Outsourcing and Offshoring

Foreign outsourcing--or offshoring--has become the target of choice for protectionists. The critics claim offshoring is sending jobs to foreigners at the expense of American workers. Offshoring, they say, is the product of "Benedict Arnold CEOs," who put their bonus checks before the welfare of the country.

This is simply not the case. Offshoring is a trend that has been taking place for decades now in the manufacturing sector, and it has resulted in better, more productive jobs for Americans. Today's uproar comes from concerns that offshoring is now costing white-collar jobs. In fact, the percentage of white collar jobs affected by overseas outsourcing is small, and the overall outcome beneficial to America.

Look at just one example: The offshoring of computer-related manufacturing jobs has accounted for 10% to 30% of the drop in hardware prices. The resulting increase in productivity encouraged the rapid spread of computer use and thereby added some $230 billion in cumulative additional GDP between 1995 and 2002.

Further, the fact that the rest of the world also outsources their services to the U.S.--i.e. "insourcing"--is a consequence of the global economy too often overlooked by critics. For instance, American companies sell 3 times more IT services to the rest of the world--more than $10 billion worth--than they buy. If politicians declare war on outsourcing, U.S. producers and workers will suffer the most.