Outsourcing — Let's Treat the Disease, Not the
Symptoms
It has become great public sport these days to bash
outsourcing as one of America's major problems. And
certainly, there is no denying that a number of jobs have
been shifted offshore from America to Asian and even to
European countries as corporations attempt to become more
efficient, raise productivity and compete with countries
that have much lower wages.
Harry Truman, when asked the difference between
recession and depression, once said "a recession is when
your neighbor is out of work; a depression is when you are
out of work." For those many tens of thousands of displaced
U.S. workers, it certainly seems like a depression out
there. It is more than understandable that they lash out
against the corporate CEOs who are shifting their jobs
offshore.
Economists fervently debate the advantages and
disadvantages of outsourcing to the American economy. I
will not throw myself in the middle of this fracas.
However, I am concerned that in our attempt to find a
scapegoat and a quick fix for outsourcing, Americans are
likely to be treating the symptoms of a disease rather than
the disease itself. Let me explain.
Over the past several decades, some subtle and some
not-so-subtle changes have occurred in our country that
have been gradually choking American companies and their
ability to compete. There are a myriad of factors at play,
more than there is room to discuss here. But I can outline
several key factors, and explore a few:
1. Structural barriers to long-term investment in
research and development
2. Dwindling numbers of U.S. students going into the
study of science and engineering disciplines
3. Increasing regulatory burdens
4. Excessively costly and unwarranted litigation
5. Lack of a coherent immigration policy to attract
highly skilled workers
6. Skyrocketing health insurance costs borne largely by
employers
Wall Street pressures corporations for quarterly
earnings performance to such an extent that many companies,
faced with the prospect of making an investment in R&D that
might pay off in three to 10 years but would impact their
short-term earnings, choose not to make that investment.
Bringing back the R&D tax credit and lengthening the
holding period for capital gains to five years or more (as
an incentive for investors to hold stock for the long term)
are just two simple ideas that would promote more R&D by
American companies.
The continuing decline in the number of U.S. college
students other than premeds studying science and
engineering contrasts sharply with most Asian countries,
where the top students typically go into high-tech
disciplines. In America, increasing numbers of students are
going to business school, or to law school. But when
corporations like Intel look for a place to locate a new
semiconductor plant, they find a site where they can hire
skilled technical talent. Increasingly, they are finding
that talent offshore. It's not so much the cost of the
labor force but the issue of its quality that is at
stake.
An over-regulated environment that tries to assure the
impossible — a zero risk society — goes
hand-in-glove with a tort system that is out of control.
Not simply malpractice but frivolous shareholder lawsuits,
for example, grind up resources in a most unproductive
fashion. Yes, we need to manage risk in our society, but
risk has to be managed with regard to the cost burden. In
many cases, like the accounting reform Sarbanes-Oxley Act
of 2002, the costs of compliance are tremendously high, but
many knowledgeable people are not convinced that the
regulations will successfully prevent the kinds of misdeeds
that occurred at Enron, WorldCom et al.
For decades, the United States has been winning the
global talent search by recruiting some of the top minds in
the world to study in our research universities. However,
we then make it exceedingly difficult for these people to
stay and work here when they graduate. Not only that, we
are now, post 9/11, making it harder and harder for foreign
students even to come to study in the first place. Yes, a
number of our foreign graduates go back to their home
country and perhaps compete with us, but not always by
their own choice. In many cases, we are victims of our own
devices. A more coherent and simplified immigration policy
could change much of that.
When you tally up how the U.S. compares with other
countries, we are significantly disadvantaged in many areas
that overshadow, in my view, the direct labor costs that
are so glibly being blamed for outsourcing. After the heat
of the elections subsides, I hope we can begin to look past
distressing symptoms to begin thinking seriously about
treating the underlying illness that is causing them.
William R. Brody is president
of The Johns Hopkins University.
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