US Exports and no outsourcing imports?

In the article, "A war on outsourcing by Congress would hurt US export?" it was examined how protectionist policies against outsourcing could lead to economic retaliation by foreign countries on US exports. In this article, we consider a scenario where the US implements protectionist policies against outsourcing but where US exports are not subject to protectionist policies from foreign countries, i.e. no foreign protectionist retaliation.US public opinion may hold such a scenario as ideal, but does outsourcing serve a greater purpose than simply making wealthy CEO's even wealthier?

Outsourcing is Prudence:
As in the words of Adam Smith; a pioneer of modern economics, "It is maxim of every prudent master of a  family never to attempt to make at home what it will cost him more to make than to buy." Even if the US implemented anti-outsourcing policies and did not fall victim to or escaped economic retaliation via foreign protectionist policies against US exports; is it wise to “make at home that which will cost less to buy?"

The answer is no. The negative impacts of protectionism against outsourcing stem further than just the possibility of foreign economic retaliation on US exports. Inefficiency is created when imports, (or the lack of them) do not reflect the true prices of supply and demand. In the case of outsourcing, inefficiency represents a lack of competitiveness.

Globalization is irreversible, in fact we have only witnessed the beginning. As advancements in technology, (in particular computer and internet technology) continue the world will inevitably continue to get smaller. Hence, US firms are at present and will continue to increasingly, compete on a more global and competitive market. The competition resides in both the domestic and international market. To out compete companies from Europe, Japan, China and India, the US must have access to the greatest talent at the lowest cost.  With Indian salaries a fraction of US salaries, an Indian software company will undoubtedly hold an advantage over a US software company, if the later does not outsource.

By not outsourcing, foreign companies will be in a more advantageous position than US companies. Ultimately this could jeopardize US dominance in both the domestic and international market. The emergence of the Indian and Chinese market represents considerable opportunity; it is essential America capitalizes on these two huge markets.  This opportunity can however only be materialized if US companies can compete internationally; outsourcing is fundamental to a company realizing its maximum productivity.

The benefits of outsourcing however also extend not only to business but also consumers. Outsourcing results in lower costs for consumer goods and services which results in a higher standard of living for US citizens. A consumer surplus is created as a result of outsourcing and this outweighs any advocated economic loss through job loss.

Additionally, the benefits gained from US domestic and international dominance, undoubtedly outweighs any “economic” loss incurred from outsourced jobs. This is particularly true when one considers that it is outsourcing which helps contribute to US dominance.

Furthermore, the actual “economic loss” incurred due to outsourcing, is also debated. It cannot be denied that those who actually lose their job to outsourcing are likely to  experience detriment in one form or another; whether due to relocation, time out of work, re-training etc… However, whether the US economy actually experiences any actual overall economic loss is in the initial place is debated.

The McKinsey Global Institute estimated that for every dollar spent on outsourcing to India, the US reaps between US$1.12 and US $1.14 in benefits. There are numerous factors behind such a conclusion. Outsourcing makes US firms more competitive. In turn this leads to greater exports, which in turn leads to increased revenue and dominance. A successful and profitable company is in a position to re-invest, expand, innovate and ultimately create new and more jobs in the US.

The converse is true for an "unsuccessful" company struggling to compete. Job terminations and not job creation is likely. It is possible that a company which does not outsource could potentially lose more jobs as a result of a lack of competitiveness, than were it to outsource jobs and be competitive.

It is paramount, US companies maintain their competitive edge over foreign companies. By not outsourcing it is difficult to envisage such an eventuality. If US companies are less effective than their foreign counterparts, we will lose out on market dominance which will result in vast US job loss. Outsourcing may lead to immediate jobs loss but will result in long term job gains.

Outsourcing is not just about a trade off,"give us access to your markets and we will give you access to ours." Outsourcing is more than a bargaining tool; outsourcing is beneficial in terms of increased effectiveness and it is this effectiveness that will enable US companies to dominate world markets and in turn create more US jobs.