Thesis on "Outsourcing and the Global Economy"

Thesis 6 pages (2205 words) Sources: 1+

[EXCERPT] . . . .

Outsourcing and the Global Economy

In the world of modern politics and Economic theory in the United States, much lip service is given to the concept of "Globalization." Indeed -- from President Bush's assertion that,."..those who protest free trade are no friends of the poor. Those who protest free trade seek to deny them their best hope for escaping poverty...(Mikkelson, 2001)," to Reserve Chairman Alan Greenspan's statement, "Adam Smith's "invisible hand" remains at work on a global scale...(Federal Reserve Board, 2005), many of the world's most influential leaders view the globalization phenomena as not only "good," but necessary as well. However, this is not to say that the process is always easy -- or profitable for all American individuals, companies, or economic entities. Further, it may also, in some cases, help to worsen the economic plight of the poor in many instances. Yet, despite this sometimes distressing truth, the simple fact remains that outsourcing American jobs is a necessary component of inevitable economic free trade.

American Popular Attitudes toward Globalization

It is a fact of life that most, if not all humans (American or not), want their cake both on their plates, and in their bellies -- preferably at the same time. As politicians know all too well, American's are a patriotic bunch, but when wallet-level economics come into play, the good of the few always comes before the good of the many -- and when that wallet grows light in the pocket, so will patience run thin. Such is the case with popular opinion regarding free trade and globalization. Yes, indeed, American's are all for it. Lower those tariffs, reduce the prices we pay on consumer goods from abroad, allow us to compete with other nations with our strong exports -- and remove all foreign barriers to trade. but...don't allow cheaper goods to compete with the ones produced in my factory, don't farm out my job to a lower-paid worker in Bangladesh, and for heaven's sake, don't destroy the mom-and-pop establishments in my town that are the symbol of old-fashioned American values and entrepreneurship! We have to draw the line somewhere!

No, American's simply don't want to pay the price of real free trade, because it means a real change for Americans -- potential voters all, that at times may be painful. However, in a world increasingly connected via technology (particularly the internet), as well as increasingly broad international trade organizations like WTO, NAFTA, and the EU, it is becoming clear that those who refuse to participate, in effect by creating artificial barriers to trade, run the risk of placing themselves at a significant economic disadvantage to those nations willing to bite the proverbial bullet. The simple truth is the United States has no choice. There is no avoiding globalization, a globalization that necessarily includes the dreaded phenomena known as "outsourcing."

Whereas "free trade," seems to have a pleasant ring to most Americans, perhaps due to is rather patriotic and democratic tone -- "Let freedom ring...," "outsourcing" as a term boarders on the odious. Although higher-ups in corporate circles, as well as many "power-investors" certainly see the merit of bringing labor costs down (and conversely, bringing profits up), American workers, themselves are not as keen on the idea. After all, a software engineer at Microsoft is not likely to jump up and down at the prospect of losing his job to a worker in India, who happens to be willing to do his job for less than half of his pay, whether it increases company profit or not.

Must the United States Participate in Free Trade?

Although many special interest groups as well as individual Americans would beg to differ, it is highly unlikely that the United States will continue to hold a position of economic dominance or even health without an increased participation in the globalizing economy. According to many assessments, a full fourth of the United States gross domestic product is tied to international trade (WTO, 2004). Further, and perhaps even more important, is the immense impact that trade has made upon the growth of the American economy, estimated to make up no less than a third of overall growth since 1990 (2004).

Another important factor in the importance of participation in a broad trade network (one that increasingly inches toward true "globalization" across regional treaties), is the fact that the United States not only continues to reach out to traditionally "low contact" nations (for example, China), but that it enjoys tremendous success in doing so (to the tune of an estimated 30% rise (2004). However, as the country increases its participation in global trade, it also finds that it must avoid the implementation of "artificial barriers" such as tariffs, taxation, quotas, and embargos no matter how unpopular or painful it may be in the short-term to segments of the population.

The "Invisible Hand" in the Globalized World

Clearly, although some portions of emerging free market economy (whether it grows by leaps or bounds) are perceived negatively by the American public, and may, in some of its manifestations even be reviled as "un-American," the truth is the process fits in nicely with some of the most traditional views of economics. Perhaps the most famous of which is Adam Smith's "Invisible Hand" theory.

As the widely held "Father of Economics, Smith" explained in his 1776 book, "An Inquiry into the Nature and Causes of the Wealth of Nations," "I have never known much good done by those who affected to trade for the public good (Cannan, 1994)." Instead, according to Smith:

every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it (1994).

Thus, in this system, today as in history, the best economic outcome arises from the natural "self-interest" of the parties involved in trade. For example, the customer naturally desires to lower overall expenditures for the maximum gain, while the producers of products or services desire to maximize profit (by reducing expenses arising from labor, materials, etc.). Clearly, here both sides have only self-interest in mind. Yet, regardless of intention, such an "arrangement," allows for healthy trade. For example, the consumer indicates demand through willingness to shell out "market price" for an item or service. In consequence, producers naturally desire to maximize profits by investing in profitable (in demand) industries. Thus, trade needs are met (as demonstrated by demand), prices are kept relatively low (helped by a desire to minimize expenses in production), and "general economic well-being is increased (Joyce, 2001)."

However, many may ask, how does this idea fit in the concept of globalized free trade? For some, the answer lies in seeing the world as it is today -- vastly and inexorably interconnected in such a way as to allow each member nation to act as an "individual," much as the individual citizen might have functioned in Smith's day. In this conceptualization, each nation acts in its own "self-interest," resulting in the overall well-being of the mass of citizenry represented by the trading parties. Of course, this does not mean a complete "equality" in trade influence among the participating nations -- for their necessarily exist imbalances in power resulting from unequal access to resources, climatic influences, political legacies and power balances, etc. However, notwithstanding, each member will endeavor to gain the most in terms of self-interest as possible in the exchange, much as the individual would have in the less-connected world of Smith's day.

Outsourcing:

Necessary Component of the Global Economy?

Although it is clear that people prefer to consider trade and economic health in terms of "concrete products," one must place the nation's labor force in the same category as any other commodity. Just as most people outside of the dairy industry consider subsidies paid to farmers for over-producing milk (often resulting in the wholesale dumping of unwanted product) (Grard, 2002) to be a horrible practical and financial waste, so, too is the artificial protection of certain jobs and industries an exercise in waste, lack of productivity, and an impediment to change and growth.

Consider, for example, that many generations of dairy farmers may have stayed on the family farm, raising cow after cow even if no one needed the milk. Further consider the possibility that those farmers may have better used their time… READ MORE

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