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Op-Ed: Outsourcing and the recession- Redesigning the US job market

By Paul Wallis     Feb 9, 2010 in Business
The comatose employment market in the US has reached an unholy benchmark. For the first time in history, the average period of unemployment is over 6 months. Where will the jobs that will restart the economy come from?
Outsourcing, the irritant which has been annoying the US public and workforce for decades, is seen as one of the primary causes of the current situation, with some reason.
There are two sides to this situation:
1. Outsourcing can provide products that generate jobs.
2. Outsourcing can remove jobs that create new products and generate demand within the US.
The second point is the real problem.
The economics of outsourcing is complex, but you can do some basic figuring if you translate it into a hard dollar equation. The real effect of outsourcing is ultimately measured in values.
For example:
The value of call center jobs outsourced to India is low, roughly wage value, and not much else. The value of manufacturing and IT jobs is high, because it represents a skills base, hard products and intellectual property values and creates significant domestic demand. It’s also the area where America became a world leader, and a main driver of the economy, the big financial generator. That generator is now coughing and spluttering along like an old car on a dirt track.
Call center jobs and their very small beer kind don’t relate to things like America’s massive patent and technology markets, the real national products which are big money earners. The US manufacturing industry, which is actually centered on engineering and industrial design as a commercial product base, not the 50s image of process workers, actually created the image of suburban life as we know it. It also created the demands that go with it.
It was the supply end which created the issues. The somewhat bogus theory of saving money on wages was too superficial. Cutting the size of disposable income in the US has never been a good idea. The US credit market is a testimony to a demand driven economy, and how far people are prepared to go to meet their demands.
So the result was that for saving some peanuts on labor, a diamond mine was lost in terms of domestic demand. It’s not like Main Street has ever been paved with gold, and that was a real body blow. The princely $8 something an hour minimum wage is a virtual indictment of ridiculous values.
A person generates $X revenue for the employer. The employer returns a percentage of that $X as wages. This is where outsourcing took hold, a simple minded book entry that looks good on paper. Cosmetic economics, because the real issue is $X, not the ridiculous amounts of small beans paid to workers.
Competition theory demands improved methods of earning $X, not paper shuffling exercises. The theory is that as the costs of production go down, prices go down on a competitive basis, and wage earners get real benefits, being able to buy more, generating demand.
Outsourcing, in this context, does the exact opposite, because it removes a method of buying products by taking away jobs. Prices have actually increased in real terms, while wages have staggered along carrying the load.
What’s significant about this is that the multi decade big boom economy which created the modern US was based on exactly the opposite premise to outsourcing. The employment market and the economy aren’t geared to handle a large drop in available money for products, and never have been. “Growth” has been the endless chorus of the corporate world and commerce for so long it’s almost a reflex.
But $X is now missing. It’s disappeared. The values are working against America. This is Subsistence America, and corporations, starved of buyers for products and credit simultaneously, don’t have the means to kick start themselves, although they're obviously trying. Worse, they’ve also lost some of the skills and expertise they need to do that. So growth, in any real terms, is going to have to work harder, just to get back to where it was originally.
Sadly, buzzwords have also become the alternative to results. “Work smart” has always been a set of fizzy bubbles on a concept people have never quite understood, and this is the prime example.
What’s so damn difficult about increasing $X by better methods, and paying proportionately? You’ve got a country full of people with double degrees, standing around doing about 1% of what they could be doing. Their productivity is nowhere near a shadow of what it could be.
You can cut costs as far as you like with intelligent, rational, contracting to Americans. They can do the jobs, if you let them manage their ends and cover their costs.
If you’re making $100,000 and paying someone $5,000 for the privilege, what the hell is stopping you making $1,000,000 and paying $50,000 to the same person, by rearranging the mix? You can both make much bigger money. You can also save a fortune by not being chained to an expensive, revenue-sucking office infrastructure.
Graduates and people who thanks to good historical timing can be more productive than any generation in history are now scrabbling around looking for the extremely unproductive jobs their grandparents had. A lifetime could be spent expensively moving paper around. These guys can generate a million bucks worth of product in a few days/seconds, if they get the chance.
Outsourcing, for all its ills, has created one of the big problem-solving exercises of the coming millennium; how to make business and people productive. The values are the key.
The jobless era in America can end the minute someone gets off their butt and revalues the job market as a commercial proposition. Job design is pitifully antiquated, barely acknowledges methods of creating commercial product, and definitely not productivity oriented. The values are skewed badly, and it’s costing everyone money and a future which is only a phone call to a productivity expert away.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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