Offshoring: Will 25 percent of U.S. jobs end up overseas?

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For decades, pundits have argued about the values and dangers of offshoring. Recently, economist Alan S. Blinder weighed in with a paper examining the potential ramifications of the process. Dr. Blinder, who served on the Federal Reserve Board and Bill Clinton's Council of Economic Advisors, determined that approximately 30 to 40 million American jobs -- roughly 25 percent -- could be offshored to developing countries.

Many analysts were quick to point out that "could" is miles away from "will," and have noted that Blinder's depressing conclusion doesn't automatically translate into a massive outflux of jobs. While this is certainly true, it ignores the devastating effect that offshoring has already had and minimizes the attraction that the program holds for business owners. Under the circumstances, the fact that 25 percent of jobs can go overseas suggests that -- if current trends continue -- a large percentage will eventually do so.

Back in the 1950's, when American businesses began moving manufacturing to other countries, the process seemed like a win-win situation. For business owners, moving factory jobs out of the country translated into cheaper labor costs and higher profits. For customers, it meant less expensive finished products and more presents under the Christmas tree. Even displaced workers, arguably the biggest losers in the process, could fall back on a robust job market filled with plenty of high-paying manufacturing jobs that required minimal retraining. In the ensuing decades, as the offshoring trend picked up, it was still easy to quell worries about disappearing jobs with the notion that the country was transforming into a service economy that was no longer reliant on low-paying, low-skill industrial work.

In the 1990's, the debate -- and the dynamics of offshoring -- began to shift, as telecommunication expansion and Internet growth meant that jobs in the service economy could also leave the country. Over time, it became clear that neither a college degree nor a white collar was sufficient to guarantee job security and high wages. As offshored call centers and data processing positions were followed by programming jobs, the term "Bangalored" gained currency as a way of explaining what happens when someone is laid off and his job is moved to India.

In America, education-intensive careers in engineering, medicine, and the legal profession have traditionally been perceived as secure and lucrative. However, "innovation offshoring" is making it possible to move research and development overseas, while health tourism and legal offshoring are making medical procedures and legal grunt work much cheaper. In the process, they are also crushing the lingering notion that offshoring is something that happens to other people, or that education is a hedge against losing one's job to a cheaper worker in another country.

On a purely economic basis, offshoring will always make sense. After all, regardless of one's profession, there is probably someone somewhere else in the world who is willing to do it for less. In India, for example, more than half of the country subsists on less than $2 per day, indicating an economy where even college-educated workers can low-ball a labor bid.

If, as Blinder indicates, 25 percent of American jobs can be offshored, the impetus for not doing so has to be more than merely economic. Blinder suggests that the government needs to adopt long-term policy moves that would limit the impact or extensiveness of offshoring. On a broader scale, however, it might be time to seriously consider the ultimate conclusion of this trend.

As offshoring has gained momentum, the wages of American workers have more or less frozen. From 1948 to 1973, the median income of single-earner families had a significant year-over-year growth, ultimately cresting at $44,368 in 2008 dollars. Since then, however, it has remained relatively stagnant; in 2008, it was pegged at $42,103. While this 36-year flatline may not seem all that impressive, it is crushing when compared with the gross domestic product, which grew seven fold in the same period, or the consumer price index, which grew more than five fold between 1973 and 2008.

It isn't hard to see why this has happened: if laborers have demanded a significant increase in their paychecks, companies have simply moved their operations to countries with cheaper workers. The trouble is, this emphasis on inexpensive consumer goods, services and workers has missed a key part of the equation: consumers. While India, China, Mexico and Bangladesh have proven themselves to be outstanding producers, they are not outstanding consumers and the American workers that they are undermining have recently had to sharply cut back on their expenditures.

While Henry Ford is often lionized for his role in spurring assembly-line manufacturing, his greatest contribution lay in his social vision. In 1914, he famously raised the minimum salary in his factory to $5 per day, more than twice the previous base pay. In addition to immediately spurring employee satisfaction, he also created a built-in consumer base for his product. Suddenly, Ford (F) workers could buy Ford cars; as they did so, the company's profits rose accordingly. Meanwhile, the American economy had a new model for business success: turn workers into consumers.

All this begs the question of who, exactly, will be buying the products that American companies are now producing overseas. While Walmart (WMT) is making a fortune by catering to the needs of an ever-increasing population of people who are living from paycheck to paycheck, it is also demonstrating the final step in the offshoring business strategy: poorly-constructed products made by subsistence workers in undemocratic countries are being sold on credit to subsistence workers in America. Meanwhile, the profits of this disaster, which Ford once famously shared with his workers, are finding their way into the pockets of a precious few superrich investors and business owners.

As the current economic malaise demonstrates, this process may be ultimately unsustainable; record profits inevitably come with a record price.


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