Overseas Counterparts? Compare and Contrast

¶ … overseas counterparts? Compare and contrast differencs between countries or cultures and the resulting effects on GDP

Given the sluggish pace of job growth in America, outsourcing domestic jobs to foreign nations has become a contentious issue within the American political discourse. America has always stressed the importance of free trade, more so than its European or Asiatic counterparts in the developed world. However, given the effects on real domestic productivity that have been generated by the stratospheric increase in outsourcing since 2003, America may need to rethink its attitude towards protectionism.

Even before the precipitous economic downturn of 2008, Michael Mandel and Pete Engardio's June 18, 2007 BusinessWeek article "The real cost of offshoring" noted that the growth of domestic manufacturing in America had been substantially overstated by the Bureau of Labor Statistics (BLS) and that real wage growth for the average American employee had been sluggish. "Import price data reveals offshoring to low-cost countries is in fact creating 'phantom GDP' -- reported gains in GDP that don't correspond to any actual domestic production. In fact, holding down costs by moving key tasks overseas could be having a greater impact on corporate earnings than anyone guessed -- or measured."

Mandel and Engardio's article is not alarmist: their primary objection is that GDP is not calculated in an accurate fashion, and thus provides poor guidance for policymakers. "Phantom GDP can be created by the introduction of innovative new imported products or by the offshoring of research and development, design, and services."

But the article highlights the problematic fact that offshoring is no longer about using lower-skilled, lower-paid workers to do jobs at a cheaper price than can be garnered in America. Now, in many nations, there are skilled, trained workers willing to work for less money, resulting in a fundamental shift of crucial business operations overseas. Shifting R&D overseas means that American workers are not getting the benefits of working on cutting-edge technology. Offshoring skyrocketed post-2003, and China and India's labor source has made substantial encroachments in the high-tech industry via American corporations' decision to outsource more labor.

There is little question that offshoring produces short-term gains for manufacturers. Offshoring to China can result in 30% to 40% cost reductions. But consumers do not always reap the benefits of low labor costs. "The furniture industry's experience is particularly telling. Despite the surge of low-priced chairs, tables, and similar products from China, the BLS is reporting that the import price of furniture has actually risen 6.7% since 2003."

Mandel and Endgardio's article is an implied critique of the way that the United States values its domestic industries and the culture of free reign capitalism in the U.S. Even free trade zones such as the European Community have instated certain protections for historically important industries and goods (such as agriculture) and Japan was notoriously protectionist while successfully building up its automotive industry. It could be argued that intellectual capital for the United States should be treated like a treasured resource and not casually outsourced.