Global American Expediting

Who Benefits from Outsourcing?

by Albino Barrera

Albino Barrera, 0. P. teaches economics and theology at Providence College m Providence, Rhode Island, and is the author of Modern Catholic Social Documents and Political Economy (Georgetown University Press).

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How does one morally evaluate this complex situation? Since international trade by its nature entails shifting resources for comparative advantage, the phenomenon of international outsourcing is not really new. The U.S. imports goods that would have cost more to produce domestically, and it manufactures and sells to other countries commodities that would have been more expensive for them to supply themselves. It is a win-win situation for nations, providing gains in consumption, production and exchange.

Cheaper imports mean that incomes can be stretched to buy more goods and services. Trade increases real income because it improves people’s purchasing power. It also brings gains in production, since it allows countries to manufacture only those commodities that provide them the best possible earnings.

Yet assertions about the advantages of international trade (and, by extension, international outsourcing) must be heavily qualified. They refer only to overall gains and do not acknowledge how benefits are disbursed. One error in economic reasoning is the fallacy of division: the assumption that what is good for the whole is necessarily good for its individual parts. Not everybody gains from trade. The benefits of international trade come at the price of creating an economic life in constant flux and even disequilibrium.

Outsourcing has gained notoriety in recent months because of the accelerating volume of job transfers overseas and the sudden vulnerability of high-tech and service occupations that were once thought immune to trade displacement. Services that used to be nontradable (back-office operations, call centers, data management and accounting sectors) have now been made fully tradable because of advances in communications and computational technologies. Location is increasingly insignificant in the provision of these services. Moreover, the ready availability of large pools of technically capable and computer-savvy workers overseas has eroded what traditionally had been considered the distinct preserve of the U.S. and other developed countries: sophisticated, high-end technologies.

According to the standards of procedural justice, which calls for treating similar cases in a similar fashion, nations should not be selective in implementing trade rules but should simply let mutually agreed-upon processes and procedures run their course. Since World War II, developed countries, especially the U.S., have championed trade liberalization, having learned from the ill effects of trade protectionism during the interwar years. The spectacular economic growth in the second half of the 20th century reflects the enormous benefits reaped from the free trade of goods and services. The Asian Tigers (South Korea, Taiwan, Hong Kong and Singapore) and Japan became economic powerhouses. China owes its current economic boom to the open Western markets for its products and services.

In assessing mutual advantage in economic exchange, second-order effects should also be considered. U.S. consumers benefit from outsourcing through their gains in consumption. Moreover, a leaner cost structure makes U.S. producers more competitive in global markets, which should create more jobs. Blocking outsourcing thus imposes hidden costs ("taxes" on other Americans.

Who should bear these unavoidable and significant costs? A laissez-faire approach to outsourcing simply leaves people to fend for themselves. Justice as mutual advantage requires a transfer of resources and assistance between beneficiaries and losers in market exchange. Relief cannot be limited to unemployment payments, food stamps or other stopgap measures, but must be substantive and geared toward reintegrating displaced workers back into the economy. This can take many forms, such as the provision of trade adjustment assistance grants, retraining, tuition assistance, extended health care benefits and career counseling.