Monday, September 20, 2004

Outsourcing: further updates (but no potato)

Further follow-up from Drezner on Samuelson/Bhagwati. Drezner has now read everything on the subject, including Arvind Panagariya's response to Samuelson. BUT he doesn't indicate anywhere that he's read the article itself!

Somebody has to have the potato.

And also see the comments on Kaushik's blog. They're very helpful.


Kerim Friedman said...

I've been following the outsourcing debate a little. I'm not sure what to make of the Samuelson/Bhagwati argument, I've read other articles (about global inequality) which make me feel that Bhagwati is somewhat disingenuous, so I'm not inclined to trust his "its not about outsourcing" argument. But, I'd be willing to concede his point because, for me, the real argument lies elsewhere.

The reality is that very few jobs are being lost to outsourcing. The story gets much more press coverage than other trade related stories (especially in proportion to the numbers of people affected) because it affects middle-class white-collar jobs, rather than working class manufacturing jobs. What is really interesting is that outsourcing and even moving manufacturing jobs overseas is often economically inefficient (see Henwood quote below). That is, the costs of training, relocating, doing business long distance, etc. are actually higher than what is saved by low wages! So why do it? There is one simple reason - it is all about power. By moving a certain percentage of production overseas companies are able to cow American workers into accepting lower wages, weaker unions, etc.

From Henwood's book After the New Economy:

Firms operating internationally show a lower return on assets and a lower stock market value relative to assets than do otherwise similar domestic firms. Companies that export from their home base, however, show superior performance. In this analysis, mulitnationalization looks like a poor substitute for old-fashioned exports. Reasons are unclear, but it may be that managers of MNCs are more interested in empire-building than in profit maximization. Even if this conclusion is overstated, there's little evidence that going worldwide is the profit-swelling strategy that both antiglobalizers and business ideologues assume. (p157)This is about manufacturing, but I've read articles that make similar claims about outsourcing as well.

9:30 PM  

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