Tuesday, July 17, 2012

Outrage at Outsourcing -- Does It Make Sense?

President Obama recently released an anti-Romney ad that seems rather effective.  In it, Romney is criticized for his part in outsourcing jobs to Mexico, China, and India and for having tax-haven accounts in Switzerland, Bermuda, and the Cayman Islands.

I believe Obama's attacks on Romney have been effective.  I believe Americans are generally unhappy with American jobs going overseas.

But this outrage puzzles me.

Sending jobs to where labor costs are the lowest should be an expected consequence of the "free market" capitalism many Americans believe in.  Or think they do.  Many Americans express a kind of cognitive dissonance in this regard.   On the one hand, they staunchly defend capitalism as the greatest economic system in the world, and on the other hand they want that capitalist system to be loyal to them.  That is, they want markets to be free, but they want those markets to play favorites.  They do not seem to notice the contradiction.

This demonstrates a flawed understanding of the principles of free-market capitalism.  Capitalism recognizes few loyalties other than profit, perhaps no loyalties other than that.  Capitalists seek to maximize their profits, even if that means sometimes taking jobs overseas.  The principle of maximized profit, the supremacy of self-interest, encourages this.

In this regard I find the behavior of many American companies similar to the behavior of many American consumers, and so I am puzzled when those consumers get upset at the makers of the merchandise they buy.  The practice of Americans companies seeking the lowest possible labor costs is similar to the practice of American consumers seeking the lowest possible prices for goods. 

If you can get tube socks for $9 or $3, which are you more likely to buy?

If you can hire one person to make tube socks for $9 an hour or another person for $3 an hour, whom   are you more likely to hire?

I know some people will claim they cannot afford the $9 tube socks.  The MUST buy the $3 tube socks.  But this is not true for everyone in Wal-Mart.  There are many people there who can afford the $9 package that was made in America -- but, they would argue, why should they pay an extra $6, when they can get the Chinese package?

Maximizing one's savings is a motivation similar to maximizing one's profits.

And there are companies who would say they MUST reduce their labor costs if they wish to remain in business.  They are like those consumers who plead poverty when asked to justify their shopping choices.

In some ways the two practices -- seeking cheaper goods and seeking cheaper labor -- are linked.  The greater the downward price pressure American consumers placed on American producers of consumer goods, the greater the incentive for those American producers to shift their production overseas.

The habits of shoppers and employers may also be linked in this regard: People who lost their jobs to outsourcing often found new employment that paid less; this meant more people buying the cheaper, foreign-made goods, which increased the price pressure on American manufacturers, which, in turn, sent more jobs overseas.  Rinse and repeat.

The solution to some of this concern about outsourcing is a kind of protectionism -- protecting American manufacturers from foreign competition through tariffs and quotas.  But economists generally have told us that protectionism is bad.  It leads to inflation, and it blunts the benefits of competition; the protected companies get lazy and stop innovating.  However, I think many Americans would accept some inflation if it meant better-paying jobs in America, and some protectionism does not necessarily mean the end of innovation. 

I think many Americans, despite their advocacy of free markets, prefer an economic system that has loyalties to people and not just profits.  They just haven't figured that out yet.

1 comment:

  1. The ole admonishment comes to mind: "Careful whatcha bitch fer..."