Offshoring by American Companies. Specifically

¶ … offshoring by American companies. Specifically it will discuss whether offshoring helps or hurts the American economy, and why. Offshoring hurts the American economy for any number of reasons. It replaces good paying jobs with low-paying offshore jobs that do not add to the American economy. It downsizes American workers, creating fewer opportunities for many different industries, and it creates sweatshop like working conditions for many manufacturing workers. It is a poor business practice and should be much more regulated to ensure that American companies do not exploit foreign workers in the name of saving money.

Offshoring, also known as outsourcing, has influenced the American economy since the 1990s, when it first became widespread. It has removed jobs from American workers, created economic woes in many industries, and has created sweatshop like working conditions in many manufacturing environments. It has gained more attention recently because many American consumers are unhappy dealing with outsourced service employees, and they have been complaining about the service quality to many companies. Many experts in the field believe not enough is being done to regulate the use of offshoring, and to help guarantee the rights of American workers. One expert notes, "Capital-owners and corporations seemed poised to reap large benefits from service trade; public policy needs to insure that U.S. workers are compensated for the extra risk they now bearing due to competition with workers all over the globe" (Bivens, 2006). Thus, many people believe the world economy has changed, and regulations need to keep pace. Regulations no longer simply affect American workers and American companies, and the implications of this global economy and the havoc it could wreak over time are tremendous.

This global economy aspect of offshoring has created difficulties for the U.S. economy, and that is the continued trend for corporations to do business globally, creating a global economy that can be affected by occurrences far from America's shores. That was seen recently when the Chinese stock and futures market affected the United States stock market, dropping prices a record margin over two or three days. Not all countries of the world share equally in globalization. For example, Africa and some parts of South America have not benefited much at all (Jones, 2005, p. 38). In addition, it can have harmful effects on the economy of even developed nations like the United States. One writer notes, "Others pointed to the downsides of globalization. Economic restructuring, liberalization and competition led to increased insecurity and impoverishment for some. Even in developed countries workers with few skills, and even skilled industrial and white-collar workers, faced uncertain futures" (Jones, 2005, p. 38). Workers laid off from high paying jobs in the United States have faced those uncertain futures, and many have been unable to recreate their lifestyles or incomes because of a lack of home-based opportunities in their fields of work.

One of the biggest problems with offshoring jobs to other countries is the negative affect it has on American workers. Many who lose their jobs due to offshoring are unable to find jobs in their field, and must settle for lower paying alternatives. This negatively affects every aspect of their lives, from lifestyle to the ability to actively participate in the U.S. economy. Their purchasing power goes down, and this in turn affects more businesses and industries. More and more workers are finding their jobs are vulnerable to offshoring, as well. One author notes, "Although workers in manufacturing industries have long been exposed to foreign competition, trends such as falling communication costs, the rise of Internet commerce, and other technological advances have made a much wider spectrum of jobs vulnerable to relocation across national borders" (Bivens, 2006). A study in 2004 showed that offshoring is becoming more prevalent, as well. Most companies cite Mexico and China as the two most common offshoring locations. Two authors note, "When work was moved out of the United States, Mexico and China were cited 52% of the time. When work was moved to another company under contractual arrangements, in nearly 4 out of l0 instances, the work was moved outside of the United States" (Brown & Siegel, 2005). That means that 25% of contract outsourcing is occurring out of the country, and those numbers continue to add up.

This dislocation of American workers has created a rebound in labor union interest, especially among high tech employees who routinely shunned labor unions when employment was at a peak and their jobs seemed secure. Many employees are angry about their displacement and find that fighting offshoring on their own is ineffectual. Another author writes of an engineer who was displaced by an engineer in India. The author notes, "He was earning $100,000 a year from a major government contractor. The engineer from India who replaced him did the same job for about $40,000 a year" (Ramstack, 2004, p. C10). This engineer joined a Communications Workers Union, but has been unable to find another job in over a year of trying. The author continues, "A survey from the Employment Law Alliance, a group of labor and employment lawyers, found that 37% of Americans said they would seek union representation if their jobs are threatened by 'offshoring' (Ramstack, 2004, p. C10). This has major implications for the U.S. economy for a number of reasons.

First, unions are notoriously pro-worker, and support the workers in obtaining higher salaries and benefits. Companies can save money and avoid union woes by sending jobs overseas. The Detroit carmakers, for example, have blamed high union wages and benefits for their current dismal sales record. Unions protect workers, but they also can add to the cost of doing business, which means prices of products and services can rise if companies hire more union workers. Thus, they can inflate prices and actually create the opportunity for more jobs to disappear overseas.

Another problem with offshoring, particularly in the service industries, is the customer service gap. Often clients phone a call center only to be routed to a foreign call center manned by non-English speakers. Consumers complain of language and accent problems, a lack of technical knowledge, and dissatisfaction with the customer service experience. However, there are other aspects of these service issues that can impact the economy and welfare of the United States. Some India offshore workers were recently caught stealing credit card and Social Security numbers of customers. Identity thefts such as this cost the financial community millions of dollars each year, and have raised the cost of banking services (for example, most banks now charge for checking no matter the balance, and they pay very low interest rates on regular savings accounts). Identity theft on a large scale has the implication of negatively affecting the economy as well as the peace of mind of consumers dealing with foreign companies. These issues are only beginning to come to the surface and it remains to be seen just how a major identity theft could affect the national and global economies.

Many people argue that outsourcing jobs and materials to other countries actually improves the American economy by creating cheaper products and services that more people can afford. However, many companies are not only outsourcing product production and customer service type functions offshore, they are outsourcing innovation and technologies as well, and that could eventually adversely affect the American economy. In similar situations in Europe and Asia in the 1950s and 60s, transferring technologies actually weakened the home country economy, and eventually led to a weakening of the transfer country economy as well, when rising wages created higher prices and trade surpluses in some of the transfer countries (Jones, 2005, p. 252-253). This potential for negative economic affect in the United States is very real, and with the recent downturn in the economy because of rising gas prices and less consumer confidence, the country could be seeing a beginning of that economic downturn.