Innovation is what made the US economy the largest in the world

In this article we consider how outsourcing is a natural progression for leading economies which are evolving and moving forward into new industries.

Think of the world economy as a ladder. On the bottom rungs are the countries producing mainly textiles and other low-tech goods. Towards the top is the U.S. and other leading economies, which make sophisticated electronics, software, and pharmaceuticals. Up and down the middle rungs are all the other nations, manufacturing everything from steel to autos and memory chips.

Viewed in this way, economic development is simple; everyone tries to climb to the next rung. This works well if the top most countries can create new industries and products. Such invention allows older industries to be outsourced whilst fresh jobs are generated at home. The US has a distinct competitive advantage in innovation. If there's any country well-suited to find a new rung for the economic ladder, it's America; history has proved this to be the case time and time again.

As painful as the loss of manufacturing jobs in the US two decades ago was, strong economic growth and innovation created far more and better jobs to replace them. The textile sector once employed a large number of American workers, and the US car manufacturers once dominated the world. If the jobs that were lost in these sectors were protected through trade restrictions, there could be more textile and automobile workers in the US today, but there would be fewer jobs on the whole.

Today, the car industry is the largest in the world and two of the biggest automobile companies are American. The industry has the same number of professionals it did in 1994 as it did in 1974, which is 900,000. Over this same period sales and services in this sector grew 20% from 2 million to 2.4 million. Outsourcing gave this industry a competitive edge and opened up opportunities in terms of investing in new equipment and re-engineering processes. The US steel industry, however, resisted outsourcing and suffered greatly despite several tariffs and quotas.

The US has the biggest economy on earth, enabling America to make technological bets that would crush other nations. The US has by far the best-developed financial markets in the world, including venture capital and high-yield bond markets for financing new businesses.

Companies will thus always look towards outsourcing so that the lowest-cost structure option can be realized. Outsourcing work like writing computer code and software-application maintenance were considered complex and secure ways for aspiring Americans to make a living a decade ago. But now, its considered “rote work” and companies such as Microsoft Corp are outsourcing it to India. It means rote works which requires low skills are generally outsourced to India, which have low labor cost.

Ultimately, the US will get rid of such jobs by outsourcing and will gradually shift to more skillful and innovative works which are more productive and have the potential of making the economy more competitive and stronger. As the U.S. economy evolves, innovation will create new high-paying jobs.
Only time will tell where any new industry or sector will lie. What is not in doubt however is that innovation is key to galvanizing an economy. In 1994 Netscape sparked the boom of the internet, which gave rise to the creation of so many new industries and new jobs. Where the next innovate boom lies is yet unknown; pharmaceuticals, nuclear energy, nanotechnology? Thus outsourcing is in many respects just simple economics and an inevitable part of economic progression.