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logo    Offshoring-Boon or Bane?


Neither I nor anyone else knows what the long-term consequences of offshoring will be. Predictions about the future are notoriously unreliable. Although it is true that past offshoring has been a boon, the past is an unreliable guide to the future. There are some things, however, that we do know.

In order for offshoring to be a boon, other economic activities must come along that make up for the reduction in employment that off-shoring produces; otherwise, the economy will ultimately collapse.

Our economy is consumer driven. The extent of this drive has been measured to be between 60 and 80 percent. In order to maintain this level of consumption, consumers must have adequate incomes. So if either the level of employment or wage-levels decrease, consumption will also decrease. Corporate profits depend in large measure on sales, and returns on investments in the market in some sense depend upon corporate profits. So a decline in consumption entails an overall decline in the economy as a whole. Furthermore, it is difficult to determine what kinds of new economic activity can arise to offset these conditions.

Offshoring manufacturing has already proven itself to be workable. Now services are being offshored.

There is no reason why all manufacturing can't be off-shored. In today's world of mechanized production, any product can be made anywhere. So we cannot expect new manufacturing activities to come along to make up for the reduction in employment, except, perhaps temporarily. Any that do will also be offshored the moment it becomes economical.

This leaves only services, unless someone can think of some form of economic activity that is neither a service or a product. And services do fall into two distinct categoriesthose that can be performed from a distance and those that can only be performed in place.

Look at some examples:

Any service that can be performed by means of a communication's medium can, just like manufacturing, be done anywhere, and those are the kinds of services that are currently being offshoredsoftware development (which is really a form of manufacturing), call centers, help desks, auditing, evaluating things that can be easily transported electronically, etc.

The services that can only be performed in place may be categorized as people serviceshealth care, home construction and repair, selling and sales clerking, teaching, transportation, vehicle repair, etc.

Upon inspection, something important about these two different kinds of services emerges. Those in the first group have generally paid employees higher wages than those in the second, because carrying out the services in the first group requires levels of education generally higher than carrying out those in the second group.

That is worrisome, for if wage levels fall, and the number of employed people doesn't expand enough to make up for that fall in wage levels, the economy shrinks. And as the economy goes, so goes the nation. If the level of education needed in order to find work falls, our college and university system falters. As it falters, our ability to engage in scientific discovery and technological advancements falters. The brain influx that we have imported from abroad over the past several decades will be reversed. We will see highly intelligent, educated Americans emigrating. In short, some other nation will displace us from our preeminent position in the world, and we will have helped it.

All Americans, but especially America's business leaders, need to think about this. Is this the future you envision for our nation? (3/7/2005)