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Guy Yedwab

It's A Small World After All

Shakespeare, in As You Like It, remarks, “O, how full of briers is this working-day world!”

Truly, economy is a complicated science with important and often annoying effects on the average

person. Thus it is with today's newly global economy, which has only recently entered a new

renaissance. After the dissolution of the Cold War, a short 'era of good feelings' reigned economically

as large blocks of previously Communist countries converted to Capitalism, and began to clamor to be

a part of the trade America shared with her allies. Even countries such as China, which continued under

the Communist system, began to look to the global capitalist market to try and understand or control

the newly emerging global forces. As the borders of the world freed, so too did the flow of money and

of goods. A Starbucks in the Forbidden City, a McDonalds at Auschwitz (“Welcome to Auschwitz, and

Welcome to McDonalds!” proclaims their sign), Levis in Red Square – it seemed that the international

marketplace had become one happy system (with a few quirks like Iraq, Libya, or Cuba). Soon,

however, tensions crept back into the economic system. In richer, more labor-protecting countries,

companies discovered that they were paying more for labor than their counterparts in poorer, less labor-

sensitive countries. And with increased ability to move goods and services became an increased ability

to contract labor and services outside of the country where the company was originally located. This

contracting or hiring of parts of the supply chain to foreign countries for either increased quality,

reduced hassle, or cheaper labor is known as “offshoring” (colloquially known as “outsourcing,”

although outsourcing means more generally any form of outside contracting).

Outsourcing is a many-edged sword—its effects vary with different segments of society.

Consequently, public opinion varies by industry, by age, by political affiliation, by religious inclination,

and by national heritage. Deciding how to react to globalization, and its major effect outsourcing,

requires first an understanding and weighing of the benefits and detriments of outsourcing. Tragically,

however, it is precisely what we do not have at our fingertips. Because of the nebulous nature of
outsourcing, it is difficult to determine its pragmatic effects.

Laborers in the United States, especially in manufacturing, have opposed outsourcing (and

consequently, globalization), because of the perceived image that outsourcing means jobs lost for the

American Worker. In theory, this is self-evident – if factories close in the United States and move

overseas, then the displaced workers are out of work. The reality is less certain. If factories close in the

United States, do other segments of the market provide more jobs (as many of the proponents of

outsourcing agree)? If Americans lose jobs to American jobs leaving the country, do they gain jobs

created by foreign countries entering the United States?, a federal website operated by the

Department of Commerce, states that foreign-controlled companies employ 561,000 workers in

California. The Organization For International Investment (OII), a special interest group supporting US

subsidiaries of foreign companies, states that 616,400 workers are employed by foreign companies –

5% of the workforce, having increased 32% over the last five years. Overall, OII estimates that 5.4

million workers are employed by foreign subsidiaries. However, note the discrepancy between the

government statistic and the OII statistic with reference to California: clearly, there are questions to be

raised at how to collect accurate statistics. In this debate, statistics are vitally important to

understanding the effects of globalization, but accurate statistics are exactly what we are denied.

Estimations of how many jobs are lost to outsourcing vary from 4,000 to 6,500,000. Clearly, 4,000 jobs

lost a year compared to 5,400,000 gained (as supporters of outsourcing declare) would indicate that the

free movement of jobs is not damaging our society. However, if 6,500,000 jobs are lost, and only

1,000,000 are gained (as opponents of outsourcing would indicate) then obviously Americans are

losing their jobs to overseas workers.

However, one accurate statistic which is currently compiled is the unemployment statistic

gathered by the Bureau of Labor Statistics. Assuming that outsourcing loses American jobs, then a slow

acceleration in unemployment would be visible sometime over the last fifteen years – most visibly

during the 1990s, when the surging tech-bubble led to many IT and other technologies companies
exporting their jobs to India. An analysis of these charts show that between 1945 and 2000, the rate of

unemployment has been growing at a mostly steady rate. After 2000, however, the unemployment picks

up slightly more rapidly. 2000, however, is auspicious because that is the year which the United States

entered its most recent recession—a more logical explanation than outsourcing as a source of job loss.

This is, of course, highly speculative, as is most of the debate surrounding outsourcing. Yet

in my mind, no clear argument has been put forward that the market as a whole is injured by allowing

companies to contract outside of the country. While some companies in textiles, manufacturing, and IT

have left for greener pastures, other companies such as Samsung, Vodafone, or Daimler-Chrysler (note:

the German buyout of an American company did not lead to the loss of American jobs in this example,

as was originally feared) have opened branches in the United States. The effect of allowing companies

to operate in foreign countries is as basic as gassing up at a Shell gas station rather than a Chevron.

Part of the problem with outsourcing is the sheer inability of the government to control it.

As yet, no effective trade barriers have been designed to end outsourcing without adversely affecting

trade otherwise. For instance, the highly protectionist Mexico was unable to sell its goods in the United

States until NAFTA opened up its borders. Mexico, a classic case of the problems of free trade, has had

a rocky time adjusting. The labor industry has boomed as American companies have moved their

factories to Mexico to create goods with lower labor costs. Conversely, the agriculture industry has

been destroyed due to competition with subsidized American goods. The overall effect for Mexico is

hard to gauge. This positive/negative relationship is similar to the positive/negative relationship

outsourcing and globalization has had in every country.

The United States, as the largest economic power in the world and a proponent of free

trade, cannot back away from globalization, and therefore ought not to oppose outsourcing. If workers

in foreign countries can compete with American workers and win, than it is not the fault of the foreign

countries but of our own country. The United States should compete with foreign workers in terms of

quality; Americans tend to have much higher levels of education, and therefore can handle many jobs
which cannot be exported to, say, Vietnam. This is not to say, however, that these economic effects

should simply be allowed to run their course. It is as equally flawed to say that the guiding hand of the

market will provide for all workers as it is to say that outsourcing will destroy the American labor

market. Most workers will adapt, change, and compete, as they do with people in other states and as

they do with people in other cities today. There will be some, and this may be a sizable some, who

cannot compete—just as many workers cannot compete for other reasons (without outsourcing, there

would still be unemployment). The role of government, while not to stifle the market, is still to protect

those for whom the market has failed to bring new opportunity and prosperity. The social safety net,

which has been poised beneath the worker in domestic trade, still exists as international trade shifts

jobs around. Some countries will have exceptionally rocky transitions into the world economy. These

countries should have a safety net provided by a higher economic ally – the IMF and the World Bank,

although currently causing more damage than benefit, might conceivably one day succeed in their roles

as protectors of the weak. Meanwhile, the human rights of workers within countries which often rock-

bottom cheap labor must still be defended—if not by the countries which supply them, then by a the

higher authority of the United Nations. Again, the current international body is woefully weak in

defending the rights of man, but one day it may rise with a more powerful mandate, and provide for all

the workers of the world the same defenses which the United States government provides to its workers

and farmers. As trade becomes increasingly more international, the social and political structures which

govern them must also become increasingly more international. The first organization to truly grasp

this was the European Union (né European Commission); which realized that the interests of Europe as

a whole were best decided by a larger super-national organization, instead of a disunion of the countries

which are now its member states.

As Thomas Friedman noted in his new book, the world is truly becoming flatter. Just as

city-states joined to become fiefdoms, and just as fiefdoms joined to become nations, so are now

nations joining to become trading blocs. And with this super-national trading, companies are losing
their nationalist flavor. Daimler, a German company, merged with Chrysler, an American company. Is

the company now a German or an American company? In reality, companies are decreasingly identified

by specific countries, as they trade in all of the countries of the world – and for their management, the

next logical step is that they should be able to operate in all the countries of the world. The side-effects

are as myriad as they are complicated, but in the end, rather than resisting this new wave of economic

action (as Marx tried to oppose the Market Revolution), countries ought to ensure that they protect the

weak without infringing on the strong.