View Single Post
Old 04-18-2004, 01:04 PM   #31 (permalink)
Astrocloud
Apocalypse Nerd
 
Astrocloud's Avatar
 
A Finance Professor Speaks on the Subject.

http://money.cnn.com/2004/03/11/comm...obbs/index.htm

Quote:

[source=6]Answers on Outsourcing[/size]
A finance professor argues against placing blind faith in outsourcing. His views follow.
March 12, 2004: 8:18 AM EST
By Rory L. Terry

The following is a guest column by Rory L. Terry, an associate professor of finance at Fort Hays State University.

NEW YORK (CNN) -- A great deal of effort is being expended to convince us all that the outsourcing of jobs under the rubric of free trade is a good thing. I would like to discuss some of these arguments.

Our labor force is not better trained, harder working, or more innovative than our foreign competitors. The argument that we will create new jobs in highly paying fields simply is not true. We have no comparative advantage or superiority in innovation. To assume that we are inherently more creative than our foreign competitors is both arrogant and naive. We are currently empowering our competition with the resources to innovate equally as well as we. Consider the number of new non-native Ph.D.s that leave our universities each year; consider our low rank in the education of mathematics and the sciences; and consider the large number of international students enrolled in our most difficult technical degree programs at our most prestigious universities.

Most of our best, high-paying jobs can be exported.

1. doctors (even surgeons)

2. mathematicians

3. accountants

4. financial analysts

5. engineers

6. computer programmers

7. architects

8. physicists

9. chemists

10. biologists

11. researchers of all types

Our trading problem is an externality

An externality exists in economics any time there is a separation of costs and benefits, and the decision maker does not have to incur the full cost but receives the full benefits of the decision. The fact is, there is no economic force, no supply and demand equilibrium, no rational decision process of either business or consumer, that will make an externality go away. Classic examples of externalities are when a business dumps toxic waste into a nearby river and the downstream residents incur the costs of cancer. The business is able to lower its costs and pass those lower costs on to its customers, and never pay for the treatment of the cancer patients. We have laws in this country against dumping and pollution because they are externalities -- they require a legislative solution.

Cost reductions and other benefits provide a strong incentive to outsource jobs. A company that decides to move its production overseas cuts its costs in many ways, including the following:

1. Extremely low wage rates

2. The circumvention or avoidance of organized labor

3. No Social Security or Medicare benefit payments

4. No federal or state unemployment tax

5. No health benefits for workers

6. No child labor laws

7. No OSHA or EPA costs or restrictions

8. No worker retirement benefits or pension costs

Besides cutting costs, there are other benefits to exporting jobs, including the following:

1. Tax incentives provided by our government

2. Incentives from foreign governments

3. The creation of new international markets for the company's products (which ultimately empowers the company to turn a deaf ear to this country's problems and influence)

4. The continued benefits of our legal system and the freedoms that we provide

The net effect of all of this is lower costs, higher revenue, higher profits, higher stock prices, bonuses for management, and the creation of wealth for a subclass that benefits from low taxes at the expense of the rest of us.

The costs of the decision to outsource are not borne by the decision maker. As a society and as a country, we experience many costs from outsourcing, including the loss of jobs, social costs, higher costs of raw materials and loss of national sovereignty. Loss of jobs reduces the tax base, creates high unemployment benefit costs, and raises the cost of government retraining programs. Displaced, unemployed workers have higher rates of child and spousal abuse, alcoholism, bankruptcy, divorce, etc. As China and India and other large populations grow, they demand huge quantities of oil, gas, steel and other basic raw materials. These costs are born by all of us -- every time we fill our gas tanks, for example. And as a nation, we lose our ability to make independent decisions that are in our best interest when we are dependent on foreign debt and foreign manufacturing. This is a classic externality.


---------------------
Rory L. Terry is an associate professor of Finance at Fort Hays State University
Astrocloud is offline  
 

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 208 209 210 211 212 213 214 215 216 217 218 219 220 221 222 223 224 225 226 227 228 229 230 231 232 233 234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 263 264 265 266 267 268 269 270 271 272 273 274 275 276 277 278 279 280 281 282 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 299 300 301 302 303 304 305 306 307 308 309 310 311 312 313 314 315 316 317 318 319 320 321 322 323 324 325 326 327 328 329 330 331 332 333 334 335 336 337 338 339 340 341 342 343 344 345 346 347 348 349 350 351 352 353 354 355 356 357 358 359 360