Why is Outsourcing the Political Whipping Boy?

Filed in archive Outsourcing Issues on September 1, 2008

Underlying the angst over outsourcing shown by both the center-left and far-right factions of the US political spectrum is something greater that the concept of "sending jobs offshore." It is a deep-seated feeling that the "ownership society" - corporate management and shareholder groups - have used outsourcing and offshoring to further extract rents from the other stakeholder groups - generally represented by the center-left and far-right.

These groups make interesting bedfellows, no doubt. The center-left consists of union members, working class people, highly-educated intellectuals and communitarians, and military "doves." The far-right encompass social conservatives, military "hawks," fundamentalists (of all religious stripes) anti-immigration activists. Both of these groups see threats in outsourcing and H1B policies.

The center-right, on the other hand, can be characterized as an "ownership society" - where the creation of private wealth and shareholder value takes primacy - and freedom of action for large ownership entities is seen as a valuable goal.

This becomes a shareholder vs. stakeholder argument. Certainly, the shareholder argument is compelling to many. Success is measurable (the share value goes up) - and therefore easy to compare. However, stakeholder-rights groups look to more factors, like job creation, income distribution, community stability, etc. These factors are, however, difficult to quantify. In a world that is seemingly more and more run by accountants, relying upon non-quantifiable benefits can prove to be a challenge.

What does this all mean to the outsourcing community? In the short term, probably caution and concern. Harm to stakeholders is a compelling election-time argument. The bigger danger, however, may be in the long term - with either a McCain-Palin or Obama-biden administration.

McCain's appeal is a populist appeal - and his understanding of the economy is generally viewed as weak. A populist with little understanding of the economy is bound to lash out against a policy that looks bad to most folks. Add to that Palin's far-right background, and an "America First" campaign, and the future doesn't look bright for outsourcing under a McCain administration.

Obama also presents challenges to the outsourcing community. He has already said that he'll adjust tax policy to remove incentives for outsourcing. His support from minority communities and labor unions will, no doubt, further move him in that direction.

In either case, the outsourcing, and particularly offshoring, may be further lionized and constrained and long term - much like Japanese cars were lionized in Detroit in the early 1980's. Japan's answer - which proved for many reasons to be a wise and successful one - was to build cars in the U.S. In fact, many Toyotas and Hondas are built right here, while Chevrolets and Ford are designed and built abroad. In many ways, Toyota is more American than GM right now.

Outsourcers need to do more than sloganeer - the statements about how outsourcing "benefits" the US economy simply don't ring true over here. Taking a page from the Toyotas and Hondas of the world, they need to invest in the US economy by establishing meaningful presences and providing jobs here, too. Then, services could be distributed across the world in a best value rather than lowest cost manner - and much of the criticism could be deflected. Until then, expect a rocky road.

Articles of interest include a couple from the India Daily here and here, The Economic Times and ZeeNews, among others.