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An Economic and Ethical Analysis of Offshoring: Intercountry Outsourcing of IT Employment

An Economic and Ethical Analysis of Offshoring: Intercountry Outsourcing of IT Employment
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Author(s): William H. Friedman (University of Central Arkansas, USA)
Copyright: 2005
Pages: 4
Source title: Managing Modern Organizations Through Information Technology
Source Editor(s): Mehdi Khosrow-Pour, D.B.A. (Information Resources Management Association, USA)
DOI: 10.4018/978-1-59140-822-2.ch127
ISBN13: 9781616921293
EISBN13: 9781466665354


The accepted notion that companies should seek to lower costs in the pursuit of higher profits has never generated more opposition than when the cost reduction involved offshore outsourcing of highly paid IT and other service industry jobs. Just when the furor over intercountry manufacturing and free trade has subsided a bit, a new cry has arisen over a more recent trend of offshoring service and knowledge intensive jobs. Perhaps the extent of the publicity given to the complaining is as much due to the nature of the victims as to the political ramifications of this trend: “As long as the American jobs going offshore were blue-collar jobs, the political issue did not attain the heat it has now that white-collar job losses frighten a more articulate, assertive social class.” (Will, 2004) In fact, “Forrester Research estimates that 3.3 million American whitecollar jobs will leave the U.S. by 2015.” (Tapper, 2004) Clearly, the United States will be not the only nation to feel the brunt of outsourcing; any country with a strong service economy will also feel the effects of this development. President Bush’s chief economic adviser, a highly respected economist, N. Gregory Mankiw, entered the controversy by remarking: “It’s something that we should realize is probably a plus for the economy in the long run …. Outsourcing [is] just a new way of doing international trade.” Mankiw went on to say: “We’re very used to goods being produced abroad and being shipped here on ships or planes; what we’re not used to is services being produced abroad and being sent here over the Internet or telephone wires…. But does it matter from an economic standpoint whether values of items produced abroad come on planes and ships or over fiber-optic cables? Well, no, the economics is basically the same.” (Tapper, 2004) An executive at Goldman Sachs Asia, Ken Courtis, further endorsed the idea that offshoring jobs makes good economic sense: “We pay hundreds of thousands of dollars a year to hire a good engineer…. You can hire 10 engineers for that price in India. And much of their work can be transferred back and forth over the Internet.” Thus the very telecommunications networks built by American engineers are now being used to make these same engineers obsolete. Moreover, they are urged to feel okay about offshoring. According to George Will: “for the highly competent workforce of this wealthy nation, the loss of jobs is not a zero-sum game, it is trading up in social rewards.” (2004). Now a zero-sum game is an encounter in which a gain by one party or side generates a loss by another party or side. So Will evidently believes that at least everybody who is competent is a winner in the offshoring game—a conclusion that certainly invites further investigation. The term game implies “a conflict involving gains and losses between two or more opponents who follow formal rules.” (Weisstein, 2004) The invocation of game theoretic terms is particularly inappropriate (unless we grant poetic license), since offshoring is not a game in this technical sense: there are no formal rules, hence no “players” who follow definite rules. One also needs to specify who all the players are. On the one side we have companies, foreign workers, and perhaps worldwide customers; on the other side we have displaced domestic workers. Nor is offshoring a non-zero sum game (by the definition given earlier) even if we permit the metaphor of “game,” because the players do not make payments only to each other and the total amount of money is not constant. The social rewards mentioned by Will can only be construed as lower prices, but the lower prices achieved by offshoring are not guaranteed for goods normally purchased by the workers displaced by their company’s offshoring. Even if the lower prices did benefit the displaced workers, would their diminished income be a fair trade-off?

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