More outsourcing, please!

— The quality of public debate deteriorates in tandem with the knowledge base and critical reasoning skills of our citizenry. This is especially obvious when it comes to something that ignorant people are especially ignorant about, which is economics.

Evidence on behalf of that claim is the current silliness about “outsourcing.” President Barack Obama says that Mitt Romney outsourced jobs while head of Bain Capital. Romney denies it and accuses Obama of being “outsourcer-in-chief.”

Such embarrassing exchanges suggest a growing public imbecility linked to a dumbed-down public education system. Why? Because, as any credible economist knows, there is nothing wrong with outsourcing whatsoever; to the contrary, it is both beneficial and even necessary in a global marketplace.

Companies “outsource” services and parts of their production processes for the same reason they do other things, which is to remain competitive and thus remain in business. Outsourcing “works” for businesses because it allows them to cut costs, and when they cut costs, they can increase profits, provide their products at lower prices to consumers (that’s us, by the way), and over time hire more workers to better jobs with better pay.

Along these lines, in one of the more authoritative of the many studies demonstrating these effects, Dartmouth economist Matthew Slaughter analyzed the hiring practices of 2,500 U.S.-based multinational corporations over a 10-year period. When doing so he found that for every job that was outsourced, nearly two were created at home by those same firms as they earned profits and expanded their operations. Of equal importance, the jobs created were better-paying and more desirable than those outsourced.

Outsourcing is, in other words, about economic efficiency. Companies that don’t do it are more likely to go out of business because they become less competitive in highly competitive global markets, an outcome which obviously produces more job loss, declining living standards and fewer consumer choices at higher prices. Which means the only alternative to outsourcing low-value jobs abroad in a global marketplace is the loss of more and better jobs here at home.

Criticizing outsourcing is therefore much like criticizing economic efficiency itself, and carries with it the absurd assumption that a less efficient American economy can still somehow be a more competitive and prosperous one; that we can get more jobs and higher economic growth if American companies don’t take advantage of the law of comparative advantage and do what makes economic sense for them to do.

It is precisely because we live in an age when nation-state borders are increasingly cartographic illusions, porous lines on a map across which products, services and investment capital freely and beneficially move, that we also live in an age of global labor markets. We can no more prevent outsourcing of labor than we can the exportation and importation of other goods. Nor, for the sake of longtime prosperity, should we want to.

How utterly absurd, then, that in the world’s leading capitalist nation, which not coincidentally is also the most prosperous nation in history, we should be witnessing a presidential campaign debate in which the participants (and the broader media scoring the contest) behave as if they slept through their Econ 101 classes. That much of our media and many of our political elites don’t have the faintest clue about what the capitalist economy that has produced our prosperity consists of and how it works is becoming painfully obvious.

Capitalism is, as Joseph Schumpeter long ago argued, a form of “creative destruction” in which jobs are created and lost and companies are born and die. It obeys a logic that can’t be denied, only resisted at great cost. Allowing it to operate by that logic is thus the key to capitalism’s ability to create wealth, spur innovation, and raise living standards. We can’t, in other words, pick and choose, in the sense that we can’t accept and benefit from some parts of capitalism (the job- and wealth-creation part) while rejecting the other parts (the dying businesses and job-loss parts).

Within this context, capitalism is, to paraphrase Winston Churchill, the worst kind of economic system, except for all the others. It is also the only system that, throughout history, has proven capable of lifting masses of ordinary people out of poverty and making long-term economic progress possible. The oblivious folks who use terms like “vulture capitalism” and “greed” while tweeting on their iPhones and chatting on Facebook only serve to prove that our “global village” has now produced a new kind of village idiot.

In the end, the most distressing part of the outsourcing debate is not just the ignorance of basic economics, and the ways in which it has encouraged moldy Marxist assumptions to seep back into our public discourse, but the way it raises suspicions that we have become little more than a nation of dummies, incapable of understanding the principles upon which our country was founded and which produced its prosperity.

And a nation of dummies can’t even understand its problems, let alone take steps to solve them.

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Freelance columnist Bradley R. Gitz, who lives and teaches in Batesville, received his Ph.D. in political science from the University of Illinois.

Editorial, Pages 11 on 07/23/2012

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