Outsourcing and Innovation is the Biggest Reason behind the Growth of US Economy

Why US Economy is at the Top?

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

If the world economy is one big ladder, on the lower steps of it are countries the mainly produce textiles and other low-end products. The top steps of this ladder are occupied by the US and other strong economies that produces high-end goods and services like software, pharmaceuticals, electronics and aeronautical equipment etc. In the middle of the top and the bottom stairs are the countries producing things like memory chips, automobiles, steel etc. In this way, one can understand the way the world economy works. Every nation tries to climb up the economic ladder. However, this processes cannot cannot sustain itself unless the countries at the top do not create new avenues for themselves. By creating new industries and products the top countries give the much wanted space to nations down the economic ladder.

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.

As of today, this is the largest automobile industry in the world. America is also home to the world's top two automobile companies. The American automobile employed 90,000 professionals in 1974 and this number was the same in 1994 as well. In this period of 20 years, the sales and services sector grew from 2 million to 2.4 million, which is a growth of 20%. However, this industry embraced outsourcing which not only gave it an edge over competition, but also opened new opportunities of it. As a result the industry was able to invest in new equipment and re-engineering processes. The US steel industry on the other hand refused the benefits of outsourcing and consequently suffered losses in spite of the support of 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.