Stop Complaining About Outsourcing

Both Obama and Romney are sowing the seeds of a trade war.


When economic times are bad, animosity is directed at foreigners: "They're taking our jobs!" So it's unsurprising that the presidential campaigns feature charges and countercharges about outsourcing, the employment of foreign labor by American companies. This is a dangerous game because it sows the seeds of trade war.

Economists understand the benefits of the division of labor. If you and your family had to live on only what you could produce yourselves, you'd be dirt poor. You wouldn't be much better off if you could buy only what the residents of your town or county could produce. As the trading area grows, a more intensive specialization and hence division of labor are possible. Combine this with the increased productivity that the growth in knowledge and inventiveness also make possible, and dramatic prosperity results.

Adam Smith observed, "The division of labor is limited by the extent of the market." If the extent of the market is artificially constricted by politicians (no one else has such power), the division of labor and its concomitant progress are stunted—and we are poorer than we would have been.

Thus we should worry whenever politicians attempt to incite the public against global trade in goods and services.
"But they're taking our jobs!" In the course of things, jobs are moving, changing, disappearing, and emerging all the time. It can be disconcerting and disruptive, but we wouldn't like the alternative: a government powerful enough to stifle freedom and change. When the free market is allowed to operate (which is not the case today), change is the rule. Consumer preferences evolve. Entrepreneurs try to win favor by offering new or improved goods. New knowledge brings technological developments that lower costs, which enable things to be produced with fewer resources and less labor.

While of course this all can create hardship for those—workers and business owners—invested in the old ways, the general benefits are undeniable. Whenever fewer resources and less labor are required to produce a good, resources and labor formerly devoted to that good can now be directed to things we couldn't afford yesterday. That's how societies prosper.

Moreover, whenever a new good comes to market, it plants the seeds of new opportunities for other people. Think of the many firms launched to complement the personal-computer industry, with products ranging from software to a multitude of accessories. No one was making mouse pads, laptop fans, and web cams a few years ago, nor mobile-phone cases, ring tones, and apps.

The same process that "destroys" jobs also creates them. Our desire for goods and services is open-ended, and so the opportunities for work—absent government impediments—are similarly unlimited. Even if we could acquire all imaginable "necessities," we also value leisure, which results in the demand for skis, tennis racquets, fishing rods, e-book readers, tablets, game consoles, and things yet to be dreamed up.

I don't wish to understate the hardship that change can produce. But government policies designed to tamp down change are a blueprint for poverty for the poorest among us. The wealthy have their riches already. It is those who have yet to make it who stand to lose the most from economic stagnation.

Fortunately, the hardship that is a byproduct of social dynamism can be ameliorated by the very freedom which produces that dynamism. Because our desire for goods and services is unlimited, there is always new work to be done.

It is shameful for Americans—fabulously wealthy by world and historical standards—to begrudge poorer people their chance to prosper. Progressives and conservatives profess compassion and charity—but they are the first to object when the world's worst-off "take our jobs!"

The foregoing requires a caveat. America does not have a free market; the economy is laden with intervention, much of it in the form of privileges for big, established companies at the expense of would-be competitors. Tax and regulatory interventions distort market forces and facilitate the migration of jobs and other resources. Moreover, neo-feudalism in developing countries likely reduces workers' options, providing cheaper labor to transnational corporations.

All of this underscores the imperative to free the market at home and to set an example for others abroad. Global cooperation beats trade war every time.

This article originally appeared at The Future of Freedom Foundation.

NEXT: Obama: Romney's Tax Plan Unfair

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. I prefer my clothes to be manufactured by little yellow hands, because Caucasians are just too darn big.

    1. Smaller hands make for tighter seams.

  2. OT: No three-peat for Zagunis this year. That really is the hardest thing to do. Great match, though, 15-13.

    1. Oh, SPOILER ALERT if you’re planning on watching olympics not live.

  3. Whenever fewer resources and less labor are required to produce a good, resources and labor formerly devoted to that good can now be directed to things we couldn’t afford yesterday. That’s how societies prosper

    Better known as “Law Of Comparative Advantage.”

    The belief that a State should only allow people to trade with people from other countries that follow “fair practices” comes directly from a) mercantilist dogma and b) economic ignorance.

    Mercantilist dogma states that what is good for a country’s economy is exports. A government should thus do whatever is necessary to nurture and protect those industries that sell their products outside of the confines of the country. Instead, imports are seen as a drain to the economy.

    Economic ignorance explains the mercantilist dogma. First, mercantilism assumes that money (whether gold or greenbacks) is wealth, and so anytime you see money being turned over to foreign manufacturers, that wealth is gone. Second, the idea that wealth (being money) is finite and limited, which explains why mercantilists are so keen on warfare and conquest. Mercantilists do not want to believe that wealth can be increased through production, and that money is NOT wealth but rather a claim on future goods. You can have all the money in the world, and still starve, if there are no goods nearby for trade.

    1. The fact is that exporting companies do not have a right to sell their wares to people of other countries, so whatever manipulations done by the State in their benefit will be entirely at the expense of the local population, whether manipulations of the currency or tariffs. Even if local producers cannot export their goods because of tariffs, that does not necessarily make them worse off. However, tariffs DO affect the people that impose them and make THEM worse off, as the access to cheaper goods is curtailed by tariffs and their savings are eroded by inflationary schemes. This is akin to the woman that puts a knife against her chest, threatening the villain with suicide; the villain will be no worse off than before if the lady plunges the knife against HER heart, but the end result will still be one dead woman.

      So, self-imposed tariffs and currency manipulations do NOT necessarily make the exporter on the other side worse off, but they certainly make the people on the inside worse off. What makes some people not realize this is the fallacies of mercantilism, economic nationalism and simple jingoism.

    2. If you look carefully at either Adam Smith’s law of absolute advantage or David Ricardo’s law of absolute advantage both have an implicit assumption that after free trade the trading nations have full employment. That is clearly not the case with the United States today.

  4. Unfortunately, free trade is an idea whose value is not as apparent as some others, and it’s an easy one to demagogue against.

  5. The pie has only six slices!

  6. In the software industry you pretty much have two choices. Outsource your labor or outsource your business in cases where you need to build a large labor force quickly.

    If we restrict software companies from having access to outsourced labor then foreign companies will be creating the next google’s and facebook’s and we’ll miss out on not only all the jobs, but also the profits as well in terms of feeding our tax base and general economy.

    Since we sure as hell aren’t going to be creating enough engineers from our public schools, and we don’t want to allow enough H1-b’s what other choice is there?

    1. It is 100% a money issue. Companies like Microsoft hire engineers from India for $40k a year salary. There is no shortage of engineers in this country, there is simply somewhere to buy them at half the cost. This is the same reason factories are being used in China rather than in the USA. No one wants to pay workers a living wage, so they farm it out for pennies elsewhere.

      This is where you can have a free market vs morals debate.

      Over time, as is showing in China, the workers will get a thirst for more money. They will form unions, and then conditions will get better, more pennies will be thrown into their paycheck – eventually, they will be like us. Companies will find the next country to take advantage of low wages, and it will come full circle – The USA will be the country with the lowest wages.

      1. From someone who reads a dozen resumes a week, I can tell you that there is a lack of qualified engineers. Lots of hacks who got into the industry for the money, but not many who are worth a damn. We hired two Chinese interns and they put guys with 3 times more experience and twice pay to shame.

      2. “No one wants to pay workers a living wage, so they farm it out for pennies elsewhere.” is a canard.
        The fact is that the market sets the price for the goods which controls the amount of money the operator of the business has available to produce those goods. When the cost of labor [“look for the union label” remember that?] rises to the point where the manufacturer can no longer make a profit that manufacturer has to find cheaper labor or go out of business.
        He can’t raise his prices any further as he is constrained by competition from other producers.
        The blame for this situation ultimately falls on the American Consumer for choosing price over place of manufacture as the deciding factor for clothing purchases. When American Factories can no longer compete the factory closes and the goods are produced somewhere else. The consumer has demanded that it be so.

  7. The article is awesome. That is a wonderful insight on the subject and I must thank you for sharing. I shall come back again.

  8. The article is awesome. That is a wonderful insight on the subject and I must thank you for sharing. I shall come back again.
    Exam Paper | Test Paper

  9. Outsourcing is not trade.

    While Adam Smith would approve of free trade he would not approve of outsourcing.

    First, Smith wrote two classic books. The first sentences of his first book “The Theory of Moral Sentiments” is:

    “No matter how selfish you think man is, it’s obvious that there are some principles in his nature that give him an interest in the welfare of others, and make their happiness necessary to him, even if he gets nothing from it but the pleasure of seeing it.”

    These are not the words of a man willing to inflict the suffering of outsourcing on his fellowman. Outsourcing is not creative destruction of jobs but pure destruction with no gain.

    Second, Adam Smith was an outspoken supporter of a set of law called the Navigation Acts. The purpose of these laws was, in part, to allow England to monopolize international trade thereby keeping all the benefits of trade inside the Empire, and minimizing the benefits going to foreigners. Outsourcing is antithetical to that goal.

    Third and most important, when Smith uses the word “Wealth” he is not referring to money. He is referring to the well being of the people. The outsourcing of jobs hurts the well being of our citizens and therefore would not meet with the approval of Adam Smith.

  10. ” Global cooperation beats trade war every time”

    Not true.

    The United States is a trade deficit nation. If there is a trade war we win. Do the math! No other outcome is possible. We win a trade war and lose “global cooperation.”

  11. thanks again much obliged yes finally something about this topic i truly appreciate this article

  12. i love this website saved to bookmarks some genuinely nice stuff on this internet site

  13. i actually love this website this inspiring me this inspiring me

  14. sweet website very neat post much thanks fantastic blog article

  15. following this cool website its very nice to read you are a very smart person

Please to post comments

Comments are closed.