politic it must be because the Soviets had, so to speak, organized them there. With opinion, with you, Eric, it’s always conspiracy and never spontaneous developments in human feeling. I just don’t buy it. I’m sure such things go on, but as a universal explanation it’s simply implausible.

    At the Spectator blog they recently posted a quotation from Nietzsche on “How modern society takes the side of the criminal”. It’s an interesting reminder of how some of the attitudes you complain about go back further than one might think. The quotation is from Beyond Good and Evil (1886).

    Sorry, they don’t have permalinks – should be on this page:

    http://www.spectator.co.uk/blog/page_2/index.thtml

  8. Michael, the difference between these two cases is that in the second one we know the conspiracy existed not simply by its effects but because important ex-conspirators are admitting it.

    I, too, am generally reluctant to accept conspiracy theories. In fact, it took me a while to get to grips with the evidence because I didn’t want to look like I was on-side with people like Ann Coulter. But when it looks like a duck, walks like a duck, quacks like a duck, and half the former top echelon of the KGB is telling us the recipe for duck soup…

  9. Judith Exner admitted to being a conspirator too, and the conspiracy grew bigger and more powerful as she went along. Ex-KGB types have a strong interest in making their earlier selves look more in control than they actually were.

  10. The other driver for what’s happening, aside from comparative advantage, is a general principle of trade that people always seem to forget. When we export something (and jobs are a something to export, just like anything else), there is a corresponding import, and vice versa. You can’t afford one without the other. In this case, most of the jobs exported are resulting in goods and services being imported. These goods and services (software for the most part) require people here that can manage, architect, deploy and maintain the products. You can’t afford to buy an import without corresponding revenue from an export.

    Aside from that, although I’m not Eric Raymond, to answer Jim’s implied question, I do receive a regular paycheck. I’m an information security manager for a large IT services company. And I never worried about outsourcing. If, by some bit of weirdness, my current job was lost due to outsourcing, I would go get another job in the growing IT employment market. Doesn’t that seem obvious? The market is growing. Or, as another source I was reading tonight pointed out, from 1993 to 2003 the US economy lost 310 million jobs. And created 327 million jobs. This during the time period when outsourcing and globalization was supposedly going to endanger the American employment market. Hmmmmm.

  11. Thebastidge,

    “Don’t forget that we went through a stage with no labour protections for the workers, and we survived. It may even be a necessary stage. When workers become affluent enough to afford leisure time and choose it over working for more wages, then industry will have no choice but to indulge them because they won’t work for less.”

    That sounds a bit unlikely to happen with 1 billion people in India, or with 6 or who-knows-how-much-the-next-gen-will-be billions of people in the world.

    I think one of the most important reasons why the life of an average blue-collar became bearable in the USA / EU is that the number of childbirths significantly dropped, and therefore people become a precious resource – demand for labour became higher that the supply. But if you got 50 million new workers every year just by the sheer number of childbirths, then unless the econonomy is unimaginably huge people won’t worth much.

    But cheap labour in the third world doesn’t directly compete with USA / EU workers. I mean this robotic, monoton work what these people do day-to-day we wouldn’t ever accept to do even for astronomical wages. I think they rather compete with robots
    and automated industrial machinery.

    IT jobs work differently. Currently the only possible route for a successful project is to hire clever folks and keep the happy. Managers always hated it, because it’s hard to predict, hard to manage and hard to control. What managers would
    rather like is programming shops like factories: machine-like, controllable people mindlessly following job descriptions and policies. It might be less effective, but a lot more plannable and predictable. I think this lies behind the amazing commercial success of extremly stupid programming languages like Java and C# – they need a lot more manhours than project
    developed in clever languages, but as the majority of this work is stupid repetition of the same patterns again and again
    it is quite plannable and predictable. The question is: does this work?

    Maybe, it could work, as the IT is becoming so huge that I can imagine hordes of mediocre people shittin’ out tons ofJava / C# code that do nothing else but keep the infrastructure running, while small companies of clever people make innovative,
    intersting stuff in Python/Ruby/LISP building on that infrastructure. And what can easily be outsourced is the previous one.

    What can this mean in the future? I expect tons of cheap people bulding infrastructures so big in hundreds of billions of Java / C# code that it will generate opportonuties for a lot of clever people to build on. It means that IT jobs won’t necessarily grow, but everybody who wants to, will find an IT job where one can work on interesting projects. The profession will generally become higher quality as the “mommy told be to become a programmer, because it is paid well” asshole will be outcompeted by outsourcing, which is, I think, a generally good outcome for the clever folks.

  12. Shenpen: “That sounds a bit unlikely to happen with 1 billion people in India, or with 6 or who-knows-how-much-the-next-gen-will-be billions of people in the world.”

    Actually, there’s two problems with what you are saying. The first is that appears to be an inherent assumption that at some point economics and the market becomes a zero-sum game. There’s no reason for that to be the case.

    The second problem with it is that reality doesn’t support your position. Read Tim Harford’s “The Undercover Economist”. He spends one whole chapter on China and points out that since they are growing their economy faster than their population, industry has had to offer better working conditions this year than they did last year.

    Your point that cheap labor in the third world doesn’t compete with labor in Europe, the Far East and North America is rather beside the point. The fact is that factories that require the most automation continue to be built and operated in wealthy countries, not poor countries. And there are sound reasons for this, including political stability, quality of the workforce, reduction in cost to produce (an auto factory with skilled workers and robots produces cars cheaper than one with all manual labor from unskilled workers) and institutions that enable rule of law. It wasn’t until South Korea had a mostly educated workforce that it became profitable for them to build auto factories, for example. We all forget that just 25 years S. Korea was in the position of China today, producing cheap toys and textiles (Reebok, anyone?) for export to wealthy countries.

  13. One problem is that the market for goods produced in the Third World may not be large enough to jump-start the economies of the Third World. We’re only going to buy so many sneakers and action figures, no matter HOW cheap they are.

    As for the idea of masses of low-skill programmers churning out the basic code while a few stars produce the great code… That’s actually not a bad model for an industry. Because if some languages are ‘too clever’ for some people to learn and use comfortably (which strikes me as a unreasonably chauvinistic idea, but let’s go with it), then there could only be a few star programmers who learn it. And if those people have to waste time coding things that could be done just as well by four times the manpower working for one quarter or one fifth the salary in a simpler language… it’s going to cut back on their productivity.

    I only trust the comparative-advantage argument so far, because it assumes that there will never be an interruption in the flow of trade (at which point you’re really in the soup if all your steel is being imported from across the northern border). But I trust it far enough to accept that it may be better for some tasks to be performed in other countries and exchanged for tasks we’re comparatively good at.

  14. I know economy is not a zero-sum game, however, the material resources on Earth are limited. I know that the develoment of technology reduces the need for material resources, the only question is that does this happen faster than the growth of the global population? I don’t really think so.

    Cheap labour vs. automation: ancient Greeks knew the theory of steam engines, but they didn’t see any economic value to it, because slaves were cheap. I think almost any kind of manufacturing could be automated, if cheap labour became too expensive. Currently, at lot of cheap labour is produced by overpopulation, so it does not worth the cost. I think the most important global problem is to stop overpopulation as fast as possible. Earth could truly be a heaven for 2 billion people, and a real hell for 12 billion people. This would even solve the problem of terrorism: once the average arab would have two or three children instead of six or ten, they would be a lot less poor therefore a lot less angry, and they could educate those two or three children, which would help them acquiring a modern view on things. However, I have no idea how to stop overpopulation.

    As for languages being too clever… it is a little bit complicated than that. Actually, if you look at some Ruby on Rails code and some J2EE with Struts code for example, the previous one looks a lot simpler simply because there is lot more expressive power. What I actually mean is that Microsoft and Sun created a kind of “false science”, a totally artifical and unnecessary complexity. One does not actually need lots of IQ to learn Python or Ruby, actually, I think Java is in some way harder, because one needs to remember a lot of limitations and warts and way to work around them. What does need that IQ is to see trough the massive Java / C# marketing, especially as one is usually indoctrinated to it in the school, and recognize that it’s nothing but bullshit. This is the hard part, to learn to think independently, later on it is easier I think.

    How does it relate to outsourcing? It relates in a way that I think the farther one is from US (in similarity of living and similarity of economy, not in miles) the easier one sucks up the bullshit.
    Here in Hungary we want to imitate more successful countries and therefore we tend to deep throat the corporate marketing bullshit all the way in – f.e. I know quite good Delphi programmers, who still think one can program for Linux only in C, honestly… And I think this pattern is even stronger in the Third World: it takes time and experience to develop the healthy distrust for everything that comes from big time corporate players with fanfares blowing and a lot of bling-bling :) So I think India will stay on Java and C# for long, I think.

  15. Shenpen, a few _very_clever_ Greek inventors _began_ to grasp the principles of _crude_ steam engines. However, they were profoundly limited by the lack of technologies to provide the basis for development of their ideas. Their theories of physics were not refined enough to explain what was going on inside the engines. Their metalworking technology was not up to casting large iron parts or machining steam-engine cylinders. And so on. There are other famous cases of this going on- such as the notebooks of Leonardo da Vinci and the Phaistos Disk (an early example of moveable type, but one that occured in a civilization whose written language was too crude to make good use of it).

    Clever people will often have an idea for doing something, long before it is remotely possible to do it. This is one of the reasons science has advanced so much faster in the past few centuries- once the foundation of theoretical breakthroughs was laid down by men like Galileo, Newton, Leuwenhook, and Dalton, other people were able to rapidly put into practice ideas that had been nosed about for centuries.

    The problem of Arab terrorism is more complex than overpopulation, though that is certainly a factor involved. There are cultural issues (the mullahs are scared and confused by modernity), economic issues (they have all that oil money sloshing around, without much of an economic infrastructure to put it in), and so on.

    Fortunately, overpopulation seems to decline naturally as societies get more prosperous, so we may get a reprieve if the world industrializes fast enough.

    As for the ability to see through corporate BS:
    It may be that we’re seeing a case of ‘ontogeny recapitulates phylogeny’. Most people who learn the ‘advanced’ (or perhaps merely better and less-known) languages start out learning one of the less powerful, wartier ones. It may be that most countries do the same thing: they aren’t likely to discard C in favor of ‘Ruby on Rails’ (which I’ve never heard of) until they’ve had a chance to honestly evaluate the quality or lack thereof of C.

  16. What isn’t discussed is how much globalization has caused a global rise in income inequality both at home and abroad. Globalization is making the minority at the top richer, but it isn’t helping the majority on the bottom. Cruznet’s curve says that rapid growth will cause a rise in inequality at first, but the inequality will reduce over time as the society grows richer. What people always forget about the theory is that the decrease in inequality over time depended upon people at the bottom who do service and manual labor jobs getting paid better as the society got richer, which hasn’t been happening in the US over the last 3 decades in real dollar terms. Nor has it happened in most of the Global South which trades with the developed world. People at the top of the economic ladder have gotten richer, but people at the bottom haven’t gotten better pay. Cruznet was studying Europe where minimum wage laws and social safety nets helped redistribute the wealth, so inequality decreased as the countries got richer. The problem is that many countries have brought into neoliberal theory so they are dismantling the social safety nets which would have helped bring about a reduction in inequality. Meanwhile, the IMF and World Bank twist arms in the Global South to slash social spending. So we are left with high rates of inequality, Laissez-faire and neoliberal free trade can stimulate growth under the right conditions, but it doesn’t help the majority of society until you implement a social safety net, worker protection laws, minimum wage, etc. People who say otherwise haven’t been paying attention to what has been happening in the world for the last 20 years.

  17. Amos, you should read Inequality and Risk, by Paul Graham.

    (Basically, the argument goes like this: Reducing economic inequality is exactly equivalent to taking money from the rich (in part, because you can’t just give money to everyone, for instance by increasing education; that won’t reduce inequality). Taking money from the rich means that you’re reducing the rewards they can reap from any given action. Reducing the rewards means you will also reduce their appetite for risk, since risk and reward must be proportional. Reduced appetite for risk means that the most promising startups won’t be formed in the first place. And that means technological stagnation, because nobody in a big company develops new technology at anything but a glacial pace. New technology is inherently risky.)

  18. Amos, aside from the very good point that Bryan makes, you have to look at why something happens. If our model predicts a rise in income for all, and that doesn’t happen, we first need to see if the model has flaws in it. Or, perhaps, assumptions that are incorrect. Or data we didn’t account for. I’d suggest that the structural weakness of the institutions in most poor countries is a significant part of the problem. Aside from that, I’d say you need to consider income mobility. That is, can someone relatively easily move through various income tiers, or not. For example, when you start to pry into it in the US, what you find is that many of the “poor” are young. As you track them, income wise, over time their income grows and they move out of the poor income tiers. And their places are taken by a new generation of young people. This suggests that there is significant income mobility in the US. Although the income stratification is about the same as it was 3 decades ago, after adjusting for inflation, we find that the ability to grow wealthy is greatly increased.

  19. > I’d suggest that the structural weakness of the institutions in most poor countries is a significant part of the problem.
    Yes. Another major problem is that you don’t have a large mass market of middle class consumers to drive consumption. Upper class are not steady consumers and they often take wealth out of the country in bad times and often don’t turn over their money in the local economy or invest in home market. Building a large middle class is the best way to stimulate economic growth, but you can’t get large groups of people into the middle class without social democratic policies. Neoliberalism is holding back the creation of a large middle class.

    > Aside from that, I’d say you need to consider income mobility.

    Income mobility is happening among well educated people and people in professions like electricians and plumbers. They start poor when in school or training, but they move up income scale when get older. Among people who do service and most manual labor jobs, there is much less income mobility. We are rapidly becoming a society of classes. Increasingly, if you are born rich, you stay rich. If you are born poor, you stay poor. Our Gini index (measure of inequality) used to be .36 which was comparable to the inequality of the UK and Italy. Today we have a gini index of .46 putting us in the company of countries like Bolivia and the Philipines. Inequality has increased dramatically in the last 5 years since Bush took office,

    Check out how we have changed from a country of equality to inequality over time:
    http://www.census.gov/hhes/income/histinc/f04.html

    > Reducing the rewards means you will also reduce their appetite for risk, since risk and reward must be proportional.

    My point is that we shouldn’t have a blind faith that wealth will eventually trickle down. Evidence shows that it hasn’t for the last couple decades. I fully agree that risk takers need to be rewarded, but that shouldn’t be taken to the extreme of neoliberalism which says that we should do away with all redistributive taxation. There are many ways to target taxation and government policies to encourage risk taking. Doing away with the estate tax, however, is not one of them. Nor are many of the other policies of the Republicans. They have been saying that the rich deserve a 70 billion dollar tax cut while the poor 20 billion dollar cut in social spending.

    Frankly, entrepreneurs already have a lot of incentive to take risks right now, but there is little effort to tax the wealthy to give to the poor. We need to find a new balance point. One of my econ profs gave a lecture about how lowering taxes only increases investment to a certain degree and only when investment conditions are good. Often lowering taxes doesn’t cause more investment, it just transfers more money to the rich. Look at US oil companies today. They have low taxation rates and have lots of profits right now, but they aren’t investing in new oil drilling or building new refineries. Instead they have taken that cash and bought up rivals. They simply don’t see good oil investments because there are few good oil fields available to invest in. Most of the Bush tax cuts haven’t resulted in a higher investment rate, either. In the 80s, Reagan’s tax cuts also didn’t result in higher investment.

    We think that we have a progressive taxation rate, but people basically pay the same tax rate once they get above $50,000. We have moved from progressive taxation to equal taxation in the last 25 years.

    2004 US Total Effective Tax rate (federal +state+local)
    1st Quintile 19.70%
    2nd Quintile 23.30%
    3rd Quintile 27.00%
    4th Quintile 29.80%
    Next 15% 31.60%
    Next 4% 32.20%
    Top 1% 32.80%
    http://www.rationalrevolution.net/articles/american_income_taxation.htm

    At the same time that tax rates have become less progressive, income inequality has increased. This isn’t helping our society. This paper shows that greater income inequality is linked to to higher growth rates. Conversely, more income inequality is linked to lower growth rates: http://www.economics.neu.edu/papers/03-006.pdf

    Neoliberals at the IMF and most advocates of laissez-faire economics dogmatically believe that lower taxes automatically lead to more investment which leaded to economic growth, but they haven’t emperically proven it. Statistics from the 1990s in countries where IMF neoliberal reforms were enacted suggest that the opposite is true. There needs to be a large middle class consumption to drive growth and you don’t create a large middle class with neoliberal policies.

  20. >Globalization is making the minority at the top richer, but it isn’t helping the majority on the bottom.

    Bullshit. The experience of the Asian Tigers over the last 30 years completely refutes this claim, as I know both from statistical evidence and from travelling in Korea, Japan, and Thailand. I can see why you’d want to ignore them, however, as they’ve done it without instituting a welfare state, minimum-wage laws, and most of the other redistributionist apparatus beloved of commissars everywhere.

  21. > Among people who do service and most manual labor jobs, there is much less income mobility.

    Except that people don’t stay in those jobs. (The eldery walmart greeters are almost all folks who retired from better jobs and are just looking to get out.) They learn how to work in “crap” jobs and move on.

    > Increasingly, if you are born rich, you stay rich.

    Interestingly, Batto doesn’t present any data supporting that claim. He doesn’t, because it’s wrong. There will always be a lower 20% but the folks in it happen to change, and age is a big factor in that change.

  22. True, the Asian Tigers have acheived high growth but that growth needs to be examined. The Asian tigers didn’t have progressive taxation systems, but, they certainly aren’t neoliberal or laissez faire either. It is important to note that most of the Asian Tigers haven’t let the IMF/WTO/World Bank push neoliberal reforms on them, which is an important reason why they grew. The state has always carefully protected their companies, and made policy in the favor of their companies. This is state-sponsored capitalism. Look at how Korea protects the Chaebol or how Japan sets goals for its companies and subsidizes them. In neither Japan or Korea are there many start-up companies. Despite the low taxation, there aren’t many little guys doing a lot of risk taking to create start-ups. Also, if you examine Korean and Japanese companies, they often have a kind of welfare system in that they keep a lot of unnecessary workers on the pay-roll and don’t fire them when they aren’t needed any more (although this policy is changing in Japan now it has been in a decade of economic slump). Korea and Japan are hardly the Smithian model of an economy where every person only looks out for him/herself and that makes the whole economy grow. They have always worried about the good of the community before the individual. At any rate, their growth rates have slowed down as they reached European and American levels of prosperity. It is hard to grow a developed economy, but easier for a developing economy to play catch-up.

    Of course, China is hardly a model of laissez faire economics, and the benefits of its growth have not been shared very equally at any rate.

    Many people point to Taiwan as a laissez faire economy and it does have a lot of individual entrepreneurs who follow the Smithian model. But Taiwan also had a land redistribution policy in the late 40s and grew under what I would call KMT-sponsored crony capitalism.

    Singapore and HongKong have acheived high growth as trading centers, but that model of growth isn’t expandable to large countries (there can only be so many trading centers in the world after all),

    > Interestingly, Batto doesn’t present any data supporting that claim. He doesn’t, because it’s wrong.
    > There will always be a lower 20% but the folks in it happen to change, and age is a big factor in that change.

    You probably are thinking about the Hubbard Report or the Heritage Institute’s work, but careful analysis shows that those studies are not accurate. Read:
    http://www.zmag.org/content/showarticle.cfm?ItemID=4728
    http://www.pkarchive.org/economy/therich.html

    In the American Prospect article, see the section:
    The Conservative Response 3: Income Mobility

  23. >True, the Asian Tigers have acheived high growth but that growth needs to be examined.

    Your reply amounts to a brief for the proposition that Asian-style crony capitalism works better than the big-state Indian model. The Tigers didn’t have ‘let’ the IMF etc. push neoliberal reforms on them because they were already doing these things; in fact, the success of the Tigers was the empirical model for what you call neoliberalism.

    >Korea and Japan are hardly the Smithian model of an economy where every person only looks out for him/herself and that makes the whole economy grow. They have always worried about the good of the community before the individual.

    Spoken like someone who’s never traveled to Korea and Japan and engaged the people there. I have, twice each, and your description is just wishful romanticizing.

    Citing Z Magazine as a source on any politico-economic issue just makes me laugh. Next I suppose you’ll cite the Ku Klux Klan’s newsletter on models for racial tolerance, or the Soviet-era Pravda on truth?

  24. One more point about Asian growth. Some people point to Malaysia, Thailand and The Philippines as places where neoliberal policies are spurring growth. Yes, they have grown. At this point, however, there is little evidence that the benefits are being shared very equitably. Like China, these countries’ growth has brought greater income inequality. Check their Gini indexes. It remains to be seen whether that wealth will become more dispersed over time as Kruznet predicts.

    Yes, globalization and laissez faire policies have benefits, but we also need to be aware of the costs and develop policies to mitigate the problems. We also need to respect democracies which say no to neoliberalism, rather than twisting their arms to accept it. Often they know better than we what is best for them.

    NAFTA has driven 1.5 million small farmers off their land in Mexico since it lowered the price of corn 70% when our subsized corn flooded their market. You can’t just ignore this stuff and only look at rising exports from Mexico. In general liberalization of economies brings benefits, but it is important to pay attention to the specifics and make sure that it is implemented cautiously in steps which allow economies to retool.

    Free trade is generally a good thing when it happens between equal trading partners and people in both countries get more from each country specializing in its comparitive advantage. However, free trade and neoliberal investment policies between unequal partners can be very problematic. When a multinational company invests in a developing country which specializes in extracting natural resources and providing cheap labor, the profits generally aren’t reinvested into the country. The multiplier effects from investment often don’t happen. The work force often doesn’t move up the skill ladder to more productive jobs, but stays at the low skill level because companies would rather do skilled operations in places which already have skilled workers rather than training or waiting for a good educational system to develop. Gini index numbers all around the world show that the benefits of globalization are unequal. (Yes I know that there are debates about the proper way to measure inequality. If you want to discuss the virtues of PPP measurement, go ahead)

  25. > in fact, the success of the Tigers was the empirical model for what you call neoliberalism.

    The Asian Tigers didn’t follow a neoliberal model to develop. Eric, read the work of economists who advocate neoliberalism. They say that countries should open up their borders to multinational corporations and foreign investment. They say that all tariffs should be eliminated and all restriction against outside investment should be eliminated. They say that the state should not play favorites and shouldn’t try to protect national companies. This is not how the Asian Tigers developed. Now you can argue that Malaysia and Thailand may be following a neoliberal model today, but Korea, Japan, and Taiwan never followed the neoliberal model of development.

    > Spoken like someone who’s never traveled to Korea and Japan and engaged the people there. I have, twice each, and your
    > description is just wishful romanticizing.

    Maybe I am romanticizing a bit, but there are real differences. You can’t tell me that Japanese and Korean corporations fire and hire like US corporations and don’t have a greater sense of collective responsibility for their workers.

    > Citing Z Magazine as a source on any politico-economic issue just makes me laugh.

    The article was by Paul Krugman, and was simply archived in Z-Net (which archives a lot of articles from a variety of sources). Krugman is hardly a nut. Even people who disagree with his neo-keynesianism don’t dismiss him off hand like you just did. He cites real economic studies in the article proving that income mobilitity is much smaller than it used to be. Here is what Wikipedia has to say about him:

    “Unlike many economic pundits, Krugman is also regarded as an important scholarly contributor by his peers. Krugman has written over 200 articles and twenty books — some of them academic, and some of them written for the layperson. His International Economics: Theory and Policy is a standard textbook on international economics. In 1991 he was awarded the prestigious John Bates Clark Medal by the American Economic Association.”

  26. >Malaysia and Thailand may be following a neoliberal model today

    Yes, because the older Tigers learned that not following the neoliberal prescription pretty much all the way through hurt their growth rates, and the newer Tigers were watching.

    >You can’t tell me that Japanese and Korean corporations fire and hire like US corporations and don’t have a greater sense of collective responsibility for their workers.

    To some extent that used to be true — but the “social democracy” prescription you’ve been advocating had nothing to do with it. Anyway the “collective responsibility” theory has about collapsed in Japan, as their demographics turned over, and it’s doomed elsewhere for much the same reason.

    As for Krugman — yeah, he used to do good work. Then he got a bad case of Bush Derangement Syndrome and went off the deep end. He’s been spewing fairly pure garbage for the last five years; look for recent papers in peer-reviewed econ journals and notice how hard it is to find any. My economist friends shake their heads and mutter about the ruin of a good mind.

  27. Amos, have you ever stopped to ask yourself what factors contribute to some low income service workers not having income mobility? I’ll give you a hint: It’s not flat taxation (p.s. the bottom half of federal tax payers pay nothing, or get money back, a subsidy, if you will). Nor is it a lack of social benefits. The welfare state has grown, not shrunk. Nor is it a lack of redistributive taxation, considering the federal model we currently have where the bottom quintile is given money by the govt. through the facade of earned income credit and similar devices.

  28. i’m ok with outsourcing but anti allowing (massive amounts) of people from other countries to come here and work…the fundamental problem is that there are too many people and not enough jobs. with tech advances, a steel mill which used to employ 3000 people now employs 300 people. ofcourse new industries/services are created, but due to technology that rate is significantly lower than that of job loss.
    population control should be priority number one of all countries in the world.

  29. Free trade has to go both directions. A tarriff on an import is equivalent to taxing an export. Labor is a market also. If you restrict the incoming labor, then you effectively restrict the outgoing labor.

  30. ESR, I don’t believe it–you appear to be suggesting that money saved by outsourcing will actually benefit employees?
    I can tell you flat out that most employees of an outfit (which is requesting outside work) will not benefit from outsourcing in any measurable way (perhaps other than it taking an extra 30 days for the company they work for to succumb to a hostile take-over or go bankrupt) if they already do the work which will be outsourced. The middle and upper management (and possibly an investment bank in many cases) may benefit in the form of pay raises, profits (so that’s how companies make money–they find ways not to pay for employees!), and stock values/options. The actual “working stiffs” are likely those whom lost their jobs during the change (or will eventually be convinced to move on or be removed via attrition)–with the occasional case that the company doesn’t need to get rid of them immediately to “increase profitability.”
    Outsourcing isn’t the “Zero Sum Game” it is often made out to be, but at the same time one must be mindful of his history. Remember that once the colonies were set up in North America, the growing of some things (tobacco in particular) and the harvesting of lumber became the prime business model. The people whom performed these activities were often employees or contractors of companies back in Europe (primarily England and France). So, obviously, the claim that at least some [North] Americans haven’t benefited from outsourcing is indeed bullshit. The question is which ones–and when.
    Those Colonialists whom didn’t have a need to buy anything made by someone not in the colonies benefited–the rest arguably would have eventually been taxed dry (an entirely different kind of outsourcing). However, it could be argued that eventually–even without the abhorrent taxes–had manufacturing not taken a foothold in the “New World” that everyone not on the frontier would have eventually gone broke. This is due to the fact that it costs something to make raw materials into something else–selling raw materials can only pay for itself if only a small quantity of manufactured goods made from those materials return. (If the manufacturing happens locally the money stays local longer and helps keep local businesses afloat–businesses which may also purchase raw materials…etc.)
    {This whole model of economy we usually tend to use in support of free markets also makes one other ugly assumption: that people whom earn more money spend proportionally more money–an assumption that is probably more full of holes than cheesecloth.}
    “Offsharing grows businesses so they can find or create more domestic opportunities.”–ESR
    And so, we end up with a discussion (in as simple a form as makes sense) of the modern economy in the USA: we export a great deal of raw and nearly raw materials to the outside world–but very few (comparatively) “finished goods” (including services–by value). We import anything one can imagine. We also export our jobs–despite a market for many of those jobs here (including the case of foreigners living in the USA), in part (I suspect) to hide part of our economic losses (the company’s balance sheet shows a net positive due to paying less to employees–never mind the debt created in the republic’s treasury by doing so). While all of this has been going on employees in general get paid less than they did in the mid 1970’s per unit work–with the exception of the upper 1% (according to the IRS). This is not a zero-sum translation–it is relative to GDP and inflation.
    I know better than to accuse you (or most of the other folks here) of being elitist (as the accusation would be false)–but please do yourself a favor and stop ignoring the facts: the free market ideal is not broken, but the people whom make it go are not perfect. In fact people are anything but perfect. This is the explanation for why outsourcing often times doesn’t create economic profitability for a country while it makes individuals and companies great deals of money. To claim that a country should not have the right to benefit as a whole while some of its citizens and corporations do is elitist. (I do not believe in buoying up every sloth in town, however. There is a balance.) This is where the idea of an income tax came from (and why Congress began the process of setting one up to help pay for reconstruction—in part since the corporations in the north couldn’t be bothered to contribute to the effort). To claim that it is ok for corporations to run up great debts in the republic’s treasury (debts which are bought by foreigners to keep our checks from bouncing there)–to employ foreigners and pretend to be making a profit in the republic as a side effect, as often happens–is also wrongheaded.
    It strikes me that the lesson of the great entrepreneur Henry Ford (faults aside) has been lost: If your own employees can’t afford to buy your product, then who will? (A corollary of this is that if your country is in debt, than how can its citizens afford to buy your product?)

  31. > …most employees of an outfit will not benefit from outsourcing in any measurable way if they already do the work which will be outsourced.

    Well duh!

    Sigh.

    It seems you don’t get what’s going on here, so let me try to explain. Yes, some jobs move to countries that can do them cheaper (actually with a lower opportunity cost, not just a lower monetary cost). That means some people get fired. But a side effect of this is that we end up doing the things that we can do with a lower opportunity cost. And in the end, we create more jobs than we lose (because specialization always helps both sides get more done). See the IT sector job stats that Eric quoted.

    As for “foreign debt is EVIL!”, that’s true, but only in certain cases. (It depends on whether or not we’re going to have a recession. We can fix the deficit by either having a recession, or by getting other countries to lower their taxes.) You should read this, even though it’s a couple decades old now. Pay particular attention to the cause of deficits — the fact that other countries’ citizens are moving their money here because we’re (or we were; I’m not sure what the situation is anymore) a huge tax haven. As I said above, there are only 2 ways to fix this: Have a recession, which is bad for everyone (this will force us to stop buying goods from other countries because we won’t be able to afford them, which will decrease our trade deficits), or get other countries to lower their marginal tax rates, so their citizens keep their money in those countries.

  32. Once upon a time, USA used to be the land of opportunity, where work is abundant.

    Now work has been outsourced to 3rd world nations, even by companies that can afford to pay the wages. Why? Because of greed. Not because of BS reasons posted by persons working in India or China benefitting from this like “techonological advancement” or “USA will produce more jobs”…But by pure, criminal greed.

    We have seen how IT workers working for years were replaced by 3rd world workers barely out of college.

    How can Americans compete for dirt cheap, labor workers?

    The answer: they cannot. They were supposed to take it up their azz like obedient sheeps because if they complain like a true American should, they will be labelled “socialists” or “liberals” like they were bad words in the first place.

    Let us say the situation is reversed. Will India or China outsource their jobs to Americans? Of course not! These countries practice protectionist policies while benefitting from globalism. In short…They bake their own cake and eat it too, while countries like USA suck it up and obey the rules…Not because it is right, but because business lobbies pay huge sum of election money.

    So what happens to honest, hardworking American workers?

    They will be reduced to long-term unemployed, searching for whatever temp work they can find. They will be enrolling on trainings/schools, only to find later after paying thousands of dollars that the “new” jobs they are dreaming are saturated. They will be forced to switch professions which they never had any interests in the first place because these jobs “are safe from outsourcing” (in the meantime) like health-care jobs, service crews, paralegals, etc. They will be forced to try starting their own business, but not all are fit to become businessmen/women. They will endure days, months and even years of humiliation and despair trying to land a job which pays much lesser than their former job and when they do get hired, they will see all over again how companies start talk of outsourcing and their job maybe next in line.

    When a 10-yr experienced IT worker, who lands his job because he is qualified over dozens of other applicants, loses his job overnight to a foreign worker who is not even in this country, barely can speak English or have no work experience nor skill whatsoever…You are not only depriving this American his job…but his dignity and his right for life and pursuit of his American dreams.

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